All Forum Posts by: Sachin T.

Are your investments all MF and no SFHs ?

Wanted to find out what people think of this line of thinking :

  1) All your buy and holds are a business

  2) You borrow money with a downpayment, just like in any business you would have some stake (say a VC funding) and then borrow major money from bank for your business.

 3) You give the profits back to VC (so in this case the VC is the person giving your downpayment, typically yourself on the downpayment amount that was provided.

 4) You take a portion of it and grow your business

So say you buy a 100K property with 25K down, now 25K is the money you have loaned for your business on which you expect a return say 8 or 10% or more depending on the net cashflow and profit of business that comes from the rental income.

I love this way of thinking, EXCEPT in a business when things don't work, you declare bankruptcy, the VC loses his initial stake (downpayment) and the banks loose their funding as part of bankruptcy vs in a typical SF Fannie Freddie loan you CANNOT declare that and you would still owe money to bank after the business assets have been liquidated (property has been sold etc.). 

So this line of thinking, real estate buy and holds is a business BREAKS because of the recourse nature of Fannie-Freddie loans, thoughts ?

@Huimin Zhang depends on what you want,  look at this thread :

https://www.biggerpockets.com/forums/55/topics/687219-i-am-living-in-san-francisco-should-i-invest-in-sacramento?highlight_post=4062571&page=2#p4062571

Read responses from @Dan Heuschele, excellent read.

If I were you I would do both, keep the bay area home and put more cash you have to invest OOS. You have a negative cashflow that you can compensate with OOS flows. Also try changing your mortgage to interest only, you can get a 10 year IO, so your 2K a month loss is lot lower, but you still get a big depreciation benefit to offset positive rental cashflows. Ultimately all depends on how much you can hold, longer term nothing will beat bay area not even all the cashflows people talk about in BP, history is an indicator of it, refer to Dan's responses in above thread.

Is it wise to keep a negative cashflow home in the bay area for appreciation, if you can fund the negative cashflow from the positive cashflows generated from other properties. The advantage I see is the huge depreciation benefit that the property gives along with the actual negative cashflow (loss). Ideally I think it's good to have a mix of appreciation and cashflow in the portfolio, wanted to see what experts think. My strategy is to keep the property for next 7-10 years with negative cashflow but generate way more positive cashflow from other investments and also make tax free gains on the generated cashflow due to the huge depreciation benefit.

@Nahal Beckam refer to this thread :

https://www.biggerpockets.com/forums/55/topics/687...

Refer to responses from Dan Heuschele.

Thanks @Dan H.. Agreed, but what about period from 2005-2015, I think that 10 year timeframe prices moved down and then came back up, so those 10 years i would say were nearly flat to little negative ?

Do none of you guys see the risks for bay area ? What about this story of people moving out since they cannot afford it, or companies moving out in the next bear market, or prices crashing down since it went too up too fast etc. etc. Do you still believe in 10 years we will average a 3% return in the worst case even now given the last 10-20 years ?

Thanks guys, so what I am thinking is if I decide to sell and with agent fees if I am going negative, then in this case it will definitely make sense to hold. Also if I can afford to put more cash to take out the negative cashflow especially with interest only option it can self-sustain for a good 7-10 years ? Frank would you agree ?

Thanks, understood. so on what situation would you recommend keeping the home ? The only one i can think of if selling translates into a loss on what i initially put after agent commissions. No bay area investment SFH is cashflow positive especially at todays price especially if it's in top schools unless the down payment is lot more than what it should be and still purely from a finance perspective its an appreciation bet given the size of downpayment put.

So investing for appreciation is no longer a good investment over next 10 years in bay area ?

 Let me know how to connect @Jason Hsiao