3 homes in Knoxville or 1 in the bay area?

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3 homes in Knoxville or 1 in the bay area?

Arpit Guglani
Investor · Bay Area, CA · Member since 2022 · 20 posts · 3 votes

Hello,

this forum has been an amazing fountain of information. I am a real estate newbie and have just purchased my first home to live in, here in Knoxville. I was wondering if you folk had advice on this situation:

I live in Knoxville and will likely be here for atleast a year or two. I will then move back to the SF Bay area to settle down, raise a family etc.

I have $300k saved for RE investment. 

Option 1: use it for a 20% down payment on a bay area home right now. Buy it as investment property and rent it out. We will have a negative cash flow of about $4k until we actually move in. 

Option 2: I am wondering however whether it would make more sense to deploy that here in purchasing three 400k homes in West Knoxville and renting them out. The rent will largely cover the mortgage. 

Option #2 would mean however that I would have to wait for an additional year or two after I move back to California to again save up a similar amount and I have FOMO about how much prices would have risen there. Having multiple houses in Knoxville would however create solid assets for retirement without negative cash flow and be less risky eg. If one property is vacant or I have tenant issues I can cover it financially easily.

Would your thoughts on this or if there is another more lucrative option I am overlooking. 

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V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
3y

If you're open to California laws/policy risk, then Bay Area. 

1Reply
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  • Osazee Edebiri
    Realtor · San Jose, CA · Member since 2015 · 318 posts · 154 votes
    3y
    Quote from @Arpit Guglani:

    Hello,

    this forum has been an amazing fountain of information. I am a real estate newbie and have just purchased my first home to live in, here in Knoxville. I was wondering if you folk had advice on this situation:

    I live in Knoxville and will likely be here for atleast a year or two. I will then move back to the SF Bay area to settle down, raise a family etc.

    I have $300k saved for RE investment. 

    Option 1: use it for a 20% down payment on a bay area home right now. Buy it as investment property and rent it out. We will have a negative cash flow of about $4k until we actually move in. 

    Option 2: I am wondering however whether it would make more sense to deploy that here in purchasing three 400k homes in West Knoxville and renting them out. The rent will largely cover the mortgage. 

    Option #2 would mean however that I would have to wait for an additional year or two after I move back to California to again save up a similar amount and I have FOMO about how much prices would have risen there. Having multiple houses in Knoxville would however create solid assets for retirement without negative cash flow and be less risky eg. If one property is vacant or I have tenant issues I can cover it financially easily.

    Would your thoughts on this or if there is another more lucrative option I am overlooking. 


     Hey Arpit, 

    Great question, If you were flexible and didn't care how long you have to wait to get a home here in the Bay Area,  I would say buy those properties in Knoxville first. However, it is highly likely it will be harder to get a home here in the Bay, especially in two years. 

    While technically you can get a home Owner Occupied with only 3.5%, 20% down makes your offer more competitive. All lot people don't necessary talk about this , but you should hear some of the things the Listing Agent side says. Like "They only had 60% down". 

    Here's a couple of things to take into account.  33% of all homes in California are owned without a loan and numerous people can buy house all cash. 

    So I can and will be able to get a person a house with only 3.5%, but they will likely need to go through a few offers and they will not have the option to compete on ever house. Therefore the more downpayment you have the easier it will be for you to win offers. 

    Also, I will assume the overall cost increase as a percentage to buy a Bay Area home than a property in Knoxville will be higher in 2 years. So it makes sense to buy the home in the Bay Area first. 

    If you purchase the Bay Area home first, you will be able to save money for a down payment on a Knoxville property faster as well, so I believe your scaling will be faster in that direction as well.

    Assuming you have $4k of negative cash-flow, you will have to pay that same amount or higher in rent for one to tow years when you come back as well. so that really a wash. But remember you will also get tax benefits from owning the primary home that you can subtract from that $4k, you won't get any benefits from renting.

    Hope this helps. 



    0Reply
  • Keira Hamilton
    San Diego, CA · Member since 2023 · 58 posts · 77 votes
    3y

    Hey Arpit! Interesting scenario to consider. A few thoughts I have: Losing $4k a month feels pretty high, especially if you wouldn't be moving back for a couple more years. That could be almost $100k that you could have saved for your next investment. Of course, you'd be building equity in a property during that time, so it's just a matter of how important liquidity is to you right now. Can you afford the $4k a month? Would you be able to afford potential vacancies at the California property? Considering that you're currently out of state you would also need to consider finding a good management company who would be able to find strong tenants and keep it occupied.

    I understand the FOMO. Prices are down here in the Bay, but it's hard to tell how long that will last. At the same time, it seems like Option 2 would allow you to build up more capital over the next couple years while also building equity in the Knoxville properties. I would lean towards Option 2 personally.

    0Reply
  • Hamp Lee IIIPro Member
    Real Estate Agent · San Antonio, TX · Member since 2019 · 1k+ posts · 832 votes
    3y

    Option 2 unless you want to return to the Bay Area sooner. If that’s the case, go with Option 3:

    Wait to return to the Bay Area and invest then. You could always reach back to Knoxville once you’re settled.

    This is a great “problem” to have. 😉

    I wish you all the best. 

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    3y

    If you buy in Knoxville and keep rentals-what is your plan when you move?  Will you have a PM manage them?  When you leave, will you sell your current home?  I'd buy a house in Knoxville.  See how you like having a rental home and then either buy a second in Jan 2024 (prices are usually lower in winter) or save for your CA home.

