CA investors? Bay Area? Help with strategy.

33 Replies

Hi there, I am a CA bay area resident with about 60k of capital looking to break into the real estate market.  I have read a lot on the forums and listened to a lot of podcasts and am leaning towards investing in multifamily areas in CA outside of the bay area (price is the big reason) hopefully within driving distance.

I am looking at places like Merced and other college towns with a clear growth potential and lower home prices to get my feet wet.  However, I also come across other possible avenues such as Sacramento (and areas north of the American River) which yield higher rents and good deals, but a more unstable market for consistent rent and home prices.  

I am just fishing for opinions here and ideas...BUT...if you were in my position and had 60k AND lived in the bay area, I'm curious what your strategy would be and why.  Thanks.

Investing in multifamily apartment buildings 

I'm a real estate agent in Sacramento and I can say that the rents near Sac State or junior colleges in the area are NOT unstable. I'm not sure why you think that? I haven't heard that one before.

There are opportunities here in Sacramento but it will all depend on your strategy and the quality of tenant you'd like.

I like your plan of going not too far. If you keep it to a distance where you can manage if you had to I think you are better off. Everything goes better when you can go by from time to time and if things go bad you can just take over.

@Sophia Morris I may have been unclear in my example of Sacramento but I was using it to simply say that there are certain markets in CA that are more unstable than others (even if that is relative).  I know since my sister is a real estate agent in Roseville that Sac was hit very hard in '08 and the gentrified areas in Sac can be unreliable.  Rent can be more stable, sure, (and the areas you mention I am already priced out) but house prices not so much.  And my definition of stable is much more conservative since I live in San Jose. By admitting "quality of tenant" you prove my point that it is possible to invest ANYWHERE in the world IF...big if...blah blah blah. 

@Matt Hoyt Exactly.  I'd rather have it be something I can be close to and know the actual condition, situation, etc.

Hey @Andrew Christian Welcome to BP!

To answer your question, I'd look for multi family investments larger than 5 units. At the 5 unit mark the lending requirements change from residential to commercial. It's a bit easier to qualify for commercial loans than residential because your debt to income isn't as important. 

I'd write out a list of college towns north of the Bay Area all the way to Northern Nevada and explore those markets' current multi family deals. Start doing property analysis and developing an understanding of the rental markets. Find out what constitutes a deal in your mind. Is it $100 a door, 2% rule, X CAP rate...whatever it is.

I think the best thing anyone in your position can do is to practice, practice, practice. It will give you the confidence to pull the trigger once you do find a deal that meets your criteria.

Best of luck to you!

Thanks @Robert Musallam . I think I am leaning towards $ per door rather than the 2% rule which seems hard to come by, especially on MLS. 5 units sounds difficult in these markets...I have found some distressed 4 units but I will definitely always keep my eyes open for that since it changes it to commercial. I assume for commercial it is still 20% down in most cases?

@Robert Musallam please send me all the 2% listings you have ASAP !!!!! I know your just using that as an example. I would love to still find 1 percenters in CA.

@Sophia Morris What neighborhoods or zip codes do you suggest in the Sac area?

@Andrew Christian Actually, on a commercial loan, the lender will tell you what the down payment is depending on the strength of the financials. Could be higher than 25% but depending on the financials and creativity of the lender, you may be able to put down less. On a fourplex or less, regardless of the income the property gets you'll put at least 20 but more likely 25% down. One final note, if you decide to occupy one unit in the fourplex, you could use a less than 20% down payment. I know you're looking out of area so that's more of an FYI.

Hey @Justin R. What unit type are you looking for...and where specifically have you been looking? Not sure I can help outside of SJ but I'm always curious as to what others are searching for.

Speaking of 5plex and up, how do you find those for sale? It seems they aren't on the usual MLS apps like Realtor.com and such. Loopne the?

Sam 

@Andrew Christian , I am in similar boat. Would like to find properties with atleast 1% rule but just by looking online, couldn't find any.  There seems to be few four plexes in north burbs of sac like roseville, etc but they don't match 1%. Not sure where to find 5 units or above either. Considering out of state but still have cold feet. Need to find boots on ground first.

