All Forum Posts by: Account Closed

Podshare.

Suthy,

His deal is actually on the MLS. Address is 994 Capp Street in SF. It's in the Mission District. It's scheduled to close on 8/2. He knows his SF market well. Within the next few months, there's a high chance he can up the gross rent to $130k. Don't ask me how b/c I can't share this kind of info in the public. A lot of haters out there.

There are different nuisances in each market. If you KNOW YOUR MARKET, you can spot a deal from miles away and capitalize on it. 

@Account Closed is killing it in his Oakland market while I’m dabbling into his market now. 😱😱😱 In fact, I’m in contract to buy a 4-plex there, which will hit the 1% rule when I’m done with it in the next few months. Then I will see if I can find a sucker and sell it for double the price. 🤗🤗🤗

With respect to price per square foot. My biz partner and I paid $376/sf for 544 S 7th St bldg in downtown San Jose late last year. Would you call it a good deal based on the price per square foot? How about $15k/mo gross rent for $3.175M? 😜😜😜

It’s not a good deal by any means, but we’ve WANTED to own this building forever. When it came up for sale last year, my partner said we’ll buy it at any cost. 😂😂😂

We got $2,695/mo for a 2/1 on this bldg a couple months ago. You can check Zillow for the rental price history. Who would have thought we could command this kind of rental price for this “not so fancy” market? We could b/c WE KNOW OUR MARKET. We’ll do okay with it in the long run. 

Just some food for thought. 

@Amit M., thanks for the shout out.

@Suthy M., for comparison purposes, a friend of mine is currently in contract on a 6-unit bldg in SF for $1.6M. The current gross rent is $116k with 60 to 70% upside potential in rent. This is the kind of purchase you want to make... with upside potential in rent. You make money when you buy. On this 4plex, the value has already been sucked out already by the seller. That makes you a buy-and-hope or buy-and-pray investor.

I plugged this 4plex deal in my spreadsheet and got a 3.3 cap. Once the $1,500 unit is up to market rent at $2,300/mo, it's a 3.7 cap. No bueno. You want to be in the position of the seller. There's a sucker born every minute, and you don't want to be one of them.

It's apparent you haven't stress-tested this deal. What if rent were to drop 20% from today in the coming years, could you absorb the negative cash flow? Buying with low in-place rents, you could still raise rent during the recession. Again, you make money when you buy. 

To answer your question, it's NOT worth it unless you have so much money you don't know what to do with it and need a place to park it.

Slow down. Spend some time to learn about this biz and you will get rewarded. Good deals tend to be reserved for the players who know the market and in the circle. Have a great weekend.

Jack,

Sound advice and great observation from Darius. Based on my research, real estate in the Bay Area has been appreciating at a faster the pace than the rent price. What does that mean?

My sister and I bought a small 1,200sf SFH in 1996 for $200k. At the time, the rent was $1,200/mo. Our monthly mortgage payment was $1,340 plus property tax, insurance and maintenance, etc... In 1999, we took some equity out and bought another SFH for $330k. The rent was $1,800/mo. Our mortgage payment was $1,800 plus property tax, insurance, etc... In 2003, my sister bought me out of our 1st house. I took the equity and bought another house for $945k. My guess is the equivalent rent at the time was around $3,500/mo at the most. My monthly mortgage payment was exactly $3,500 plus property tax, insurance, etc...

Fast forward to today, the 1st house is worth around $1.1M. The 2nd house is worth around $1.2M, and my house is worth close to $2M. If you back out the number of years/months we have owned them, the monthly appreciation has outpaced the monthly rent when we bought at the time. Does this mean it pays to own real estate in the Bay Area rather than the repeated fallacy of it's cheaper to rent than to own here?

If I could do it all over again, I would house hack a few times to build up a bigger rental portfolio. After all, real estate is about control and leverage, right? Connect yourself with as many agents, loan officers and investors in YOUR market. Put yourself out there. Tell them how much money you have; what you're looking to buy. You never know where your deal will come from. You may not get a screaming deal, as those deals tend to be reserved for the well connected folks, but an okay deal. 