    0Reply
  • Arpit Guglani
    OP
    Investor · Bay Area, CA · Member since 2022 · 20 posts · 3 votes
    3y
    Quote from @Keira Hamilton:

    Hey Arpit! Interesting scenario to consider. A few thoughts I have: Losing $4k a month feels pretty high, especially if you wouldn't be moving back for a couple more years. That could be almost $100k that you could have saved for your next investment. Of course, you'd be building equity in a property during that time, so it's just a matter of how important liquidity is to you right now. Can you afford the $4k a month? Would you be able to afford potential vacancies at the California property? Considering that you're currently out of state you would also need to consider finding a good management company who would be able to find strong tenants and keep it occupied.

    I understand the FOMO. Prices are down here in the Bay, but it's hard to tell how long that will last. At the same time, it seems like Option 2 would allow you to build up more capital over the next couple years while also building equity in the Knoxville properties. I would lean towards Option 2 personally.


     Thanks Keira!

    the plan is to move back in 1 or max 2 years from now. $4k a month is affordable right now and vacancy would be painful and would require digging into reserves. Yes I would need property management on top of it. I was also wondering if I could make the situation better by converting a garage into an ADU and de-risk that way.

    Its true that I would accumulate capital faster by buying in Knoxville, since the mortgage would cover the rent.  I project I can comfortably save about $100k'yr for RE investment in that scenario. My concern is that the homes I'm seeing going now for $1.3M in areas as diverse as Alum Rock to Cambrian Park will be going for $1.6M- $1.9M in two- years time. Perhaps this is just trauma from having lived the past two years!

    0Reply
  • Arpit Guglani
    OP
    Investor · Bay Area, CA · Member since 2022 · 20 posts · 3 votes
    3y
    Quote from @Theresa Harris:

    If you buy in Knoxville and keep rentals-what is your plan when you move?  Will you have a PM manage them?  When you leave, will you sell your current home?  I'd buy a house in Knoxville.  See how you like having a rental home and then either buy a second in Jan 2024 (prices are usually lower in winter) or save for your CA home.


     I'll rent out the homes in Knoxville when I move and have a PM manage them. I want to hold for the long term. Ideally refinance to a 15yr mortgage when rates dip more and own free and clear and use for retirement cashflow in 15 years.

    0Reply
  • Arpit Guglani
    OP
    Investor · Bay Area, CA · Member since 2022 · 20 posts · 3 votes
    3y
    Quote from @Hamp Lee III:

    Option 2 unless you want to return to the Bay Area sooner. If that’s the case, go with Option 3:

    Wait to return to the Bay Area and invest then. You could always reach back to Knoxville once you’re settled.

    This is a great “problem” to have. 😉

    I wish you all the best. 


     Agreed - its a fortunate position to be in :)

    That's the quandry - do I take advantage of the dip in bay area prices and buy an SFH there as an investor right now, or hope prices wont rise too much in 2 years when I move there. The nightmare situation is to see all these borderline affordable $1.3m homes become unaffordable $1.7m homes

    0Reply
  • Arpit Guglani
    OP
    Investor · Bay Area, CA · Member since 2022 · 20 posts · 3 votes
    3y
    Quote from @Osazee Edebiri:
    Quote from @Arpit Guglani:

    Hello,

    this forum has been an amazing fountain of information. I am a real estate newbie and have just purchased my first home to live in, here in Knoxville. I was wondering if you folk had advice on this situation:

    I live in Knoxville and will likely be here for atleast a year or two. I will then move back to the SF Bay area to settle down, raise a family etc.

    I have $300k saved for RE investment. 

    Option 1: use it for a 20% down payment on a bay area home right now. Buy it as investment property and rent it out. We will have a negative cash flow of about $4k until we actually move in. 

    Option 2: I am wondering however whether it would make more sense to deploy that here in purchasing three 400k homes in West Knoxville and renting them out. The rent will largely cover the mortgage. 

    Option #2 would mean however that I would have to wait for an additional year or two after I move back to California to again save up a similar amount and I have FOMO about how much prices would have risen there. Having multiple houses in Knoxville would however create solid assets for retirement without negative cash flow and be less risky eg. If one property is vacant or I have tenant issues I can cover it financially easily.

    Would your thoughts on this or if there is another more lucrative option I am overlooking. 


     Hey Arpit, 

    Great question, If you were flexible and didn't care how long you have to wait to get a home here in the Bay Area,  I would say buy those properties in Knoxville first. However, it is highly likely it will be harder to get a home here in the Bay, especially in two years. 

    While technically you can get a home Owner Occupied with only 3.5%, 20% down makes your offer more competitive. All lot people don't necessary talk about this , but you should hear some of the things the Listing Agent side says. Like "They only had 60% down". 

    Here's a couple of things to take into account.  33% of all homes in California are owned without a loan and numerous people can buy house all cash. 

    So I can and will be able to get a person a house with only 3.5%, but they will likely need to go through a few offers and they will not have the option to compete on ever house. Therefore the more downpayment you have the easier it will be for you to win offers. 

    Also, I will assume the overall cost increase as a percentage to buy a Bay Area home than a property in Knoxville will be higher in 2 years. So it makes sense to buy the home in the Bay Area first. 

