All Forum Posts by: Kevin Auyong

I think you need to go there and drive the neighborhoods. Some good areas and some not so good. I won't say it changes block to block, but there's enough variance to pick and choose your areas

Sandy Springs is a good area overall. All I see are condos at that price point. Is that what you want? Just keep in mind you have hoa fees and some hoas restrict rentals

Really? Under 100K in an A or B area? I'd like to know those areas too because I don't think they exist unless you have a time machine

One thing to keep in mind is that some of the things David mentions should already have been factored in your plans now. However everything is a risk in life. Just rolling out of bed entails some risk. The point is to minimize it.

He mentions things like cap ex coming up. Well that is something that should have already been factored in already for the long term plan of living off your rentals. Every prudent person should have already done that before quiting their regular job.

Rents and expenses going up in the Ca, I can see that. But what makes him so sure rents won't go up in the out of state area too? The world doesn't revolve around the Bay area. Other areas can thrive too. I am out here in Atlanta and their is a lot of complaining how much rents have shot up.

Housing recession-he has pointed out all the negatives that happened out of state but none of those would affect the Bay area? If things get that bad, the Bay area will feel it too. With great cash flow in 10 years a lot of those out of state houses will have a lot paid off if planned right. 

Here's the thing, if they all cash flow well, if they go upside down it's not the end of the world-they still cash flow. You don't have to sell. When housing values went down, Ca was not immune. If it was your primary residence that went upside down and in the Bay area that happened to a lot of people, you were still making payments on a place that might be upside down. If it's a recession and you lost your job, how are you going to make those payments? I remember the last recession how much the commute traffic in the Bay Area went down because a lot of people lost their jobs.

If my properties took a 30% devaluation. I still have my cash flow coming in. Because of the forced equity I created when I got them of about 40%, a 30% hit still leaves me with about even. For example if I paid 50K for a house and put 10k into fixing it up I have 60K into it. Based on values it's worth now about $84K. If I take a 30% hit its worth 58K, pretty close to what I have out of pocket.

It's worth less like everybody elses houses, but your cash flow continues to cover them and give you living expenses. Now maybe rents go down a little, but you just tighten up your belt. If they take a dive where all hope is lost, it's probably just as lost in Ca too.

In Ca there is good appreciation, but cash flow is hard. People mention the 1% rule. In the Bay Area you might see 1/2%. In other markets you can see 1-2%. That superior cash flow evens up a lot of things.

I'm not saying David is wrong, but he only pointed out bad things about out of state property which he assumes will be very bad. He doesn't point out the bad things that could also happen in Ca with your primary residence. The bottom line is make a master plan. I can't tell you how many spredsheets I made with different scenarios. I still do it to this day.

Plan carefully and research well and you will be ok.

Well everyone will have a different take and in the end enough ideas have gone back and forth here that the result is there is more than one way to be successful. To each his own.

It was interesting I read something the other day that went against the grain- about 1/3 or so of the people in silicon valley are looking elsewhere because it got so darn expensive. Places like Seattle, Austin, etc. Not to say they would move, but the thoughts are percolating. This is the first I have heard of this. Do you think that a cap on real estate values might be coming soon if at all? That some people might just be giving up on living there?

I see your point Matt, The Bay area definitely has good appreciation, but it in comes in waves. Some people are referring to appreciation as being extremely high because they are looking at the past few years. They don't all count the slowdowns.

I'm not saying what I did is the best way or the right way, just offering a counter to those that ride the appreciation wave. I did that my first time around and wound up losing everything and filing BK. If you will always have a way to feed the primary residence no matter what happens with your job or the cycle of real estate value, then it is certainly a way to do it as long as you can ride it out for the longer haul. I can only go by my personal experience of real estate going down and at the time job loss. It happened to me and I am sure lot's of others. I think it is possible to happen again.

Peace of mind is also something to think about. The world is changing and I think a lot of jobs may change or disappear. 

If I had a mortgage on an expensive bay area house and lost my job, that house is now a monster. This happened to me. I had a successful business that due to changes in the world went belly up. People will say just go get a job. But for me I was at an age where I was not at the top of the hiring list. I've had friends experience difficulty getting a good job because of age. If you are renting you have more flexibilty in housing and don't have the monster over your head. In my case I never did go back to work because I had cash flow from all the little rentals out of state. But the point is I have the CHOICE to work or not work.

If you lose your job and think you can tap out equity from appreciation to live on, you probably can't because you now have no income so the bank will not loan you money. So you might be rich, but it is trapped until you can sell. Even then, how long will that last?

In my situation I always have rental income and if things got tight, it's easy for me to rent a smaller cheaper place quickly.

The last years have seen spectacular appreciation. More of the anomally than the norm. So It's easy to say how spectacular the appreciation is compared to cash flow. But if anyone thinks the Bay area will always appreciate year after year as it has in the last few years, I think they are wrong.

A few problems I see are even getting into the Bay area market because of cost and scarcity of properties. Quite possibly once you are in you may be scrambling to stay up with a mortgage and not be able to afford to buy rentals. I think appreciation will certainly continue, but not at it's current pace and certainly not always.

I haven't run numbers, but appreciation while good means your profit is locked in your residence.

1. To get it out you have to refinance which costs $ and you may not always qualify to do so. Depends on your income. If you are just making it covering mortgage and taxes, you may not have enough $$ to qualify based on debt to income ratio.

2. God forbid you get in a pickle and can't afford to keep your high dollar bay area house and lose it. All your eggs are in that one basket vs multiple smaller properties.

3. Many properties in the Bay area are top dollar and probably more difficult to do forced appreciation because most sellers know it's a hot market and there may not be much margin.

4. Some people forget other areas appreciate also, not just the bay area. So if the bay area goes up say 10% per year, another area might go up 5%. Not as much but some appreciation benefit. Plus in my smaller homes I have typically picked up about 40 to 50% of forced equity after rehabbing them and then I get the rental cash flow PLUS the depreciation expense. I think if I run my numbers after that I don't think I was outperformed by a bay area property neccessarily.

Just doing a quick check I see a house I sold in the Bay area has gone up 20% since I sold it. The 6 out of state rentals I got in exchange for it are valued at 44% more. So for now they beat the bay area.

The bay area as a primary residence has no income, the six rentals earn over $40K a year net. Plus I get a write off for depreciation.

Could I get stung? Certainly. But I am spread out over 21 homes all paid for. The value of what I paid into them gets you a 3/1.5 tract home in Pleasanton. The odds of losing them all vs losing 1 expensive bay area house are more comfortable to me. 

So pick what's best for you.

When I grow up I wanna be J and live the good life!

Can't believe it's been a year already!