All Forum Posts by: Michael Strachan

Hey Desmond, congratulations on having an early interest in real estate investing! With time on your side, you're in a great position to have success over the long run. I was actually in your exact position only a few years ago as well, except I was considering two main paths. The first is the situation you described, wanting to get started actually investing right away. There are a few obstacles as you said, particularly living in a high cost of living area like the SF bay area (getting funding with limited credit history and income being the primary factor). The other path, which was the one I ultimately chose, was to start a career which would give me increased exposure to the real estate industry as well as providing the opportunity for scalable income. For me that meant becoming a real estate agent, but I definitely would not recommend that to everyone (For you that may be flipping, wholesaling, the list goes on). My thinking was that I needed to keep my ultimate goals in mind. Acquiring investment real estate is a great goal for sure, but why did I want that? To generate passive income. Why did I want passive income? To pursue financial freedom. In light of that, I wanted to lay a good financial foundation to work from so that I could pursue real estate investing from a position of financial strength. I will be building my business, gaining experience and knowledge when it comes to transacting in real estate, all while bolstering my ability to acquire conventional financing by increasing my income and credit history. I will use these tools to purchase a multifamily property here in the Bay Area to househack, which will greatly reduce my expenses and allow me to build upon the foundation I've laid. 

I know this is a bit off-topic when it comes to the specific questions you asked, but I know that when I was in your shoes all I could think about was how I could hit that goal that I set for myself as soon as possible and jump right in to investing. As I have gotten older I've realized that it's okay for goals to change as long as you're keeping your eye on what is really important to you. Whatever you decide, I wish you all the best and I'm sure you will find success, no matter the path you take to get there. If you have any questions for me, feel free to reach out.

Good luck and happy investing!

 Hi Deepak, welcome to BP!

That depends greatly on your individual goals and needs. Currently interest rates are incredibly low, which offers a great opportunity to acquire affordable financing. You're absolutely correct that in the long term (10-15 years) it's very likely that the property will appreciate in value while being paid off by your tenants. The main barrier to entry here is definitely the higher price point of the Bay Area. If it's realistically feasible for you to acquire an investment property (25% or more down payment), it would definitely be beneficial to your financial journey in the long run. Let me know if you have any further questions or if there is anything else I can help you with.

Good luck and happy investing!

I know firsthand that this can be a huge mental block, but the good news is that it's just that! It's all mental, entirely in your head. I'm 22 and I frequently have people asking me about my age (The usual guess is 16-18). Of course people will instinctively make a snap judgment about who you are as soon as they see you, it's human nature. Take this as the blessing that it is! You will be underestimated and misjudged, but you have the opportunity to completely blow that image out of the water with your knowledge and passion for what you do. I have had people walk into my open house and ask me if my mom was the listing agent, but there is no better feeling than putting that to rest by displaying a clear and concise understanding of the subject matter. Use the traits that come with youth to your advantage! Show them that young people are a force to be reckoned with because we simply have the energy, drive, and hunger to achieve.

 Hey Zach, congrats on getting started in real estate early in life! You're on to some great concepts there. Whether you are renting the rooms individually or as units in a multifamily property, my understanding is that you will still be able to qualify a portion of the projected rental income towards qualifying for the loan, but ONLY IF you have two years of experience as a landlord or in property management. For a commercial property, the entire financing portion of the transaction is far more complex and stringent when it comes to qualifying. In either case, I would recommend starting with a small (2-4 unit) multifamily residential property to get you started. The best way to get all the answers you're looking for is simply to speak with a lender and find out what's possible for you. My guess is that it's going to be quite difficult to find something without the income to back it up and no experience as a landlord. Think about it as if you were the lender and you had someone in your position who was going to be locked up without a stable income for the next 4ish years and a good credit score but with little to no credit history who wanted to borrow a million dollars plus. That would be a tough sell. That said, you'll never know where you stand until you talk to a few people about it. If you intend to rent out the property and manage it diligently, I'm sure this could be an incredibly valuable wealth-generating strategy if you can make it happen. I'm an agent working in the Bay Area so feel free to let me know if you have any other questions for me or if you'd like to speak with my lender. Good luck and happy investing!

This is a great question, and very relevant when it comes to Bay Area living. 

The way I see it, the major pros of home-ownership while renting rooms (house-hacking) are 1) that you are accruing equity in a home with a very high value due to your location, 2) you reduce your housing expense, because you have to live somewhere anyway, and 3) your home will likely appreciate greatly over the course of your ownership of the property. Of course it could be called speculation to be relying on appreciation, and I certainly agree with that sentiment, however if you just look at the housing market's performance over time, it's very likely that over a 7-10 year period you can expect some amount of appreciation. Likely pretty sizable gains when all is said and done. If your goals are even more long-term, let's say thirty years, I don't think there are many people here that would make the argument that you wouldn't see appreciation, particularly in the SF Bay Area. 

