Hi Everyone,

New member here :) I am interested in investing in real estate in bay area. This will be my first investment property. Thinking of SFH (Single Family Home), as HOA regulations in some places restrict the use of property for rental purposes, which defeats the purpose of investing.

2 Areas that I can think of are Hayward and Livermore. I am capping my budget at 650-675k for closing a house . I have roughly around 300k saved up and putting that for downpayment for a SFH in those areas would mean having rest of amount in loan. ( 350-400k)

Question : 

1) Are both areas worth the investment?

2) Which one is better? and Why?

3) Pros / Cons of each area

Livermore has decent schools but it seems far away, so unsure about rent income potential. Hayward historically has pockets with high crime rate and bad school rating. This leaves me in very confused state in initial research. Looking for some input and suggestions. Thanks.

Hi @Romil S. ,

I don't know much about Livermore but I have been investing in Hayward for several years with great results (so far).  And I continue to invest more in Hayward.   And given that I am in Cupertino - it will only be easier for you being in Fremont.   Hayward has some very nice areas as well.

I have couple of suggestions:

- Don't rule out condos and town homes.  You are right that some don't allow renting but > 85% allow renting.  So you need to check before you buy.    Many times, the cash-flow is better for condos (as the purchase price is lesser).

- Make sure that you have some positive cash flow.  It may be harder to find cash flowing properties but that will ensure you are not buying the first property you encounter.  And also the positive cash flow will protect better  in case of a downturn. 

- With ~300k cash - you can plan to buy two properties.  Of course one after the other.  But if you have desire to grow your portfolio - don't put all your cash into one property (unless you have to).

Good luck!

Thanks Sandeep. Some good advice. If you don't mind me asking, Can you give some input on good areas of Hayward? So far my research shows that only Hayward Hills has good houses neighborhood, but it is as costly as Fremont. Any specific sub-areas I am missing out?

Regarding ruling out Condos/Townhomes due to rental limitation , here is one argument. Let's say rightnow they allow renting out, but since they have HOA committee they can introduce a new rule in future to limit rental properties ( I feel lot of investors in bay area buy condo/townhome for renting, so I do see this rule being more and more common going forward). If that happens after I buy a property, I am stuck with paying for that property out of pocket OR will have to consider selling it. (Selling is again market dependent and selling in rush due to limitation might mean risk of loss)

May be I am over thinking it - but SFH feels like a safe bet. Would love to hear your counter argument.

Also can you elaborate a bit on spending 300k over 2 properties instead of 1? I was also wondering on same, as I can may be split it up in 200k and 150k and also look for investing 150k in Sacramento area ( with 40-50% down payment on SFH) - but it feels like lot of risk /exposure for newbie who has 0 experience. Looking for suggestions here.

Thanks!

I recently purchased a SFR over Condo due to the same reason, HOA. It's my FIRST investment property and if the main purpose is to gain cash flow then any "extra" expense should be avoided. I'm so glad I got the SFR because the Condo I was eyeing got sold and is still renting and lowered rent. I can't imagine if I have to pay those HOAs and the house is not rented........and the mortgages................

Even if the condo got rented, the HOA still eat a big part of my cash flow.....

rgds

Yes, the Hayward hills is a good area.  There are also several nice condo and townhouse communities near downtown and Castro Valley border.  You need to go drive the neighborhoods.  Some areas near Chabot college are very nice as well.  

You are right that HOA can add rental restrictions later. However, in such cases - the already rented units are grandfathered and exempted. The restrictions are for new sales. That said, I agree that HOAs can and do create HASSLES. So everything else being equal - buying SFR is better. However, many times the rental value of a condo is higher (or say the purchase price is lower) that can make the hassle worth it. All I am suggesting is that do not rule out Condos as a category.

(FWIW - I achieved financial freedom and left my hi-tech job last year just on the basis of rental income coming from my condos in Hayward!)

Splitting $300k over two investments could produce higher return (due to the leverage) for you.  So you buy first with $150k down (and rest loan).  And after some time - if and when you feel good about your first investment - you can buy the second one with the remaining $150K (and loan again).

Thanks Sandeep and Wayne. Very helpful info here. 

Is it true that interest rate on loan for Investment property higher than your primary property? So far I am getting numbers that are as high as 0.75% than usual market rate - is this normal?

Yes investment property loan is generally more expensive than primary home loan.  But if it is your just first investment purchase - it should not be more than 0.25 % more.  Ask more lenders.  Or do higher down payment if needed.

Also, I would suggest go for ARM loans (3/5/7 year ARM loans) to get lower interest rate. That has huge impact on cash flow.

Awesome, sounds like plan

I'm from Danville which is near Livermore, and I've been around Livermore a lot for work. My partner is from Hayward and I've spent a good amount of time there as well. Livermore has good public schools, much more of an A-neighborhood type city than Hayward. Livermore downtown is very nice. Hayward downtown area has improved a LOT in recent years. There are nice parts of Hayward but most of what I've seen is more C to C+ neighborhoods. Good thing is that you are close to both so you can drive around and see for yourself! I think both are great places to invest, as long as it's a good deal that meets your criteria. Livermore is more established than Hayward. I see Hayward a bit more as "up and coming".

