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Alice K.
  • Investor
  • San Francisco, CA
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Where do you invest? (San Francisco is insane)

Alice K.
  • Investor
  • San Francisco, CA
Posted Jan 12 2016, 00:52

Hello All,

I've been involved in 2 out-of-state offers so far and feel like I've hit a wall in the areas I was planning to purchase a home/multi-family in. 

My primary question: Where would you / do you invest? 

Past experience

Eastern Washington: Little/no appreciation and meager cap-rates for anything decent (I know there are other factors but for simplicity, cash-flow is only so-so). Last offer took some wind out of me (thankfully, nothing bad *knock on wood) and I realized I have the entire world to look for property. 

Seattle: Rising far too fast, not sure if it's sustainable. I don't want to put all my eggs in one basket (heavy reliance on tech alone). Who knows if that will burst with San Francisco (where I live). On top of that, rents don't justify the high costs. (I haven't aggressively looked for "deals" but from what I've seen for the average joe that doesn't plan to spend 10k on postcards, such as myself.)

I was looking at job growth/diversity, running numbers, looking at charts, patterns, etc. and thought, heck I should ask people on here.

Would be so appreciative for any thoughts!

Cheers,

Alice

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Chris Mason
  • Lender
  • California
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Chris Mason
  • Lender
  • California
ModeratorReplied Jan 12 2016, 01:31

SF has rent control. Silly place to invest.

One of my favorite clients has been living in a rent controlled SF apartment for about 15 years.

As you may have guessed, him being a renter and my client (being that I'm a mortgage lender) means that he owns real estate. Specifically:

He owns six properties in the Bay Area, 100% in cities that do NOT have rent control.

The losers in that are his SF landlord and his East Bay tenants. Think for a moment about what happens to his rent, and the rent of his tenants, each and every year. He's actually a horrible tenant and goes to the City for things to be fixed and upgraded, at the expense of his landlord, on a regular basis. Meanwhile, because his tenants do not enjoy rent control, guess what happens when his tenants give him any grief...

We laugh together frequently about it all.

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Lane Kawaoka
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  • Rental Property Investor
  • Honolulu, HAWAII (HI)
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Lane Kawaoka
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  • Rental Property Investor
  • Honolulu, HAWAII (HI)
Replied Jan 12 2016, 17:32

Seattle does not cash flow. The rent to value ratio is 0.5%. I know you can find a distressed deal at 1% but they are pretty difficult to find.

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Stephen Hundley
  • Realtor
  • Lafayette, LA
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Stephen Hundley
  • Realtor
  • Lafayette, LA
Replied Jan 12 2016, 17:34

I invest in Lafayette, La. Avg price is $240,000 so pretty expensive for Louisiana but I make it work. I target houses in the $100-$140k range 

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Jay Hinrichs#1 All Forums Contributor
  • Real Estate Broker
  • Lake Oswego OR Summerlin, NV
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Jay Hinrichs#1 All Forums Contributor
  • Real Estate Broker
  • Lake Oswego OR Summerlin, NV
Replied Jan 12 2016, 17:41

@Alice K.   if you want to stay west coast Portland Oregon.. is pretty solid.

number one in migration state in the entire US...

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Aaron L.
  • Rental Property Investor
  • Lincoln City, OR
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Aaron L.
  • Rental Property Investor
  • Lincoln City, OR
Replied Jan 12 2016, 21:09

When starting out, there is some logic to investing in your own backyard. As your investing grows, there is no limit. I had someone tell me once, "it's not who you know, it's who knows you." Relationships are key to success in any market.

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Ali Boone
  • Real Estate Coach
  • Venice Beach, CA
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Ali Boone
  • Real Estate Coach
  • Venice Beach, CA
Replied Jan 13 2016, 13:41

You're going to have a hard time with anything on the west coast. Unfortunate, but the prices in all of the western states are fairly prohibitive for cash flow. Appreciation, much more likely, but negative cash flow in the meantime. The only way to really find the cash flow is to find the diamond in the ruff property out somewhere no one else has found. 

How far out-of-state are you willing to consider?

I live in LA and have always bought out-of-state. My closest property is 2200 miles away from me. And I wouldn't have done it any different...I love it.

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Andrew Wong
  • Investor
  • Milpitas, CA
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Andrew Wong
  • Investor
  • Milpitas, CA
Replied Jan 13 2016, 15:42

@Alice K., have you looked in areas like Sacramento or Fresno? Maybe Salinas?

There's a lot more to California than the San Francisco Bay Area.

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Gordon Cuffe
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Gordon Cuffe
  • Investor
  • Roseville, CA
Replied Jan 13 2016, 15:52

look at this interesting article about buying in the Sacramento area.

http://www.bizjournals.com/sacramento/news/2015/12/15/why-blackstone-is-still-investing-in-sacramento.html

If you ever have questions about prices and rents in the Sacramento region ,you can send me a email.

