Contradictions on leveraging debt and making good deal da

11 Replies

Hi guys, So I am confused here and need help. I live in the Bay Area and as all you know the prices for housing here is astronomical. That being said I have done tons of research and have learned that leveraging debt is the best way to build wealth quickly. So if I put the minimum down (10%) on a property (thus keeping more in my bank for future investments)my mortgage will be way highwhich decreases my cash flow amounts in the rental. And as I said in the Bay Area the price for housing is incredibly high. So if I'm putting so little down and using the 50% rule (expenses 50% of income) I will NEVER find a property that will cash flow. So does that mean I just have to save a ton to put a bigger down payment on the rental, thus having less cash in the bank ruining my chance of making more investments? Is the 50% rule really plausible in scouting out deals? How do you make a profit in the Bay Area people? The advice I have heard seems to contradict itself... Or at least in this market. Am I doomed to be an out of state investor?

No, it means you need a different market.  You can't force a market.  Your market won't cash flow.  

Think about it this way.  If you went out to buy a pair of shoes, and you wore size 7.  No matter how much you loved this one pair, and even thought it is in the store you are in right now...right in front of you, if that store only has a size 6...it won't fit

Now, if the store a round the corner sold the same shoes, but in your size, where do you think you should be buying those shoes...if you wanted that pair of shoes that is?  Real estate is not different.  Find a different market.

...and, putting more down doesn't help...it makes it worse.  Whatever you put down as a DP is money (cash) you have to "catch up to" before you are showing a profit.  More money down just means you're starting farther behind, and have a longer time to catch up.

Find a different market.

Thank you @Joe Villeneuve !

So what does that mean about all investors in the Bay Area? I saw on here that plenty of them are successful.  

Originally posted by @Nicole B. :

Thank you @Joe Villeneuve!

So what does that mean about all investors in the Bay Area? I saw on here that plenty of them are successful.  

 Success is relative...and everyone has a different definition based on their market capabilities...and rationalizations.

Don't confuse cash flow with profit.  Generally you will give up some profitability for immediate cash flow. The Bay Area is among the highest profit locations in the USA. The only reason to invest in less profitable markets is If you cannot afford to participate in the Bay Area.

@Nicole B. there are several people here on BP that have set up meet-ups in the BA. You should make the time to come out them.  Buy some beer and sit down and talk to guys who are making things happen.  If their answers fall in line with your investment goals, then you have found yourself some great resources to start your investing adventure in the BA.  If you find that what they say does not meet your expectations or investment strategy, then reach out to guys who invest outside of the BA and do the same thing.  Either way, you need to start off with direct interaction to get a more clear picture.

Hope to see you around,

Arlen

@Arlen Chou thank you! I will definitely be going to those meetings!

So how do investors make a profit in the Bay Area? Great question. When you got it figured out, please share with us. Kidding aside, everything in life has a price. Rich people vote with their checkbook. Even lenders vote with their money. Why are lenders willing to lend the same loan amount of money for the same type of asset at a lower interest rate in the Bay Area compared to the Central Valley? It's called perceived risk. 

If you want to learn, how much are you willing to pay for that secret ingredient? Thank god we have all these FREE meetups where investors share how they're killing it here. You just have to show up with a great personality and absorb until you're overwhelmed.  Hope your leg is healing.

@Minh Le I got my walking boot off Tuesday and am slowly building the muscles on my foot.   When's the next meetup? I think I might join now that I can drive!

Theres some really good advise here in this thread. @Joe Villeneuve analogy is succinct with how opportunities and markets work.

What hasn't been said though is that for those investors that are finding success in the Bay Area they're more than likely buying deals that are not priced at retail. They may be buying opportunistic resulting from distressed situations e.g. partnership breakups, divorces, business failures, etc., or using creative financing to make their deals work.

If you're looking through the MLS or having a realtor supply you with product that is on the market then its highly likely you'll find, and it appears you already have, that those deals won't work.

So my suggest to you is that if you want to buy property in the Bay Area, and have it cash flow, and have an opportunity to benefit from any capital gain over time, then you need to research how to find opportunistic and value add real estate deals, and how to buy then using creative financing.

Do those two things and the world will literally be your oyster!

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