All Forum Posts by: Scott Ozawa

I too believe a recession is coming. I have a couple SFRs in Sacramento and have considered doing a cash out refi, then investing temporarily in the stock market so I can hopefully sell off quickly if the market turns. The idea being that I appreciate quickly there in a higher liquidity. Conversely, I’ve considered other plays that can work. Investing out of the state with turn keys or cash flowing properties or researching Notes investing more. Frankly, I’ve got no decisions solid yet, but I AM watching the local Bay Area and Sacramento markets closely. What I’ve come up with is that smaller MFPs are the way to go IF you can swing more than a couple million for the purchase price. In Oakland and San Jose, I see a few properties on the order of 1.x-3 mil that are MFPs. Some have very low cap rates, but these are anywhere from 2-8 units. These seem like they can be BRRR’d and the cap rate increased. For reference, a 2-3 bedroom SFR runs about the same amount. My issue is that even with my present investments, I don’t believe I have enough to purchase these alone. Due to this, I’m not spending any REAL time analyzing if they can cash flow or not, it’s just they’re what would be closest to what I can afford. Presently, what I CAN afford are crappy units in the bad parts of Sacramento, so, I am presently in a holding pattern. Really, I’m spending more time just reading up on the financial analysis side, which will determine if those East Bay or South Bay properties make sense. I’d figure that if the MFPs I see in the Bay are indeed great deals, it’s probably a question of just rounding folks up to get in on the deal. I’m also going to guess that there’s no real deals to be had though given that there are so many available. Good investors would’ve snapped up things that make sense to snap up. Meaning that the Oakland and San Jose area properties are perhaps still sketchier areas so tenant quality is bad or that the properties require too much fixing up. Frankly, I need to go actually drive through those property areas to know since I don’t live there, so it’s a bit hard to know why MFPs aren’t moving as fast in those areas. Certainly cap rates are low on many of these as I said, but also, I still don’t know how to qualify for million dollar plus loans when I only have tens of thousands in equity to throw at it. Not in any practical sense, that is. And again, my understanding of deal analysis sucks so, I’m not yet at a point where I’d post a deal to ask for investors. So, for me, I’m going to sit on things until I feel a little stronger at the analysis side of things while my existing properties appreciate. Also, someone said something about earthquakes. Quick response to that is that earthquakes are like hurricanes and tornadoes. Folks who don’t live here are freaked out by them but they don’t happen frequently enough to worry about. We prepare for them as much as possible and many MFP places need to have seismic retrofitting so, it’s just not a huge deal. If you knew a hurricane was coming, you prepare for that or have insurance that can address it. Same thing here. Scarier than earthquakes are fires and mudslides, though. They wipe out a lot of areas each year. They’re probably more akin to us as tornadoes are to midwesterners. Folks talk about how CA doesn’t have seasons. Ours are just different: the green season(winter/spring), the brown season(spring/summer), the fire season(summer/fall), and the mud season(fall/winter). That’s roughly the breakdown, but the timing straddles everyone else’s seasons.

I don't know a whole helluva lot about LLCs and being a newbie, I generally know jack about what I'm saying, so take what I have to say here with a grain of salt.

The LLC is a great way, depending on which state you're in, of protecting assets. It should be used in such a way. I understand that some states, such as Wyoming and Nevada, have laws favorable to LLCs and asset protection. However, according to a conversation I recently had with my investment advisor, those asset protection laws can be overridden if the state you're in is NOT favorable to the asset protection idea. There are varying degrees by which this could be an issue. For me, I live and invest in CA whose asset protection laws make the LLC significantly less powerful than the ones in WY or NV. However, because I live and invest here, the laws here would override any asset protection that WY or NV would provide me thereby making the LLC somewhat worthless. If I had assets in other states or if I really lived in WY or NV and had a single asset in CA, then maybe it would be worthwhile to do but not the way things currently are set up for me.