    If you purchase the Bay Area home first, you will be able to save money for a down payment on a Knoxville property faster as well, so I believe your scaling will be faster in that direction as well.

    Assuming you have $4k of negative cash-flow, you will have to pay that same amount or higher in rent for one to tow years when you come back as well. so that really a wash. But remember you will also get tax benefits from owning the primary home that you can subtract from that $4k, you won't get any benefits from renting.

    Hope this helps. 




     Thanks Osazee.

    I plan to use a company such as flyhomes to help me put an all-cash offer when it comes time to buy in the Bay Area.

    can you explain this more:

    "If you purchase the Bay Area home first, you will be able to save money for a down payment on a Knoxville property faster as well, so I believe your scaling will be faster in that direction as well." How so? If i buy in Knoxville i can save $100k/yr. If i buy the bay ara home I save $(100-4*12) = $52k per year.

    I will also be purchasing the bay area home as an investor - since I live out of state and it wont be primary residence, so I assume i'll get a worse interest rate. Just wondering whether it is worth it

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Arpit Guglani:

    Hello,

    this forum has been an amazing fountain of information. I am a real estate newbie and have just purchased my first home to live in, here in Knoxville. I was wondering if you folk had advice on this situation:

    I live in Knoxville and will likely be here for atleast a year or two. I will then move back to the SF Bay area to settle down, raise a family etc.

    I have $300k saved for RE investment. 

    Option 1: use it for a 20% down payment on a bay area home right now. Buy it as investment property and rent it out. We will have a negative cash flow of about $4k until we actually move in. 

    Option 2: I am wondering however whether it would make more sense to deploy that here in purchasing three 400k homes in West Knoxville and renting them out. The rent will largely cover the mortgage. 

    Option #2 would mean however that I would have to wait for an additional year or two after I move back to California to again save up a similar amount and I have FOMO about how much prices would have risen there. Having multiple houses in Knoxville would however create solid assets for retirement without negative cash flow and be less risky eg. If one property is vacant or I have tenant issues I can cover it financially easily.

    Would your thoughts on this or if there is another more lucrative option I am overlooking. 


     Easy rule of thumb:

    you buy where you are going to live especially if it's expensive area. I would buy two in bay area if I were you.
    End up I have four LOL

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Arpit Guglani:
    Quote from @Osazee Edebiri:
    Quote from @Arpit Guglani:

    Hello,

    this forum has been an amazing fountain of information. I am a real estate newbie and have just purchased my first home to live in, here in Knoxville. I was wondering if you folk had advice on this situation:

    I live in Knoxville and will likely be here for atleast a year or two. I will then move back to the SF Bay area to settle down, raise a family etc.

    I have $300k saved for RE investment. 

    Option 1: use it for a 20% down payment on a bay area home right now. Buy it as investment property and rent it out. We will have a negative cash flow of about $4k until we actually move in. 

    Option 2: I am wondering however whether it would make more sense to deploy that here in purchasing three 400k homes in West Knoxville and renting them out. The rent will largely cover the mortgage. 

    Option #2 would mean however that I would have to wait for an additional year or two after I move back to California to again save up a similar amount and I have FOMO about how much prices would have risen there. Having multiple houses in Knoxville would however create solid assets for retirement without negative cash flow and be less risky eg. If one property is vacant or I have tenant issues I can cover it financially easily.

    Would your thoughts on this or if there is another more lucrative option I am overlooking. 


     Hey Arpit, 

    Great question, If you were flexible and didn't care how long you have to wait to get a home here in the Bay Area,  I would say buy those properties in Knoxville first. However, it is highly likely it will be harder to get a home here in the Bay, especially in two years. 

    While technically you can get a home Owner Occupied with only 3.5%, 20% down makes your offer more competitive. All lot people don't necessary talk about this , but you should hear some of the things the Listing Agent side says. Like "They only had 60% down". 

    Here's a couple of things to take into account.  33% of all homes in California are owned without a loan and numerous people can buy house all cash. 

    So I can and will be able to get a person a house with only 3.5%, but they will likely need to go through a few offers and they will not have the option to compete on ever house. Therefore the more downpayment you have the easier it will be for you to win offers. 

    Also, I will assume the overall cost increase as a percentage to buy a Bay Area home than a property in Knoxville will be higher in 2 years. So it makes sense to buy the home in the Bay Area first. 

    If you purchase the Bay Area home first, you will be able to save money for a down payment on a Knoxville property faster as well, so I believe your scaling will be faster in that direction as well.

    Assuming you have $4k of negative cash-flow, you will have to pay that same amount or higher in rent for one to tow years when you come back as well. so that really a wash. But remember you will also get tax benefits from owning the primary home that you can subtract from that $4k, you won't get any benefits from renting.

    Hope this helps. 




     Thanks Osazee.

    I plan to use a company such as flyhomes to help me put an all-cash offer when it comes time to buy in the Bay Area.

    can you explain this more:

    "If you purchase the Bay Area home first, you will be able to save money for a down payment on a Knoxville property faster as well, so I believe your scaling will be faster in that direction as well." How so? If i buy in Knoxville i can save $100k/yr. If i buy the bay ara home I save $(100-4*12) = $52k per year.

    I will also be purchasing the bay area home as an investor - since I live out of state and it wont be primary residence, so I assume i'll get a worse interest rate. Just wondering whether it is worth it


     Arpit you are too late. Price already increase by 100k this month alone.