@Vandana Rao - Also in a similar boat here.  The Bay Area, and California in general is so expensive, I really want to look out of state - but I have no idea how to do that without a partner.  I'm not even sure if I want a partner, just want to know how to reliably invest out of the area.

@Samuel Persson on Realtor(.)com, choose filter by apartment. You'll find a few there. Or go to Loopnet and search for multifamily housing. 

@Vandana Rao See above response on 5+ unit searches

In regards to boots on the ground, do you have an area you're focusing on investing in? If not, start there. Then use the power of BP to connect with the boots on the ground. 

@Cody Zimmer You don't necessarily need a partner. If you're really interested in investing out of state, you'd probably do well to find a turnkey provider on BP and interview them. Ask them why their area is the right place for you to invest. Ask them a bunch of questions about their process. Ask other BP members about their experience with said company. Or ask the company for references and actually call the references. 

Reliably investing out of state requires you to do due diligence much like buying locally. And it requires you to manage the people that you've hired to manage your properties. It's not entirely passive. And to be clear, there's so much more than can be written here.

Feel free to ask me any questions you all have, happy to answer what I can.

@Robert Musallam Thank you so much for the detailed response! You said to ask potential out of state providers a bunch of questions about their process - what are some important questions that you'd recommend? Also, I wasn't really thinking of looking for turnkey properties, unless the price and the cashflow was right (I'm looking to get at least $100/unit). I was thinking more BRRR, since I've got around $80k liquid, and I'd want to acquire, refi, then repeat. I'd be willing to drive (or fly) to a new property and work remotely in order to rehab it and get it off the ground - though I don't really know how practical that is. Also, you're local to the Bay - are there any opportunities you know of nearby that I should maybe check out?

Originally posted by @Andrew Christian :

Hi there, I am a CA bay area resident with about 60k of capital looking to break into the real estate market.  I have read a lot on the forums and listened to a lot of podcasts and am leaning towards investing in multifamily areas in CA outside of the bay area (price is the big reason) hopefully within driving distance.

I am looking at places like Merced and other college towns with a clear growth potential and lower home prices to get my feet wet.  However, I also come across other possible avenues such as Sacramento (and areas north of the American River) which yield higher rents and good deals, but a more unstable market for consistent rent and home prices.  

I am just fishing for opinions here and ideas...BUT...if you were in my position and had 60k AND lived in the bay area, I'm curious what your strategy would be and why.  Thanks.

$60K is not enough to invest in the Bay Area...Your best shot is to meet another investor with capital that would let you invest in his/her deal OR with $60K it is possible to buy 2 SFR out-of-state that could cash flow 12%+COC or IRR 20%+. Although since you have less experience, likely the best you'll do is ~ 8% COC, 15%IRR. That would be approximately $400 per month or $4,800 per year in cash flow.

Warning: Stay out of markets with less than 100,000 population.  Only invest in markets with strong population and job growth.

I run a local investor group where we're co-investing... Feel free to message me if interested.

@Andrew Christian I am in the same boat. I have approximately the same amount of cash and live in Sunnyvale. I am still exploring the best way to break into the investing market as a newbie. I have a construction background and have also been keeping an eye on the Central and South San Joaquin Valley. I am hesitant about out of state investing as my first purchase. Thank you for opening up the dialog. Feel free to message me if you'd like to discuss those markets.

@Robert Musallam Do you frequently work with investors? 

Hi Andrew,

I'm a San Jose native but have lived in Merced for the past 15 years so I have a pretty good idea of both markets. In my limited time with BP, I have come across many SFBA people in your situation.

It appears that you have narrowed your strategy to multi-family buy and hold, which I think is great! Keep in mind that I'm also headed in that direction so please allow for some bias...

Matt Hoyt is correct in that you should be able to just drive over for the day and handle your business, e.g. repairs, can't get a hold of your tenant (late rent), etc.

Robert Musallam also makes a great point in that you should be running the numbers on tons of deals to improve your comfort level. When looking out of your area, you need to know what is common for the tenant to pay and what the landlord pays in terms of utilities. You should also have a decent idea of contractor rates because repairs are a given. This info will assist you in filling in those calculators.

