Over priced market

46 Replies

I am living in a market (Marin county cali) where everything is going for well over asking, some of them 200k over! I am a newbie and it does not make sense to even start here when everything is over priced. There are markets nearby that are much more affordable(within in a hr of driving)   Any help or advice? 

There are deals even in those markets. Find properties where the people are desperate to get out, find wholesellers, those are where the deals are at!

Thanks Rodney, seems that there could be some door knocking involved? Its a very small and one of the most expensive places to live........Beverly Hills of Northern Cali..........

Hey @Erik Lindquist

for the most part I would agree with the comment below but as I just moved out of Marin county down to Silicon Valley it is a tough market up there. We offered and offered and offered just to be beat out by cash buyers sometimes 100k over our offer. Not to say there aren't deals in Marin but you need to find someone who doesn't want to list their place on the MLS and just needs to get out quick.

I feel like the whole bay area is like sharks swimming in a pool of blood, if your not the first to strike you are left hungry on the side lines. 

For areas that cost a little less look right across the bridge to Richmond or even just north to Petaluma or Santa Rosa.

Anyway welcome to BP and good luck! 

Hello Erik, 

Being in Los Angeles I know what you mean. The same type of thing is happening here as well. I think it would be a good idea to look at those areas that are much more affordable. An hour drive is not too bad to drive for a deal. 

 One thing to keep in mind though is market demand though. If it's an area that doesn't have much competition and it's very easy to buy a property...then it might not be too easy to resell it too. 

Also you didn't mention if your strategy was to flip or if you are looking for a buy and hold rental property? 

Erik Lindquist I tried to invest for appreciation in the Bay Area and was a victim of the crash. My new strategy is to invest strictly for cash flow and California is not an ideal market for this. I would suggest you look into out of state investing. It's not as hard as you may think if you meet the right people and do your homework. We invest in Indianapolis and Birmingham and are quite happy with our returns so far.

Thanks Guys,

I am looking to buy and hold but it makes no sense here. Maybe north or east like the foothills/ east bay where everything is somewhat close. Some homes are being bid 100 to 200k over where this makes no sense. Joey  I am assuming you have a team to seek out properties out of state. I have a couple of friends in Idaho which one said to be booming in certain spots.. 

Be careful buying in too remote an area. If the commute is too long or the area undesirable this will be the first place to drop in price during the next inevitable down-turn. As example, places like Brentwood (near Stockton) have not returned to the highs in 2007. It's better not to buy than to make a bad purchase IMHO.

Originally posted by @Erik Lindquist :

I am living in a market (Marin county cali) where everything is going for well over asking, some of them 200k over! I am a newbie and it does not make sense to even start here when everything is over priced. There are markets nearby that are much more affordable(within in a hr of driving)   Any help or advice? 

If sellers are gettings offers at $100 to $200K over what they initially requested and you are finding it difficult to get in the game locally, this is why some investors often have to look at and invest outside of their local market. There often may be a cost with waiting but constantly being outbidded. You also may have to look into other channels -- such as unlisted properties.

Hi Eric,

  I live in Marin as well (Fairfax) and work as a realtor. You are absolutely right, the market here is crazy right now. It's my opinion that Santa Rosa and the 101 corridor in general is a good place to buy right now. Values are not skyhigh and there is great potential for appreciation due to the development going on and the SMART train getting going soon.

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@Erik Lindquist

You can cross the 580 and look for deals there, or join forces with local investors to that area. There are several meetup groups you should check out.

Other than that you can and should look for off market opportunities; read on BP about the techniques to locate distressed owners and how to deal with them, research your market THOROUGHLY to understand what's a good deal (or any market you think about getting in).

Thank you Assaf. Makes sense to really spread out a bit in the bay area. I know there are opportunities in Richmond, Vallejo and other place. I will keep on looking and I should get into a meet up group because I am a newbie. I have some very good attributes to bring to table. 

