Real estate newbie from San Francisco Bay Area

[Brian Rinker]

Hey all at BiggerPockets, 

I am self-employed health writer and journalist living in San Francisco. I am looking to start investing in real estate as soon as I can. Like many here, I want to build long-term wealth with real estate and generate passive income through rental properties. BiggerPockets, in large part, has ignited in me a passion for real estate investing I didn't even know I had. But now that the passion is burning, it seems so natural, like it has always been there. 

For my first goal, I am pursuing an FHA loan for a multi-family property in the east Bay Area--Oakland, Berkeley, Richmond, Concord, Hayward, Castro Valley, etc. Basically anywhere in a 30-60 mile radius of Berkeley, where my wife goes to school. After that, my next goal is to invest in out-of-state rental properties or in more affordable areas in California, like Bakersfield and Sacramento.

As a newbie, I am looking to learn as much as possible. I am excited to connect with like-minded people, learn the ropes and start investing!

Best,

Brian

[Gene Hacker]

Hi Brian,  I would be very cautious buying right now in the bay area.  Bruce Norris is a real estate forecaster (with a remarkable record) has been posting data showing that Bay area properties are extremely overvalued. 

I assume most buyers right now in the bay area are not overly excited about the low cap rates so they are primarily hoping for future appreciation.  At this point, I think there are many areas outside of the bay area with better cap rates which also have more potential for price appreciation.  

Bruce Norris listed the following CA areas which are still below the past peak and could have room for appreciation:

Riverside: +1.7%
Sacramento +5.4%
Fresno +5.7%
San Bernardino +9.1%
Kern County +11.8% 

In comparison here are the figures for the bay area:

Santa Clara County -43.6%
San Francisco County -64.0%

San Fransico County is seriously overvalued right now.  Could it keep going up? Sure but there is more risk than other areas which are priced more in line with historical norms.  The other thing that makes me especially worried about the bay area is that is tied so closely to the tech industry.  The stock market (specifically tech) has been on an amazing run and has had one of the longest run in history without a correction.  The stock market is overdue for a correction and a large correction in tech could be very disruptive to bay area home prices.