All Forum Posts by: Jerome Kaidor

@Atish Shah - OK, a 1% monthly rent equates to a GRM of 8.3. Not gonna happen in the Bay Area. Too much money chasing too few deals. Maybe a mechanics special multifamily in the Valley. I bought my Hayward building in 2001 at a GRM of 10. Right now, I would jump on a multiple of 10 in the east bay, but that's not happening either.

@Atish Shah - what's the 1% criterion? I generally go with GRM - divide the yearly gross rents into the purchase price.

This whole Castro Valley schools thing is of concern to me, because I have two preschoolers who - if we don't do something - will be going to Hayward Unified.  We have investigated moving our housing development affiliation to CV, but the CV school district says they're maxed out.

Noted RE: Castro Valley schools - I believe everything south of 580 mostly belongs to Hayward Unified.

Wow, this is interesting data!  You might want to add greatSchools ratings.  In my neck of the woods, Hayward is known to have bad schools - whereas neighboring Castro Valley has good ones.

@Nichole Stohler - I would love to add more units.  Here in the SF bay area, inventory is very tight, and prices are frankly ridiculous.   If you offer a price that the numbers would support - somebody outbids you.  There's a lot of foreign money coming in.

Something came across my email inbox - five 1bedr-1bath apartments in a converted Victorian - claimed cap rate less than 5%.  A recipe for losing money.

@Nichole Stohler - I would love to add more units.  Here in the SF bay area, inventory is very tight, and prices are frankly ridiculous.   If you offer a price that the numbers would support - somebody outbids you.  There's a lot of foreign money coming in.

Something came across my email inbox - five 1bedroom-1bath apartments in a converted Victorian - claimed cap rate less than 5%.  IMHO A recipe for losing money.

We travelled a similar path.  Never got into hotels though.  1996 - a fourplex .  2001 - an 8-unit apartment building.  2003 - a fifty-unit complex.  2006 - a 20-unit complex ( which turned out to be a loser at the top-of-the-market price we paid, and ate our lunch for 10 years ).  Last year successfully got rid of the 20 and bought a 13-unit apartment building.

We now have 74 units, minimally leveraged.   And it all started with that fourplex in 1996.  My wife wanted a tax writoff.  She dragged me in, kicking & screaming.  "But you can make 15% in a mutual fund!".  By 2001, high tech mutual funds were in the toilet, and that fourplex was standing tall.  And I discovered Loopnet.

Liability to hold?  Not at all.  Hayward properties are seeing appreciation similar to the rest of the Bay Area.  The OP is  enjoying this appreciation and almost $1K of cash flow a month AND he is also getting the depreciation on the value of the building, based on what he paid for it.  Assuming that he paid say $150K, he would get about $318/month of depreciation.  That means that about a third of that cash flow is TAX FREE.

If he sells it, he will have to recapture all the depreciation he already took, and pay tax on the "profit".

The profit might put him in a different tax bracket, and he will be shocked at the tax bite.

Let's look at mutual funds - I was checking out conservative dividend-paying funds a few months ago.  It seemed that good ones were paying maybe 2%.   Let's say the OP sells his house for $250K, pays the broker commission & various fees, winds up with $230K... which he then has to pay taxes on, knocking THAT down to (wild-assed-guess) $180K.  He sticks that in the 2% mutual fund and starts bringing home a whopping $300/month.  Taxable.

So I personally would strenuously recommend against selling the property, unless the OP plans to do a 1031 exchange into something bigger.  The problem with THAT is that Bay Area properties are currently priced at levels that guarantee zero cash flow.  Or even negative cash flow, ick.

He could stick a mortgage on it, to have a lump sum ready for when/if the bubble pops.  The trouble with THAT is timing.  There is a 3% per year "tax" on cash.  It's called "inflation".  Since the bank does not pay any interest, inflation comes right out of the buying power of the cash.  Not only that, he will be paying real interest on the mortgage.  Assuming a 4% loan, his real cost of holding that cash is something like 7% a year, ouch!

A HELOC might be a better idea. The trouble with that is that the kind of upheavals that lead to cheap properties might also cause the bank to renege on the credit line.

Bay Area values are being driven by high tech.  The dotcoms have taken over San Francisco and the Peninsula, driving ordinary people to the East Bay.   I am seeing the effect as far east as Tracy.   I am saving my shekels, waiting for the next crash.

Properties here in Hayward are going for prices that guarantee you won't make any money, at least from cash flow.