Thanks 

Have you considered focusing on blowing up your income and ploughing everything into savings and waiting for the next crash?

Erik Lindquist I met and networked with several people only to find a select few of turnkey providers I'm comfortable working with. I feel it would be to risky for me to try to find my own team of realtors, wholesalers, contractors, and managers. Instead I find one trusted turnkey provider that can offer me all these services. That trust is built one deal at a time. I am at the point now where the trust is so strong that I no longer need to see the property and will buy sight unseen. If everything checks out of course. I still do my due diligence from a far and get the local investors opinions on the prop.

Joey I am assuming your meeting turnkey providers at real estate clubs etc....? 

Hey Erik, there are some good providers here on BP and you can also check out http://turnkey-reviews.com/ and read some of the reviews there.  If you decide to go out of state of course.  Im in a similar situation as you are which is why I decided to go cash flow in the mid west too!  So far its going great but it hasnt come with its ups and downs during the process.

PM me if you want more info!

Erik,

Welcome to BiggerPockets.  The Bay Area market is tough to invest for sure.  However, everything in life has a price.  When something is expensive, like real estate in the Bay, you have to ask yourself why.  When something is so cheap, you should also ask yourself why.  If it were easy, we all would be millionaires.  

What is your personal goal?  Are you investing for cash flow or wealth?  Cash flow will get you off the rat race while appreciation will make you wealthy.  The thing about cash flow markets is that the rent tends to stay stagnant while the rent increases with appreciation markets.  As you have seen the rental in our market in the last few years.  50% rent increase is typical across the Bay.  If you study history and learn its cycles, you would do well IMO.  

Let me give you some examples. I bought a couple of handful condos and townhomes during this downturn. At that time, 2-bedroom condos were renting for $1,300-$1,400/month. Fast forward to 2012-2013, they were renting for $1,750-$1,850. Now, they are renting for $2,100-$2,200/month. We're talking about $800 rent growth in 5 years. What used to be $200-$300/month above PITI is now $1k+.

As the market appreciates and your rent goes up, you can tap $100k of equity tax-free for every $500/month of cash flow.  Would you trade $500/month of cash-flow for $100k tax-free money to spend or reinvest?  Our appreciation is very lucrative once you have it figured out.  Not only it will provide you cash flow, it will also build wealth for you to pass down to future generations.  

I'd like to leave you with this quote from Master Oogway "One often meets his destiny on the road he takes to avoid it."  Please give it some thoughts before parting with your hard earned money.  No one takes care of your money better than you do.

Best of luck.

Originally posted by @Erik Lindquist :

Joey I am assuming your meeting turnkey providers at real estate clubs etc....? 

 No my friend. I have yet to attend one of those meet ups or clubs. I found all these companies by networking through BP alone.  That's what BP is all about.  I heard about the good ones and the bad ones and then researched as much as possible on all them.  Met a few great investors that kinda of took me under their wing and steered me in the right direction.  I posted a lot of questions on the forums and met some key players that way.  

Originally posted by @Minh Le :

Erik,

Welcome to BiggerPockets.  The Bay Area market is tough to invest for sure.  However, everything in life has a price.  When something is expensive, like real estate in the Bay, you have to ask yourself why.  When something is so cheap, you should also ask yourself why.  If it were easy, we all would be millionaires.

Do you have any answers for us?

I see in this thread discussions about Californians speculating on unfettered appreciation and buying in areas an hour away from the urban centers because they can't afford to buy close to where they work.  Sounds too familiar.  

Are people buying with ARMs and negative amortization yet?

@William Hochstedler

It's still possible to purchase properties that cash flow day 1 because of the low interest rate environment that were currently in. It will just take a little work and a competitive spirit to find and successfully go after the right deal. Just because something goes $100K or $200K over asking doesn't necessarily mean it can't cash flow. Realtors in the Bay Area are strategically pricing properties below market to create a competitive bidding environment. 