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Arpit Guglani:
    Quote from @Osazee Edebiri:
    Quote from @Arpit Guglani:

     Thanks Osazee.

    I plan to use a company such as flyhomes to help me put an all-cash offer when it comes time to buy in the Bay Area.

    flyhome is amazing but be careful about the added cost. You can still pay with cash but if you pay cash to me for 1.1 mil but other offer is 1.2 mil with mortgage I would pick the mortgage, what matter are the price and contingency.

    0Reply
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    3y

    If you're open to California laws/policy risk, then Bay Area. 

    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @V.G Jason:

    If you're open to California laws/policy risk, then Bay Area. 


     the risk with california is not the law but the gravity of price moves. She already lost 100k by asking in the forum rather than making quick action to buy in late novemer LOL

    1Reply
  • Osazee Edebiri
    Realtor · San Jose, CA · Member since 2015 · 318 posts · 154 votes
    3y
    Quote from @Arpit Guglani:
    Quote from @Osazee Edebiri:
    Quote from @Arpit Guglani:

    Hello,

    this forum has been an amazing fountain of information. I am a real estate newbie and have just purchased my first home to live in, here in Knoxville. I was wondering if you folk had advice on this situation:

    I live in Knoxville and will likely be here for atleast a year or two. I will then move back to the SF Bay area to settle down, raise a family etc.

    I have $300k saved for RE investment. 

    Option 1: use it for a 20% down payment on a bay area home right now. Buy it as investment property and rent it out. We will have a negative cash flow of about $4k until we actually move in. 

    Option 2: I am wondering however whether it would make more sense to deploy that here in purchasing three 400k homes in West Knoxville and renting them out. The rent will largely cover the mortgage. 

    Option #2 would mean however that I would have to wait for an additional year or two after I move back to California to again save up a similar amount and I have FOMO about how much prices would have risen there. Having multiple houses in Knoxville would however create solid assets for retirement without negative cash flow and be less risky eg. If one property is vacant or I have tenant issues I can cover it financially easily.

    Would your thoughts on this or if there is another more lucrative option I am overlooking. 


     Hey Arpit, 

    Great question, If you were flexible and didn't care how long you have to wait to get a home here in the Bay Area,  I would say buy those properties in Knoxville first. However, it is highly likely it will be harder to get a home here in the Bay, especially in two years. 

    While technically you can get a home Owner Occupied with only 3.5%, 20% down makes your offer more competitive. All lot people don't necessary talk about this , but you should hear some of the things the Listing Agent side says. Like "They only had 60% down". 

    Here's a couple of things to take into account.  33% of all homes in California are owned without a loan and numerous people can buy house all cash. 

    So I can and will be able to get a person a house with only 3.5%, but they will likely need to go through a few offers and they will not have the option to compete on ever house. Therefore the more downpayment you have the easier it will be for you to win offers. 

    Also, I will assume the overall cost increase as a percentage to buy a Bay Area home than a property in Knoxville will be higher in 2 years. So it makes sense to buy the home in the Bay Area first. 

    If you purchase the Bay Area home first, you will be able to save money for a down payment on a Knoxville property faster as well, so I believe your scaling will be faster in that direction as well.

    Assuming you have $4k of negative cash-flow, you will have to pay that same amount or higher in rent for one to tow years when you come back as well. so that really a wash. But remember you will also get tax benefits from owning the primary home that you can subtract from that $4k, you won't get any benefits from renting.

    Hope this helps. 




     Thanks Osazee.

    I plan to use a company such as flyhomes to help me put an all-cash offer when it comes time to buy in the Bay Area.

    can you explain this more:

    "If you purchase the Bay Area home first, you will be able to save money for a down payment on a Knoxville property faster as well, so I believe your scaling will be faster in that direction as well." How so? If i buy in Knoxville i can save $100k/yr. If i buy the bay ara home I save $(100-4*12) = $52k per year.

    I will also be purchasing the bay area home as an investor - since I live out of state and it wont be primary residence, so I assume i'll get a worse interest rate. Just wondering whether it is worth it


     My original response was based on difficultly. If you estimate you would save $48k more a year going with Knoxville first and you are not concerned with the challenge of buying a home in the Bay Area when you come back, I am not sure why you would even consider buying a home in the Bay Area first.

    We hear that many people who leave the state have a major difficulty purchasing a home here when they come back. They typically end up not qualifying anymore and get stuck being renters. It sounds like you’re a high income earner who will have the means to compete when you come back. 

    it sounds like you are trying to live in a home in San Jose when you comeback based on the two areas you mentioned. You already stated your goal, so what you do investing wise in between doesn’t really matter as long as you can accomplish your 1 to 2 year goal.

    Arpit you believe homes will cost about $300k more when you come back. So I think the real question is, can I qualify to purchase a house in San Jose that is 1.6m to 1.9m in one to two years?

    This might make it simpler, if the answer is no then you purchase in the Bay now since that’s your current goal. If the answer is yes, purchase in Knoxville first.


    1Reply
  • Dylan VargasPro Member
    Rental Property Investor · Chico, CA · Member since 2016 · 633 posts · 336 votes
    3y

    @Arpit Guglani Welcome! There are a ton of "what ifs" in this scenario. On a brief Zillow search not much to choose from at $1.3 Mil in either of these areas. If you are this torn choose the "keep saving money option". You haven't missed any boat or opportunity yet. I would prepare yourself to be ready to pounce if a "deal" does pop up and fits your criteria. Get a Realtor on a search mission and be firm with your budget etc. What if life changes and you stay in Knoxville? Too many what ifs but I understand your thought process. So, save cash, lots of it and be ready to pounce if you are wanting to head west my friend! Deals do come up and will continue to come up. Good luck and keep us posted.

