Bay Area Deal Analysis - North San Jose

[Patrick Long]

Hi all, 

I'm a newbie real estate investor. I just graduated about a year and a half from Cal and have been working since graduation. I've been saving hard for a down payment and now I think I might've stumbled across a deal and wanted to hear BP's opinion! 

Details: North SJ, near the future BART station, town home, 2BD/2.5BA - 2 master bed rooms, low HOA and well maintained, near future developments and another town home complex to be built nearby, ~1100 sq. feet, decent school district (Piedmont High School, 4/5, 10/10 on Redfin), 1 car garage and 1 carport w/a private patio, close to Target and other shopping areas, laundry downstairs and in the building. I went to the complex with my realtor and everything seems to be in good shape. The property is currently being rented out to Section 8 for $1750/month; however, market rates on CL are $2400-2500/mo.

Price: Town homes in the same complex were listed around $460K and selling around $20-30K above listing price; however, they were remolded prior to selling and staged. This property is off market and the seller is motivated (lost his job), so I hope to negotiate the price lower.

Here's the big catch on this property. The seller recently lost his job and wants to sell it dual agency so that he can save on commission costs. Because this property is off market and the seller is motivated, I think I may be able to get a good deal out of this one. I plan to live in it for a while and perhaps in a year or so rent out the entire town home to working professionals in SJ. 

I'm slightly worried because I'd be buying in a seller's market and property prices in the Bay Area have been rising so quickly the past few years (so, they might fall?). Furthermore, the property is cash flow break even, thus any gains will be in the appreciation, small rent increases in future years, and principal pay down. However, because I'm not as experienced and still young, I want my first property to be one I could potentially live in as well as have tenants that are high quality professionals that won't give me much trouble. 

It seems like the seller wants to sell this thing ASAP, since he lost his job and I want to see what BP thinks before I make a decision. If you want to see a more detailed financial breakdown of property, PM me and I can send you my Excel with all the specifics. 

Thanks, all. I really appreciated the help! 

Patrick

[Arlen Chou]

@Amit M. thanks for the shout out.  I am not from Cal so you will have to take my views with a grain of salt ;-)

@Patrick Long

I started house hacking in my 20's with a town house in Mountain View and I am really glad I did.  Many of the concerns that are voiced today were also talked about back then, but I decided to make the plunge.  That was probably before you were probably born!  I did not get deep into the investing side of things until recently, but that first step made all of the difference.

The dollar numbers on properties will change over time... up and down.  But the location and the amenities of the condo are fixed.  

When you reference BART, I am assuming that you are talking about the current construction in Milpitas... is the building within walking distance to that location? The North SJ/Milpitas area is still on fire, but the intensity of the heat varies quite a bit from property to property, but they are all still on fire. How old are your comps for the area? What amenities does the complex have compared to the newer properties off of Montague and the surrounding area? It has been a long time since I have looked at condominiums, but $460k to $490k seems low to me in that area for a 2/2 condo. But the value really depends on the condition and location of the complex. Take a good look at the HOA. See if they have been taking care of the complex and they enforce their rules.

Its definitely still a buyers market and it might be for a while longer.  Google and Apple made announcements this week about taking up more space in North San Jose and bringing in over 10k jobs. But it is true that the gap between the ability to afford homes of first time buyers, and their ability to save for down payments is widening.  But perhaps this is a good indicator for people who want to be landlords and can afford to purchase rental properties. You just have to polish your crystal ball and make decisions based around what is going on in your target market. 

My point is that the buyers, in Santa Clara County,  for primary residences are still very financially strong.  The ones who shop this market have money, or access to money, and jobs are still being created in Santa Clara County.

If you want anecdotal evidence of this, I can give you some recent examples from this month.

Sure there is a slight possibility that tech companies will move out of the BA, but I really don't think that is much of concern. Many of these giant "anchor" companies have their own corporate buildings in the BA.  To move a corporate headquarters out of state is not an easy logistical or financial task. If you want to wait for the "down cycle", you might be waiting awhile...  

Properties that are priced right sell within 1 week with multiple offers above asking. Anything, in THIS market, that is "off market" is probably priced close to market price anyway.  Do your analysis on the comps in the area. Look very closely at the walking and biking score and most importantly get a feel for the neighborhood.

Good luck,

Arlen