All Forum Posts by: Preet Bains

Great analysis and easy to read! Could I somehow get a copy of that excel template you used?

4) At my work we never use a general 3% growth rate because this can differ vastly from market to market. If you google "historic rent growth" or something of the such, you'll see what I am talking about. With that said, we typically use a mix of GreenStreet reports, networking with local market participants, and internal research :) And just to add onto this, I have seen u/w at my work where rent growth over the 10 year analysis is 2% while expenses grow at 3%. It is a real possibility some markets will see no rent growth based on new supply, affordability, etc.

5) My gut tells me it would be in your best interest to hire a "professional" vs. someone getting free rent but no really a true property manager. Some property managers can provide value beyond collecting rent such as helping you gauge market rents, being up to date on local market knowledge and laws, etc. just my two cents.

@Account Closed okay I guess I'm mistaken. From what he said, he said SOME credit unions and local banks in the Bay Area are lending with only 3% down. He has not followed up yet but hopefully he is right :) either way I can definitely put up a larger downpayment 5-10%.

Do you have any recommendations? Cash only haha

 All comes down to how savvy the tenant you're evicting is. If they aren't savvy at all, you could probably get them out in under a year. Pay them $5K. $10K. Get them out.

If they are savvy, you'll need to follow protocol and will likely end up in court/rent board hearing. Sleeping there once a month might work, but it all comes down to what the tenant fights you on. 

I plan to live here full time. I already pay $3.6k in rent and do not mind paying $4k in rent as I can afford that. In addition, I get all the benefits of owning real estate like tax savings, equity accumulation related to the mortgage, and cash flow (or at least break even).

I am a little scared on the valuation side however. You could say we are at or getting near the top of the market, so what happens when a slow down does occur? Will the property be valued to some extent on its new increased income? Or will it trade with the market like SFRs? I am hoping to force some equity by bumping up rents and fixing it up but not sure if there is meat left on the bone.

@Account Closed forgot to mention you in my last response. Thanks again.

 Account Closed thank you for your feedback. Few follow up comments to your comments below.

1) I was working on gathering the other expenses but looks like you ball parked it for me. Thank you! I need to sit down and get actual expenses however and will update this page for them.

2) Thanks for the heads up. I may be confused or misspeaking but I was told and from my readings on here, my understanding is you can get a FHA loan with the lowest down payment option being 3.5% or you can get a low down payment loan from other private lenders with even a lower down payment. The FHA loan is great for people with any credit issues or to maximize getting the lowest interest rate, however, I have read in a tight market that FHA can be a deal breaker as the seller would prefer something which can close quicker. I have good personal credit (780ish) and feel confident the interest rate spread between a FHA loan and private lender wouldn't be significant enough vs. the trade off of not being able to get my offer accepted because sellers do not like FHA loans.

3) I have lived and rented in Oakland for two years now. I plan to spend another 1-3 years here and would love to take advantage of owner occupant rights to start my real estate investing career. When I do move out, all rents would be at market which would be another benefit when selling because the property could be equally attractive to an investor or owner occupant as they both would have market rents to begin with.

Would love to connect and understand different expenses you incur at your properties in the Bay Area!

Have been looking at a triplex in Oakland, CA, the details are:

- One 3 bd 2 ba with 2 car parking and deck. Entire 2nd floor. Currently rents for $2,400.

- Two 2 bd 1 ba with 3 parking spots between them. One unit rents for $1.4k and the other unit comes vacant.

I toured the property and it was a great property on the surface. All the units you could rent today with no to little work. If you had extra funds, you could definitely throw $15-35k into some updates based on your needs and wants.

