All Forum Posts by: Tyler D.

I am looking to invest in SA, and have been told by local realtors that I should discard the 1% rule as it is not realistic/ not the right thing to focus on. I find this strange because I have found many deals on the MLS that appear to break the 1% rule. I would prefer to break 1%, if it is doable in a decent B/C neighborhood with good fundamentals.

Are these realtors blowing smoke, or is there something I am missing? If 1% isn't possible, which target should I be aiming for?

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Originally posted by @Gary Parilis:

I haven't seen any discussion on @Tyler D.'s #4 on the appreciation side: "Tend to be in more desirable areas, meaning lower chances for bad tenants." This is very important, but not necessarily an argument against focusing on cash flow. To me, it's an argument for carefully defining cash flow, where your formula includes the costs of less desirable areas and less responsible tenants: turnover (which means vacancy and paint, cleaning, etc. at a minimum), and more likely eviction. If you bake those into the cash flow calculation, you'll quickly find the properties that appear superficially to cash flow the best, actually do not.

Definitely. I learned this lesson (luckily not the hard way), when I first started looking at the highest cashflowing cities like Detroit, and random cities in the boonies without a whole lot of jobs/ opportunity around.

I found myself many properties that had beautiful paper returns but would require managing destructive tenants, crime-infested areas, etc to get that return.

Sidenote: As much as I would like to get into multifamily to scale quicker, I strongly prefer SFH for this reason as well. Less tenant turnover and they will treat it more like home.

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Originally posted by @Carlos Ptriawan:

Tyler we're talking the same thing. Appreciation can not last forever. However few sure things that will happen:
- we will become nation of renter because The Fed is printing money and those money goes to the stock market and ultimately real estate
- 1% Market in Alabama and STL will be sure going to be 0.8% market in next few years, there're already changes compare to a year ago before covid (before massive low interest rate in history)
- In your Orlando market, up until 2015, the typical R/V in your market is 0.8; today it is 0.6-0.7 with affordability index of 31%. This is the same as in Silicon Valley market where affordability is 33% and R/V index is 0.6.
- There're MASSIVE BUYING as of today in some cash-flowing market, ask your local PM if want to find out

Those High CF market can generate better IRR than appreciating market if executed property.

Summary: The trick is to buy in CF market that's going to appreciate could generate buying the same amount of money in an appreciating market that doesnt have CF if executed and chosen wisely. IRR is your friend. There're a certain type of housing that will generate even better IRR.

I suggest for this kind of question you analyze yourself based on hard factual data based on some tangile research. If you have to pay, it's worth it. I made my decision based on this. People opinion doesn't generate return but data will generate return. Try to use IRR rather than CF/Appreciation alone.

I am not sure what you are trying to say. If any type of hyperinflation occurs, you're going to see properties hyperappreciate, not the other way around.

Orlando's RTV is lower because it is a crazy hot market, and there is a ton of competition bidding up prices. 0.6% sounds optimistic for the Bay Area, maybe if you're buying a property in the hood.

Why would lower rental yields mean more appreciation?

I think your definition of a "cashflow market" is not the heavy cashflow midwest markets that I was mentioning earlier. Aside from Columbus, most of them are not appreciating. If you're talking mixed markets, I agree that you can have both, but you will sacrifice some initial cashflow for that appreciation on the back end.

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I work in SF, and have rented as I am wary of the seemingly unsustainable prices. I would like to buy a house (to owner-occupy) if it makes sense, but I can't get a clear picture of whether or not it makes sense to buy here. Often, I hear one of two extremes:

The Pro-Bay Area extreme:

"The bay area has always been expensive. I could barely afford to buy my house when I bought it, and I couldn't afford to buy it now. Get in while you can."

Problem: Extreme appreciation can't continue into purpetuity. Eventually, you'll hit a point where everyone is priced out. Seems a lot like 2000s era stock investors saying that the market can only go up.

The Anti-Bay Area extreme:

"$1.5m for a house? How can anyone afford to live there? I paid $100k for my house here in Ohio. There are homeless everywhere and poop on the streets. I don't care if I could get paid 2x the salary there, it's just too expensive."

Problem: Ignores factors such as high salaries that lead to higher prices. Brushes aside the career opportunities and massive amount of money in the area.

I'm looking for a more sober middle-ground, or perhaps a more convincing explanation for either of the extremes if they happen to be true. Personally, I would like to believe that home prices will continue to go up, but I haven't heard an argument convincing enough that I would bet $1.5million on it. Experienced bay area investors/ residents, let me know your thoughts on this complex topic!

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Originally posted by @Justin Thorpe:

@Tyler D'Alessandro

I have been an investor in the bay for over 20+ years and my start was buying a residential property, living in it for 3 years and renting it out. I bought that home in 2001.

A lot has changed since but seems like in many ways nothing has changed.