    0Reply
  • Steve Ehrman
    Troy, MI · Member since 2019 · 61 posts · 20 votes
    3y

    @Arpit Guglani. Are you looking to hold the rentals in Knoxville long term? I would believe over the long term the better play is Knoxville.

    0Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    3y
    Quote from @Arpit Guglani:
    Quote from @Keira Hamilton:

    Hey Arpit! Interesting scenario to consider. A few thoughts I have: Losing $4k a month feels pretty high, especially if you wouldn't be moving back for a couple more years. That could be almost $100k that you could have saved for your next investment. Of course, you'd be building equity in a property during that time, so it's just a matter of how important liquidity is to you right now. Can you afford the $4k a month? Would you be able to afford potential vacancies at the California property? Considering that you're currently out of state you would also need to consider finding a good management company who would be able to find strong tenants and keep it occupied.

    I understand the FOMO. Prices are down here in the Bay, but it's hard to tell how long that will last. At the same time, it seems like Option 2 would allow you to build up more capital over the next couple years while also building equity in the Knoxville properties. I would lean towards Option 2 personally.


     Thanks Keira!

    the plan is to move back in 1 or max 2 years from now. $4k a month is affordable right now and vacancy would be painful and would require digging into reserves. Yes I would need property management on top of it. I was also wondering if I could make the situation better by converting a garage into an ADU and de-risk that way.

    Its true that I would accumulate capital faster by buying in Knoxville, since the mortgage would cover the rent.  I project I can comfortably save about $100k'yr for RE investment in that scenario. My concern is that the homes I'm seeing going now for $1.3M in areas as diverse as Alum Rock to Cambrian Park will be going for $1.6M- $1.9M in two- years time. Perhaps this is just trauma from having lived the past two years!

     If you know that homes will move from 1.3 to 1.6-1.9 million within two years, that's a no brainer and 4k is a drop in the bucket vs 300-600k appreciation in two years.

    0Reply
  • Arpit Guglani
    OP
    Investor · Bay Area, CA · Member since 2022 · 20 posts · 3 votes
    3y
    Quote from @Mike Dymski:
    Quote from @Arpit Guglani:
    Quote from @Keira Hamilton:

    Hey Arpit! Interesting scenario to consider. A few thoughts I have: Losing $4k a month feels pretty high, especially if you wouldn't be moving back for a couple more years. That could be almost $100k that you could have saved for your next investment. Of course, you'd be building equity in a property during that time, so it's just a matter of how important liquidity is to you right now. Can you afford the $4k a month? Would you be able to afford potential vacancies at the California property? Considering that you're currently out of state you would also need to consider finding a good management company who would be able to find strong tenants and keep it occupied.

    I understand the FOMO. Prices are down here in the Bay, but it's hard to tell how long that will last. At the same time, it seems like Option 2 would allow you to build up more capital over the next couple years while also building equity in the Knoxville properties. I would lean towards Option 2 personally.


     Thanks Keira!

    the plan is to move back in 1 or max 2 years from now. $4k a month is affordable right now and vacancy would be painful and would require digging into reserves. Yes I would need property management on top of it. I was also wondering if I could make the situation better by converting a garage into an ADU and de-risk that way.

    Its true that I would accumulate capital faster by buying in Knoxville, since the mortgage would cover the rent.  I project I can comfortably save about $100k'yr for RE investment in that scenario. My concern is that the homes I'm seeing going now for $1.3M in areas as diverse as Alum Rock to Cambrian Park will be going for $1.6M- $1.9M in two- years time. Perhaps this is just trauma from having lived the past two years!

     If you know that homes will move from 1.3 to 1.6-1.9 million within two years, that's a no brainer and 4k is a drop in the bucket vs 300-600k appreciation in two years.

    Agreed! But, I don't "know" that will happen - but that is what I fear. 
    0Reply
  • Arpit Guglani
    OP
    Investor · Bay Area, CA · Member since 2022 · 20 posts · 3 votes
    3y
    Quote from @Steve Ehrman:

    @Arpit Guglani. Are you looking to hold the rentals in Knoxville long term? I would believe over the long term the better play is Knoxville.


    Definitely going to hold the rentals long term - I want to use their cash flow as retirement income when they are paid off. 

    0Reply
  • Arpit Guglani
    OP
    Investor · Bay Area, CA · Member since 2022 · 20 posts · 3 votes
    3y
    Quote from @Osazee Edebiri:
    Quote from @Arpit Guglani:
    Quote from @Osazee Edebiri:
    Quote from @Arpit Guglani:

    Hello,

    this forum has been an amazing fountain of information. I am a real estate newbie and have just purchased my first home to live in, here in Knoxville. I was wondering if you folk had advice on this situation:

    I live in Knoxville and will likely be here for atleast a year or two. I will then move back to the SF Bay area to settle down, raise a family etc.

    I have $300k saved for RE investment. 

    Option 1: use it for a 20% down payment on a bay area home right now. Buy it as investment property and rent it out. We will have a negative cash flow of about $4k until we actually move in. 

