All Forum Posts by: Arlen Chou

@Account Closed the above answers are correct. But to put it more simply, positive cash flow puts money in your pocket immediately and appreciation puts money in your pocket years or decades later. Obviously, this is an oversimplification, there are many more nuances that go into making money through either path, but this basic concept should make things more clear at a very high level.

@Manco Snead it is hard to see otherwise in this age, but the migration of Californians has always been there. Keep in mind that CA has 40 million residence, over 10 million more than the next largest state. We have multiple cities that have more residences then entire states! It is natural to run into ex-Californians pretty much any place you go. It is just that the media is hyping things up. Remember statistics can be presented in different ways to create different concerns. The Californians are coming, they always have been and they always will. 

On a larger scale the globe has packed on nearly 4 billion people in 30 years! Sure most of those people are on the other side of the planet. But the reality is that with money, they can move. There will be, and has been, a ton of migration, not just Californians, globally that will effect real estate in any market, it is inevitable. 

Basically, don't fear the wave but respect it, don't fight the wave learn to ride it.

@Katja Jeschke congrats on making the move into real estate. Not to crush your move, but $50k cash for a property in CA is really not possible. I am not sure what areas you have been searching but you most likely will not find anything in that price range that you can easily flip. I say this not to stop your dreams, but to potentially re-direct them to another market or strategy. I am sure your time and effort will be better used if you look in a market that fits your price range. At the same time I would not discourage you from looking in CA, but you need to put together a larger war chest.

Best of luck to you!

I am in the SF Bay Area and I have had 100% payments. I did have one tenant leave at the end of last month, but we already have several qualified applicants for a rent rate higher than what my last tenant was paying.

@John Lazzarini if you are seriously thinking about the Bay Area, I would wait it out for the next few months and gather more data. Even though the stock market is blowing up, I still believe that the delta between Wall St and Main St is just too massive to write-off. I still expect smaller multi-family buildings, being run by mom&pops, to fall into trouble as stimulus money runs out. Yes, covid-19 restrictions are lifting, but for many people in the retail/service industries, it is just too late. There are many small restaurants that won't go back to seating because it does not make financial sense to hire back people to support a less than optimal seating requirement. Additionally, IF corona comes back in the fall/winter, I don't believe people will have had enough time to repay debt or build up savings to go through another round. The big underlying question is how many of the people who deferred rent/loan payments can catch up after the emergency status is lifted. 

Keep in mind that after the great recession, it took years for the real estate market to hit bottom, but the drop after the Dotcom pop was only a year. Therefore, you need to ask yourself if you believe this will be a quick dip like after the Dotcom pop or a long slide like after the sub-prime blowup. Personally, I don't think the drop is only a few months long and I plan to wait this season out. 

Going out of state might be interesting if you believe that work from home is here to stay and that people will opt to live away from the Bay Area. But that is a completely different discussion that is outside the scope of your original question.

Good luck to you on whichever path you decide to take!

-Arlen

@Angela Chen IF you are able to pull the $500k out at any point after you close on the deal, and you can afford to tie up cash for a few months. I would lock in the lower rate. The rate of 3.125% is basically a set and forget rate. You would need to be below 2.75% to really make any sense for a refi. The only real reason to go with the 3.875% is if you can only get 10% down or you expect to need the cash in the immediate future.

Good luck to you in whichever direction you go!

@Tobey Grey the lending environment is extremely tight now. Although your thinking is correct, the timing is probably off. The current lending environment is extremely tight. If you are currently at an 80% LTV, and additional HELOC will be additional debt on top of that number. Coupled with the fact that most banks are bracing themselves for a wave of defaults and the fact that your business has been hit, I think you might be facing some strong headwinds. Sorry for the bad news, but I think it might be tough to implement your strategy at this current time. I don't think it can hurt to ask, but be ready for the bad news.

I do wish you good luck!

@Kyle N. Do not close on this, especially if it is in San Francisco. You MUST get a lease for the tenant in place showing the $1750 that he is paying. Make sure the pet is on the lease with the added pet fee. You MUST get an estoppel certificate from the tenant that corroborates the new lease. There are way too many red flags on your deal right now. If your agent is not waving you off on this deal, you might want to get another agent.

@Justin Lentz just be very careful with your research at this particular time, all the recent historical data is about to go obsolete. The rules of the game are changing extremely fast because of COVID-19. A cash flow property does not cash flow if people cannot work because they are locked down. Those people won't be able to get new jobs if the service businesses they worked at closed for good. Most people work in the service industry and there have been 10 million new unemployment claims in the last 2 weeks of reporting. There will be millions more reported tomorrow. Do your research on the fundamentals of the area, not jobs but the actual industries that are located there. High appreciation areas will get hit hard along with cash flow areas. There are already 6 figure discounts popping up in the SF Bay Area. People who were already in the market and prepared in 2019 are going to come out way stronger. But people who got in recently or were over-leveraged will get eaten alive by the guys who piled up cash last year. Remember the playing field just made a major shift, in my opinion, month-old real estate data is no longer relevant. Focus your research on the underlying strength of the local economy and its ability to fight back out of this crisis. I would highly discount any advice from anybody who did not go through 2008. Even that advice will need to be tempered as this current situation is an order of magnitude worse.

@Naveen Kolagatla sorry to get back to you after so long. I have never used an agent that I did not know prior to the deal so I really have no direct experience. I would suggest you contact the California Association of Realtors and see if they can give you advice. It might be hard to get a hold of them right now, but that would be my first move.

Good luck!