Back then “Prices were high”, the market was super competitive and people who could not afford or were scared to buy - often both - were calling a market top and a crash ahead. The same sentiment was 5x worse from people who did not live or invest in the Bay Area but felt they were somehow “uniquely qualified” to opine on the Bay Area market especially how it was a horrible place to live and had a dark future ahead. That sentiment is very prevalent today. Just surf the BP forums and you will see plenty of investors from tier 2 and tier 3 US markets offering their “expert” opinion on the Bay Area market and the “dark” future of California. So history will be a good guide, and history will tell you the long term returns on Bay Area RE are good.

The principles of investing are still the same. Buy low, add value and sell high or don’t sell if you don’t want to. Buy and hold works too. Listen to your gut and buy what feels comfortable with some element of risk and stretch built in.

Buy low means the cheapest property on the block and a place which you can forsee or force appreciation on. I can’t see how that is any different vs in the past. Money is made when you are buying.

There is a degree of speculation and luck surely. One property of mine shot up in value because a major tech co relocated their offices next door and many others followed. It was just pure luck. No research etc. Another one I bought with 100% research and analysis that many corporates were moving into that area, hasn’t done as well given Covid / WFH. Of course in the long term those prices will come back surely.

Interesting stuff, thanks for the post. Do you notice any changes in the bay area since you bought your first property? As a newcomer, it surprises me to see the huge problems that SF has in particular while being such an expensive city. Of course the pay and weather are great, but from the eyes of someone who has lived there for a short time, it doesn't seem like a city where houses should cost $1.5 million.

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Originally posted by @Heath M.:

Single families are easier to exit, larger market. I want a good mixture of all the above. I like duplexes and 4plexes because it's cheaper for insurance (per door), there's 1 roof, etc. But the singles have less turnover so it all averages out. Less phone calls from the singles as well, they see themselves as partners and not just tenants. They typically take way better care of the property and don't view it as short term.

Seems like SFH may be the smart way to go then.

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Originally posted by @Darius Ogloza:

You are describing exactly how things stood/appeared in 1997 when I bought my first Bay Area house. In contrast, we felt like we were holding a lot of face cards when we bought our new primary in early 2009. Sometimes waiting pays off. Sometimes waiting causes you to miss out entirely. No one has a crystal ball. Best to look at what people are doing rather than saying. On our part, we have bought three fixers in the past year and are looking out daily for number four.

How did each of those investments turn out?

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Hey BP,

I'm a newer investor looking to scale up, and something that seems to be throwing off my calculations are expenses that don't seem to match reality. Currently, I use the following numbers:

1) 10% Vacancy

2) 10% Maintenance

3) 5% CAPEX

4) 8-10% PM

5) Actual insurance and maintenance

My issue comes with when I am comparing properties at different price points. For example, I can compare 4 cheaper houses that rent for $500 each to 1 more expensive house that rents for $2000.

According to my numbers, the maintenance of both sets of properties would be the same. Of course, that isn't true, as the former has 4 roofs, 4x the amount of toilets, sinks, heaters, etc.

This leads to cheaper houses appearing on paper to be a better investment when they might actually not be.

Do you have any numbers/ estimates you use to more accurately find the costs of maintenance, capex, etc?

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I'm looking to capitalize on a high-growth area by buying some properties. I have multiple choices and would like your help in deciding which to go after. I have only invested in SFH so far, so your advice on the differences in rents, maintenance costs etc will be appreciated.

4 Single Family Homes

Average price for a 3BR with garage will cost around $150-$170k.

Will rent for ~$1300 each.

A comfortable option that I know will give solid returns. I will need to get higher rate investment loans on 3/4 of the properties.

Fourplex, new construction

Will cost ~600k for a 4 unit where each unit has 3BR and a garage.

I imagine rents will be lower, possible higher turnover?

Big benefit in that I can owner-occupy and lock down a low interest rate for the entire building.

Possible upside in less maintenance on new construction, possible downside if construction is cheaply made.

2 Duplexes

Can be had for roughly $300k each.

No experience on this, but gut feeling is that 2 units will be easier to sell in the future, and command higher rents.

Seems like the worst option of the three.

Your thoughts?

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Thanks for the info.

Still, I am wary about the advice here and everywhere to "buy while you can". It seems like a total feeding frenzy, and feels like the bottom could drop out at any moment. I don't see how the average person can afford these multimillion-dollar average homes, much less how they will continue to appreciate at the current rate. It seems like the market will have to hit a ceiling at some point, if it hasn't already.

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All Forum Posts by: Tyler D.

Tyler D. has started 87 posts and replied 210 times.

Post: 1% Deals in San Antonio?

Post: For long-term investing, is cashflow or appreciation better?

Post: For long-term investing, is cashflow or appreciation better?

Post: Help me understand the Bay Area/ SF

Post: Best strategy for a long-term Bay Area investment?

Post: Buy a fourplex, 2 duplexes or 4 single family homes?

Post: Best strategy for a long-term Bay Area investment?

Post: Actual Rental Expenses

Post: Buy a fourplex, 2 duplexes or 4 single family homes?

Post: Best strategy for a long-term Bay Area investment?