Originally posted by @Shiva Bhaskar:
Originally posted by @Nick Colvill:
Jumping in to real estate was a well-calculated move. I live in San Jose, and this market is notorious for making people lose faith in their ability to purchase.
I bought my primary residence in May of 2017 - a brand new million dollar 3 story 2200 sq ft home and closed on a 500k vacation/rental in Lake Tahoe right before the new year.
The primary was financed with 10% down and the rental was financed with 20% down.
I strongly believe the the community I purchased my primary in has massive potential upside, and have been blown away by the prices i've seen my neighbors sell their properties for within just a year of owning.
I'm sharing this in the "success stories" section because I can't stand how discouraged people get, and I truly despise the mindset of "i'll just wait for the market to crash"
We need to find a way to make it work - no one will do it for us
Hey Nick, fellow CA investor here (LA area, but used to live in SF and lots of friends and family in the Bay Area). I like San Jose as a market. I think that while a lot of our of state folks (no offense intended) tend to focus on the absolute prices in the Bay Area, reality is most San Jose zip codes are far from the most expensive parts of the Bay Area.
I have a cousin who bought in San Jose in 2005 or so, were a bit underwater during the crash but stayed there, and sold in late 2017 with quite a bit of appreciation, to move to Saratoga, since their incomes had improved, and the school they were zoned for was not the best one in San Jose. The people who bought their house were perhaps much earlier in their careers, and saw San Jose as a good place to start out (for over 800 thousand bucks, lol). San Jose is thus not too expensive or too cheap relative to the Bay Area in general, or so it seems to me.
Point being, I do think there's upside IF you are holding for a while, and planning to live there, or if you move, you can put in a good tenant (which is not an issue at all in your market). Still, if you are going to invest up north, I firmly believe you'll enjoy the most success if you avoid newer construction and try to get into deals that need at least some rehab, assuming you can build a good network of construction folks. Obviously different for the house you live in, I get that.
I bought one in LA County in a gated community earlier this year, that was built almost 15 years ago and needed some interior work, and the return on the work we did, in terms of both value and rental price bump, has been great, and the area is really growing. San Jose can be a great market if you focus on the right deals - there are people making money hand over fist by doing so.
Hey Nick, to follow up on your response about new builds, I differentiate a primary vs. an investment. I actually think a new house without any hassles is a great place to raise a family and stay in for 20 or 30 years. I'd consider doing it myself when that time comes. I am not a guy who enjoys fixing stuff in my own house etc.
Now, as far as rentals, I have a direct basis of comparison on this, with the property I mentioned in LA that I bought earlier this year. Next door to the gated community I purchased in, is another gated community that KB Homes just finished. Our place, built in 04/05 went for $535K, 3 bed 3.5 bath, while similar units (actually, only 2.5 bath), and slightly smaller than ours, sold for $660 to $680K, brand new, looked great. Now, those homes have gorgeous hardwood floors, an excellent open kitchen etc.
They also rent at the top of the market for the area (about $3500 per month), for investors who bought them. What that means is that an investor who picked up one of those could be waiting around for a while to get it occupied, compared to places that are a bit older but still nice and updated, but cost a good amount less (mine rents for $3000.00). In fact, I saw the ones more expensive than ours still sitting on the market, after ours was gone in a few weeks. You'll find that vacancy times on single family rentals at these prices really kills your ROI. Ours was snapped up quickly and we got a long-term tenant. Now, the same is true when selling as an investor - being the most expensive home in the area is often not a good thing, even if your property is higher quality. Especially if the market slows down.
With our home, the kitchen was good, but it had carpet and nasty bathroom tiles, so we did that, repainted, and put in new toilets from Costco, and the over $14K we spent on that seems to have added about $30K already to the home value, probably more in the future as we have long-term appreciation. There's a multiplier effect with rehab work, that you'll really come to appreciate as you do more of this. With a new build, the developer gets that upside.
Now, with new builds, you are correct that there are more warranties in place, and less work needed down the line, but as an investor, the premium you are paying for that, charged by the developer, is not worth it. If you were to build contractor relationships, and have the work done yourself, the value you could add to the property on your own, vs. the cost, is a no-brainer. I'm not saying to get dumpy houses in some warzone in the worst part of Oakland or Richmond, that are going to be a money pit, but the BRRR strategy, and just rehab in general, is by far one of the best ways to profit, learning that myself with this deal.
Also, keep in mind that even the best tenants are going to cause some wear and tear, and if you already paid a lot more for the property, having to fix those things when they move out, is going to add to your overall costs. If you bought a new build, those costs are already higher. I personally don't at all like the idea of tenants wearing down the nice new hardwood floors of a new construction home, especially kids and pets doing so. My laminate floors, on the other hand, look good but it's easier to handle that affordably.
In a nutshell, when it comes to your investments, don't fear something that requires a bit of work and is older, within reason, in an area you believe in. That is where the money is IMHO. You'll see on these forums there are people doing amazing rehab and value ads in your market no reason you can't, in time, find ways to do the same. Go get 'em!