Sacramento prices have gone up a lot since the summer of 2012 but a lot less than bay area prices. Here is another article about people moving to Sacramento from the Bay Area because the prices are a lot lower.

http://sacramento.cbslocal.com/2015/10/21/report-bay-area-millennials-eyeing-sacramento-as-future-home/#.VihCFvU96nQ.facebook

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Polar Prutaseranee
  • Flipper/Rehabber
  • Tustin, CA
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Polar Prutaseranee
  • Flipper/Rehabber
  • Tustin, CA
Replied Jan 13 2016, 16:25

Ooh. San Francisco is pretty rough. If you're trying to stay in the Bay Area maybe look into east Bay Area. I hear things are still booming there. I could be wrong but might be worth checking out. Good luck.

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Jo-Ann Lapin
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Jo-Ann Lapin
Pro Member
  • Loan Officer
  • Tustin, CA
Replied Jan 13 2016, 16:33

I think it real hard to answer the questions without knowing your full financials. In the market we are in you should be looking long term. Most markets with good locations have very little inventory etc!!!

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Alice K.
  • Investor
  • San Francisco, CA
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Alice K.
  • Investor
  • San Francisco, CA
Replied Jan 14 2016, 01:21

Thanks for the comments everyone!
Currently the Bay Area feels like we're reaching the peak. I may be wrong, but based sheerly on investors in the area and housing affordability charts (thanks @JMartin for that, an active host of the SF group here), I think we're at a breaking point. Maybe not tomorrow but sometime in the next few years.

Rent control is a very coveted thing in SF. Just spoke with a friend the other night whose coworker was just bought out for $100k from his rent control pad. I also have discussed this with local investors-- those buying old dives in the East Bay and considering paying 50-70k per head to get rid of the tenants. Some of the tenants won't budge. Being a renter myself I sort of understand why.  

@Ali Boone: I totally agree based sheerly on MLS listings-- I look and think "WHY am I here." Then I remember I enjoy my job greatly. Are there states you prefer? I was looking at upstate NY and impressed with the low prices. But, I know very little of the area.

@Gordon Cuffe & @Andrew Wong Thanks-- will check this out. I really wish there were more close areas for investor-types (those without millions to invest that is or very "creative" methods). My old landlady owned a commercial building in Salinas and she makes a great amount of money from it. Although, her husband purchased it back when Salinas was nothing, maybe 20 yrs ago. 

@Jay Hinrichs: PDX is a great place. I lived there for a short amount of time 6 years ago and loved the hippie vibe. Do you own there currently?

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Alice K.
  • Investor
  • San Francisco, CA
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Alice K.
  • Investor
  • San Francisco, CA
Replied Jan 14 2016, 01:25

@Stephen Hundley That is right around the price I'm looking for since this will be my first. How is the job market / higher education there? 

@Lane Kawaoka: Good grief, right? Most of my friends live there and even though the homes aren't the prices of SF, for me to purchase a home and rent out rooms, it just wouldn't make sense as room prices are similar price to cheaper parts of the state. Do you buy & hold or flip? 

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Stephen Hundley
  • Realtor
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Stephen Hundley
  • Realtor
  • Lafayette, LA
Replied Jan 14 2016, 05:24

@Alice K. pretty strong. We have a university w 18,000 students and besides the oil field, our economy is strong. Oil will eventually come back tho. 

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Jay Hinrichs#1 All Forums Contributor
  • Real Estate Broker
  • Lake Oswego OR Summerlin, NV
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Jay Hinrichs#1 All Forums Contributor
  • Real Estate Broker
  • Lake Oswego OR Summerlin, NV
Replied Jan 14 2016, 07:40

@Alice K.  Yup I moved from the Napa valley to here in 2001... very involved with many forms of Real estate and finance in this market.

you won't see the huge Bay Area run ups.. but it is far better than anything out in Most parts of the mid west or Rust belt... save a few gems.

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Jameson Adams
  • Real Estate Broker
  • Oakland, CA
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Jameson Adams
  • Real Estate Broker
  • Oakland, CA
Replied Jan 14 2016, 17:04

I have been studying this market and most surrounding markets. The real estate prices are slowing down and have even dipped a little recently. Investing out of the area does make a lot of sense however not being on top of your money can be very costly. I spend countless hours listening to VC's and other brokers in the area and they are slowing down on their spending.