Meredith, I completely agree. Livermore is well established where as Hayward is up and coming. Livermore seems to already have higher property prices in last 1-1.5 year so I seem to have missed the window of investment there, thus the search towards hayward :)

Hi @Sandeep S. - your posts are very helpful, thank you very much.

I'm in a similar situation as @Romil S. and wanted to ask a few follow-on questions:

1. What criteria do you use to evaluate HOAs? Do you keep a target for monthly fee, reserves. %owner occupancy etc.?

2. On your cash-flow positive properties, what rate of interest do you aim for? I'm finding that the spread between ARM and 30-Fixed is not substantial on an investment property - would love to get your take. Would you mind sharing the interest rate for some recent deals?

3. Do you buy off MLS or off-market?

Huge thanks in advance - it's very kind of you to help fellow investors.

Amit

@Amit Saini

1. It is best to choose "healthy" HOAs - especially for newer investors. This is what I look for in healthy HOA:

- Owner occupied > 50%  (higher the better)

- Number of units in HOA > 50 (higher the better)

- No litigation

The other things like HOA fees and reserves are important but if the above criteria are met - rest of things fall in place.

2. I go for lowest possible interest even if that means higher down payment and low or no fix term. I get 2.x% for my 1 month ARM loans. I am assuming the 30-year fixed rate will be closer to 4%. 1%-2% difference in interest rate can make a big difference, esp for bay area prices. Of course - the ARM rates could/would rise but I am choosing to take that risk.

3. Yes, lately my deal finding efforts have shifted from On-MLS to off-market deals. As such I still look on MLS in addition to off-MLS.

Thanks everyone for participating in this discussion and bringing up some really great points to consider. I want to take it a step further. 

For first time landlord , how do you manage renting out properties? I think it is important to understand the risks / efforts associated with it before one decides to jump into real estate investment for renting purposes.

What are some things to consider ? 

What are mistakes to avoid? ( Specially in Bay Area)

@Sandeep S. - Thanks again, very valuable info. If I may ask a few follow-on questions:

1. What is the logic for number of units > 50? Is this a proxy for more stability in the HOA should a few units default?
2. How do you stress-test your portfolio with a lot of ARM/interest-only loans. Mentally, how do you prepare should rates rise and rents don't rise correspondingly? Shed some units? Put more cash down I'm trying to figure out the playbook.
3. Do you stagger the ARM loans to give a safety net? 

My situation is that I have one investment property in L'more & am looking to build a portfolio of more. My financing has been traditional 30-year fixed (4.25%). While it nets me a small positive every month due to a large down, I'll have to get more creative on subsequent deals, therefore your approach is very helpful. 

@Romil S. - Sorry  that I've asked more questions on the thread you initiated. I'm a recent first time landlord too, I found this link helpful: https://www.biggerpockets.com/renewsblog/2016/07/3...

The most important thing I learned is to have a dependable realtor with a good network of handymen/contracts in the area you're buying. I do property management myself (really - it's about directing resources rather than me fixing a toilet myself, which I can't do anyway). I feel the closer you are to the business, the more you learn. Don't hesitate to ask me questions (admittedly - very little experience and not in the same league as other investors on this page).

@Amit Saini

1. 50 is an arbitrary number as such. However, in my experience - the larger HOAs tend to be better managed. And their HOA dues as well as rate of increase of HOA dues are also smaller. So it is less risky to buying in larger HOAs.

2. I have large cash flow margin and keep decent amount of reserves available to weather a downturn.  That said - my philosophy is that banks make a lot more profit in 30-yr fixed loans as they take the premium for the unknown in the future.  And instead of giving them the premium - I'd rather give that premium to myself and increase my cash flow.  And if I have large enough portfolio - that saved premium for all these properties for all these years is a large enough reserve in itself.  

3. I don't plan the stagger of ARM loans - although it just turns out that way because I am buying and/or re-financing many deals in a year.

@Sandeep S. - Brilliant insights & thanks for sharing! May reach out to you with some more questions, but that's all for now :)

Hi All, 

I am interested in exploring investment opportunity in Hayward. However, I am not familiar with this area. Do you have recommendation for realter that can help in investment property. 

Hi everyone,

I’m of the idea duplex are great investments, just wondering if in Hayward will be a good choice 

@Amit Saini @Sandeep S. I am thinking to get an investment property in Hayward too. I was just wondering if you have any recommendations on how I can find the deals? do you work with an agent that you can introduce to me?  The reason I am asking is I am a full-time worker and it seems very hard to catch up with being the first visitors to the properties who come to the market. 

@Saman Jafari

If you are starting out, it is difficult to get an off-market deal (which are generally better).  Best is to research your area, and work with listing agents and non-contingent offers to get a good deal.  It is important to do enough research so you can have the confidence to tell what would be a "good" deal for any given property in your market.  

@Sandeep S. and @Romil S. -I am from Sunnyvale and I am a newbie on this forum . I have have an investment property in Round Rock TX and now debating to buy investment property in TX vs CA ? Have you compared both options and what are the advantages of each option