All Forum Posts by: J. Martin

@Michaela G.

I think you're the first person I heard that accidentally bought some income property! lol Congrats to you on building the portfolio when you realized the opportunity. Sounds like you went through the hoops, but it's all working out now. All's well that ends well! It's a bit harder to build the cash flow that quickly in the Bay!

You're spot on with Richmond and a lot of other low-income cities around the country. I live here at my 4plex near the BART station, and it's not nearly as bad as even I had the perception of before I bought here. So it does all get lumped in. Works for me, becasue I can spend my time on the ground and differentiate between what's worth it, and what's not. Out of town buyers can't really make this differentiation as well I don't think, which gives me an advantage.

The meet-up is NOT at BART, but its about a 10min bus ride from the Montgomery BART station, up in North Beach (about 1hr10min from Richmond BART). Rogue Brewery is at 673 Union St, SF. Use google and search public transit or 511.org

Would you be interested in meeting up in the East Bay with BP members in the future? I still haven't seen a regular East Bay meetup on BP, and gathering a list of those who are interested to get that critical mass going..

Hope to see you tomorrow, and congrats on your investments!

Thanks @Denise Madrid !

I will message you. Likewise, if you ever need some help, mine is great too..

If I didn't already mention in it your intro post, a bunch of BP members are meeting at Rogue Brewery in North Beach tomorrow (Mon) night at 6:30PM. Hope to see you there!

I was just curious how everyone on here find their handyman.. I actually have an excellent handyman who works on everything for my properties. Has his own tools and truck, works efficiently (but smart! i don't like redoing projects!), and most importantly of all, TRUSTWORTHY!! I was fortunate to have run into him (and I'm happy to hook you up with him if you need some larger jobs done in the Bay Area, as I don't have full-time work for him - although he stays busy. just message me or email from my website)

But I'm also curious what other sources people use, and I'd like to find sort of a back-up handyman in the Bay Area. Near Berkeley/Richmond is preferable. At my job, we're always talking about succession planning for key individuals to the success of the business. In my case, he is also in my property manager in some respects, and having someone to rely on for repairs at least is absolutely critical for me. Does everyone get referrals from other investors? Agents? Whats-her-list? BP?

Thanks for the input!

Hi Dave,

Don't forget about the transaction costs if getting rid of the old place. You're probably going to end up eating 6-10% of the sales price, in addition to any tax implications, unless you sell it yourself.

I think of the net proceeds that could be generated by the sale as my invested equity.. Would you buy it today as a rental property today if you could buy it at around a 10% discount to market price (approximately what your net proceeds would be if you were to sell it). If not, then why are you choosing to keep your equity in an investment that you wouldn't like today? Do you plan on moving back someday? If you would buy it again at a 10% discount to market price today, then maybe the transaction costs of selling the house outweigh the perceived benefit of holding onto it.

..or maybe you just don't want to get rid of it because you used to live there!!

Either way, I think answering the question about whether or not you would buy it today at the same price as the net proceeds you could if you were to sell the property will give you a good idea if it worth having all that equity tied up. Of course, you can extract some of that equity without selling it.. Personally, I like to hold on to my properties if they're performing reasonably well and I can extract most of the equity while keeping the investment in place (are you going to deploy ALL of the equity if you sell it? or just need the marginal equity for this next deal?)

In regards to @Jefferson Miner 's concerns, a bigger danger that many did in the last boom was count on appreciation rather than cash flow when looking at financing repayment. Be sure you can withstand drops in cash flow, keep reserves, and as others said, look at the difference between ROE and cash flow returns..

Good luck with your soul searching! And on your investments!

..

@Jeffrey Magenes , I'm 100% with you.

Assuming you understand the risks, aren't changing your asset allocations, and your goal is to get long-term fixed rate money, I think you best bet is the cash-out on the real estate. Margin loans are almost always variable rate as far as I know, and can quickly get closed out if the stock market gets whipsawed, so it's not the best for a long-term stable rate funding source, IMHO.

The 401K loan won't have the 30yr amortization you could get with the home loan, so your cash flow wouldn't be as high with the 401k loan. And you won't be able to borrower the principal for as long on average.

There are banks doing 30-yr fixed rate cash out (although at lower LTVs than purchase - maybe 65-70%). There are also options for home equity loans up to 20 yrs fixed rate and home equity lines of credit with interest-only for up to 10 years, then fixed and amortized for another 10 years. The line with interest-only gives the highest cash flow in early years, but it's variable, and I would expect significant potential changes in rates over the next 10 years.

You said "inexpensive, long-term financing options." So if you're looking for the longest amortization and maturity, most stable, and low cost, I recommend the cash-out loan on RE (this would be my preference for my personal situation too. the fixed rate helps me sleep well at night). If you're looking for something shorter-term or don't mind the variable rate, I would consider one of the other options.

You'll probably like this saying from one of my former co-workers: "If cash is king, the leverage is god!" Having said that, don't forget that leverage and hubris have been at the beginning of nearly every financial disaster story since the beginning!.. Know what level of net cash flow decline would cause you to be unable to pay your loans, be prepared for the risk, and keep reserves!! Good luck in all your investments!

Thanks Karen. I agree with you there is much more that goes into potential appreciation. Demand here is high due to nearby employment centers. 5.5% unemployment in San Francisco. Little higher in surrounding areas. Residential vacancy ~2% in my area in Richmond.

But my question is less about potential for appreciation, and more about how the headline index numbers impact consumer sentiment, consumer spending, and perhaps skewing people's perception about the movement in real estate prices.. (Again, I agree with you. I don't rely on them for my investing.. But I like to keep a finger on what the public perception is and the macro numbers..