I can't stress enough about KNOW YOUR MARKET. Only then, you can spot a deal from miles away. Most people think they know their market, but in fact they don't know it very well when I talk to them. The folks that know their market can spot good deals even on the MLS while others don't see them. Also, a good deal won't sit around and wait for you. You have to pound on it when the opportunity arises.

With respect to having limited capital, I have no clue what that means in the Silicon Valley. Folks in my circle who are worth a solid 7 to 8 figures, make over $500k/year + stock options, and they think they're middle class. They whip out a cool million at a time to put down on an apartment building, and they do it every other year. People with a household income of $250-$350k think they're the lower middle class. It's like huh? So I put myself in the lower class category.

Best of luck with your house hunting.

Jack,

Bay Area Real estate is a competitive sport. The best players win. I didn’t realize owning real estate in the Bay Area is sexy until I’ve owned 10 apartment buildings with my partner. 😂😂😂

Let me give it straight to you. The people who say Bay Area Real Estate is expensive, no cash flow, blah blah blah, don’t have the know how to play in this league, or they have some 💩 to sell to you. Our market is one of the MOST lucrative real estate markets in the world. Millions and billions are made here, and people want to take their money to go and play elsewhere? I guess you and they haven’t had the opportunity to meet and talk to millionaires and billionaires who made their money HERE.

Once you’re a player in our market, you can get deals regardless of where we are in the cycle of the housing cycle. Then you will realize time in the market is as important as timing the market.

My partner and I bought 22 units last year in San Jose. We’re negotiating to buy 17 more units for $3.5M now. Then another lead just came in for over 20-unit portfolio in our market while I’m sitting on the balcony at Hyatt Regency hotel in Waikiki watching the waves. 

By the way, a buddy of mine just got in contract for a 6-unit bldg in SF for $1.65M. He thought the market has peaked since 2013 while he was watching my partner and I buying bldg after bldg since. He finally realized waiting comes at a cost. He got a decent deal though while others said no deals to be had...😜

Go figure it out and make it happen. Life waits for no one.

Aloha!

Bea,

Congrats! I was an engineer in my previous life who decided to dive in into real estate head first when I recognized an opportunity once in a lifetime in 2009. I've made it in real estate by many people's standard so that engineering degree was worth something. 

Along the way, I met an agent who used to own five 4-plexes and five SFHs in San Jose. He lost all five 4-plexes and two SFHs during the downturn. Rents barely dipped during the crash, but his income of $80k/month basically went down to $0 in 2007 and 2008. His $10k/mo of negative cash flow, which was nothing when he was making $80k and could use the write-off, suddenly became a burden. He went through $250k reserves within months. He was able to hang onto the three SFHs which had little debt and positive cash flow. 

During the downturn, he used the rents from the 4-plexes and SFHs to pay for his living expenses. He owed the IRS over $500k and about $150k to the FTB. The reason I knew all of this because I bought one of his SFHs during the downturn as a short sale and this information was disclosed on the preliminary title report. We became buddies, and he called me his lucky charm after a few transactions and I helped him with various things.

You're in a much better position in a sense that your 4-plex is cash flowing positive. Cash flow positive is critical. Local population and jobs are critical. Reserve is critical. How much reserve is enough? Run a stress test and see how much you would need to weather a 3 to 5 year downturn. My partner and I ran a stress test for our portfolio. Based on a 25% rent dip, we would need $500k in reserves to weather it for 5 years. That's $100k/year of negative cash flow. We set $500k aside for it. Done! 

Hope for the best but prepare for the worst.

Best of luck. 

Hi Deepak,

The answer is YES. Deals can be had in all parts of the real estate cycle. Once you're plugged in A market, you can see a deal from miles away. There are several parts of the puzzle when it comes to real estate and investments. Interest rate is only one part of the puzzle? Present is another part of it. 

