All Forum Posts by: Sol Bier

For those who stumble upon this, I was able to answer my own question by breaking out a detailed excel sheet along with these links: https://www.biggerpockets.com/forums/12/topics/306...

Esesntially 75% should be target, with 80% the absolute lowest. Obviously this is all dependent on the property.

My guesses for why flips are being priced so high in bay area

1. Agent/broker owner, able to save on commission and potential GC work if running full time

2.  Adding square footage, more speculation and risk

3. Speculating on continued appreciation during build process

Regardless the deals are harder to find. Let the above serve as a rude awakening to me of the competitiveness of this market. 

Thanks guys. I've done some more digging and I am going to run numbers on flips, new construction in bay area and socal, as well as some cash flow places in TX. Obviously this will be a waste of time and inefficient, but I have time to really understand markets and get comfortable.

I may reach out to some wholesalers. My biggest strength right now is liquid cash on hand and network of high net worth individuals to tap into. Weakness is obviously inexperience, so still learning before i start tapping into said network. 

I'm not sure I am interested in syndicates. What exactly is the benefit of this besides saving me time ? The risk reward doesn't seem compelling, not only am I not learning anything, I also am assuming a similar amount of risk as an equity stakeholder with less upside. 

Apologies, meant 9k per month

By part time, I would partner with a friend who would do the day to day project management and GC and split some percentage of the profits

Hi All,

I've been putting together excel sheets for flip targets in the Bay Area as practice and I am seeing some disconnects between the standard suggestions (70% ARV, lower profit margins than many here ask for but much greater absolute profit than many here require for 4-6 months of work) given the high costs here. Obviously these are rules of thumbs, so I wanted to know what CA investors use in these high COL areas. Here is an example below

Assumes 6 month flip 

$1.2M property

Estimates $120k in rehab costs (assuming 10% to start, these may not scale with property costs)

~$260k downpayment, 9% hard money financing

~9k holding costs (taxes + interest)

$16k loan origination fee

$1.6M ARV

This would give a 40% COC return at ~$130k in profit for ~6 months of work. However this is ~82% ARV purchase price, despite what looks like to me a good return. Is normal for the bay area? Does rehab costs as a % of total cost being much lower in the bay area allow for a larger ARV purchase to be feasible?

Also, a second important question, the broker fee (on the purchase side and the sale side) would total 5%. This amounts to 70k or 50% of the total profit ! This to me is a much larger drag than the financing cost (8 months of carry cost), or even potentially underestimating the rehab costs. Is it realistic to get a realtors license, or work with a fee only realtor? 

I don't mean to belittle the work of brokers, but my situation is that this will be part time investment for me, and I have time on my side to wait for the right deal (I am not at the scale where I need volume). I'd prefer to build in a larger margin of safety by removing this fee. How would I go about doing this? Getting my license, or staging myself on the sale side and using real estate attorneys. What are the downsides to this? Does it make my bids less competitive? 

Hi All,

I’ve been interested in real estate for awhile while saving over the past few years, and looking to become more actively involved in RE investing and potentially doing this part time for the near term to see how I enjoy it. Right now I work in engineering, and have a stable high six figure income, and am young so have plenty of time to see capital appreciation. I’ve saved ~$500k so far in liquid assets to invest specifically for RE.

I’m looking for some general advice on investing strategies that fit my goals and strengths. Consider that I am am strong with financial modeling, excel and concepts of leverage & financing, and am less experienced with constructions and repairs and working with contractors. I'm based in the bay area.

My goals are the following

• Wealth generation. I’m less focused on passive income for now
• Ideally tax advantaged (if possible), since I am in high tax CA
• Something that can be semi-part time, that I can grow into a larger full time role. That means I am ok taking slightly lower ROI, whether that means hiring GC's for residential flip projects, focusing on larger multi family units where economics allow for full time property managers, etc. For the short term this means ~10-15 hours a week, but this can grow over time, but something that requires me onsite every day would not be a good fit.
• Learning ! I want to move up the value chain in RE. This means projects or properties that scale well (scaling SFRs BRRR for example may not fit this profile), and learning skills that can scale to more lucrative strategies (maybe developments).
• I am comfortable using leverage while investing
• A minimum profit per project should be high enough to warrant my time investment

Here are the investing strategies I’ve laid out, and I’d appreciate some advice on these on which you feel most lines up with my goals, if any of my assumptions in the bullet points are wrong, and if there are any strategies I missed. 

Residential:

• Single Family flips in CA/Bay area.
  • Upsides:
  • Absolute profit/COC can be high despite smaller profit margins as % of ARV.
  • Deal structures are fairly straightforwards
  • Could scale by hiring GC’s
  • Downsides
    • High tax rates
    • Seems harder to scale, and may require full time commitment ?
    • From a personal psychological perspective, the moat in flipping seems smaller since it is so popular which means more competition, though this may not be true at the ~$1M price point in CA.

MultiFamily/Apartments

• Upsides:
  • BRRRS can make more sense here, since I could use a property manager to manage the property
  • Can purchase larger units outside of CA and the deal sizes can be large enough to be worth my time (as opposed to being limited to single family flips in bay area)
  • More options for financing given underlying cash flow ?
  • Potentially easier repairs ?
• Downsides
  • In another sense harder to scale ? More unique situations in vacancy rate, can take time to bring properties back to performing

Commercial

• Upsides
  • Less competition ? Since higher price points and more unique
• Downsides
  • Tenant vacancies can last longer
  • Requires more sales and involvement during value add phase which may not align with my initial part time goals ?

New Developments

• Upsides
  • Even less competition and higher ROI since higher knowledge moat
• Downsides
  • Requires even more understanding of construction and zoning laws
  • More expensive
  • Completely full time ?

Alternatives (self storage)

• Self storage ?
• Unclear of upsides/downsides, would be interested in hearing these.