So now that Captain Obvious is done with that, let's discuss what you really are looking for.....what to do and why?

The way I see it, you have two basic options (for the record, there are probably 15 more options that a more experienced person could offer).

1. Buy multi-family in the Valley. You need to be able to say, "I got people" ;) I'm talking about a team in place in your given area. You'll need boots on the ground so networking in that area is a good idea. The team could be a joint venture partner who handles all the details or your own team that you manage (RE Agent, contractor, PM, etc). There are NOT a lot of multi-family properties near the UC; a huge one is about to be built at Yosemite & Parsons. If you're trying to capture the student market, SFR might be for you. I think that purchasing in the San Joaquin Valley is a good option for you as rents are increasing and the UC is pushing demand locally . As you stated, the price point is nice too. Your 60K gets you in the 240K neighborhood, assuming 25% down, etc, etc.... If you were interested in a partner that also had cash, maybe look into commercial multi-family (5+ units). You can find these on loopnet.com

2. Buy multi-family in the SFBA. Joint venture with another SFBA investor or two and get something local there, such as the Oakland/Hayward area. Are you involved with your local REIA? I noticed that Vandana Rao said she is in the same position as you. As stated before, I see that a lot. The reason I would not do this is because I myself would not like so many partners involved in a deal. I'm a hands-on kinda guy. If you are OK with maybe 3 other partners, this could be a viable option for you. Just make sure that everyone is one the same page as far as responsibilities are concerned. Definitely put it all in writing.

Either option requires you to get out and meet some people face to face. You need to be comfortable with anyone you desire to do business with.  I posted a Merced meet 'n greet on this site; it's Saturday, Nov 12. It can be found under the Community tab in Networking events.

If you need a local realtor, I have an exceptional one for you. If you want to know about any given neighborhood, let me know. I used to run 911 calls all over the city and have an in depth knowledge of the place. Although I have some money, I'm open to joint ventures and may entertain the idea of rehabbing and managing a local property. I'd also be interested in 5 to 25+ unit buildings.

In any case, good luck! Sorry for the exceptionally long post...hoping some of it was helpful to you and others.

TJ

Originally posted by @Tim Jones :

Hi Andrew,

I'm a San Jose native but have lived in Merced for the past 15 years so I have a pretty good idea of both markets. In my limited time with BP, I have come across many SFBA people in your situation.

It appears that you have narrowed your strategy to multi-family buy and hold, which I think is great! Keep in mind that I'm also headed in that direction so please allow for some bias...

Matt Hoyt is correct in that you should be able to just drive over for the day and handle your business, e.g. repairs, can't get a hold of your tenant (late rent), etc.

Robert Musallam also makes a great point in that you should be running the numbers on tons of deals to improve your comfort level. When looking out of your area, you need to know what is common for the tenant to pay and what the landlord pays in terms of utilities. You should also have a decent idea of contractor rates because repairs are a given. This info will assist you in filling in those calculators.

So now that Captain Obvious is done with that, let's discuss what you really are looking for.....what to do and why?

The way I see it, you have two basic options (for the record, there are probably 15 more options that a more experienced person could offer).

1. Buy multi-family in the Valley. You need to be able to say, "I got people" ;) I'm talking about a team in place in your given area. You'll need boots on the ground so networking in that area is a good idea. The team could be a joint venture partner who handles all the details or your own team that you manage (RE Agent, contractor, PM, etc). There are NOT a lot of multi-family properties near the UC; a huge one is about to be built at Yosemite & Parsons. If you're trying to capture the student market, SFR might be for you. I think that purchasing in the San Joaquin Valley is a good option for you as rents are increasing and the UC is pushing demand locally . As you stated, the price point is nice too. Your 60K gets you in the 240K neighborhood, assuming 25% down, etc, etc.... If you were interested in a partner that also had cash, maybe look into commercial multi-family (5+ units). You can find these on loopnet.com

2. Buy multi-family in the SFBA. Joint venture with another SFBA investor or two and get something local there, such as the Oakland/Hayward area. Are you involved with your local REIA? I noticed that Vandana Rao said she is in the same position as you. As stated before, I see that a lot. The reason I would not do this is because I myself would not like so many partners involved in a deal. I'm a hands-on kinda guy. If you are OK with maybe 3 other partners, this could be a viable option for you. Just make sure that everyone is one the same page as far as responsibilities are concerned. Definitely put it all in writing.

