All Forum Posts by: Arlen Chou

wow @J. Martin great cash flow on those units you got!  

1) May 2013 purchased two 4 plexes in Mountain View $840k each.  I treat them as a single 8 plex because they are next to each other and share a courtyard. Total purchase $1,680,000. Total rehab, $102,670.07: including new roofs, tenting, kitchens, bathrooms, flooring, etc. Rent per month at purchase $7450. Current per month rent $13,100.  Rents are still under market, 2 units will have increases Q3 and 1 unit in Q4.  Current appraised value $1,175,000 x 2 = $2,350,000.

2) February 2015 5 units Santa Fe area of Oakland $600k with 50% seller financing @ 4%, amortized for 30 years, balloon in 5 years, seller did sewer lateral.  Started rehab on two units 2/21/15.  Current rents on remain 3 units, $1900.  60 Day notice given with m2m rents at $4050 for the 3 units. TBD if the current renters will stay or move out.

@Account Closed  thanks for the kind words, but finding cheap money is like finding the goose that can lay golden eggs.  I just found one lonely egg...

@Nick Wiswell, Minh is right, come on out and meet a crowd of people who are making good money with lots of different strategies.  But if you still go out of state, I would still like to see the blog!

@Nick Wiswell  your kind of getting beat up on your newbie post, and I hope it does not turn you off to the group.  There is a bunch of great people with lots of knowledge and ideas.  Let me go back to your original questions:

1) Since this is obviously a lot more work than stock market investing (and a lot less liquid, too), I'm looking for 15-20% cash-on-cash return, given a 4.25% interest rate. The 50% rule suggests it should be possible, but I'm not sure if that takes into account property management fees.

Am I crazy?

It can be done.  Crazy is all dependent upon the point of view of a person.  I think that we all agree on this point, so I don't think that asking this question really is going to evoke a solid answer.

2) Should I be contacting a real estate agent at this point? If I partner with someone here, do I even need one?

If you don't have "boots on the ground" you definitely need to find an agent that you trust. Finding a "partner" is much more difficult then you give credit. You might be able to shoot emails back and forth with somebody, but that does not necessarily mean they will partner with you, nor does it mean you should partner with them.  At least with an agent, they have a legal obligation to look out for your best interest.  I am not saying that anybody here would rip you off, but if I was going to partner with a newbie, I would go through a pretty strict vetting process.  And I would expect the same from the other person.  If they did not... I would be careful.

3) Will I need to take more than one plane trip? I expect to need at least one, but the fewer the better, since I've got a regular 9-5.

If it were me, I would take many, many trips out, especially if I was looking for a partner.  Once I had a STRONG relationship with that person, I would cut back on my trips. I know that there are many people on this forum who invest out of state without ever seeing their property.  However, I feel that these people have lots of experience and good people on the ground.  Your success will depend highly on the team you create.  The only people who have chimed in on this strategy are people who have been successful.  I would imagine there are many more people who got burned or lost money because the people on the ground took advantage of them. "Buyer beware", but that is hard if you don't see the product.

4) Any ideas better than Milwaukee?

I think you have already made your decision on Milwaukee, so I am not sure why you are asking this question. Many people with LOTS of experience are trying to say that investing near SJ can be done and profitably, but you are answering these folks like they are totally insane to even suggest that option.  Go to Milwaukee, cut your deal and blog about your experience here on BP. I have only been in the game for 2 years, so I consider myself a newbie. I personally would be really interested in a blow by blow experience of a newbie expand out of state.

Good hunting to you!

-Arlen

@Nancy L. I lived in SD for a few years, and I loved it!  I am sure that there are many opportunities in that area, but I don't have much exposure.  I had bought a condo in the "Golden Triangle" near USCD many years ago.  I never had problems with finding tenants and it was always cash flow positive.  My target renters at that time were college students.  There are 3 large universities in the area, so there are always new potential tenants.  I ended up selling it because I decided to focus on my own "back yard".  If you do come out to CA and decide to come to the BA, let us know.  If your timing works out, you might be able to come out to a meet-up.  The one being hosted this Thursday by @J. Martin has over 100 people signed up!

@Nancy L. many people say the margins are tight, but that is all relative.  I just posted about some properties I purchased in 2013.  It was in response to a newbie from SF asking about Milwaukee.  Also there is a post from me a few months ago about a 1% deal with seller financing that I got in Oakland.

I just spoke to somebody from Philadelphia this past weekend and were comparing notes.  The raw numbers for investment were different, but the percentages seemed to track fairly closely between the two markets.  This is by no means any type of real analysis.  We were just talking about 2 specific deals, so there might be a much wider swing and it just happened to be that our deals came out to similar numbers.

As for finding success, there are guys doing the auction thing, the yellow letter thing, the bandit sign thing, all the strategies you would find in other places, people are using here.

@Nancy L.  that is like walking into all you can eat buffet and asking which three items you should try...hahaha.  Being from the SF Bay Area, I would say come up north and get a taste for the difference between Southern California and Northern California.  You did not say how much time you have for this additional journey, so it is a little hard to say.  With that being said, I am sure you will get to see the ocean when you are in Santa Monica/LA and enjoy all the great stuff down there.  If you come up north, you could easily spend a week in SF alone.  But you should head out the wine country and spend a day tasting great wine and eating even better food.  If you want to go hiking or camping, there are great trails/spots within an hour of SF.  

