All Forum Posts by: Arlen Chou

@Brian Taw CA is a really large place, it really depends on the market you focus on. If you want to be in a physically constrained market like the Bay Area then having a large amount of cash will definitely help. If you are looking to get into markets in the Central Valley, you will need substantially less. Also the type of property you want to start with will contribute to determining how much cash you need. House hacking a condo in Merced will be very different than buying a 6 plex in Mountain View. Everything is relative and your job as an investor is to discover where your personal finances, strengths and weaknesses are and build a strategy based upon those facts. Don't get drawn into trying to find an exact roadmap to success created by someone else. 

But the one clear truth is that you need to have money: your own or "other peoples money", before finding a deal. This applies in any market anywhere. If you have a ton of money the path is straight forward; find a deal, pay for the deal, reposition the deal/"season the deal", finance your money out and repeat. If you have no personal money it is more complex; raise money, find a deal, get a loan, buy the deal, reposition the deal/"season the deal", finance your money out and repeat. Take note that financing your money out could mean selling the property. 

Good luck on whatever path you choose.

-Arlen

@Rahul Ram Keep in mind that cash-flow is a function of how much you put into the deal. If you buy all cash, it cash-flows day 1. If you buy 100% financed it is very difficult to cash-flow. There has always been a debate of cash-flow vs appreciation on BP and online in general. A few dollars of cash-flow off a single property will have very little effect on your lifestyle. You need to have a large number of properties to truly change your life. However, significant appreciation from a single property can have an outsized effect on your wealth. As an investor you should try to attain both sides of the coin, get some cash-flow and go after the appreciation... find a deal that gives you both. 

Most people will tell you that is impossible to do in California, let alone the Bay Area. I will be the first to tell you that these deals do exist, you just have to be prepared to deal with lots of negotiation before buying and headaches after closing. But if you can deal with those burdens, you will be able to add 6 figures to your wealth within 2 years. This is not hyperbole, I have been doing this for nearly a decade in the greater SF Bay Area as a buy and hold investor. 

If you are currently priced out of the Bay, @Nick Maugeri has made some very good suggestions on places to look.

Good luck,

Arlen 

@Patrick Thomas Dickinson with her priority being that she only wants to move once, there really is only one option, find the money to buy the other property first. 

1) As @Jason Wray suggested go through the work and get a cash-out refi. 

2) Get a HELOC

3) Get private money or a hard money loan.

The real issue is that being a cash buyer is much better in this Bay Area environment.

As a side note, assuming her tax bases is really low on her current home. Make sure she takes advantage of Prop 60/90 and transfers her tax bases to the new property. This will save her money in the long run.

https://www.boe.ca.gov/proptaxes/prop60-90_55over.htm

Good luck!

-Arlen

@Katie Miller great topic! I would say that the most people don't discuss the importance of having strong personal finances in place before spending endless hours looking for properties. The hunt is the fun part for most people, but the preparation for the hunt is what actually leads to success. 

@Account Closed alluded, work on you income stream. There will always be deals to be found. The primary issue you are going to have, when first starting out, will be the financing part. Without that critical piece, you won't be competitive and getting a deal in the Bay or out of the area will be very difficult. Many people who start out start looking for deals and spending hundreds of hours on analysing deals. But the harsh reality is that their bank account or their existing revenue streams do not match their ambitions. 

House hacking is a great idea, but in the Bay Area to get a 7 figure starter home you need 6 figures of cash on hand. You can scale down and shoot for a townhouse or condo and get roommates. That is how I started almost 30 years ago, but you have to deal with HOA fees.

You could go out of the area to Sacramento, Modesto or even farther south to Fresno. Totally leaving the state is another option. But the common denominator is the strength of your personal finances. That should be step #1.

Regarding your goal of $5M by 30... you are not racing anybody else. Running a 10 minute mile might be really slow for some people but for me it is lightning fast. This mindset can be applied to building wealth. Build your wealth at your own pace. What the guy next to you does not affect your success. If you blow it up in real estate sales and stack cash fast vs not having a cash war chest will impact where and what type of property will be your first deal.

Good luck!

-Arlen

@Paul Merriwether Slow flips is an interesting strategy. I personally don't do any flips and I have never sold an investment property. I am strictly a buy and hold investor. I prefer buy and hold in the Bay Area for many reasons, but I am not against flipping or out of state investing. I personally know many people who have gone out of state and made good money.

