All Forum Posts by: Shane Pearlman

@Angela S. just join the meetup group and any future invites will hit your inbox.

Join us in Santa Cruz for the highly belated first real estate social meetup of 2017! Yup, I'm lagging something fierce. But hopefully that means a lot of people will come enjoy the warm weather and share a cold brew and delicious snacks.

We'll talk about some of the local and out of area deals that people have been doing. The last event, conversations tapped into market cycles, how do we know if we are at the top, partnering on larger deals, surviving rent control, systematizing your management, treating your real estate as a business, and what to do when you got red-tagged (that was no fun).

If you have never come, this is a SOCIAL event. No lectures, no formal pitching, no products, packages, gurus or anything besides avid investors telling stories and getting advice on our adventures.

When: Friday, June 23rd, 2017, 6:30pm

Where: Discretion Brewing

Please RSVP at Meetup.com so that I can manage the headcount and set expectations at the venue. 

Please support the local business we mob by spending some money and tipping for the great service we receive! They will have both food and nice drinks. Remember, Friday evening traffic can get a touch thick so give yourself some time. I'll hang there till it ends (about 10pm - 11pm depending on how conversation flows).

Can't wait to see you all, reply if you want to come.

As an aside - I've been having fun recording some of my real estate conversation with my buddy Joshua over the last year and we started to put them up on iTunes as a podcast. I'd super appreciate feedback when we hang out and if you feel inspired, leave a nice review on iTunes. I have no financial agenda, just two guys enjoying themselves and talking shop. https://itunes.apple.com/us/podcast/built-from-scr...

- Shane

People typically come from: Santa Cruz, Felton, Boulder Creek, Scotts Valley, Live Oak, Capitola, Soquel, Aptos, Watsonville, Freedom, Pajaro, Seaside, Castroville, Salinas, Gilroy, Marina, Aromas, Monterey, Carmel, Los Gatos, Campbell, Saratoga, San Jose.

@Dustin Kroeker

Welcome buddy! I have 7 doors in scotts valley and 8 up in seattle. I think santa cruz is an amazing place to invest at the right point in the cycle. Sadly, this isn't it, but if you are down to wait 3-4 years and prepare, the buying should be good in my opinion. Right now people are going bananas and we are starting to see the signs of slowdown (negative job reports, incentives at the largest complexes, increasing days on market). I wouldn't call it a down market yet, but I am betting we will soon.

I run the local, quarterly, free investor hangout and am super delinquent in setting up the next one (should be in a few weeks). If you head over to meetup.com and search santa cruz real estate meetup (you'll find two, mine if the one not by thunderbird) and join you will get an email when I set it up. Its a social meetup (no pitching, no classes), just good people, a nice brew and good stories. I'd add a link but the new moderators seem to consider it inappropriate marketing (go figure).

BTW - when you see somebody write something helpful, give it an upvote. Keeps the good ones coming back and contributing.

-S

Hi @Jason Fender,

There are a few strategic reason for using a credit back as opposed to price reduction. I actually went through them and some other context in our 4th episode of built from scratch.

1) Lower cash out of pocket. When you buy a property using a loan, you will have to pay a down payment (often 20 - 30%) based upon the purchase price. The rest of the expenses are 100% out of pocket. If you are trying to minimize the dollars spent on day one, but have room in the cashflow, a credit back is a good solution. A seller credit can be applied to all closing costs, from inspections to loan points. In practical terms, what you are really doing is rolling your closing costs into the loan, and therefor only have to pay the down payment percentage on those closing costs. Now some loans let you add closing costs, but many won't and this is an easy way to get around that.

2) Bigger numbers look sexier. People like to brag. They are emotional. Real estate investing would be a totally different game if they weren't. When two investors make an offer, one at 700k and the other at 720k w/ a 20k credit back, the net is the same. Rational people would tell the seller they are identical. But time and time again, I found that the 720k offer got chosen. In a few cases it backfired as some people prefer a cleaner and simpler offer, but most people want to brag to their friends they got 20k over asking, even if it isn't the whole truth.

3) Consider the max. Credit backs, as opposed to price reductions, have a limit as to how much you can really spend. Closing costs (title, escrow, inspections), Loan costs (point on better rates) and up front Expenses (taxes, insurance) are the main ones. I've found myself having a hard time spending over 25k in credits historically - which is totally affected by deal size. More than that and you should probably go with a price reduction.

-S

Don't forget to vote up replies you find useful. It helps keep people engaged!

Hi @David Rutledge. That is a really solid debate. One my wife and I really struggled in the early 2000s. Investing in the west coast is all about timing. We ended up buying a duplex in 2007 (oops) and watched it go from 925k to 675k while cashflowing negatively. Not a path I'd advise from an investment perspective. Thankfully I made a solid income and eventually found a way to refinance it and get it cashflowing. Today its value is 1.3M and it cashflows well bringing in a solid part of my wife's retirement income. 

The market cycles on average every 7-12 years with peaks and valley ranging from 40% drops up to 160%+ rises depending on the regional market cycles. Where has your homework indicated we are in the cycle for Irvine / OC? In my two markets (Santa Cruz & Seattle), I've stopped buying and am watching. The indicators I trust show that we have hit the top, or are near it, and I have achieved the appreciation I am going to get for this cycle. Everything I am keeping is in long-term hold mode for the next cycle.