The cons in this case would be that 1) you are now a landlord and there are plenty of headaches that come along with that and 2) you are now responsible for any maintenance / cap ex (roof replacement, etc). You are definitely exposed to more risk as a home owner vs a renter. However if you intend to invest in real estate out of state anyway, even in the event that you choose to rent your personal residence, you will be exposed to these same risks. In my opinion it's better to dip your toes in with a property that you can see with your own eyes. It's just more real when it's tangible, right beneath your feet. Nothing is more valuable than everything you will learn about property management with that first rental. 

Overall, I would recommend house hacking because I believe it's one of the most powerful wealth generators available to the average person. If you live, work, or intend to be in this area for an extended period of time, actually owning a property here is the best way to guarantee stability here. Rents, interest rates, and prices may rise or fall but I can tell you that when you have a paid-off property in one of the most affluent areas in the world, you will not regret it.

Let me know if you have any more questions or would like to chat real estate. Good luck and happy investing!

Hey Kahleb,

Cash flow is definitely hard to come by in CA, but it can be done (especially with higher down payments). The advice I give to anyone and everyone who is looking to start out investing in real estate is to read up on house hacking. It's a phenomenal tool to get your feet wet in the REI world while reducing or eliminating your housing expense altogether. Read Brandon Turner's post on the topic, but ignore the numbers he is using as they will most likely be completely inapplicable for your market. Instead focus on understanding the concept and think about how you could apply it in your own life.

https://www.biggerpockets.com/blog/2013/11/02/hack...

Good luck and happy investing!

Hello Soul, welcome to BiggerPockets!

That's a very common concern for people looking to purchase any kind of real estate. I'm a realtor in the Bay Area, so I do keep a close eye on our local market. What we have seen most recently is actually not a decline in prices as the general public seems to believe. Over the course of the nine months from April 2018 to January 2019 the average sale price of a single family home in Santa Clara county fell from $1.7 million to $1.4 million. The average sale price has risen since then to just over $1.5 million in the month of March 2019. So in fact, we are seeing appreciation in home prices in our local market. This data is all directly taken from the MLS. On the point of a coming recession, it is important to realize that the previous recession was caused by a housing crisis and NOT vice versa. We have a tendency to remember the most recent downturn and think that if we have a recession the same thing we saw in 2008 will happen again. However, of the four most recent recessions prior to 2008, three of them saw a thriving housing market with home price appreciation actually exceeding the historic norm of 3.6%. In short, it's important to remember that a recession does not necessarily mean a downturn in the housing market. The housing market is currently very healthy and we have no reason to expect a housing crash even in the presence of an economic recession, so for those reasons I believe it is a great time to buy.

 I couldn't tell you definitively what is the best course of action without knowing more about your individual situation/goals, however what I can say is that if you are going to sell, now is a phenomenal time. If it were me, I would likely sell that property and immediately reinvest. If you do not already own your primary residence, you may want to look in to house hacking as it is in my opinion the single greatest wealth generating tactic in real estate for new investors. Let me know if you have any more questions!

 Hey Nahal,

So you're definitely on to something in identifying the different metrics you specified (falling prices, rising interest rates), however that information is now a bit out of date. Over the course of the nine months from April 2018 to January 2019 the average sale price of a single family home in Santa Clara county fell from $1.7 million to $1.4 million. The average sale price has risen since then to just over $1.5 million this month (March 2019). This information all comes directly from the MLS as I am an active real estate agent in Santa Clara county and I would be happy to provide graphs, tables, etc if you like. As for the interest rate, it's true that we did expect them to rise through 2019 however there has been a new development quite recently on that subject as well. Short term and long term yields have become inverted (google inverted yield curve for more info), which is a rare occurrence but is an indicator of a coming recession. This basically means that the expected yield from a long term investment is now lower than the expected yield from a short term investment, which makes for a wonky economic environment as you might imagine. As a result of this, the Fed is unlikely to raise rates for the foreseeable future. Let me know if you have any more questions on this topic! Good luck and happy investing!

I will never understand when a realtor refuses to write an offer for their client. If they truly feel it is a waste of everyone's time and energy, then they should be able to give you a handful of reasons why. At the end of the day it costs you nothing to write an offer so do it! Even if it just gets you to the negotiating table, that's a start! As an agent working in the Bay Area, I can tell you that the market has shifted in the last couple of months and even in our area sellers who have listings that have been on the market for 45 days or more are getting nervous! Keep in mind, many of these people expected multiple offers within two or three weeks of going on market even though that hasn't been happening for quite a while now. So many listing agents do a poor job at setting expectations with their clients early. If they haven't received a single offer that should tell them that they are poorly priced and I would expect that at the very least you should be getting a counter offer. Just last week, my clients closed on a condo for almost ten percent below the original list price. It happens. Hell, if you're looking for a realtor to write it up, I would be happy to. Just my two cents.