Want to BRRRR first property local - Bay Area possible?

Question

Hey y'all. Very noob guy here.I bought my first home to live in when the pandemic first started, and now I'm looking to get my feet wet by BRRRR-ing my first rental property.As you know, the Bay Area is insane when it comes to prices even for a home at 75% of its ARV. Does anyone have any stories on how far they have gone for their first rental property? I am thinking 1 - 2 hours away which is pretty much Modest, Merced, Sacramento, and some other places. Or... should I start looking farther? Like Bakersfield or even farther north past Sac?Not exactly sure how to find a location for my first BRRRR.

Dan H. · Answer

I do not underneath this sentiment. Material costs are about the same everywhere. Labor may be more expensive in the bay area than other areas, but not compared to the RE price compared to other areas. This implies that the value added compared to cost in he Bay Area should be outstanding.

A successful BRRRR should trap little to no money in the RE. This implies that a successful BRRRR in the bay area could result in owning a high value asset for little to no money.

The San Diego market (my market) is expensive, but relatively cheap compared to the Bay Area.  We have done almost exclusively value add purchases and typically extract all of our investment.

It is my view the Bay Area is likely a good/great location to do BRRRR for those investors that know how to perform a successful BRRRR

Good luck

Andrew Pagan · Answer

@Matt Loeffler Thank you so much with the great insight. I have heard that cash flow is hard to find right now. Definitely seems like a time people are being more careful, but with that... it might be time to get in? All it takes is 1 or 2 constant periods of lowering interest rates to get everyone back in.I will definitely keep holding some cash and monitoring everything. Thank you again so much I really appreciate it.

Matt Loeffler · Answer

Hi @Andrew Pagan,

I'm a realtor, investor, and contractor in the Sacramento area and am active with flips and BRRRs. When you go to refinance the property, the max a lender will give you on a cash-out refi is 80% of the ARV. Even with prices coming down recently, it's still almost impossible to get all of your money out of a BRRR in this area. Cash flow is even harder with the rising interest rates. If you're ok leaving some money in it after the refi then you can probably find something that will give a cash on cash return of 12-15% or better which is pretty good. I've been looking at multi-family properties lately for the higher income but it's still hard to make numbers pencil. You can probably find better numbers in more remote towns but the rental demand may not be as good. Honestly, if I were you, I'd wait a year and see where the market is at that point, you'll probably find better deals then. With prices falling and interest rates rising, BRRR will be very risky if you're just starting out. Feel free to message me, happy to chat more.

Matt

Darius Ogloza · Answer

@Andrew Pagan Why not BRRR the home you just bought to live in?  Turning your home into a rental when you are ready to move presents a classic investment opportunity.  Twenty-five years ago, my wife and I bought our first home in Marin for mid-$400K.  Today, the place is worth about $2M (even assuming pandemic pricing is a thing of the past) and gushes $50K+/year in free cash as a rental.  Where else are you going to find such opportunities?

Darius Ogloza · Answer

@Andrew Pagan Yeah, in the case of a condo, there may be a couple of wrinkles.  Does the HOA permit rentals? How does the HOA fee affect likely cash flow, etc.  However, assuming the CCR's allow it and the numbers work, breaking into the real estate investment world by renting out the home you live in is simple and mostly pain free.  While you live there, you will be paying down the mortgage, thereby reducing your carrying costs after you turn the property into a rental.  Making improvements with an eye toward maximizing future rents is a good way to proceed.   As in all investments, it's about crunching some numbers.  Good luck.

Ranjit Sandhu · Answer

@Andrew Pagan Please let me know if you need help in Sacramento area. I'm a broker in Rocklin and assist buyers all the time.

Ruchit Patel · Answer

Just my two cents:

I have understood that only experienced and big players are able to do BRRRR in the bay area anymore.

Now there is a trend of investing out of state for bay area investors.

Mitch Larrivee · Answer

100% agree with this! The process is the same, just at a higher price point. It might be harder to save up for the $ down plus a little cushion.

Another advantage is equity building. Would you rather have 10% equity growth on $100k or $1M?

Gregory Sabers · Answer

Hey @Andrew Pagan, We are a local mortgage brokerage in Roseville, but work with clients throughout CA. Please reach out when you get a chance and I can get you a second opinion on your financing strategy! I'm happy to help anytime.

Want to BRRRR first property local - Bay Area possible?

Most Popular Reply