Should you buy a personal home in CA right now? If it makes sense for you lifestyle, go for it. Just be ready for a equity drop from a macro level before you get significant appreciation. You can easily hedge for it by buying intelligently, taking advantage of micro-trends, remodeling the property etc.

Depending on how quickly your coffers refill, I would tell you to buy in a market that will provide good return on your funds, and to keep a close eye on your CA market until this next down cycle has played out (maybe 3-4 years?). If this cash is all you have to work with, then just keep looking for a really unique deal in CA until it shows, where you are confident you can force 30-40% equity through a reposition, which should hedge you against a downturn. All in all. I vote wait and learn from my adventures.

-Shane

Don't forget to vote Thanks for the people above who put in good thoughts. If you are curious to learn more about the duplex investment I mentioned above, I talked about it in the first episode of our podcast.

cap rates at the moment are absurdly low. I'm seeing deals run between 2.5 - 4.5. While I often see proformas claiming higher, the minute I run the math with real numbers, they end up in the lower end. 

Frankly, at this point, if your fourplex truly breaks even with a typical 70%ltv 30yr fixed loan, it's a standout. If it doesn't, don't do the deal and wait for the downturn with the rest of us. 

Hey buddy, welcome to BP. There is a strong local community, and while the market in town is kinda bananas right now, in a couple years when the cycle works itself out, it will be a prime place to pick up a long term hold. 

As for finding a mentor, if you haven't checked them out, there are two real estate meetups in town and one in monterey. The formal sit down monthly (pitch fest) meetup is through thunderbird, mine is a no-pitch no format beer evening once a quarter, and I think the monterey one is as well. You can find them on meetup (I'd include the link but they get mad - go figure).

Since you are talking about vacation rental, there is a thread about doing so in town: https://www.biggerpockets.com/forums/311/topics/412398-is-short-term-rental-allowed-now-in-santa-cruz?page=1#p2586678

I look forward to meeting you.

#1. There is more than enough tourism to support them. The boardwalk alone sees over 3M visitors during their primary season. The ocean, mountains and university are also solid draws.

#2. Santa Cruz has a diverse set of economic drivers

• Tourism (as mentioned above) it significant.
• Santa Cruz is a satellite of the valley job wise. My wife worked at google before our latest kid. Apple, google, facebook and other have buses that do the 45m commute (not that big a deal). Amazon has actually set up office in downtown Santa Cruz. Over 20,000 people commute the 17 to the valley daily.
• UC Santa cruz has 17,000 students + the associated economic infrastructure & research offshoots. They have the world's top genomics center, and a number of startups birthed from its research.
• The county also has enormous agricultural base, with companies like driscol, martinelli's...
• The action sports industry is centered here with Oneill, Santa Cruz bikes, Giro helmets, Surftech and a number of other global brands. The surf is some of the best and most consistent in the world, as well as some of the best mt bike trails in the us.

Tie all that together with extremely limited space, a highly conservative planning department, and demand exceeds supply.

In short, I consider the core cities in the county a very good long term hold.

Short term vacation rentals are in flux within Santa Cruz. To be explicit, I am referring to a residential home, duplex or portion of a home which is rented for less than 30 days.

To start, "Santa Cruz" is both the city and county. Each city, as well as the county itself has its own regulation.

Santa Cruz city just put a moratorium at the end of 2016 on the creation of NEW vacation rentals which are not occupied by the owner (you can still rent space within your home, or an ADU), which will run through May 2017 while they draft long term regulation. For more specifics: http://www.cityofsantacruz.com/departments/short-term-vacation-rental-stvr

Capitola has designated vacation rental zone, and requires a permit, business license, and payment of the transient and occupancy (aka hotel) tax. http://www.cityofcapitola.org/communitydevelopment/page/vacation-rental-rules-and-regulations

Santa Cruz County will allow up to 20% of the parcels within a “block” to be designated as short term rentals. This covers live oak, Seacliff, Aptos and a bunch of other pretty nice beach towns. Permits are valid for 5 years. The application requires full schematics of the property (fun times). http://www.sccoplanning.com/PlanningHome/ZoningDevelopment/VacationRentals.aspx

Most of the mountain towns, Scotts Valley, Felton, Boulder Creek… have no regulations that I am aware of.

While @Jeff B. is 100% correct about the mountain folks, which consists basically of everyone who lives off hwy 9 (felton, boulder creek, ben lomond, zayante...), bear creak and all the tiny arteries off the 17, Scotts Valley does not fall in with that crew. As someone who lived there in SV for 7 years + has rentals there, it is predominantly a bedroom community who commutes to the valley. We lived there to make my wife's commute to biotechs and eventually google easier. Rents are extremely strong and compete easily with santa cruz. In 10 years of being a landlord in SV, I have had a grand total of 2 weeks of vacancy. If you can get the right place at the right place (good luck right now, but if you can wait 2-3 years odds are in your favor), its a fantastic place for a long term hold.