Last year, my partner and I didn't think we would buy anything as prices were "perceived too high." We ended up buying two buildings totaling 22 units in downtown San Jose. In fact, we didn't think we would be buying anything since 2014 as we thought prices were too high. However, we have bought at least one apartment building every year. 2015 has turned out to be our most productive year as we bought 28 units for $4.615M (4 buildings total). We're completing a cash-out refinance on the last two buildings and will be pulling out over $5.1M on these 28 units combined. Did I mention that the tenants have paid down about $300k in equity during these 4 years? All tax-free money. We love our tenants as they are our partners without shared equity. :o)

My sibling and I are in contract to buy a 4-plex for $780k. Yes, right here in the Bay Area. I can't disclose the location until we close on it in about 2 weeks. The lot is big where the city said I can build 7 more units. This will be my introduction to multi-family development. I expect to spend $80-$100k on rehab and should get $7.6-$7.8k/mo in gross rent. 

It kills me to see our fellow Bay Areans going to Sac and/or OOS and buying less desirable assets in the hope of getting faux cash flow when more desirable assets, everyone would love to own and outperform in the short- and long-run, exist in our backyard. As Warren Buffett said "A smart man learns from his mistake while a wise man learns from the mistakes of others." 

Think bigger, up your real estate education, and timing would no longer be your issue. As Gary Keller said "Anyone can do it, but not everyone will." Deals will present themselves once you know what you're looking at. It's a rewarding journey if you can figure it out. Not only would it benefit you and your family, it would also benefit your kids and possibly grandkids. It's an opportunity to build multi-generational wealth.

I wish you the best of luck.

Huimin,

Welcome to Biggerpockets. I’m late to the party, but please allow me to throw in my 2 cents. I’m glad you’ve decided to keep the TH and not listening to advice by the folks who told you to sell and invest OOS. 

It looks like you're doing well financially. Here's a way to stop the bleeding from $2k/mo to $500/mo. Go to First Republic Bank and talk to them about a 5, 7 and 10 Interest Only (IO). I believe they can offer you an IO loan in the low 3's IO at 60% LTV. This should drop your monthly mortgage payment from $3.5k to $2k.

Real estate is about control and leverage. If history is any indication as Amit’s chart shown above, there’s a decent chance your TH would worth $2-$2.5M in the next 10-15 years. I can’t guarantee crap so are the folks who are peddling about OOS cash flow. 

Even if you lose $12k/yr after repairs & maintenance, that's $120k-$180k loss in the next 10-15 years. Rent should be close to double where it is today if history is any indication so you should break even in the next 7 years or so. Your ROI would still be fine if you have a long-term horizon.

Just my 2 cents. Good luck. 

Joseph,

Welcome to Biggerpockets. Getting married is exciting. Congrats! 

Everything in life has a price; thus real estate in the Bay is expensive through the nose while it’s cheaper in the Central Valley and elsewhere. If it’s your first choice and money is not an option, where would you buy? Your answer says it all. 

My buddy, @Johnson H., has a meet-up in Milpitas tomorrow afternoon. Click on his name. The link to the meet-up is in his signature. BP doesn’t like it when we post links, etc... If you have time, show up to this meet-up and get ready to have your head exploded with real estate info. I see it will have some veterans showing up tomorrow. These guys are investing in the Bay Area. See how they get it done. Our market is too lucrative to take real estate investing elsewhere. 

Cheers. 

Update: I should have hit the refresh button before I posted this post. These guys are fast. 😂😂😂

Hi Brian,

I keep it simple. Whichever agent brings me the deal, I sell it through him/her. For the REO and trustee sale deals I got during the downturn, I have been selling them through my neighbor agent. She's great. Top 1% or 5% or 10% is all BS to me. They market for themselves.

In general, I work directly with the listing agent on multifamily. The unwritten rule is that if they bring me the deal, they own the listing for life. 

This method has worked and served me well. 

Good luck.