Who's cashflowing investing from a market like SF Bay Area? How?

[Avel Arci]

It seems tough to RE cashflow investing in San Francisco Bay Area. I know, it's not impossible. How are you doing it? What does it take? Do you have wear several hats like pm your property, rehabbing the property by yourself, etc? I'm currently employed and not handy at fixing stuff myself. Thanks much

[Chris Mason]

Originally posted by @Thomas S.:

@Lee S.

You operate your business as you see fit, it is best to consider appreciation as only being theoretical, aside from the impact on property taxes, and [...]

 Quick note. We have Prop 13, Prop 58, and Prop 193 in California. I'm not aware of any other place in North America where appreciation is tax-advantaged like it is in California, and I routinely read out-of-state horror stories about "30% appreciation = tax bill went up 30%."

My grandmother owns a duplex worth a million or so. Her total annual property tax bill is less than two grand. She can give it to me, if she so desires. I would inherit her property tax basis and that wonderful $2k/yr property tax bill on a free and clear property. California is an excellent place to build a Dynasty(1).

Prop 13 is why I generally suggest that the BP "50% rule" of [ Rent * 50% - P&I ] isn't as good as Fannie Mae's [ Rent * 75% - PITI ] rule, in California. For all intents and purposes (there is a slight allowance for inflation, capped at 2% even if you experience 10% appreciation in a given year), the property taxes are just as fixed as the mortgage, so they belong on the right hand side of the formula.

Your home can appreciate 20% all it wants. Your property tax bill isn't going up 20%, in California anyways, and neither is the 30YF mortgage. But what did the rent you collect just do, when housing appreciated 20% over the course of X years? It may not have gone up 20%, but probably somewhere in that neighborhood. Fortunately you own real estate in California, so your property taxes did not go up 20%.

(1) But don't put "I want to acquire more real estate for my family, in order to expand the Han Dynasty" in your cash out refinance motivation letter to the mortgage underwriter, even if your name is Han, she will not get the joke, will think it is "previously undisclosed self-employment" and will call for two years of business tax returns for the Han Dynasty!