    Option 2: I am wondering however whether it would make more sense to deploy that here in purchasing three 400k homes in West Knoxville and renting them out. The rent will largely cover the mortgage. 

    Option #2 would mean however that I would have to wait for an additional year or two after I move back to California to again save up a similar amount and I have FOMO about how much prices would have risen there. Having multiple houses in Knoxville would however create solid assets for retirement without negative cash flow and be less risky eg. If one property is vacant or I have tenant issues I can cover it financially easily.

    Would your thoughts on this or if there is another more lucrative option I am overlooking. 


     Hey Arpit, 

    Great question, If you were flexible and didn't care how long you have to wait to get a home here in the Bay Area,  I would say buy those properties in Knoxville first. However, it is highly likely it will be harder to get a home here in the Bay, especially in two years. 

    While technically you can get a home Owner Occupied with only 3.5%, 20% down makes your offer more competitive. All lot people don't necessary talk about this , but you should hear some of the things the Listing Agent side says. Like "They only had 60% down". 

    Here's a couple of things to take into account.  33% of all homes in California are owned without a loan and numerous people can buy house all cash. 

    So I can and will be able to get a person a house with only 3.5%, but they will likely need to go through a few offers and they will not have the option to compete on ever house. Therefore the more downpayment you have the easier it will be for you to win offers. 

    Also, I will assume the overall cost increase as a percentage to buy a Bay Area home than a property in Knoxville will be higher in 2 years. So it makes sense to buy the home in the Bay Area first. 

    If you purchase the Bay Area home first, you will be able to save money for a down payment on a Knoxville property faster as well, so I believe your scaling will be faster in that direction as well.

    Assuming you have $4k of negative cash-flow, you will have to pay that same amount or higher in rent for one to tow years when you come back as well. so that really a wash. But remember you will also get tax benefits from owning the primary home that you can subtract from that $4k, you won't get any benefits from renting.

    Hope this helps. 




     Thanks Osazee.

    I plan to use a company such as flyhomes to help me put an all-cash offer when it comes time to buy in the Bay Area.

    can you explain this more:

    "If you purchase the Bay Area home first, you will be able to save money for a down payment on a Knoxville property faster as well, so I believe your scaling will be faster in that direction as well." How so? If i buy in Knoxville i can save $100k/yr. If i buy the bay ara home I save $(100-4*12) = $52k per year.

    I will also be purchasing the bay area home as an investor - since I live out of state and it wont be primary residence, so I assume i'll get a worse interest rate. Just wondering whether it is worth it


     My original response was based on difficultly. If you estimate you would save $48k more a year going with Knoxville first and you are not concerned with the challenge of buying a home in the Bay Area when you come back, I am not sure why you would even consider buying a home in the Bay Area first.

    We hear that many people who leave the state have a major difficulty purchasing a home here when they come back. They typically end up not qualifying anymore and get stuck being renters. It sounds like you’re a high income earner who will have the means to compete when you come back. 

    it sounds like you are trying to live in a home in San Jose when you comeback based on the two areas you mentioned. You already stated your goal, so what you do investing wise in between doesn’t really matter as long as you can accomplish your 1 to 2 year goal.

    Arpit you believe homes will cost about $300k more when you come back. So I think the real question is, can I qualify to purchase a house in San Jose that is 1.6m to 1.9m in one to two years?

    This might make it simpler, if the answer is no then you purchase in the Bay now since that’s your current goal. If the answer is yes, purchase in Knoxville first.


    Thanks for this.

    It will definitely be very painful to pay for a 1.6-1.9m home. That amount of debt burden is not something I am comfortable with - especially in these uncertain times with layoffs etc. 

    This is clarifying for me. It seems like the right step is to start looking and buy in the bay area to protect against this downside and explore Knoxville investing later. 

    1Reply
  • Arpit Guglani
    OP
    Investor · Bay Area, CA · Member since 2022 · 20 posts · 3 votes
    3y
    Quote from @Dylan Vargas:

    @Arpit Guglani Welcome! There are a ton of "what ifs" in this scenario. On a brief Zillow search not much to choose from at $1.3 Mil in either of these areas. If you are this torn choose the "keep saving money option". You haven't missed any boat or opportunity yet. I would prepare yourself to be ready to pounce if a "deal" does pop up and fits your criteria. Get a Realtor on a search mission and be firm with your budget etc. What if life changes and you stay in Knoxville? Too many what ifs but I understand your thought process. So, save cash, lots of it and be ready to pounce if you are wanting to head west my friend! Deals do come up and will continue to come up. Good luck and keep us posted.


     Haha "save cash and lots of it" sounds about right :) yes, this makes sense 👍

    1Reply
  • Osazee Edebiri
    Realtor · San Jose, CA · Member since 2015 · 318 posts · 154 votes
    3y
    Quote from @Arpit Guglani:
    Quote from @Osazee Edebiri:
    Quote from @Arpit Guglani:
    Quote from @Osazee Edebiri:
    Quote from @Arpit Guglani:

    Hello,

    this forum has been an amazing fountain of information. I am a real estate newbie and have just purchased my first home to live in, here in Knoxville. I was wondering if you folk had advice on this situation:

    I live in Knoxville and will likely be here for atleast a year or two. I will then move back to the SF Bay area to settle down, raise a family etc.

    I have $300k saved for RE investment. 

