Getting started in the San Francisco Bay Area
San Francisco, CA · Member since 2017 · 5 posts · 4 votes
Hello BP Community,
I'm just getting started in Real Estate investing, and am looking for a little guidance. I currently live and work full time in the SF Bay Area. I'm interested in a BRRRR multi-property strategy, but am unsure if that is a reality given the high prices in my area.
A few questions I have are:
Thanks all, I'm really excited that I've found this forum, and can't wait to get started!
Cheers!
Hi Charlie,
Welcome to BP and the real estate investing community in the Bay. Those are good questions you ask, and I'll tackle just one of them -- how do new investors get their start?
Like you, I live in the Bay Area (North Oakland) and I wanted to make BRRR work here somehow. I thought it might be too expensive so I started looking around parts of California I was less familiar with -- Stockton, Modesto, Sacramento, etc. And after spinning my wheels for a few weeks, I came to the conclusion that I was better off becoming an real expert in one place that I knew really well and wanted to actually live in. So I got as deep into the Oakland market as I could -- watched it every day, went to all sorts of open houses (including buildings I knew I wasn't interested in). I also studied FHA loans and 203Ks to know what my options would be to NOT put down 20%. And you know what? There are plenty of deals here in the East Bay that will cash flow from Day 1 and provide interesting value-add or forced appreciation opportunities. You just have to be diligent and patient.
Within 3-4 months, we found our first duplex off-market, negotiated a good price, and made an FHA purchase with 3.5% down. Nine months later, we refinanced out of our FHA (and pesky mortgage insurance) and moved on to our next building -- a nearby 4-plex. We also bought that through FHA. All units in both buildings were vacant. And in the meantime, we took out a HELOC on the first duplex so we have a good chunk of change to go after the next building. I also got my real estate license in California (I had one in IL) so I could handle my own transactions, and others if possible.
I don't write this a pointless "success" story. (And who knows how these investments will go in the future?) I write this because it's annoying to hear people say that it's impossible to invest in the Bay Area. You can. You don't have to go out of state or out of your local market. And you can do it with 3.5% down, and cash flow, and have a pretty good cash-on-cash return. Will it be as great as other markets? Maybe not. Is there a slightly higher barrier to entry? Sure. But the Bay Area is a unique place where there will always be demand, and that makes me more comfortable as a landlord and investor.
I'd be happy to grab a coffee or beer and hear more about what you're trying to do. I've found it really fulfilling to invest in the place I want to live and be part of the community for the foreseeable future. I'd love to help you in any way I can.
Brent
Welcome. :)
Hello Charlie,
Here's our story.
My husband and I bought during the recession in San Francisco. We lived and remodeled the last two homes we've purchased in the city and sold for profit. Now we're reinvesting those funds into multifamily in Sacramento to diversify our portfolio. This wasn't overnight and to be frank many mistakes were made along the way. The best thing I can offer is to attend as many meetups as possible in your area (you're in the valley, there are at least 3 meetups in your radius). It's harder now because it's much more expensive than 8 years ago, but it all comes down to your purchase price.
Also, have you read Millionaire Real Estate Investor by Gary Keller? His and Brandon Turner's books I think give you the best summary.
Carolina.
Hi Charlie,
Welcome to BP and the real estate investing community in the Bay. Those are good questions you ask, and I'll tackle just one of them -- how do new investors get their start?
Like you, I live in the Bay Area (North Oakland) and I wanted to make BRRR work here somehow. I thought it might be too expensive so I started looking around parts of California I was less familiar with -- Stockton, Modesto, Sacramento, etc. And after spinning my wheels for a few weeks, I came to the conclusion that I was better off becoming an real expert in one place that I knew really well and wanted to actually live in. So I got as deep into the Oakland market as I could -- watched it every day, went to all sorts of open houses (including buildings I knew I wasn't interested in). I also studied FHA loans and 203Ks to know what my options would be to NOT put down 20%. And you know what? There are plenty of deals here in the East Bay that will cash flow from Day 1 and provide interesting value-add or forced appreciation opportunities. You just have to be diligent and patient.
Within 3-4 months, we found our first duplex off-market, negotiated a good price, and made an FHA purchase with 3.5% down. Nine months later, we refinanced out of our FHA (and pesky mortgage insurance) and moved on to our next building -- a nearby 4-plex. We also bought that through FHA. All units in both buildings were vacant. And in the meantime, we took out a HELOC on the first duplex so we have a good chunk of change to go after the next building. I also got my real estate license in California (I had one in IL) so I could handle my own transactions, and others if possible.
I don't write this a pointless "success" story. (And who knows how these investments will go in the future?) I write this because it's annoying to hear people say that it's impossible to invest in the Bay Area. You can. You don't have to go out of state or out of your local market. And you can do it with 3.5% down, and cash flow, and have a pretty good cash-on-cash return. Will it be as great as other markets? Maybe not. Is there a slightly higher barrier to entry? Sure. But the Bay Area is a unique place where there will always be demand, and that makes me more comfortable as a landlord and investor.