Either option requires you to get out and meet some people face to face. You need to be comfortable with anyone you desire to do business with.  I posted a Merced meet 'n greet on this site; it's Saturday, Nov 12. It can be found under the Community tab in Networking events.

If you need a local realtor, I have an exceptional one for you. If you want to know about any given neighborhood, let me know. I used to run 911 calls all over the city and have an in depth knowledge of the place. Although I have some money, I'm open to joint ventures and may entertain the idea of rehabbing and managing a local property. I'd also be interested in 5 to 25+ unit buildings.

In any case, good luck! Sorry for the exceptionally long post...hoping some of it was helpful to you and others.

TJ

Tim,

A good friend of mine and investor is not only a big owner in Berkeley, but he's also one of the largest owners of land around UC Merced.  He has not began developing yet...He's got a 15 year time horizon and is seeking to joint-develop with the University.  As for buying ready-built multifamily in Merced, for various reasons, I wouldn't.  Why would you choose Merced over other markets (ex. Sacramento, which is a state capital, Oakland, or other areas of the Bay, which have significantly better growth prospects)?  

I think with $60K it's possible to start investing in Oakland. I bought my first 4plex in Oakland in 2014 using FHA financing. Purchase price was $350K, put $12,000 down, and had the seller pay the closing costs. Put about $6,000 in renovations, and now I cash flow $450/door on this property. IRR of over 100%.

It's definitely doable, you just need to find the right deal. 

I was trying to answer from the perspective of someone with 60k who feels priced out of the local market. I would definitely stay local if I were him AND could do it with that money. I definitely believe that there are opportunities in the SFBA but it might require a group of like-minded investors to pull it off. That may be something he likes and that's why I suggested it; It's just not something I would want. As for SAC, I'm not able to speak intelligently about the area so I said nothing. I don't think that Merced is the best, but it's local to me and that always helps a little.

I agree with the 15 year horizon...the UC still needs to be built out, HSR needs to link Merced to the SFBA. Who knows, maybe Elon will have his Hyperlink up by then. Thank you for your comments. It's dialog by experienced members that makes this place so special.

TJ

I also live in SF and just invested in a BRRRR deal in Sacramento. I invested 55k for the down payment and then had a considerable rehab project but it has worked out really well so far. Message me if you like to hear more details about it and Sacramento.

Andrew

You are not far off with your areas and what you are looking for.

For 40 years I have been investing and teaching about my kind of real estate vehicle.  Let me explain by telling you what has worked for me over the years with 200 rental houses at my "high point":

Northern Calif.

Smaller cities.

Older "groups of houses", ideally 5 or more on a single parcel.

Poor condition is good for me.  The sellers have fewer options.  With 5 or more dumpy looking houses, you will never get a bank, commercial loan.  Sellers of these properties know they will be carrying the financing.  This IS HUGELY LUCRATIVE, mutually beneficial and I have had seller financing on over 85% of all my purchases.  Many times I have even gone back to these sellers that were carrying the financing and bought back my note (the money I owe them) for big discounts of 20-40%, years after I bought the property.

I always buy in the older, blue collar, part of town.  Never in the slums.

Over the years my down payments have been about 10% (remember, I don't have a bank telling me THEIR requirements).

Although I have done all kinds of real estate, holding simple rentals has been far and away the best kind of investment for me.

My fix up cost run about 10% of purchase price for a light fixer and 20% for a heavy fixer. Note that all the work does not have to be done right after purchase.

