All Forum Posts by: Raju Balakrishnan

Cleveland along with several parts of OH, Detroit etc. But I agree with others that you should be able to underwrite the deal and understand it fully before investing. In these areas, challenge is not to find the properties which cash flow on paper, but to manage them. There are good neighborhoods, but those places are more expensive, higher taxes etc. There is no free lunches and all areas have its own difficulties. Choose what kind of difficulty you are prepared to take and go for it! 

Stockton is one of focus areas. Stockton is a great place to invest by several measures. It is  the closest big city  to bay area. Stockton rate of appreciation is comparable to areas like Sacramento though price points are lower. A few years back,  Stockton made it to the top 10 cities to invest I remember. City has recovered from bankruptcy in 2012.

There are rough areas in the city. But several of them are improving fast. Some streets are still bad but I see many new constructions happening. Being an old are large city (Stockton is the first city with an english name in CA)  we can expect several rough. There are several large apartment buildings with no parking. There are several empty buildings but not blighted. Insurance in several areas are costly possibly due to frequent fire incidents. 

As of now Costa-Hawkins prohibits rent controls between tenants (is that restriction ends as tenant leaves) in California. But there is a new act called "Justices for Renters" going for ballot in 2024. If that passes, Costa Hawkins will be repealed and Cities can decide on more stringent rent control. Attempts to repeal Costa-Hawkins have failed in the past, but it is possible. 

Yes if it is primary and you lived there for 5 years, probably do not need 1031 as up to 500k is tax free for married filing jointly and 250k for individuals. For 1031 the property you buy and sell both needs to be RE investments not primary. 

It is not as easy as it is often projected. In real estate you should have invest time, money (or combination of both) into it to get disproportionate income to time eventually. I would not want to use the term passive, it is never zero effort as the term passive suggest. Flipping/wholesaling etc at one end of the spectrum need time but less money. Notes, buy and holds with property manager etc are the other end which you put less time, more capital, often with lower returns. 

So if you have a bit of money I would say either be ready to be still in "rat race" but a different kind like flipping etc. Or if you can manage your living expenses, invest passively and and wait for long time to get rich. There are mixes of all these depending on how much money, time, and other resources you have. But in short there is no free lunch anywhere. 

I am not saying real estate is not good, it can serve you really well if you have right expectations, strategies, goal and above all patience. But be really be ready for that long haul, not a quick jump to "passive income". 

Congrats on making your mind to invest @Hyonji Ho. Great move.  Finding cash flow anywhere in CA is not straight forward. You would have to at least be ready to do some renovations or search really wide and deep. Appreciation is fairly easy in bay area and anywhere in CA. But you will have to hold the property several years to get your money back, often with negative cash flow. 

Out of state has cash flowing markets, but it is harder than buying locally. You should know markets and understand rentals business well. I would not advice that unless you know some areas and have local connections  already OOS. 

Since you are interested in primary home also, house hacking may work best for you. Buy a fourplex, live in one and rent the rest. Will partly compensate you mortgage and insurance, and you can put you rents to take care of rest. Bay area appreciations are likely to take care of the rest. 

 That is a really great list! Any of these are possible in any market. But bay area returns are likely to be higher as the appreciation may add to you active efforts. It is like rowing your boat with the current!  

Yes! it is hard to make sense by rents. I has been a appreciation play always. Buy for 1.5 MM, Pay 25% down, loose $500 every month. But expect to get 7%-10% organic appreciation every year to get a CoC of 25-30%. Has been working well from 2008 onwards till date, but you should have capital and should have alternate income to support the property expenses. Bay area could support that as most SFR landlords here are high earning techies.

List is not exhaustive but a very good one. When I invest in bay area, where the median household incomes and average property values are so high, focus shifts from places meets my criterion than crime and quality of neighborhood. I will not have to avoid many areas but a few based on crime. Generally downtown areas are higher in crime but comes with other advantage. 

Rent control is another strong factor as many cities have super strict rent control for duplexes and up with Oakland and San Francisco leading the way. I would avoid several cities like Oakland, San Francisco, Berkley etc just for that reason. Previously SF had fantastic growth to make sense in spite of restrictions, now its not growing as much either. 

As you and @Becca F. rightly pointed out, value add is of diminishing returns. Eventually you will hit a point where cost of renovations is more than increase in prices. The value add strategy depends a lot on neighborhoods and type of the property. 

SFRs (less than 5 units) value add often entails  buying a property which can not be bought with bank financing (e.g bad roof, open walls/flooring etc)  at a deep discount with high cost private financing. Then you  fix these issues. When you cross the point of the property is in move in condition/agency financeable there is a huge jump in value. At that stage you can sell it to masses at market rate. 

In commercials value add is all about putting features to increase rents, reduce expenses or occupancy. But that is totally a different game. 

In high cost areas like SF Bay area where prices are higher than the replacement cost, square foot addition is a viable option for value add. 

Hope this gives some idea, and there is plenty of resources online to looking including BRRRs and flipping.