I'd be happy to grab a coffee or beer and hear more about what you're trying to do. I've found it really fulfilling to invest in the place I want to live and be part of the community for the foreseeable future. I'd love to help you in any way I can.
Brent
going to be hard to do that here unless you have a lot of capital and lot of documented income... and I mean a lot.
You could do it far more easily OOS or other parts of the state (people argue that this is somehow different but seems similar enough to me). If you changed your goal you could house hack here and save up some $ funds till the market cools off and then look to deploy that capital.
Thank you all for your detailed and helpful replies!
@Carolina Solorzano - Thank you for the meetup guidance. I've gotten similar advise from a few other folks in the last few days and will definitely attend!
@Brent Tarnow - BRRRR starting with an FHA loan is my current target, and like the guidance of being diligent in an area you're very familiar with as opposed to hopping to an unfamiliar, lower-cost area. What avenues did you pursue for finding off-market property in Oakland?
@Matt K. - House hacking is definitely the plan to start. Have you found personal success in OOS investing?
There are much better markets to invest in within the state but outside the Bay Area. Particularly the Central Valley. There are cities in the middle of the state, such as my neck of the woods, where BRRRRs work really well and are very profitable. You might not be able to house hack (if that is your plan), but doing a BRRRR in a cheap Central California city will cost less than half of what it would cost to do it in SF, LA, or SD. So it's a great way for new investors in California to enter into the market. Plus, you are still within driving distance if something goes wrong, which is a big plus.
@Charlie Parce I tried to do a 1031 multiple times in Oakland/Walnut creek area and just couldn't get the numbers to work out to something I was comfortable with. I ended up deep diving different markets and settled with KCMO because it fit my budget and other reasons.
A lot of people recommend trying to stay local for investing but it simply wasn't possible for me due to the price point of homes. My limited capital went a lot further out of state. I could of went to other areas of CA but again, I felt my returns were better out of state. The same skill set I'd use to determine if a random central valley area was a good market for me to invest in I used to look all over.
KCMO is a hot market that's well covered, but that also has downsides. Plenty of people are investing there and rents are high so locals are also trying to buy houses. Everything you know about how a fast/easy a house sells is different outside of CA, even more so in KC or Midwest in general. But you can get houses for 100-200k and they'll rent at 1% or so it makes it a lot easier to get multiples vs a house that is 2-3x more but that multiplier isn't applied for rent.
Thank you @Matt K. - How did you settle on KCMO? Have you spent time out there? Do you have fmaily or friends that helped you build your connections? My concern with trying OOS is that the travel costs could pile up, and I don't know how comfortable I am with handling the properties remotely.
Thanks as well @Taylor Ferris! Have you tried buying the bad tenants out?
I spent some time in KC prior, but at the time I was out there I had no clue I was going to be getting in REI. I picked KC because it was easy to research first, cheap houses and high rents second, third I guess you could say family/friends out there but I don't really use them for REI.
The remote part sucks, but I like my PM (got through referral here) so that makes a huge difference. I visited my property once during the home inspection. I drive by it when I go back out that way but even then that's mostly so other people can see I actually have a house OOS.
KC is pretty easy to figure out remotely, you can REALLY narrow down your prospective areas before you travel there. Once you do travel you can get a feel for the few zipcodes you want to look in then use hotpads or zillow to get pretty solid idea on rent. Direct flights are out of OAK or SFO little over 3 hrs and can be had under 300/ RT easily.
Thanks @Jason Ong! That's a great thread with a lot of good guidance.
@Charlie Parce - Funny you should ask. I proposed buying the tenant out to my family members and they decided instead to dig in there heels and wait him out. Fortunately, because of the actions we've taken against him he has stopped subleasing or putting the unit on AirBnB. His rents are still below market but at this point we just plan to leave him be.
Hi Charlie,
Welcome to BP and the real estate investing community in the Bay. Those are good questions you ask, and I'll tackle just one of them -- how do new investors get their start?
Like you, I live in the Bay Area (North Oakland) and I wanted to make BRRR work here somehow. I thought it might be too expensive so I started looking around parts of California I was less familiar with -- Stockton, Modesto, Sacramento, etc. And after spinning my wheels for a few weeks, I came to the conclusion that I was better off becoming an real expert in one place that I knew really well and wanted to actually live in. So I got as deep into the Oakland market as I could -- watched it every day, went to all sorts of open houses (including buildings I knew I wasn't interested in). I also studied FHA loans and 203Ks to know what my options would be to NOT put down 20%. And you know what? There are plenty of deals here in the East Bay that will cash flow from Day 1 and provide interesting value-add or forced appreciation opportunities. You just have to be diligent and patient.
Within 3-4 months, we found our first duplex off-market, negotiated a good price, and made an FHA purchase with 3.5% down. Nine months later, we refinanced out of our FHA (and pesky mortgage insurance) and moved on to our next building -- a nearby 4-plex. We also bought that through FHA. All units in both buildings were vacant. And in the meantime, we took out a HELOC on the first duplex so we have a good chunk of change to go after the next building. I also got my real estate license in California (I had one in IL) so I could handle my own transactions, and others if possible.
