Bay Area new investor

San Jose, California
Starting Out
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Bay Area new investor

Jack Jiang
Member since 2022 · 23 posts · 15 votes

Hi all, I am Jack, a super rookie investor based in the Bay area. My partner and I earned fairly ok on W2s, and we have just started buying real estate since 2021 - bought our primary home (3B TH) in Mountain View in May 2021, and bought our first investment property (4B SFR) in GA in March 2022. We made tons of mistakes buying our first two properties (I can share them in another post if you are interested), but it is what it is, and we are planning for the next steps.

Goal:

1. (mid-term) Change to another SFR in the Bay area in 2-5 years (mainly for family purposes).

2. (long-term) Continue to grow investment property portfolios in GA (or other states). I personally like GA since I went to college there. 

3. (long-term) Involve in slightly larger real estate projects (e.g. apartment, storage, development etc.) while not quitting my job (yes I kinda enjoy my day job).

Challenges:

1. SFRs in the Bay area are crazy expensive, the down payment and mortgage payment would be a huge gap to fill.

2. My primary home has a limited upside (after all, it's a TH), and we don't see the rent outgrow the mortgage payments in 2-4 years (it's ~$4600 vs $7500 now). Most likely there's no way for us to afford the new SFR without selling the current home.

3. The investment property in GA is barely cash flowing right now. I am not confident that I would be able to cash-out refi in 2-5 years given the rising interest rate.

Questions:

What should be the right strategies for long-term planning? Currently, I have 2 thoughts: 

1) Rent out my primary home as much as possible (which would bring us ~1500-1600/month), save, and invest conservatively in the next few years (both in stock and RE). We can probably afford the new SFR in 2-5 years after selling my primary home.

2) Invest aggressively into crypto, syndication, private fund, RE, etc., and potentially delay the SFR purchase plan according to the status of the investment.

It's a hard decision to make since the economy this year is a bit flaky. I have some cash reserve on hand, but I am not sure if I should go all-in right now (or any soon). Experienced investors and senior members please advise me on how the plan could be made, and what mistakes I should avoid. Thank you all so much in advance!

Also feel free to reach out if you want to connect. I am a bit shy but I am trying to overcome that :).

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Most Popular Reply

Allan C.
Rental Property Investor · Member since 2018 · 826 posts · 809 votes
4y

@Jack Jiang I'll provide the contrarian views based on my experience. First, don't get out of CA as others suggest. If you have good W2 income you'll see your wealth accelerate faster in CA once you get into REI. Second, I would ditch the TH. As you noted the appreciation is worse than for SFH or MF, and you'll get stuck with increasing HOAs that don't add value.

Third, I would not pursue the ADU route if you have a high income and demanding W2. You are in a good financial position because of your primary job, so it's likely better you keep your bed focused on doing that well and passively investing in RE. Doing large value-add plays are good when you have experience or more time to give. Doesn't seem to be the right fit for your situation.

House hacking a 4-plex is an option if you don’t mind more shared walls and mixed income neighbors. Otherwise, get into syndications as a LP to build up your equity position to buy nicer assets down the line.

The key to winning in CA is time and patience. Early years of owning a property are ugly from a cash flow perspective.

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  • Sean O'KeefePro Member
    CPA | Accepting new clients | 50 States · Member since 2022 · 1k+ posts · 870 votes
    2y

    Following - I'm also based in the Bay Area

    [email protected]628-241-0888
    0Reply
  • Raju BalakrishnanPro Member
    Rental Property Investor · Santa Clara, CA · Member since 2016 · 219 posts · 112 votes
    2y

    It may be a good time to buy in California. Bay area, and California market came down as the interest rates hiked. Now most of the South bay and East area is in an upward trend in prices. Many of the surrounding areas are in uptrend also. Further the people leaving bay area has stabilized. The tech Stocks are appreciating. These are good signs for real estate here. Tech layoffs are a threat, but if Fed reduce interest rates that will give a further boost to the market in 2024. Several popular out-of-state markets like midwest might see reduced interest as interest rate go down.They  did not see a price decline in 2023 as investors flocked to markets with high caps as interest rate went up (e.g. Cleveland).  

    1Reply
  • Osazee Edebiri
    Realtor · San Jose, CA · Member since 2015 · 318 posts · 154 votes
    2y

    I don't see a bad time to buy in the Bay Area, as long as whoever is buying is qualified and has 3 to 6 months of rainy day reserve money (to cover things like tech layoffs, all of my clients I talk to that where laid-off found new work within this time period). I think the main thing that changes with the market cycle, especially in the Bay Area, is what type of investment strategy one does. However, I don't think you can go wrong with the house hacking strategy, offers the lowest down payment and interest rates to buy expensive Bay Area properties. If ones life adjust down the line, they have options, sell to reposition if they need to move out of state, hold on to it and rent it to gain appreciation in the future, etc.  

