Where would you put 1.3M cash in San Francisco right now?

Question

I'm a 24-year resident excited to learn about the unique MF dynamics here.

What's the best first-investment strategy in today's SF market to maximize portfolio cash-flow in the future from this position?

Any suggestions on RE study focus or mentor criteria to begin a 20-year plan in this city also appreciated.

Eduardo Zepeda · Answer

Hi Jemp,

I'm an investor and I live in SF. My investments are in the east bay as of now. I think the answer to you're question is everyone's favorite "it depends" response, but it really does. How active do you want to be in your investment? Do you have the time and willingness to rehab a SFR or a distressed multi-unit building? Or would you just like to invest in a stabilized property with good income and relatively good cap rate and go for the steady cash flow? Depending on what you're objectives are, as well as what strengths and unique skill sets you may have, that would most likely dictate the type of investment and property that would take you the furthest. Happy to provide further info and local market knowledge from my experience.

Ivan Barratt · Answer

@Jemp Tolo I would have to echo that it's a dangerous point in the cycle to attempt to jump in as an active investor vs passively investing with professional management.  I would say keep your powder dry and get more education first; perhaps real estate and general investments/markets content.

All the best!

PS. A fool and his money are soon parted.

Kevin Wood · Answer

@Jemp Tolo less than a year ago I was working in tech in the Bay at Google and now am investing full time in Houston. I had the good fortune of being from here and it being a good investor market. I would look for a city that has high growth and great affordability. Typically these areas are in the south of the US. State wise Florida and Texas both have a lot of opportunity. I just got a $4M complex under contract 2 weeks ago that is 52 units near downtown/medical center. Compared to Bay Prices that is extremely cheap. You will find similar opportunities in other locales.

Investing in the Bay itself has very low cash flow. The people who I see do well there by when the market is very depressed and hold on for awhile. Even with that I find the rent control and eviction laws to make it very tough to be a landlord.

Kevin Dean · Answer

Hey @Jemp Tolo, this is what I would do when considering the amount of cash on hand, your experience and the current state of the market

1. Get educated

2. Build relationships in markets you are interested in

3. Build out your specific investment criteria (whether with another sponsor or for deals where you are the sole owner)

4. Start targeting assets that meet your set investment criteria

5. Buy a property requiring less cash than you are capable of deploying

6. Use less leverage (55 - 65%)

This will make sure you gain the exposure to real estate you are looking for, are not over extended and will have put in the up front work while building the knowledge necessary to complete your first transaction without losing your shirt.

Timothy M. · Answer

The OP in this particular example isn't 24, but are you suggesting that someone should be able to turn 1.3MM into "well over 10MM" within six years...?

That's... north of like 40% CoC return. Surely this isn't what you meant.

Jo Greene · Answer

I would put it in Sacramento! We moved our Santa Cruz investments to Sac where the numbers still make sense. It's close enough but an entirely different market. best of luck, jo.

Alan M. · Answer

I live in the Bay Area and have a similar amount of capital to invest. I wouldn't invest anywhere around us.

I can loop you in on some syndication deals, PM me. Passive income, good returns.

Ronald Rohde · Answer

I'd vote for more research and reading about the types of questions to ask yourself. If it was my money, I'd build a small attached townhome community for rent or sale (1-4 units). great rental cash flow, but appreciation upside by selling off individual title.

Adam Mayberry · Answer

@Jemp Tolo Invest in a small multifamily project near downtown San Jose.  Growth potential is much higher than San Francisco.

10M (10,000,000) sf of office space in Downtown Planned right now.  Google, Adobe, Facebook, Airbnb, Amazon, WeWork ($300m in property) all staking claims on space

Bob Johnson · Answer

If you HAVE to be in The City, I'd look at what's left of the blue collar neighborhoods in town - Portola, Excelsier, Hunters Point, Mission etc.  I have a mixed use (retail downstairs/rent controlled apartment upstairs) that does pretty well once it's leased, but getting good tenants was a bear. Look for places you can add an ADU in back to, multi unit zoning that only has one unit, etc.  You'll have to get creative as it's almost exclusively a spec growth situation, and don't expect cap rates over 4%.