All Forum Posts by: Daniel Akerman

@Sid Naik Hey, Sid. I don't doubt your returns! Like I said, the appreciation in the Bay Area has been phenomenal, so I don't doubt your returns one bit. My point was that basing an investment purchase PURELY on future appreciation is "speculative investing" by definition https://www.investopedia.com/terms/s/speculation.asp as opposed to "value investing." They are just different approaches. 

Speculative investing in real estate is buying something with the hope or expectation that it will increase in value, and derives all or most of its returns from that appreciation alone. Value investing is buying an undervalued asset and improving the performance of that asset and realizing untapped equity from the beginning. Any future appreciation is just icing on the cake. 

The benefit to value investing is that you're more protected from downward market movements, and you potentially make profits sooner. Investing based solely on future appreciation is inherently risky, because you're essentially betting the market will go up -- and even in the best markets that's not a sure thing or something you can predict or control. NYC is a perfect example. Everyone was jumping in on the condo market here thinking "NYC always goes up." Except when it doesn't... It's been a buyer's market here since 2018, and many condo units have lost over 25% from their peak values. Then along comes a global pandemic, which nobody could predict, and makes it even worse! Those investors who bought here banking on future appreciation are now in a deep hole. I talked people OUT of doing business with me based on that investment strategy, and now I'm glad I did. I sleep well at night. Sure, the Bay Area is a different area with different economic drivers, but that doesn't change the fact that buying on future appreciation is still speculative investing.

Don't misunderstand -- I wasn't being critical or dismissive of your approach or your results. I totally congratulate you on your results. It's not something I would recommend to most people, especially a newbie, but I think it's awesome you've made it work. It's just a totally different premise to the one I was using when I posted previously.

@Sid Naik with all due respect, what you are talking about is what many would term “speculation” versus investment. What I mean by that is that you’re banking purely on property appreciation, which cannot he predicted or guaranteed. And in that sense you are absolutely right that the Bay Area has been phenomenal. But it’s a speculative play, rather than traditional value investing.

I gave my advice assuming a different premise for investing: that you by undervalued assets that allow you to have equity upon purchase, force more equity through improvement, AND cash flow from day 1. In other words, the old dictum of “you make your money when you buy.”

@Mary Griffin if you’re interested in house hacking, definitely look into 203k loans. This allows you to bundle the renovation costs into the loan and put down as little as 3.5%. It requires you to live in the property for two years, but it’s a great tool. Special qualifications apply, but look into it with a lender.

You can also chat with some hard money lenders here and see if they could help in a house-hacking/BRRRR strategy.

A 2 to 4 family is the ideal vehicle. As it allows you to live in a unit and rent out the others, and is probably less subject to California rent control laws.

For the 203k strategy you’ll be best off looking in areas where there are distressed properties, so it’s likely to be some of the less “attractive” East Bay communities. So it has its downside. The upshot is you’re investing AND improving a community.

I saw your neighborhood list. I grew up in Abany, El Cerrito and Berkeley. I wouldn’t suggest those areas for two reasons: Expense, and lack of inventory. Albany, especially, is almost entirely single family homes, in good condition, with little opportunity for profit.

I haven’t lived there in a while, but areas around Lake Merrit (on the western side, towards downtown Oakland) could be worth looking into. Parts of West Oakland have some opportunities. Further south towards Fruitvale could be worth a look. You want to try and identify areas that are on their way up — not those that have “peaked.”

@Sam Swizzle I don’t know to whom exactly you’re referring, but I certainly wasn’t trying to “sell” Mary on anything — least of all my market. If anything, my market area is even worse for investing than hers.

It’s clear to me from Mary’s post she’s new to investing, and BP is a great place for newer investors to get guidance on things from more experienced people that perhaps they didn’t initially consider. Convenient access to the property is often high on a newcomer’s list, but in expensive markets with low cap rates should perhaps be pushed lower down the list. David Greene wrote his book for exactly that reason. So, although the advice given to Mary isn’t quite what she was asking for, it’s nevertheless valuable advice.

@Mary Griffin I’m a Bay Area native, living in NYC, and an experienced Realtor. If you’re looking to INVEST, then your primary concern should be profit and, secondly, risk. I would not recommend investing in the Bay Area for the simple fact that your capitalization rates, which directly impact profitability, are extremely low. It’s like buying an expensive stock that doesn’t give good returns. In addition, the risk is high — especially post COVID — as unemployment rises and tenant protections in California strengthen more and more.

I would definitely suggest investing in another market and simply farming out the management of the property to a management company. Even with the added expense, you will have less stress and more profit.

@Adah None I’m a realtor. You’re not dealing with a good one. And it sounds like you two did not have a thorough consultation to make sure your aims and needs are in alignment.

Your realtor may be correct that you are barking up the wrong tree in your offer strategy, in which case you should be asking — or he should be telling you — what strategy would be more successful. But a realtor telling you you’re a waste of time is not trying hard enough and isn’t worth YOUR time.

Find a realtor who works with investors and/or has invested themselves, and who is willing to be a guide to you making a successful investment rather than just a “deal-maker” who just wants to get you under contract. And make SURE you sign them to an exclusive so that they can actually be your fiduciary and legally give you pricing advice.

@Paul Beets Indianapolis hasn't been top of my list, but I'm interested. Pittsburgh is definitely on my list. I'm an agent in Manhattan, but nothing around here suits my criteria -- or my price of entry. I've been looking primarily in Columbus, OH so far.

I've had very little luck connecting with good wholesalers. What did you do to find good connections? 

At the end of the day, you aren't buying a market, you're buying an asset or property. As long as the underlying numbers for that asset are strong (and accurate), then it shouldn't matter what sort of market you are in. The important caveat here is to account for all contingencies or possibilities (or as many as possible). In other words, be real with your numbers and account for "worst case scenario" possibilities.

Where market cycle comes into play, in my opinion, is in the overall availability of properties that meet your criteria or are profitable, and in providing context for you to consider your numbers and your exit strategies. There are profitable properties in EVERY market, because each seller and each property is unique. But how you run your numbers and what considerations you make may shift depending on the market conditions. Nobody has a crystal ball, however, so the best thing to do is be conservative in your numbers and adhere to your criteria. Buy good assets with intrinsic value that are underperforming, undervalued, or distressed, and maximize their potential.

Thanks for sharing! I think it would also be really helpful to the members hear on BiggerPockets if you shared some details about the numbers and your experience. What's your ARV now that you've renovated? What were your quiet costs/carrying costs while you did the renovations (property taxes, interest on loan any renovation loan, mortgage payment, utilities, etc)? What's your gross income, operating expenses, and net operating income now? How much do you profit each month or year after debt service (if there is any)? What's your cumulative ROI? What would you have done differently if you had to do it over again?