All Forum Posts by: Edward Liu

I cashed out all my bay areas rentals about 2-4 years ago, near the peak.  All the money has been invested in out of state markets at much better return and cash flow.

When stock market is breaking records in the last 2 years, but housing market has been flat or down in the bay area, it tells you something.   Positive cash flow with 90% already pay off is not good investment strategy.  2 options:

1) refinance and get money out to invest in better cash flow areas

2) Sell and invest in better cash flow areas

Personally I prefer option 2) as I am not optimistic about the market in the near to mid term.  Many friends in the bay area have told me their companies are starting to do major lay offs, from Cisco, to Stanford University, to non profit such as Girl Scout.  Google just terminated 2000 contractors positions.  Even more companies started hiring freeze and reducing contractors. This wave does not seems to focus on few companies or industries, but across many segments of the economy.

My wife and I are talking about selling our house in Palo Alto and rent for few years.   We did that before, sold in 2007 and brought larger one in 2011 for lower price and made tremendous profit in both transactions.  We still have not decided as my wife really likes our current home.   This shows how optimistic I am about the market in the bay area

SFH can also have HOA, so townhomes can be good investment if numbers can work and in decent location. In Virginia, there are townhomes with NO HOA. I have a few of them that are doing extremely well.

This depends on property class.   For class C properties, not getting good tenants recently.   For example, 1 tenant stopped paying 1 month after move in due to job loss; Another 2 new tenants are paying half rent due to job loss; 1 sec 8 tenant is not paying their share; etc.   For class B/B- properties, so far so good for the new tenants we got in the last 2-3 months.

With $1M, you should diversify, some in Real Estate (leveraged), some in stocks, some in the bank.  Definitely not all in the bank.   The mixture of assets depend on your age, risk tolerance, your net worth, etc.   There is no perfect mixture.

Also, $1M in asset does not mean person has $1M.   Many people live in million dollar homes, but with big mortgage, bank actually owns the asset.

I have sold all my properties in CA in the last 2-4 years and now all my rentals are out of state.   So it tells you my answer.   

Invest for cash flow, not for appreciation. I highly doubt a $700k SFH can cash flow if rent is only around $3500. Many people assume CA real estate only goes up, which is not the case. Many areas in CA had price drop of 40-70% during 2008-2011.

If you live in CA, then simply set up LLC in CA and purchase out of state property using the LLC(s). For many non CA residents, it is better to set up Ohio LLC only.

CA tax code is different. Even if you use Ohio LLC, but given you live in CA (operate Ohio LLC from CA), you will be taxed CA Franchise tax on the Ohio LLC (plus whatever you pay for Ohio LLC). You can not avoid the CA franchise tax as long as you live in CA. For non CA residents, they only pay Ohio LLC money, nothing at their home state, thus better to set up LLC at property state.

Are you sure lender backed out before of new construction?   Did you hear directly from lender?    This is really strange as new development will only benefit the value of your building.    Usually lender back out means building numbers don't work out (can not cash flow) or your finances has issues.   I assume numbers don't work out as the main reason why lender walked.   My suggestion is to dig deeper and contact lender directly and figure out the reason.   Same reason will likely cause next lender to walk also.

Raising rent to $715 per door does not sound like class B in the Kansas City area, I would expect class B to bring higher rent.   I have units in Kansas City area that easily bring $800+ for B-/C+ area.   

My question is why would you want to buy this?   If the reason is low price, then next buyer would expect the same thing from you.  Expect next buyers will have similar concerns as you.

Obviously don't buy if this is anywhere near market price.   

In every city I have invested in, property managers all have advised me try to avoid purchase buildings with studios.  It is more than just the turn overs, but also type of tenants - many have criminal back ground.  To the extreme that one property manager told me stories about a 12 units studio building under his management with 8 tenants registered sex offenders.   They told me it is hard to fill studio apartments unless you compromise your standards on screening.   With so many similar units (200+), it is recipe for disaster.   Don't believe what the seller tells you.   

I don't think it is coincidence where so many property managers have said the same thing to me about studio units.   Personally I own 0 studio units, so maybe I am not the best person to advise.   Just my 2 cents.

If this is your 1st deal, I would highly recommend to move on and do smaller deals first and learn.  I am not sure any bank will loan you such amount.   No investor (non family) will work with you on this due to your experience level.  

New construction does not mean property is AA.  I am not sure why you believe this is a great buy as nothing seems to stand out.   I assume construction is not completed and any number you have are not real.   It makes this type of deal even more dubious as you really need to understand the local market to say if this is a great buy or not.  Don't believe a word seller tells you!