    1Reply
  • Arlen Chou
    Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes
    2y

    @Jack Jiang The Bay Area is a different animal and the rules and strategy are different than the generic stuff on BP. I own properties in Berkeley, Oakland, Fremont, Milpitas, Mountain View and Los Altos. All of these sub-markets are different, your general strategy can be similar but you have to create specific game plans for each market. My general plan is "buy and hold". This translates to playing for appreciation, pulling cash out of the those properties and then re-deploying those funds. 

    At the beginning of your investment journey you either need time or money. It is great if you have both, but generally people starting out have more time than money. This time, in a "buy and hold" strategy, needs to be converted into sweat equity. Further extrapolated, "pain = profits". This pain is going to be either in you labor, legal fights, tenant issues, but most likely a combination of all of them. If you are not willing to go through the pain then look for a different market.

    If you are willing to deal with all of the headaches and fight for years, my experience has shown me that there is a pot of gold on the other side. But you will need to start in sub-markets that might not be where you want to live right now. There is no easy path. 

    The good news is that you have a base to start from. As suggested, go with a HELOC and not a cash out refi. The reason is that, if you get a good lending rate, you can refill a HELOC by paying it down and then deploy the money again. I have written about my process on BP several times and you can look those up. But in general, I pulled a HELOC, used the money to buy another property, seasoned the property and got new debt on that building. I then paid down my HELCO. The benefit for me was that I looked like a cash buyer and made me more competitive during the bidding process.

    Prices are not going to come down in the near future. Most people are locked into 30 year fixed rate mortgages under 4%. This alone will constrain the supply side for a long time. Even if the Fed drops rates, it will be in very small increments and will probably take years to get back to below 4%, if ever.

    Regarding buying into syndications, I have invested in several out of state. I use this as my strategy to invest in far off markets. In the past, I have made some very good money. But keep in mind syndicators are in a world of hurt right now because of the rise in interest rates. Also keep in mind that your money is tied up in the deal until the GP decides to sell. There is less management pain for you, but there is also less freedom. 

    Without knowing more about your situation it is impossible to give you a specific plan. But I can tell you what I did. Get roommates while you are young. Save money like your life depends on it, because it does, and live like a monk. I spent several years, focusing on building the strongest DTI ratio that I could. Everyone always wants to get into the hunt for a deal. The reality is that to be successful in winning the deal, the financial preparation before the hunt is more important.

    Good luck,

    Arlen

    3Reply
  • Jack Jiang
    OP
    Member since 2022 · 23 posts · 15 votes
    2y
    Quote from @Arlen Chou:

    @Jack Jiang The Bay Area is a different animal and the rules and strategy are different than the generic stuff on BP. I own properties in Berkeley, Oakland, Fremont, Milpitas, Mountain View and Los Altos. All of these sub-markets are different, your general strategy can be similar but you have to create specific game plans for each market. My general plan is "buy and hold". This translates to playing for appreciation, pulling cash out of the those properties and then re-deploying those funds. 

    At the beginning of your investment journey you either need time or money. It is great if you have both, but generally people starting out have more time than money. This time, in a "buy and hold" strategy, needs to be converted into sweat equity. Further extrapolated, "pain = profits". This pain is going to be either in you labor, legal fights, tenant issues, but most likely a combination of all of them. If you are not willing to go through the pain then look for a different market.

    If you are willing to deal with all of the headaches and fight for years, my experience has shown me that there is a pot of gold on the other side. But you will need to start in sub-markets that might not be where you want to live right now. There is no easy path. 

    The good news is that you have a base to start from. As suggested, go with a HELOC and not a cash out refi. The reason is that, if you get a good lending rate, you can refill a HELOC by paying it down and then deploy the money again. I have written about my process on BP several times and you can look those up. But in general, I pulled a HELOC, used the money to buy another property, seasoned the property and got new debt on that building. I then paid down my HELCO. The benefit for me was that I looked like a cash buyer and made me more competitive during the bidding process.

    Prices are not going to come down in the near future. Most people are locked into 30 year fixed rate mortgages under 4%. This alone will constrain the supply side for a long time. Even if the Fed drops rates, it will be in very small increments and will probably take years to get back to below 4%, if ever.