Have fun!

-Arlen

@Nick Wiswell  data analysis is great, but you really should spend more time looking around locally.  It sounds like much of our decision process has been based upon assumptions either found here on the forum or the net.  Much of what is discussed is generalized information, and as such often times does not pertain to the Bay Area.

I am located here in the Bay Area and only started in 2013.  At this point I have 13 doors and they all cash flow from day one: 8 doors in Mountain View and 5 doors in Oakland.  No yellow letters, auction steps or fancy marketing on these deals.  I spend my time learning my farm areas by driving and walking them.  The one thing you cannot pick up by data crunching is the "feel of a market".  If  you had that "feel" you would not be so quick to dismiss @Account Closed .  The Bay Area is a different animal then any of those places on your list.

Sure many engineers cannot buy homes in Cupertino, Palo Alto or Los Altos during this period.  But you are looking for rentals right?  These same engineers who make six figure salaries, that cannot buy homes are your potential stable high paying rental tenants.  Personally, I want them priced out of the market because they will rent from me and pay down my debts.

From this point forward we potentially start going down the road of "cash flow vs appreciation"...  I would never advocate getting into a cash flow negative position, UNLESS you had a REAL strategy to turn that property cash flow positive.  You cannot be passive in this local market and hope to generate serious cash flow or wealth.  When I bought my properties in MV, the cash flow was nothing to write home about.  But after forced appreciation/tenant upgrades I NET out a 4 figure number PER DOOR and my appraised value has gone up $500k! That is in a 2 year window...  My vacancy rate is 1 week from time of showing to tenants in place.  

I am not sure if that can be done in any of the data driven markets you are considering.  Even if the market floor falls out, will my property values in Mountain View drop $500k... I think not.  If all the tech companies in the area suddenly move to another state, will I need to cut my rents in half... I think not.  People who don't know the BA area may say "yes it could happen".  But even as a newbie in this market, I think you would have to agree that this market is not going to see a 50% downward plunge anytime in the foreseeable future.

At the same time, I do know several people in the BA who invest out of state and make good cash flow.  They have good process control and work their "boots on the ground" to make their deals cash flow.   I think it is great, and I have had some serious conversations with a few investors about their experiences.  But when I look at the actual cumulative numbers they are investing/spending I always come back to investing locally.

With that being said, I realize that your starting cash position might be limiting your entry into this local market.  But you can try to raise funds from some of your engineering buddies or family.  If that does not sound a pealing, spend some weekend time and explore the areas that @Jon Huber has suggested.  I think you might find that some of the secondary markets in CA might fit your needs and you won't have to fly halfway across the US to get to your property.

Good hunting!

-Arlen

Hello @Brandon Turner,

I would really like a pod cast with an accountant that specializes in real estate. Specifically, I would like to know the most tax efficient way to move money between different LLC's, S or C corps, while taking into account asset protection.

Should the tenant pay the LLC that is holding the property or a separate LLC or S corp that is handling property management? If they do pay money to the third party, should that company take a commission and then pass the remaining funds to the holding LLC or should it hold the funds for future investment?

How about repairs, capital improvements and insurance?Should that money come from the holding LLC or from the parent/managing entity?

If the money is best to reside with the LLC that holds the property, and you have several entities, how do you bring all of those funds together to buy another property without "commingling" funds and loosing the asset protection of having separate companies?

Thank you,

Arlen

@Moshay LarenI appreciate the praise and I would be more than happy to take a look for you. But you really should try to find some guys in your area that can help you with the specifics of your market. Local guys will be able to really pinpoint problems with your ARV and renovation costs. You might be able to get some recommendations on GC's or supply houses. Look for local meet ups, I am sure that there must be some BP'ers in the Phili area. If there is not an unofficial BP meet up in your area, send out an invite and get some people together. This alone will help your business presentation if you can say you are a "regional REI meet up coordinator"!

I come from the tech world with exposure to start up companies and VC fund raising, so the details of raising money matter to me.  You will be fine if the deal is solid and you can show your audience that the upside potential is much higher than the downside risk! 

-Arlen

@Moshay Larenyou are very welcome.  My person feeling on investments from family and friends is that it is MORE important to get your ducks in a row, then just a third party business partner.  You will risk much more than money when you go to your inner circle. Family gatherings will suck if people feel like you lost their money or worse they think you stole their money!

I would suggest that once you get your packet together, pick some close BP friends and have them critique it for you.  Maybe offer them lunch or drinks in return for their time.  But try to get a seasoned eye to look at it and try to poke some holes in your plan.  If you can get past an experienced investor, you will be able to answer almost anything your family and friends fire at you.  

The only other thing I can recommend is that when you talk to them, make sure you are separating your personal relationship and your professional relationship, both internally and externally. If they say "no", don't take it personally and don't keep chasing them.  

If you come off confident/knowledgeable and the deal makes financial sense you will probably get the funds you need to move forward!  

Please report back and let us know how  your deal goes.

-Arlen