Hi @Arron Sweeney ,

I know this is a bit belated for your intro post, but saw you're nearby, and was curious how your MF search is going.. Are you buying here in the East Bay? It looks like multifamily popped back up above peak levels pretty quickly in a lot of areas, although there are still some areas below peak in the Bay.

Rents are of course up significantly all over, although those are pretty hard to realize in Berkeley, Oakland, & SF due to rent control.. It's flowing through in other areas though.. I don't really like the interest rate risk in multifamily 5+ at this point in the interest rate cycle relative to getting a 30yr fixed on a 4plex. But it really depends what kind of volume you need.. It can take some time to build a large enough portfolio of smaller properties to build up millions in a RE portfolio. But CF is better today in MF...

Hope all is going well, and good luck on your investments! Please let me know or tag my name if you know of any good East Bay REI groups or if you're interested in joining one..

As I hear day after day about rising prices and the biggest jump in real estate price indeces since 2006, I wonder how much of the measured increase is not actually due to an improvement in the market, but due to physical improvements in many of the properties being sold. i.e., How much has the mix of the condition of properties sold contributed to decreases and increases in real estate price indeces (e.g., Case/Shiller) throughout the economic cycle?

Do you think homeowners and investors may be slightly disillusioned in their "consumer confidence" due to the high headline gains?.. even though this may not be representative of gains in the price of their property? Would any flippers or people who know a lot about price indeces chime in? I am not expert on these, and don't understand how they would be able to make adjustments, if they even tried.. More details/observations below..

In 2009 & 2010, I saw a large proportion of sold homes that were in very poor physical condition (REO's etc) and not ready to be occupied, which appeared to be weighing heavily downward on price indeces. Now, I see a much bigger proportion of remodeled and move-in ready homes, which bring them back up. In my mind, this change in the "mix" of properties being sold in varying conditions - even though they are the same addresses that are being bought and sold - are making significant impacts on home-price indeces that do not truly reflect an overall increase in housing prices. People talk about the "mix" of sold homes at different price points, but not condition as much.. It appears that the portion of the increase in prices directly attributable to the hard and soft costs (materials, labor, time, capital, etc) of improving the property are the approximate amount that the indeces are being "inflated" relative to the circumstances of the average, non-rehabbing homeowner.

To demonstrate this, let's say I buy a beat-up rehab in an upward market for $200K, put in $75K in all costs, including capital costs, materials, labor, and sell it for $350K net proceeds. Of the $75K in gains, some was probably due to the increased marketability of the ready-to-move-in house due to my hard work and entrepreneurial spirit, and some of that was due to the improvement in the overall market over the 6 months it took in this hot, upward market.

Over that same period, the house next door sitting in the exact same condition with the same family in it has gone up from $300K to $330K, if they were to sell it. In this example, the "average" house went up by $30K, or 10% - while the index captured a whopping 150% increase in same-property sales on my flip, to add to the average of the price index. Yet, probably about $120K ($150K total gain - $30K in "market" gains) or 80% of the measured improvement was due to money sunk into that individual house to get that price, and some "entrepreneurial" profit for my hard work. The average homeowner is not getting those price increases in the index that are blasted by the media every day..There is no doubt that there has been some improvement in prices, but I just wonder how the average homeowner's house has gone up relative to the indeces..

It's been on my mind for a while.. Any thoughts appreciated..

Hi @Michaela G. ,

I know I'm a bit late here, but I've seen you post around on the forums, and just wanted to say hi. I've always been a bit apprehensive about building a labor-intensive portfolio out of state where I don't have a good hold on it.. So I've been buying here in Richmond. (Still somewhat labor intensive, but really not bad..).

I was curious on your thoughts, as it sounded like you managed them from there first.. But I saw your profile has Hercules.. So did you just find a PM there that was willing to manage at a reasonable price? Or someone else you trust? (I assume you're not flying back and forth!) Congrats on those entry points on the properties! Looks like you have a lot of potential upside!

Also, a bunch of SF and some East Bay BP members are meeting at Rogue Brewery in SF this Monday 11/18 at 6:30PM if you or others would like to come say hi. @Andy Kaufman , if you have any info about Berkeley meetups, that's right down the street! But I haven't seen any regular East Bay meetups on here.. Let me know if you want to start! I'd love to!

I own a partial soft story 4plex in the Bay, but not in Oakland. You may know that Oakland is in the process of inventorying soft-story building for the purposes of implementing a retrofit program along the lines of SF. It looks like 5+ buildings would be targeted 1st, then 2-4, and down to SFR's maybe.. Everyone says it's better to save up for a retrofit than pay for earthquake insurance. But as far as selling or not, there will be less impact on price before new regulations are announced, than after, presumably. I'm not sure what the impacts are for rent control, if you can use the retrofit as a "substantial improvement" and increase rents.. but that could play in to the calculation.

I work in bank regulation, and when I asked what will happen if 20%-50%+ of bay area buildings become uninhabitable due to damage - along with the ramifications for loan payments, housing supply, and money to rebuild, the consensus answer seems to be the same: FEMA will jump in and pay for everything, so why waste your money in the meantime? Does that protect your building from structural damage and potentially injuring someone? No. I know that's not a warm and fuzzy answer, but just the considerations I've heard out there..

Here's a link regarding the Oakland city plan.. Good luck!

http://www2.oaklandnet.com/oakca1/groups/ceda/documents/report/oak040369.pdf