    Regarding buying into syndications, I have invested in several out of state. I use this as my strategy to invest in far off markets. In the past, I have made some very good money. But keep in mind syndicators are in a world of hurt right now because of the rise in interest rates. Also keep in mind that your money is tied up in the deal until the GP decides to sell. There is less management pain for you, but there is also less freedom. 

    Without knowing more about your situation it is impossible to give you a specific plan. But I can tell you what I did. Get roommates while you are young. Save money like your life depends on it, because it does, and live like a monk. I spent several years, focusing on building the strongest DTI ratio that I could. Everyone always wants to get into the hunt for a deal. The reality is that to be successful in winning the deal, the financial preparation before the hunt is more important.

    Good luck,

    Arlen


    Arlen, that's very well said! A few updates 2 years from when I initially posted: I still owned the same TH that I bought in 2021, and rented out pretty much entire 2022 and 2023. I bought 2 more SFH in GA, one "bad" deal and one "good" deal in 2022/2023

    This year I am planning to start investigating STR for the Airbnb tax loophole so I can deduct expense from my W2. Probably a little late since accelerated depreciation is only 60% this year

    0Reply
  • Shiwei Qu
    Member since 2023 · 37 posts · 23 votes
    2y

    Hi Jiang, such a good post with great experiences here. I am also considering buying STR for the exactly same reason that you mentioned. May I ask which market you are interested? Since you are investing at GA I assume maybe Savannah or smoky mountain are your primary choices.

    0Reply
  • Arlen Chou
    Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes
    2y
    Quote from @Jack Jiang:
    Quote from @Arlen Chou:

    @Jack Jiang The Bay Area is a different animal and the rules and strategy are different than the generic stuff on BP. I own properties in Berkeley, Oakland, Fremont, Milpitas, Mountain View and Los Altos. All of these sub-markets are different, your general strategy can be similar but you have to create specific game plans for each market. My general plan is "buy and hold". This translates to playing for appreciation, pulling cash out of the those properties and then re-deploying those funds. 

    At the beginning of your investment journey you either need time or money. It is great if you have both, but generally people starting out have more time than money. This time, in a "buy and hold" strategy, needs to be converted into sweat equity. Further extrapolated, "pain = profits". This pain is going to be either in you labor, legal fights, tenant issues, but most likely a combination of all of them. If you are not willing to go through the pain then look for a different market.

    If you are willing to deal with all of the headaches and fight for years, my experience has shown me that there is a pot of gold on the other side. But you will need to start in sub-markets that might not be where you want to live right now. There is no easy path. 

    The good news is that you have a base to start from. As suggested, go with a HELOC and not a cash out refi. The reason is that, if you get a good lending rate, you can refill a HELOC by paying it down and then deploy the money again. I have written about my process on BP several times and you can look those up. But in general, I pulled a HELOC, used the money to buy another property, seasoned the property and got new debt on that building. I then paid down my HELCO. The benefit for me was that I looked like a cash buyer and made me more competitive during the bidding process.

    Prices are not going to come down in the near future. Most people are locked into 30 year fixed rate mortgages under 4%. This alone will constrain the supply side for a long time. Even if the Fed drops rates, it will be in very small increments and will probably take years to get back to below 4%, if ever.

    Regarding buying into syndications, I have invested in several out of state. I use this as my strategy to invest in far off markets. In the past, I have made some very good money. But keep in mind syndicators are in a world of hurt right now because of the rise in interest rates. Also keep in mind that your money is tied up in the deal until the GP decides to sell. There is less management pain for you, but there is also less freedom. 

    Without knowing more about your situation it is impossible to give you a specific plan. But I can tell you what I did. Get roommates while you are young. Save money like your life depends on it, because it does, and live like a monk. I spent several years, focusing on building the strongest DTI ratio that I could. Everyone always wants to get into the hunt for a deal. The reality is that to be successful in winning the deal, the financial preparation before the hunt is more important.

    Good luck,

    Arlen


    Arlen, that's very well said! A few updates 2 years from when I initially posted: I still owned the same TH that I bought in 2021, and rented out pretty much entire 2022 and 2023. I bought 2 more SFH in GA, one "bad" deal and one "good" deal in 2022/2023

    This year I am planning to start investigating STR for the Airbnb tax loophole so I can deduct expense from my W2. Probably a little late since accelerated depreciation is only 60% this year

     @Jack Jiang be careful of Airbnb at this time. Operators are getting hammered right now and many municipalities are coming down on the business model. The tax savings on an airbnb is a cool sidenote, but that is all it is. You don't make money by saving on taxes, you make money by building a business that needs to pay taxes. Tax savings strategies are are tools to keep more of what you make not to make more. 

    Good luck!

    -Arlen

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