buy and hold and the power of Bay Area appreciation

[Arlen Chou]

I personally believe that any strategy for REI must match the particular market and the resources a person has available. There have been some recent discussions about the buy and hold strategy and of course there is always a debate about appreciation. As my market is the SF Bay Area, I strongly believe in both.

A large part of my strategy is to purchase properties, force appreciation and pull out dollars as values and rents go up.  I then invest those new dollars into additional properties.  For many markets outside of the BA, this might not seem sustainable nor prudent.  However, for me this has worked for a fairly long period of time. The single example I give today spans 13 years:

• 2002 Purchased single story 3/2 ranch style home in Los Altos (my primary residence).  approximate price $1.1MM
• 2003 Approximately $600k of additions/improvements.  Nearly doubled the size, now a 4/2.5 two story home.  For those outside of the Bay Area, a $600k improvement budget is fairly modest in this area.
• Current market rental price is approximately $6k (source Craigslist)
• 2015 Appraisal received today $3.2MM

Keep in mind that this takes into account any appreciation slow down that hit the property during the "crash".

Was buying a $1.1MM house in 2002 scary?  Sh#t straight it was!  Was spending an additional $600k to upgrade scary?  F*&k yeah it was! Am i glad I jumped in and did it? Hell yes I am!

I am looking forward to getting my cash out refi check and to go shopping for a multi-family residential.

The point of this post is to shed a little light on some recent history in the Bay Area market. Hopefully it will give some people who are on the fence about investing in the area something to think about.

I wish you all good luck.

-Arlen

[Account Closed]

Sorry Arlen.  Cash-flow is king.  Appreciation is only icing on the cake.  

Wait, are you telling me that your property appreciated $1.5MM in 13 years?  That's equivalent to owning 96 doors and making $100/door for 13 years.  What's the likelihood of your property going to be worth $6.4MM in 2028?  

I have always been told that you can't eat appreciation.  What's up with this cash-out refinance?  You mean you can tap the equity from your appreciation tax-free?  Nooooo, that sounds too good to be true.  Appreciation is supposed to be icing on the cake.  Repeat after me.

Appreciation is only icing on the cake.

Appreciation is only icing on the cake.

Appreciation is only icing on the cake.

If you repeat a lie enough times, people will believe it's the truth.  I have also benefited from appreciation in the seven figures so I can't argue with you unfortunately.  Sigh........ Enough with my sarcasm.  I have to get back to work and try to make more appreciation money because I like the fact that I get to use it TAX-FREE!!!

I think @Account Closed and @Jay Hinrichs might get a kick out of this post.