What a good or bad level of appreciation is relative. All of my deals have appreciated in value and rents, to the point that I have no money in any of them. They have all be refinanced, with cash on top, and rents have grown to cover those costs. Those "refinanced" funds are then invested in the next deal. As most people know there is a housing shortage in CA, especially in the Bay Area. Even with softening rents, there is still demand at the right price point. With the correct analysis and strategy, properties can be purchased with enough rent headroom to absorb rent rate drops. I am not saying my strategy is the best nor do I think it applies to all properties during all parts of the cycle. Nor am I suggesting everyone should use my strategy. My initial properties were purchased with the understanding that compressing interest rates and high housing demand would allow for an agressive buy/hold and refinance cycle. This strategy allows for a relatively fast recycling of cash and free cash flow.

The market has shifted hard and appreciation is not on the same trajectory as it was a few years ago, but it does still exist especially if you can force it. $200-$300k of appreciation on day one on a sub $1M property in the Bay Area is pretty good. I have no doubt, once I have tenants in the unit and seasoned the property, I will be able to refi out all of my cash plus a few extra dollars. This will leave me with another cash flowing property with no money in the deal. As this is a 4 unit building, I am looking to lock in another 30 fixed rate mortgage. Hopefully the 75 bps drop this year will get me to reasonable rate. When I first started buying real estate, my first rate was over 13%, so the rates right now are still reasonable in my mind.

Again, I am not saying my strategy is the best. But to use a casino analogy, playing with "house money" and getting all the perks is the best way to vacation in Vegas. 

Take it easy,

Arlen

@DG 

@DG A. The funny thing is $770k was asking price. We had a full inspection and there are no major issues with the building. There is no major cleanout of the property either. New flooring, new cabinets, new tankless water heaters in 3 of the 4 units. The roof is serviceable, but is near the end of life, that is always expected in my underwriting, and the foundation is solid.

The key to getting good deals is understanding what the sellers problem is and coming up with a solution for their specific need. Deals with "hair" on them take time, strategy and a good amount of luck, but they do turn into gold mines. 

@Claratisha Davis if you are already in Oakland and working as a property manager, you are a step ahead of most people entering the market. I have properties in North Oakland, Fruitvale and currently in contract with a property in the Adams Point neighborhood. 

As a start off point, I would suggest that you look for small multi-family properties. Normally I would say 4 units and down, but Oakland is a different animal. Look for something that is 3 units or less and use the "house hack" method. If you can stand it, get a roommate and offset more of your costs. 

Hard money is really for people who are looking to flip. The interest rates are to high to sustain for long periods. As for creative financing, these are really hard to find but they can be found. My properties in North Oakland were purchased with seller financing.

If you have been a PM for a while, you might want to ask your clients if they have anything they want to sell to you off market, potentially with seller financing. 

Good luck!

-Arlen

@Paul Merriwether it's all about finding the right deals. My North Oakland units, purchased 2015, are all condos in a single complex = no rent control. They were purchased at an average of $125,000 each. Currently they are rented to 2 different mid-term rental investors = basically no management cost to me + no turnover headaches for me. Needless to say, I am getting well over the 1% rule. As for value, I would conservatively say they have doubled.

My other building is in East Oakland, purchased 2016, within walking distance to Fruitvale BART. That was acquired at $678,000 for a 6-plex. Rents on those units + additional off street parking bring in $7000/month. As for value, a similar property down the street sold in the mid $800's in Q4 of 2023.

Closed in December on a 6-plex in Berkeley with an in place 9 CAP, with 3rd party property management in place.

I am in contract on a 4-plex in the Adams point area of Oakland, within walking distance to Whole Foods. This is a 100% vacant building of 1/1 units with 3 garages. Assuming we close, the purchase price will be $770,000. Comparables in the area all over $1M. Market rents are above $2k, per door. The units have had all electrical panels and water lines upgraded with permits and new kitchen cabinets installed in all units.

All of these deals were on Redfin.

I would argue that there is money to be made in every market. It depends on property, the negotiated deal and the business plan for that particular building. I would agree that in general, the Bay Area is tough. But there are deals that hit the 1% rule and also bring in appreciation. 

I don't know anything about the 12 unit that the OP was referencing. But the nice thing about a commercial property is that you do have control over the value of the property. buy-out costs have to be baked into a business plan along with a clear understanding of what the property can produce over a given timeline. 

$2.2M for 12 units could be a really good deal in a good location with the right plan or it could be money pit and the end of an investor if it is in the wrong place or a bad building. It is all in the details of the deal and person driving the plan. 

@Keira Hamilton be aware that each city is different in their eviction rules. As an example, what might be ok in Fremont doesn't apply in Oakland. Start with a paper trail. As soon as he is late, you need to document it and properly notify him. Build your case so your attorney will have an easier time. But start with checking the rules in your particular city.

Good luck!

-Arlen