    Option 1: use it for a 20% down payment on a bay area home right now. Buy it as investment property and rent it out. We will have a negative cash flow of about $4k until we actually move in. 

    Option 2: I am wondering however whether it would make more sense to deploy that here in purchasing three 400k homes in West Knoxville and renting them out. The rent will largely cover the mortgage. 

    Option #2 would mean however that I would have to wait for an additional year or two after I move back to California to again save up a similar amount and I have FOMO about how much prices would have risen there. Having multiple houses in Knoxville would however create solid assets for retirement without negative cash flow and be less risky eg. If one property is vacant or I have tenant issues I can cover it financially easily.

    Would your thoughts on this or if there is another more lucrative option I am overlooking. 


     Hey Arpit, 

    Great question, If you were flexible and didn't care how long you have to wait to get a home here in the Bay Area,  I would say buy those properties in Knoxville first. However, it is highly likely it will be harder to get a home here in the Bay, especially in two years. 

    While technically you can get a home Owner Occupied with only 3.5%, 20% down makes your offer more competitive. All lot people don't necessary talk about this , but you should hear some of the things the Listing Agent side says. Like "They only had 60% down". 

    Here's a couple of things to take into account.  33% of all homes in California are owned without a loan and numerous people can buy house all cash. 

    So I can and will be able to get a person a house with only 3.5%, but they will likely need to go through a few offers and they will not have the option to compete on ever house. Therefore the more downpayment you have the easier it will be for you to win offers. 

    Also, I will assume the overall cost increase as a percentage to buy a Bay Area home than a property in Knoxville will be higher in 2 years. So it makes sense to buy the home in the Bay Area first. 

    If you purchase the Bay Area home first, you will be able to save money for a down payment on a Knoxville property faster as well, so I believe your scaling will be faster in that direction as well.

    Assuming you have $4k of negative cash-flow, you will have to pay that same amount or higher in rent for one to tow years when you come back as well. so that really a wash. But remember you will also get tax benefits from owning the primary home that you can subtract from that $4k, you won't get any benefits from renting.

    Hope this helps. 




     Thanks Osazee.

    I plan to use a company such as flyhomes to help me put an all-cash offer when it comes time to buy in the Bay Area.

    can you explain this more:

    "If you purchase the Bay Area home first, you will be able to save money for a down payment on a Knoxville property faster as well, so I believe your scaling will be faster in that direction as well." How so? If i buy in Knoxville i can save $100k/yr. If i buy the bay ara home I save $(100-4*12) = $52k per year.

    I will also be purchasing the bay area home as an investor - since I live out of state and it wont be primary residence, so I assume i'll get a worse interest rate. Just wondering whether it is worth it


     My original response was based on difficultly. If you estimate you would save $48k more a year going with Knoxville first and you are not concerned with the challenge of buying a home in the Bay Area when you come back, I am not sure why you would even consider buying a home in the Bay Area first.

    We hear that many people who leave the state have a major difficulty purchasing a home here when they come back. They typically end up not qualifying anymore and get stuck being renters. It sounds like you’re a high income earner who will have the means to compete when you come back. 

    it sounds like you are trying to live in a home in San Jose when you comeback based on the two areas you mentioned. You already stated your goal, so what you do investing wise in between doesn’t really matter as long as you can accomplish your 1 to 2 year goal.

    Arpit you believe homes will cost about $300k more when you come back. So I think the real question is, can I qualify to purchase a house in San Jose that is 1.6m to 1.9m in one to two years?

    This might make it simpler, if the answer is no then you purchase in the Bay now since that’s your current goal. If the answer is yes, purchase in Knoxville first.


    Thanks for this.

    It will definitely be very painful to pay for a 1.6-1.9m home. That amount of debt burden is not something I am comfortable with - especially in these uncertain times with layoffs etc. 

    This is clarifying for me. It seems like the right step is to start looking and buy in the bay area to protect against this downside and explore Knoxville investing later. 

    At the end of the day, you use the information to come up with the best strategy for yourself. If you look across many BP posts and look at many of the most successful investors on here. They used the astronomical appreciation they made over the years in the Bay Area to scale their portfolios and rental income.


    So if I were in your position that's what I would do. Then I would take it a step further and purchase a House Hack in Knoxville so I can get an OO loan at 5% and scale the property acquisition faster.

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Osazee Edebiri:
    Quote from @Arpit Guglani:
    Quote from @Osazee Edebiri:
    Quote from @Arpit Guglani:
    Quote from @Osazee Edebiri:
    Quote from @Arpit Guglani:

    Hello,

    this forum has been an amazing fountain of information. I am a real estate newbie and have just purchased my first home to live in, here in Knoxville. I was wondering if you folk had advice on this situation:

    I live in Knoxville and will likely be here for atleast a year or two. I will then move back to the SF Bay area to settle down, raise a family etc.

    I have $300k saved for RE investment. 

    Option 1: use it for a 20% down payment on a bay area home right now. Buy it as investment property and rent it out. We will have a negative cash flow of about $4k until we actually move in. 

    Option 2: I am wondering however whether it would make more sense to deploy that here in purchasing three 400k homes in West Knoxville and renting them out. The rent will largely cover the mortgage. 

    Option #2 would mean however that I would have to wait for an additional year or two after I move back to California to again save up a similar amount and I have FOMO about how much prices would have risen there. Having multiple houses in Knoxville would however create solid assets for retirement without negative cash flow and be less risky eg. If one property is vacant or I have tenant issues I can cover it financially easily.