As for the difficulty in lending to the LLC, that is true, from what I hear. A colleague of mine formed an LLC for some investment properties he owned but was unable to get bank financing on his LLC held homes. I think what Brandon meant was just that BANK financing is more complicated with the LLCs than it would be for private investors. Private Investors probably want that B2B lending for other legal or tax reasons. I'm not really sure, but I'd speculate that banks are not intent on financing investments and prefer to finance personal residences. Obviously, they'll finance up to X properties which can be investments, but I think they like to keep it minimized to lower their own risk.

Anyway, like I said, I know jack about this and can only speak about the conversations I've had with others, but it stands to reason that further research along these lines would yield good results.  

Awesome! Thanks for the replies!  Looking forward to learning a lot more!

It certainly seems like So Cal is more volatile in that sense than the Bay.  I noticed SD having big swings in the housing boom

Hi, guys,

I just joined.  I live in the Bay Area and am new to Investing.  I fell into Investing following the 2008 crash.  

In the early 2000's, I bought into a townhouse in Santa Cruz. I lived there for a few years and eventually got married. She disliked Santa Cruz and pressured me to move to SF, so I bought into a TIC up there. We didn't work out and divorced shortly after moving up. Obviously, it was a bad choice for a person to marry, but she let me keep the house free and clear. Later, in 2009, the startup I worked for went under Forcing me to find work outside the Bay Area.

In hindsight, that unfortunate event lead me into Investing because I wasn't in a good position to sell and I knew eventually the market would turn which would allow me to be able to make a decent amount from selling the property.  I recently was able to sell my share after an arduous process of getting fractional financing andand doing a 1031 exchange into some new properties out near Sacramento.

I now have the bug.  I see a lot of possibilities and potential and very excited to see what I can do next.

I started out, apparently, like many, with the whole Rich Dad series of books.  Some of which were helpful, others not so much.  They did serve to get me excited, so I've been merrily researching away.  I came across this site and am reading through the eBook and whatever I can get my hands on.  There's a lot I don't know but really excited to learn.

At any rate, that's me.  I'll probably do more lurking initially, then get started doing stuff.  Hope to contribute when I can.

Cheers, 

Scott

Hi, guys.

I'm a noob and just joined. I sort of fell into RE Investing following the 2008 collapse.  Long story short, though, I've been into real estate in CA since the early 2000's when I bought a townhouse as a personal residence.  Rather, I've been more of an interested party and less of an investor or anything.

While I'm no pro, I can say that living here and watching the last couple booms and busts, I would suspect the fed rate hike will do little to change the current market.  The prices in the Bay Area are ridiculously high but jobs are strong.  I don't see that area as falling.  

I recently sold a place there and 1031'd it to Sacramento area where I picked up a couple of places in the May/June timeframe.  Both have seen growth in valuation versus what I paid for them.  One has about a 6% growth, the other about 8% based on whatever Redfin ballparked them at.  So, if I could flip the now, its a decent little gain on a short hold.  Can't do that due to the 1031, of course.  I don't know how accurate Redfin is nor how to properly value property yet, but it seemed like a decent data point.

At any rate, I suspect that any minor changes to rates right now will not have a massive effect on most property values.  Additionally, in the past couple downturns, in the Bay Area, only the upper end of the market caved at all.  The multi-million dollar homes gave up bigger losses, but the low end remained strong.  In Sacramento, there were a lot of foreclosures, but I'm not sure how soft the bottom end was as I was less active there.  I think that until we have a major correction again, prices will remain strong but slow in growth.  I doubt they will recede much in the near term.

The bigger question should be around the long term viability of the economy as a whole.  The stock market has been sketchy at best for the past year.  Lots of gains but not sure about them.  Also, venture capitalists in the Bay Area are slowing down funding of startups too, so I am more worried about whether a bigger economic downturn is around the corner in the next couple of years.  If it does occur, it might be a decent time to start picking up new properties.