I like safety in numbers.  If I have  5 simple rental houses on a single parcel, and have a vacancy, my vacancy rate is 20% (I can live with that).  If I have vacancy with a single family house

My best piece of advice is to pick the kind of real estate vehicle you think will work for you, find the experts in that field, thoroughly check that person out.  Then do that kind of investing. Use that person as a model.  If you look at several kinds of real estate investing, you will never get good at one of them..........you will become a "wander generality".

Take a few dollars and invest in books and courses regarding what you think will be your type of "vehicle".  DON'T think you need to buy a fancy $5-$20,000 course.  Most folks on BP would tell you the same--LOUD AND CLEAR.

Good luck.

Fixer Jay DeCima

Originally posted by @Jay DeCima :

Andrew

You are not far off with your areas and what you are looking for.

For 40 years I have been investing and teaching about my kind of real estate vehicle.  Let me explain by telling you what has worked for me over the years with 200 rental houses at my "high point":

Northern Calif.

Smaller cities.

Older "groups of houses", ideally 5 or more on a single parcel.

Poor condition is good for me.  The sellers have fewer options.  With 5 or more dumpy looking houses, you will never get a bank, commercial loan.  Sellers of these properties know they will be carrying the financing.  This IS HUGELY LUCRATIVE, mutually beneficial and I have had seller financing on over 85% of all my purchases.  Many times I have even gone back to these sellers that were carrying the financing and bought back my note (the money I owe them) for big discounts of 20-40%, years after I bought the property.

I always buy in the older, blue collar, part of town.  Never in the slums.

Over the years my down payments have been about 10% (remember, I don't have a bank telling me THEIR requirements).

Although I have done all kinds of real estate, holding simple rentals has been far and away the best kind of investment for me.

My fix up cost run about 10% of purchase price for a light fixer and 20% for a heavy fixer. Note that all the work does not have to be done right after purchase.

I like safety in numbers.  If I have  5 simple rental houses on a single parcel, and have a vacancy, my vacancy rate is 20% (I can live with that).  If I have vacancy with a single family house

My best piece of advice is to pick the kind of real estate vehicle you think will work for you, find the experts in that field, thoroughly check that person out.  Then do that kind of investing. Use that person as a model.  If you look at several kinds of real estate investing, you will never get good at one of them..........you will become a "wander generality".

Take a few dollars and invest in books and courses regarding what you think will be your type of "vehicle".  DON'T think you need to buy a fancy $5-$20,000 course.  Most folks on BP would tell you the same--LOUD AND CLEAR.

Good luck.

Fixer Jay DeCima

 As far as rehabbing and creating a business Jay is one of the best teachers, I have several books on my bookshelf since the 80s

Go to Amazon or eBay, buy his books!

@Cody Zimmer My list of questions: 

1. How do you find/source your deals?

2. How do determine what parts of the unit will be kept (not upgraded) or upgraded (Think roof, plumbing, electrical).

3. What is your leasing criteria? If buying turnkey, they'll lease the unit for you. Make sure they do as good a job as you would.

4. Who do you recommend for property management? Why?

5. Who do you recommend for inspections? Why?

6. Do you have a warranty on the property? If so, how long?

7. What class neighborhoods are your properties located in?

Perhaps my friend/business partner @Travis Limbocker could chime in with others I may have forgotten to list here.

The reason I'd look for turnkey is because the amount of work required to run a rehab is extensive. You'd have to have A LOT of trust in the contractor you're working with - and that's hard for some people to do even on a local job they can drive by daily. So, while BRRRR is great for obvious reasons, rehabbing a property out of your area can make it a non-worthwhile strategy.

Not saying it's impossible though :)

As for local stuff, depends on what your current situation is. San Bruno is an interesting place. It's not nearly as expensive as the other areas around the Peninsula and it has a ton of Multi Family housing. If I had 80k, I'd probably analyze how much I'm paying in rent vs how much I could expect to net in cash flow after buying a duplex (or larger) somewhere else. If I thought I could buy a duplex locally using a less than 20% down loan, & keep my effective mortgage payment close to what my rent is and own two units in the Bay Area, I'd go that route. 

But if you've got a sweet deal on your rent and you're comfortable living there for the foreseeable future, getting some cash flow in your pocket isn't the worst idea. 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.