Supply is extremely tight in the Bay Area and it will always be tight because there's very little developable land available and there's huge demand to live here. If someone is priced out of Marin, why not look to Napa, Sonoma, Santa Rosa, etc. or the East Bay as others have said where there are plenty of deals in the sub-$1M range. 

The difference between 2005 and now, is that back in 2005 deals were bought at a massive negative amortization, as you stated and they were purchased solely as a gamble for appreciation. Today, lending is much stricter and the numbers will need to and can pencil out on deals. The Bay Area is actually historically the best market for buy and hold investors and the stats prove it. Investors who can afford to invest here but choose to go elsewhere for their first couple deals are in my opinion taking the easy way out and have a myopic view of the market. 

You can also take a look at these other recent forum posts on the topic for additional information:

http://www.biggerpockets.com/forums/55/topics/2140...

http://www.biggerpockets.com/forums/55/topics/2113...

You could get an FHA loan for a low down payment, wait for the market to turn downwards, or invest elsewhere :)

@Alex Vidal

Excellent points.  I've said much of the same regarding fundamentals about the current exuberance in the Salt Lake market (combined with the current flight from stocks and surplus of 1031 money now that investors can relinquish at reasonable prices).

We also have a race against the uptick in interest rates that I think will soften the market this fall (but no crash).  I'm not worried about a repeat.  

But I would advise all against feeling they need to hurry to not miss getting into a rapidly rising market.  Ten years is still too fresh for that kind of irrationality, but I'm sensing a bit of it.  I watch for spec homes as a good indicator and we haven't seen much of that (in the same way at least)

Any thoughts why SoCal is also so tight?

@William Hochstedler

I totally agree, I don't think we're headed for a crash just a correction because the fundamentals are still there. If someone's able to lock into a 4% or sub-4% interest rate in the Bay Area that cash flows even slightly today, they'll do well if they ignore the short term and focus on the long term. Also over time, prop 13 becomes a huge benefit for buy and hold investors in CA.

Socal is a different animal, I lived down there for 6 years and it's amazing how expensive it is when there isn't the same massive white collar job force. It has a lot more retirees and 2nd homeowners in the wealthy areas along the coast. I think Socal also offers more opportunities for multi-family purchases and flips. Also if you're looking for buy and hold investments, nothing beats being near the ocean. My grandparents have been investing in La Jolla, Pacific Beach and Mission Beach in SD since the 70's when properties were around $50K and I imagine people were also saying how those markets were overpriced back then!

Originally posted by @Alex Vidal :

@William Hochstedler

The Bay Area is actually historically the best market for buy and hold investors and the stats prove it.

Alex I would like to see your stats because as recently as 2010 none of the Bay Area cities made the Top 20 list for appreciation.  I think you are confusing recent appreciation, which has been fueled by a tech bubble and unprecedented foreign investment, with long term historical rates of appreciation, which haven't been nearly as good for the Bay Area.

This was a study conducted by Zillow in 2010 and eight of the top 20 cities for appreciation were in SoCal, none were in NorCal:  http://www.zillow.com/blog/top-20-best-performing-...

Case Shiller also confirms this over the long term by showing that Los Angeles slightly outperformed San Francisco from January 1980 to the bottom of the recent housing bust in Spring 2009.  That's a 29-year period where San Francisco was not the top market.

https://us.spindices.com/indices/real-estate/sp-ca...

It's only been in the past 5 years that San Francisco has massively outperformed other markets and that's why some of us are skeptical and think a reversion to fundamentals is coming.  If San Francisco reverts to its historical rate of appreciation at some point in the future, that means it will need to suffer through several years of lackluster appreciation to get back to the mean trend line, which makes it a risky bet in my book.  Hopefully, it doesn't overshoot the trend line to the downside.

When I see people posting fluffy stuff like San Francisco is a world class city, an international destination, and they ain't making any more land, it reminds me of the exact same arguments that people were making in 2005-06 to justify speculative investment decisions.

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