Fremont California multi-family investing

[Rachel Finch]

I am curious if anyone has any perspective on how the market for multi-family properties might be in Fremont, California. I am considering the difference between a market such as Fremont, CA, where appreciation might be a plus, versus an area such as Charlotte, NC where cash flow would be a plus. Open to any input and any contacts in the Fremont area. Thanks! 

[Wes Blackwell]

@Rachel Finch

It is true that California's high prices, insatiable housing demand and low inventory in the Bay Area make it an appreciation market. But I would be extremely wary investing in the Bay Area and counting on appreciation at this point in the Real Estate Cycle. See Below:

The San Francisco, Oakland & Hayward Metro Market was just projected by Realtor.com to have an appreciation of 8.41% and sales growth of 1.17% this year in 2017. Sure, 8.41% sounds fantastic! Especially when it's on a really expensive house in the Bay Area!

BUT -- look again at that sales growth... a mere 1.17%. That makes it the lowest on the top 100. Know who's right behind them? San Jose, Sunnyvale & Santa Clara at 1.26% sales growth.

So basically the entire Bay Area is going to have the exact same amount of sales this year as they had last year... and you know what that means: plateau leveling off before the fall.

And here's the reason why:

https://www.biggerpockets.com/forums/621/topics/396725-millennial-migration-to-sacramento-2017---here-comes-the-rush

The next generation of home buyers is entering their prime "settle down" years and thinks that $650,000 for some 1950's crapshack tract home is absolute B.S., and I don't blame 'em. And it's not like most of them can afford it anyways.

So, they see that they can buy a completely remodeled and updated home in Sacramento, Stockton, or Modesto for less than $350k, and so they're making the move out here in droves. In just the past month I've met 3 new clients from the Bay Area who match this exact description.

Here's what $350k can get you in Fremont (Only 1 property on MLS!):

3287 Foxtail Terrrace (Condo)
$299,888
1 Bed / 1 Bath
593 Sq Ft
$290 per month HOA

Here's what the same $350k can get you in Elk Grove (suburb of Sacramento):

7017 Plume Way (SFR)
$322,500
3 Bed / 2 Bath
1,293 Sq Ft
No HOA
Completely Remodeled
Around the corner from a Park & Soccer Field
Great Schools
Low Crime
City with 85% owner occupancy that's extremely family oriented
7.2% projected appreciation this year

Now, if you were a millennial looking to settle down and start a family, where would you choose to live? The answer is obvious.

Unless it's some young couple both working in the tech industry and making a combined household income of $300k+ per year, buying a nice home out in the Bay Area is simply out of reach for most people. So they're making the move to more affordable cities in surrounding counties.

So I wouldn't hedge my bets on making a ton of money on continued appreciation in the Bay Area, too risky. Yes, the property will still appreciate, but you better watch that market real carefully and rush to exit once you're near the peak. 

The Bay Area as a whole is easily the most bubble-prone market in the nation right now, and I think period for "buy and lose money every month but wait for a crap-ton of appreciation" has passed. I wouldn't recommend it.

But you don't need to go to North Carolina to make cash flow, you can invest right here in Sacramento in your backyard. I know I've practically become the Digital Mayor of Sacramento here on this site lol, but if you buy now in 2 years your property will be worth 11-15% more and rents will be 18.5% higher. Get in front of all the millennials moving out here and you'll make a killing.