One thing is for sure THE BAY AREA IS ALWAYS A DEAL! I say this for one reason.. The transportation system is in place aka Bart and Caltrain. Yes it does need work but one thing I noticed traveling China, Hong Kong, Singapore is they all have a huge infrastructure to support moving people around and that is key for growth! Let's look at this from a Macroeconomic standpoint; Shanghai is about $6000/sf and New York is about $5000/sf. Sf is about $12-1800/sf. The Bay Area is cheap in hindsight!

Invest where all the jobs are going! Austin, Tx is booming and not too bad. It at least had a small light rail system. Portland (PDX) is the new trendy place to be with all of the coffee and beer redevelopment and let's not forget Reno. Another area like Oregon with no state tax! Reno has Tesla moving there which just opened and Apple got its big break. Reno is cheap right now! Not a bad buy.

I would still invest in the Bay Area though. Thee transit system is everything.

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Jameson Adams
  • Real Estate Broker
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Jameson Adams
  • Real Estate Broker
  • Oakland, CA
Replied Jan 14 2016, 17:09

(Continued)

When real estate takes a drop I would be buying in San Jose within 1/2mile - 1 mile max of a Bart station. Oakland is taking on a few thousand new units and tons of foodie spots in this newer urbanization phase. Rockridge is a very sweet little niche in Oakland.

Thanks for your time! Hope this was helpful and thank you to everyone for all your input

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Sam Van Horebeek
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Sam Van Horebeek
  • Hong Kong, Hong Kong
Replied Jan 14 2016, 17:48

@Alice K.

It really depends on what you are looking for - cash flow or appreciation, or a mix of the two. As you mentioned, the Bay Area has seen seen a steep price increase and might be a tipping point now. However, in the long term, SF has seen a good increase in prices and could continue this trend.  From our perspective here in China, most Chinese buyers tend to focus on long-term appreciation numbers so they still want to buy in places such as SF (for reasons such as immigration, schools, etc.). Furthermore, if you are able to leverage, the numbers might still work. 

Obviously, as someone else pointed out, cash flow will be limited in SF and other coastal cities.  As such, if you are focusing on achieving annual cash flow, places in the mid-west or south tend to produce much higher returns. Appreciation levels might be more modest but you could be making a good 10% net rental yield per year.

We have seen investors from Asia looking more and more at second-tier cities in the mid-west and south as well.  There is an education process that these investors have to go through indeed but that is exactly what they are doing, especially after realizing that the rental yields are attractive.  We have assisted with investors buying in Cleveland, Memphis, Austin, Chicago, Westchester, Orlando and many other cities. 

Each city is quite different from a cash flow or appreciation perspective, so once you know what kind of returns you like to achieve, it will be more clear what city could be suitable for you.

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Sean Kremer
  • Real Estate Investor
  • Milford, NE
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Sean Kremer
  • Real Estate Investor
  • Milford, NE
Replied Jan 14 2016, 18:07

Personally I don't go farther than 30 minutes from me, and have stuck to that rule pretty well, but now am looking for a good value in San Diego, My wife's from Simi Valley,  or possibly the Forida Keys, but I'm only making the exception because I really don't like to be cold in Jan-Feb. 

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Federico Gutierrez
  • Realtor
  • Cleveland, OH
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Federico Gutierrez
  • Realtor
  • Cleveland, OH
Replied Jan 14 2016, 18:52

Australia for the appreciation and at time for the tax benefits (negative gearing)

Now Cleveland, OH. For me compared to the Australia the prices here are CHEAP! and the cash flow I gain for a fraction of the Aussie market makes my friends  full with envy

Account Closed
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Account Closed
  • Rental Property Investor
  • Oakland, CA
Replied Jan 14 2016, 19:37
Originally posted by @Jameson Adams:

(Continued)

When real estate takes a drop I would be buying in San Jose within 1/2mile - 1 mile max of a Bart station. Oakland is taking on a few thousand new units and tons of foodie spots in this newer urbanization phase. Rockridge is a very sweet little niche in Oakland.

Thanks for your time! Hope this was helpful and thank you to everyone for all your input

 Rockridge is sweet...if you can afford $2M.

When is SJ getting a BART station?

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Jameson Adams
  • Real Estate Broker
  • Oakland, CA
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Jameson Adams
  • Real Estate Broker
  • Oakland, CA
Replied Jan 14 2016, 20:21

You can find pretty descent craftsman's for 800+ in Rockridge.

The San Jose Bart isn't supposed open to be until 2022-2025, however Milpitas should be open around late 2017

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Nicholas Varner
  • Title Representative
  • Lakewood, OH
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Nicholas Varner
  • Title Representative
  • Lakewood, OH
Replied Jan 14 2016, 20:21

@Alice K. I moved to Cleveland, Ohio to invest in properties in the Buckeye state. There are cities to stay away from, but there's a lot of right answers to the interesting question that you posed. You can make money in Atlanta, Dallas, Birmingham, Chicago, and hundreds of other areas. However, within every MSA there really are streets and pockets that are sweet spots compared to the MSA as a whole. Any of these MSAs, including Cleveland, have winners and losers inside of them. I think it's more important to find a team that you trust and also to find properties that perform well. 