I don't write this a pointless "success" story. (And who knows how these investments will go in the future?) I write this because it's annoying to hear people say that it's impossible to invest in the Bay Area. You can. You don't have to go out of state or out of your local market. And you can do it with 3.5% down, and cash flow, and have a pretty good cash-on-cash return. Will it be as great as other markets? Maybe not. Is there a slightly higher barrier to entry? Sure. But the Bay Area is a unique place where there will always be demand, and that makes me more comfortable as a landlord and investor.
I'd be happy to grab a coffee or beer and hear more about what you're trying to do. I've found it really fulfilling to invest in the place I want to live and be part of the community for the foreseeable future. I'd love to help you in any way I can.
Brent
Hi @Brent Tarnow,
What would you say is a good approach to becoming an expert in the Oakland market? I have been looking at neighborhoods online and reading around... would you recommend any specific approach?
Dante,
I'm just going to jump in here and say that the BEST way to become an expert in the Oakland market is to go spend time in the neighborhoods. Talk to corner store cashiers, mail men, beat (local) police officers, local yokels. Drive on the local/surface streets instead of zipping through on the freeway. Stop in at the local bar.
Obviously, it would take a lot of time to do this for every neighborhood, but it sounds like you've done some research. So hopefully you have an idea of what neighborhoods fit into your ideal characteristics/goals/price point. And now you can go do your "on the ground" research.
Also, ask others who have properties in those areas or live there. I own properties in East Oakland and West Oakland, and operate one near Lake Merritt in East Lake, and have lived over there. @Arlen Chou has some in North Oakland and Fruitvale.
Best of luck! And welcome to Oaktown!!
@Dante G. as @J. Martin has suggested, the best way to learn a market is to get in it. Reading and online research can only take you so far. Just like any other research, gathering data points is the key to getting a clear picture. To get a "feel" for a neighborhood, you have to go many times, at different times during the day and night. Doing a single recon at lunch time and having a burrito does not really count. This is especially true in a market that has a shifting demo graphic like Oakland. Get out of the car and walk the area or get a soda and sit down and watch the area for an hour or two on multiple occasions. As you get use to this, you will see things and get a feeling faster so you won't waste as much time. Try to blend in, this is really more so you will feel comfortable sitting there for a few hours then for any other reason. If I roll my big black Mercedes SUV into deep East Oakland people look at me weird. The same is true if I roll my beat up Ford Ranger into Downtown Palo Alto and just sit and watch people.
As J has mentioned, talking to the store clerks is a great way to get info. It is my go to method. Just buy something and chat the guy or girl up. Most of the time these people are happy to actually TALK to a person. I used to carry some smokes with me. I don't smoke, but if I would see somebody just hanging out smoking, I would ask for a light. Most people are happy to give you one if you have your own cancer sticks. I would light it and just let it burn out while talking to the guy about the area.
I really appreciate the advice @J. Martin and @Arlen Chou . I will keep you both updated with project Oaktown Recon.
Hey @Charlie Parce, I don't know much about the SF market but I can tell you that Fresno has been really good to me and my family over the years. We've attracted A LOT of bay area investors over the last few years because of the lower barrier of entry. We have a lot of property managers who work really well with out-of-town owners for that reason. If I can help further or if you have any specific questions you would like to ask about Fresno or the surrounding area please don't hesitate to PM, email or call me. Have a good one and good luck!
Hi @Dante G., sorry for the delay in getting back to you. Had my first kid last week and obviously got a little distracted!
I second (or third, or fourth) the advice you got from @J. Martin and @Arlen Chou. I was pretty certain I would enjoy living and investing in North Oakland, so my wife and I rented here for a couple years to explore the neighborhoods, understand the nuances between those nuances (or even between blocks within the neighborhoods). We tried to understand where things were and, more importantly, where they were headed.
If you're not ready for the type of reconnaissance that J. and Arlen suggest, or moving into a neighborhood, you can still get enough information to decide if you'd want to live there. I, for one, went to every open house I could, even if I had little to no interest in the building. I wanted information. I set up as many one-on-one showings I could, preferably on off hours so you can really get to know the seller's agent. Coincidentally, that fortuitously lead to my first off-market deal. Also, go to broker's open houses as well, usually mid-week, if you can swing it. The hard sell is not on, so you can usually pump people for information, meet the seller's agent personally, and talk to other brokers (who, you might expect, have their own deals and information).
And if store clerks and mail men still seem a bit of leap right now, you can still pump your friends and friends of friends who live in those areas for their thoughts. That often gives you a lot to work from.
Sorry if this isn't as detail or helpful as you might like. But I love connecting with other Oakland investors, so let me know if a call/coffee/beer sounds good.
Good luck!
Brent
Awesome advice @J. Martin and @Arlen Chou! I've definitely reconsidered my target locations based on previous experience (25 years in the peninsula) and areas that I'm particularly interested in actually living in.
@Brent Tarnow - Congratulations on the new little one!
Thanks, @Brent Tarnow congrats on the newborn! Thanks for the advice, definitely will stop by showings and network with brokers. I'll be moving from Pleasanton to Oakland in two months so I'll have a lot more time for this. Have fun with your kid, i'lll reach out once im in the area!