So why this property is attractive to me is the income potential. As an owner occupant in Oakland I can give notice to the existing tenant (this would be difficult or impossible if you were just an investor) in the 3 bd unit and rent that to myself for market which is $4k (I pay $3.6k for a 3 bd 2 ba condo down the street with 2 parking spots in Oakland currently with my brother and this place is much larger and overall better location wise. $4k is conservative to be honest, place could probably go for $4.3k-4.5k.). That is $19.2k in additional potential income right off the bat! Another benefit of being an owner occupant is the building is no longer subject to rent control. The 2 bd unit which is renting for $1.4k could easily be rented for $2.6k (I lived in a 2 bd 1 ba unit down the street last year and paid $2.4k, when I left he rented it for $2.6k. These units are slightly superior based on square footage and parking.). This is another potential $14.4k! Combined income increase of $33.6k per year by taking advantage of owning a small income property!! 

I talked to the agent and got in contact with the mortgage folks. Long story short, we (my brother and I who both work w2 jobs in the Bay Area) can qualify for a low down payment mortgage through various banks in the area without doing the whole FHA route. It's a competitive market I understand but there are now some properties sitting on the market with price reductions. The mortgage payment for the property at 3.5% down, purchase price of $1.3M, would be $6.7k with PMI. Monthly income of $9.4k. Currently working on gathering other expenses but about $3k in wiggle room, seems like this could cash flow in the Bay Area.

Enough from me. What do you guys think? Happy to share additional info

Great discussion thus far!

I work in PE real estate and the recent noise in the equity markets, drop in commodities, the China story, and any other reason people can think of has added a lot of frothiness to investing in commercial real estate. For example, REITs are trading at a discount to NAV while core assets are trading at all-time highs. All kinds of mixed signals but the REIT market is a proxy for the private market so let's see what happens.

With that said, you have to look at the fundamentals related to RE investing (i.e. job growth, affordability, unemployment, historical pricing, etc). All the indicators appear to be healthy at a national level but you really have to focus on your particular market as they are all different. In some markets, the affordability factor has gotten way out of hand. This is especially true in the Bay Area to the point where folks are moving to lower cost of living cities, with Portland being a hot destination as Google, Facebook, and other good employers have setup base there. Another example is Houston, as their economy is heavily weighted to the energy sector, with gas prices being so low companies have started to lay off employees so there is no job growth or wage growth in addition to less demand for RE via people purchasing or renting. This has depressed RE in that market as supply / demand equalize.

But my overall take on the Bay Area is that it reached/will reach its peak soon. It is hard to predict when, otherwise I would be very rich. But what I think will happen is that a lot of these tech companies will stop getting funding as the VCs and public markets begin to tighten their belts with all this turmoil happening in the markets. In addition, a lot of companies have over hired based on competition for talent, growth plans, and investor expectation. I think people will begin to wake up to what is actually happening vs. what they think will happen. Investors in Snapchat have taken a write-down on the value, Twitter and Yahoo are laying off people, and Uber is actually losing money. These are big headlines but have done nothing. These headlines will only pickup with turmoil in the markets. Not saying it’s a dooms day as Apple, FB, Google are probably not going anywhere based on how much cash they have and the strength of their business, but the smaller tech firms that never had a chance anyways, that hired a lot of people and paid them well, will be wiped out in the coming years. All this will create less demand for RE via less renters, less people able to qualify for financing, etc. and present good opportunity for investors. Just my take. I apologize if I was all over the place but quickly wanted to get this out as I am at work :)

@brieschmidt - Makes total sense and I guess I should have clarified further.

I am looking to purchase turnkey properties (not afraid of a small rehab $5-10k) which I can hold for the long-term. This probably goes without saying but also looking for a good CoC return and healthy cash flow (doesn't everyone want this haha).

Is there an industry publication which shows good markets which fit these criteria? I think a personal recommendation would help most (so if anyone wants to help out a rookie feel free to).

I work in PE Real Estate and we typically only deal in gateway markets, however we will do one off deals in secondary markets if the returns are healthy enough. The problem for me is that I do not have the capital to enter these gateway markets with my return expectations. 

Been saving up for my first real estate purchase and have $30-35k in cash to work with, this would be a down payment (~20%). Problem is, I live in the Bay Area and can't get much which fits my budget or return expectations. As such, what are some good multi family markets (2-4 units) fellow BP members would suggest? 

Also, how do you advice finding deals in a new market and PM?