As far as San Francisco (and New York, LA, and Miami) goes, I just would like to add housing is always supply vs. demand, of course, but it historically it is correlated with jobs and medium household incomes. Of course, with salaries being higher in those cities home values should be proportionately higher than markets like Cleveland with lower income levels. Additionally, lack of supply and increased demand places upward pressure on prices. So, it's completely justified that SF, NYC, Miami, and LA prices are selling at premiums. However, what's really scary (exciting?) about these particular markets is that buyers from outside countries like Brazil, China, Russia, and other countries are using properties as tax shelters or laundering money through these markets. So, prices are now selling based on this new "normal". With Brazil's currency and economy collapsing, it'd seem plausible that we could see fewer Brazilian buyers in the US. Additionally, China could be in trouble. Russia has proven to be extremely vulnerable to falling oil prices. 

Specifically, looking at San Francisco. What a great city! What happens, though, if Google relocates to Texas or to Ireland (or moves their development there). Same for Apple? I'm not necessarily saying that's likely, but it's not implausible, either. The point is with my long rant is that when "investing" in SF, LA, Miami, and NYC, you are rolling the dice with a lot of macro variables that are totally out of everyone's control. They clearly aren't buy and hold markets and the taxes are also insane. You also cannot amend structures without dealing with insane unions, municipalities, labor and material costs. These markets have departed from traditional valuations of supply and demand and medium incomes and are now 100% in bubbles. I expect significant price declines in all these markets within 18 months. Check out Cleveland!  

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Arlen Chou
  • Investor
  • Los Altos, CA
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Arlen Chou
  • Investor
  • Los Altos, CA
Replied Jan 14 2016, 21:42

@Nicholas Varner I often hear people talk about "what will happen if Google or Apple" leaves....  However, the fact of the matter is that it is extremely difficult to move corporate headquarters of those sizes. It is not as easy as just moving equipment and changing letterhead.  The huge loss of employees or cost in relocation of those employees will undoubtedly slow down or kill that move.  Moving within the Bay Area or choosing to expand in nearby cities makes more sense, which is what we are currently seeing in the market. 

Even in an acquisition situation where the acquired entity will be absorbed by a company with a corporate headquarters in a different geography will take time.  That measure of time is most often in the range of years and not months.  This massive amount of time gives real estate investors substantial time to analyze and plan for change.  

A good example of this is the old IBM disc drive facility in San Jose.  They were purchased by Hitachi in 2002 and the consolidation of the business is still going on.  A smaller version of that massive facility is still there but now surround by many new homes and retail outlets that grew out of that merger.

In reference of capital flight from countries like Russia, China and Brazil I believe that money is flowing into the US because the referenced economies are doing poorly.  Those people want to protect their wealth and therefore will move assets from their bad economies into real estate in the US. So I would take the opposite position and bet that more foreign money will flow into the US RE market until those economies become healthier.  Of course this is dependent on the willingness of the governments of those nations to allow capital fight.  I would expect the respective governments to put limitations on offshore balance transfers which might halt less sophisticated investors from moving money out of native accounts and into the US.  If this happens smaller investors might start to disappear and might make competition for smaller properties easier for local small investors.

Just my simple counter point.

Arlen

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Account Closed
  • Investor
  • Honolulu, HI
Replied Jan 14 2016, 22:11
Originally posted by @Nicholas Varner:

@Alice K.

Specifically, looking at San Francisco. What a great city! What happens, though, if Google relocates to Texas or to Ireland (or moves their development there). Same for Apple? I'm not necessarily saying that's likely, but it's not implausible, either. The point is with my long rant is that when "investing" in SF, LA, Miami, and NYC, you are rolling the dice with a lot of macro variables that are totally out of everyone's control. They clearly aren't buy and hold markets and the taxes are also insane. You also cannot amend structures without dealing with insane unions, municipalities, labor and material costs. These markets have departed from traditional valuations of supply and demand and medium incomes and are now 100% in bubbles. I expect significant price declines in all these markets within 18 months. Check out Cleveland!  

Gotta luv people from Ohio and Texas proclaiming the death of Cali !

http://www.bizjournals.com/sanjose/news/2016/01/08...

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Account Closed
  • Investor
  • Honolulu, HI
Replied Jan 14 2016, 22:15

What's Cleveland's answer to this ONE project?

http://www.bing.com/videos/search?q=apple+campus+2...