    Would your thoughts on this or if there is another more lucrative option I am overlooking. 


     Hey Arpit, 

    Great question, If you were flexible and didn't care how long you have to wait to get a home here in the Bay Area,  I would say buy those properties in Knoxville first. However, it is highly likely it will be harder to get a home here in the Bay, especially in two years. 

    While technically you can get a home Owner Occupied with only 3.5%, 20% down makes your offer more competitive. All lot people don't necessary talk about this , but you should hear some of the things the Listing Agent side says. Like "They only had 60% down". 

    Here's a couple of things to take into account.  33% of all homes in California are owned without a loan and numerous people can buy house all cash. 

    So I can and will be able to get a person a house with only 3.5%, but they will likely need to go through a few offers and they will not have the option to compete on ever house. Therefore the more downpayment you have the easier it will be for you to win offers. 

    Also, I will assume the overall cost increase as a percentage to buy a Bay Area home than a property in Knoxville will be higher in 2 years. So it makes sense to buy the home in the Bay Area first. 

    If you purchase the Bay Area home first, you will be able to save money for a down payment on a Knoxville property faster as well, so I believe your scaling will be faster in that direction as well.

    Assuming you have $4k of negative cash-flow, you will have to pay that same amount or higher in rent for one to tow years when you come back as well. so that really a wash. But remember you will also get tax benefits from owning the primary home that you can subtract from that $4k, you won't get any benefits from renting.

    Hope this helps. 




     Thanks Osazee.

    I plan to use a company such as flyhomes to help me put an all-cash offer when it comes time to buy in the Bay Area.

    can you explain this more:

    "If you purchase the Bay Area home first, you will be able to save money for a down payment on a Knoxville property faster as well, so I believe your scaling will be faster in that direction as well." How so? If i buy in Knoxville i can save $100k/yr. If i buy the bay ara home I save $(100-4*12) = $52k per year.

    I will also be purchasing the bay area home as an investor - since I live out of state and it wont be primary residence, so I assume i'll get a worse interest rate. Just wondering whether it is worth it


     My original response was based on difficultly. If you estimate you would save $48k more a year going with Knoxville first and you are not concerned with the challenge of buying a home in the Bay Area when you come back, I am not sure why you would even consider buying a home in the Bay Area first.

    We hear that many people who leave the state have a major difficulty purchasing a home here when they come back. They typically end up not qualifying anymore and get stuck being renters. It sounds like you’re a high income earner who will have the means to compete when you come back. 

    it sounds like you are trying to live in a home in San Jose when you comeback based on the two areas you mentioned. You already stated your goal, so what you do investing wise in between doesn’t really matter as long as you can accomplish your 1 to 2 year goal.

    Arpit you believe homes will cost about $300k more when you come back. So I think the real question is, can I qualify to purchase a house in San Jose that is 1.6m to 1.9m in one to two years?

    This might make it simpler, if the answer is no then you purchase in the Bay now since that’s your current goal. If the answer is yes, purchase in Knoxville first.


    Thanks for this.

    It will definitely be very painful to pay for a 1.6-1.9m home. That amount of debt burden is not something I am comfortable with - especially in these uncertain times with layoffs etc. 

    This is clarifying for me. It seems like the right step is to start looking and buy in the bay area to protect against this downside and explore Knoxville investing later. 

    At the end of the day, you use the information to come up with the best strategy for yourself. If you look across many BP posts and look at many of the most successful investors on here. They used the astronomical appreciation they made over the years in the Bay Area to scale their portfolios and rental income.


    So if I were in your position that's what I would do. Then I would take it a step further and purchase a House Hack in Knoxville so I can get an OO loan at 5% and scale the property acquisition faster.


     When comparing Bay Area, you should compare Bay Area with London,NYC,Bangalore, Shanghai and Jakarta --not with Knoxville,TN. In other state, there's no state of urgency when to buy. 

    In bay area, if you delay or miss time the market, you already lost the opportunity. 

    There's too much 'crappy news' about folks leaving in CA, layoff,etc ... that has zero effect in Bay area real estate market. But good thing is there're still some opportunities, we could have 1 BR condo in SJC for 400k still now, and 200k condo in walnut creek.

    The market in March 2023 is extremely different than November 2022, the "discount time" is almost gone. A lousy flip quality house in Fremont is listed for 950k. Sold price is 1.1m.

    Contact local CU so you could get high 4% OO rate.

    0Reply
  • Chad Hale
    Property Manager / Investor · San Jose, CA · Member since 2013 · 780 posts · 302 votes
    3y
    From a long term perspective, it will be hard to be beat bay area appreciation.
    There is a saying here:  "your home is the bay area retirement plan".
    If you don't live here it is hard to fully comprehend. No insult intended to everyone else.

    As an investor and property manager I hear from several people moving to the bay area every week looking for housing.

    Of course you need to buy right, plan, etc...
    0Reply
  • Ruth Blue
    Realtor · Pigeon Forge, TN · Member since 2018 · 230 posts · 111 votes
    3y

    Suprisingly, I have noticed many friends moving out to TN from California so I would consider Knoxville over the Bay area. With a lower barrier to entry and multiple units, if one tenant moves out you will not be at much of a loss until you find a tenant. Much less risk vs. reward. 

    0Reply
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