Investor · Palo Alto, CA · Member since 2015 · 6 posts · 5 votes
So how much longer can this boom continue around here? I live in Palo Alto, where I have my main residence. I own rental properties in San Mateo, Foster City and East Palo Alto. The one in East Palo Alto I only purchased a couple of months ago, and already I am sure it has appreciated by 60K, if not more.
I am looking to purchase more real estate but there are problems. Right now I am maxed out in terms of liquid cash. I have a LOT of equity on my houses, but, as many of you know, around here you've got a lot of deep pockets (and some of it dirty overseas money) that shows up with a suitcase of cash and pays straight out (beating out those who have to acquire loans).
The other problems is I am just wondering how much longer this boom can continue. Am I going to get caught holding the hot potato? :)
Given the above two issues, what do you think? Should I look outside of the San Francisco Bay Area to invest? If so, where?
The paragon data is spot on. A well respected RE group in SF that know their sheite! The first 2 graphs on the link provided above say it all. I don't know how anyone can look at those graphs and debate the long term value of prime Bay Area (especially SF proper) real estate. And people like Jay and Bob have been investing for a while to back it up. I only started in 1994 with a modest condo and parlayed that into 5 buildings worth big bucks. Great cash flow now too. Heck one of my buildings in the mission has had rent increases of 50% in 3 years! So yeah, when I started, it had a modest cash flow. But now....chaa-ching!
As for the tech/bubble debate, everyone is speculating, and that's fine. I just think since some noobs expect some spectacular crash, it will probably be just the opposite...a mundane slow down from hyper growth. Remember, the rate of increase can't go up forever. So if venture funding grows less than last year, it's not a disaster. It simply means the percent increase is more modest. And that's exactly what's happening to housing costs. Instead of going up 15-20% YoY, it's down to 5% YoY. Most fly over states are lucky to keep up with inflation.
As for how dependent our economy is on tech, and if dot.com crash will repeat itself? Um, no. Sure a lot of start ups will vaporize (by design, most fail), and there will be a few spectacular unicorn crashes (too much cheap money went there). But we have huge company's here like Google, Apple, Facebook, salesforce, etc., etc., etc. that still have thousands of unfilled positions. Tech will most likely have a correction, and employment will have a lot less sizzle. But if you expect a major crash and cheap RE again....I don't think so. Barring some global systemic crisis, I'd be surprised if prime Bay Area and SF RE falls even 10%. I expect a leveling off, and maybe, a few percent decline.
China's economy (unless it blows up) will not have a major impact on housing here. Matter of fact it's kinda nice having some nice Chinese folks parking $$ in prime SF. Just as the market may slow down, the Chinese $ helps keep prices up.
And don't worry about over building. Not in SF and peninsula at least. Our nutty politicians and tenacious NIMBY's are doing their damnedest to slow new projects down, which of course helps keep current property values up, up, up. Thanks NIMBY's and leftist-socialist-wackos!
Driverless cars will be a national (and global) game changer. And it's coming quick! That and the Internet of things (plus bio advances, for good measure) are going to keep the Bay Area RE market rocking over the next 20 years. Just wait and see. We'll be laughing at million dollar homes and how cheap they were.
As a local RE investor, the key is: 1- buy well, 2- add value, 3- don't over leverage, and 4- ride the market twists and turns. It's that easy if you follow those 4 primary principals.
Ok, that's my whirlwind tour of RE investing in SF and the Bay Area 😇 Have fun!
This is an interesting thread, started in 2015.
Unfortunately, the correction still has not arrived yet.
Flipping is fine anytime, since it's a quick play.
Andy Chen
Flipping is more about knowing the rehab cost, ARV, and being able to get in at a low price.
Typically 3-6 months timeframe, depending on the extent of the rehab.
A lot of work though. Be prepared to handle the contractors.
Yes, that's what I've been told as well. I'm also trying to do this with a full time job. Initially I thought I have found someone to partner with who also holds a full time job and we talked about splitting the work, but that didn't work out.
Andy Chen
Flipping is very competitive in Bay Area, with a lot of REI with millions in cash waiting in line for it.
I just looked at a house last week in Belmont, listed for 820k. The house was burnt down in about 70% of the space. Kitchen, bath, garage all burned. You can find it on Redfin.
I estimate the house be worth around 1.2-1.6 m ARV. The rebab, without adding footage, will be around 100 k.
There are a lot of people looking at it. It must be all cash. My guess is that it will be bid up.
San Jose has lower prices SFRs possible for flipping. You are lookin at 500-600k cash to get into those deals.
Yeah I saw that one as well. Given I don't have much experience and capital, was told to avoid that one given the framing needs to be ripped out which means need permits and that will take up lots of time. But, it is very tempting...:)
Andy Chen
The ripple effect is already there. Alameda county showed significant increases. It is also very competitive there. The price point is similar or higher than San Jose.
You have to ask yourself some questions before jumping into flipping:
1: do you have secured source of 500k - 1.5 m cash? Whether through saving or stock or home equity, or hard money loans. If no, forget it.
2: do you have construction experience? Or friends? If no, be careful.
3: do you have real estate broker license? If no, you are at 5% disadvantage. Since a lot of other REI do, including myself.
2017 is not a good time for starters to get into the market, IMO. It is a lot more risky as the appreciation keeps going up. Nobody knows when the next crash would be, but the risk is certainly higher now than a couple years ago.
If you really want to learn, flip a small condo first. That is a lot easier and less profit.
Thanks @David Song. Yeah my first project is very small. I have a RE agent that I just spoke to today who's investor friendly and looking into it for me. If she finds me a good deal, I'll propose it to my private lender that I kinda lost contact with and see if we can rekindle things.
As for contractor, I have a friend who's a GC and spoke to him already. He said he's willing to help, but I guess we will see.
@David Song. Given I don't have much construction experience (bullet point #2), what is your take on using contractors partnering with RE agents? The agent I'm talking to now claim they are very reliable and licensed and have done flips for her in the past. Should I take her word for it and use her contractors or should I get references on projects they have completed and check their quality of work they'd done in the past?
Andy Chen
If your agent has some contractor friends, that might work. But remember contractors are there to make money out of you. It probably works better to partner than to hire.
Also, a large of cheap contractors in Bay Area are not licensed. Many of them do not know what they are doing. They are laborers, or handyman, pretending to be GC.
If you really want to start, I suggest that you buy at November to December timeframe, sell at early spring i.e., march 2018. The annual price fluctuation will benefit you.
Negotiate some commission split with the agent, if you can. Although it is unlikely they will agree.
It will be learning process. You will need to spend a lot of time on this.
I would pick areas close to you, San Jose area, milpitas, or even gilroy.
Pick condos might be easier, since they do not require exterior work. The downside is the profit will be smaller.
Keep in mind you might lose money. Be prepared mentally.
Real flipping in Bay Area normally involved adding square footage, or addition to really make money. SFR with small house large yard, add 500-100 sf to it. You can make serious money on that.
Andy Chen
Addition projects are key to flipping in expensive areas, because of the high price/sf finished product.
This is especially true when the house has some previous illegal additions, and under city code violation case. We have a few property purchased with code violation before.
You have to know what to do to correct those deficiencies, add addition, increase the overall value.
However, the time span will be significantly longer than a rehab. Risk is also a lot higher.
My upside has to be high enough to give it some buffer and help cover any last minute extra time needed to complete the project. If the property does not match my rule of thumb I'll just have to pass and look at the next offer.
Brian, you realize that the original post was over 2 years ago, right? Thomas, seeing as how this post got revived recently, care to give us an update? What did you end up doing, how did it work out, and what have you learned in the process?
Scary that the original post was 2 years old and it was basically "oh my god prices are out of control, how long can they just keep going up?'...... still waiting for that "correction"..... :)
Kind of interesting to look back at what people said in 2015. How many people actually sold their ca properties and bought Midwest in 2015? How are they doing ? Do they believe that was a correct decision?
@Andy Chen I think a lot of people get nervous about trying to run a flip with a fulltime job. Here is my quick take and I am sure you have thought about this as well, but hopefully it helps.
Unless you are actually performing the rehab (which I would not recommend trying to do), at most you would be going by the property every day/every other day. If you trust the people doing the week, that might be more like every week. You can make calls to the team doing the work in the morning/at night/during lunch. Also, you can go by the property at those same times.
What I would personally focus on is trying to protect your purchase by making sure you get it at enough of a discount relative to the ARV. Sure, $100K sounds great but if you run the holding costs/transaction costs/etc. in the Bay Area you can pretty quickly wipe out $100K (and that does not even factor in the rehab). So, if you are worried about a correction, then just buy the place for less. You will run into issues likely doing that as people here usually know that their place is worth a bit of money, but that is the safest way to avoid losing your shirt.
Kind of interesting to look back at what people said in 2015. How many people actually sold their ca properties and bought Midwest in 2015? How are they doing ? Do they believe that was a correct decision?
Oh boy! We'll see if will post;) There are actually a few posting on BP about selling in CA and buying in Texas and Ohio. Seems like they have done well for themselves.
Chris Martin
Retrospective analysis might be interesting.
I had the same thoughts 2 years ago. I still think about selling everyday. It is a tough decision.
Last 2 years, ca appreciated, but OOS also appreciated.