Newark, CA · Member since 2019 · 13 posts · 6 votes
Hi everyone, I’m new to BP and feeling thrilled to discover this site! So, I got a problem that has been concerning for a while. We have purchased a townhome in Mountain View, California last year, and the final price was 1.18m with mortgage of 700k. This is not our primary house and our cash flow on the townhome is negative $2,000. I’m unsure if I should sell it and put the money to OOS investment or hold it until the market is HOT again?? Please help! Thanks in advance!
Sell it today and ask questions tomorrow. -$2,000 a month is painful. This is what investors who only buy for appreciation will realize. It's PAINFUL to watch real money leave your real checking account every month. They all say I can withstand the negative cash flow each month. Are you sure? Hold negative and then finally capitulate and sell in 3yrs for a negative cash flow loss of $72,000.
I see this all the time in the Bay Area. I talk so many of my clients out of buying these type of deals. This is not investing, this is called gambling when you play for appreciation for deals like this.
I work with an investor in that area who not only has his property full furnished for monthly corporate rental but he went above and beyond to make it a "wellness" property. He is getting more rent than his neighbors and has a waitlist.
I just got back from the East Bay area, if you are trying to have a local investment look east towards Bay Point, Pittsburg, Antioch, Oakley and Brentwood. I am sure all over valued but being these areas are only an hour from the city it might be a better bet.
@Rob Massopust - Too bad we missed you! We had a meetup in Brentwood last week and it would have been great to have someone from SoCal there and compare markets. You're right, with the expansion of Bart in the area as well as commuters and families in search of more "affordable" properties, @Huimin Zhang could really stretch her dollar out there to not only cash flow but obtain some great appreciation in the years to come.
Do you mind posting your numbers here? Will give everyone a better understanding of your income/expense and how under market your rent is. Generally not a good idea to rent to friends and family, especially at a discount. More than likely your capital can be deployed elsewhere for a positive cash flow.
@Rob Massopust Wellness - Corporations spend millions to make their employees healthy at work so it makes sense to entend this investment into the corporate housing rentals they rent for their employees. Wellness Amenities and Features inspired by WELL Building Standard v1.
@Rob Massopust Wellness - Corporations spend millions to make their employees healthy at work so it makes sense to entend this investment into the corporate housing rentals they rent for their employees. Wellness Amenities and Features inspired by WELL Building Standard v1.
Energy Efficacy
Healthy Living
Efficient Living
Mindful Living
Wellness Cleaning
So you rent out like AirBNB or Corporate Rental?
Longer term like 30 days would be an interesting approach and if you can get above market rents from a Company, many cities are not allowing STR
If you are interested in rate examples The Highland Group published a 2018 report which gave high and low rate ranges for 271 markets for stays 30+ days. See attached graphic for a sample.
Look, you’ve gotten a lot of varying advice here. To cut to the chase:
Admittedly you’re not in an ideal situation. Most people who keep their first place to rent out and buy their second home, do that after it has appreciated, and the rent gets at least close to covering expenses. Then it’s definitely worth it. But you are not in that situation. OTOH you have 2 homes in prime Bay Area with some good equity...which is probably more than 90% of the readers of this site have...so don’t forget that :)
However, I’m guessing that both you and your husband have demanding full time jobs? If so, trying to make an out of state or other tricky investment may be a worse move for you! Be careful, there are tons of turd turn key providers and eager syndicator licking their chops to get at your money. And then you really have no control over your investment. Now if you do have time to explore active real estate investing, then first research it and learn the markets and strategies you’re interested in. And then you can consider an alternative RE investment. But keep in mind you’ll loose at least 6-7% of sales price ($72-84,000) up front on sales cost, so that alone equals 3-4 years of your current negative cashflow.
I think your best bet is to keep it. See if you can do Airbnb or corporate rentals, or at least raise the rent to market. And wait it out. Sure the market will probably be flat for a few years. But when it pick ups again, it usually has a few years of very strong increases. *That’s* when you will make your profit. It could be 3,5 or 7 years from now. But you’ll make up for the -$24k per year loses then. Also remember, the rent will *increase* in that timeframe too. So your monthly negative will improve.
I think your best bet is to just keep it, be patient, and wait for the next cycle. The graph below should give you some comfort. Look I’ve been in San Francisco real estate since 1994. After every cycle, everyone always said “but it can’t go up again.” And a few years later...it goes back up again. The global impact of technology isn’t over yet! I still think there are at least 1-2 solid appreciation cycles left in the near to mid term future. Let us know what you decide to do, and good luck :)
@Rob Massopust - Too bad we missed you! We had a meetup in Brentwood last week and it would have been great to have someone from SoCal there and compare markets. You're right, with the expansion of Bart in the area as well as commuters and families in search of more "affordable" properties, @Huimin Zhang could really stretch her dollar out there to not only cash flow but obtain some great appreciation in the years to come.
Ah next time let me know, we are up there frequently. Not frequently enough to get me to stop calling it " the BART" vs BART drives my wife [who is from No CAL] crazy.
If you are interested in rate examples The Highland Group published a 2018 report which gave high and low rate ranges for 271 markets for stays 30+ days. See attached graphic for a sample.
Interesting.
Why such a difference for a 2 bedroom than a 3 Bedroom ie Anaheim CA
If you are interested in rate examples The Highland Group published a 2018 report which gave high and low rate ranges for 271 markets for stays 30+ days. See attached graphic for a sample.
If that is the case I'd buy a 2 Bedroom Condo near Disney and rent out for $8000+ per month, this is my new business model!
Took my my time to re-read every posts here. I am a newb to BP and literally just registered my account. I was confused by this for a while and decided to try to post my question here. I never expected that there would be so many responses and so many different thoughts. Thank you everyone for sharing your opinions!! I couldn't be thankful more to learn from experienced investors! One thing is for sure, now it is definitely not the best time for us go ahead selling the property and investing else where without enough market research (we have made misjudgment once, and don't wish this to happen again!). There are so many advices given in the forum and they are valuable!! We decided to hold on the property until we figure out which investment direction we want to take, either OOS OR selling and buying OR STR. It's all about LEARNING right now!
So, many people are asking $$: mortgage $3500, insurance $30, tax $1200, HOA $500, and RENT $3350 (2b2.5b TH in decent condition), not counting repairs/ maintenance/ possible vacancy.
@Huimin Zhang, Now that you listed the rent that does sound low to me. I’m renting 2bd/2bth apartments in Redwood City for $3400, and yours is a townhome near google, I’m assuming with private garage plus the extra half bath. Sounds like you could squeeze out a little more cash flow even beyond the friend discount you mentioned.
I would put it on the market, boost a 720+ FICO & build a LLC with A/B credit and get ready to use the town proceeds to put down on your 1st CRE deal you are comfortable with.
@Huimin Zhang If I'm understanding your numbers right, you're saying that the condo is worth $20K more than what you paid for it last year. I find that surprising in Mountain View. That's only 1.6% appreciation. I don't know what you mean by waiting for the market to get hot again. Although appreciation rates have slowed down, it's still a sellers market and is hot. If you're talking about returning to hyper appreciation rates, you'll probably have a long wait. Most real estate markets are cooling and either moving toward equilibrium or possibly turning towards a buyers market. That hasn't happened in the Bay Area yet but real estate moves in cycles and it's certainly moving into the mature phase of the growth cycle. You're losing $24,000/year which is not sustainable but on the other hand, you'll lost money after commissions and closing costs if you can only sell it for $1.2M. You'll have to weigh weather the trade off of losing $2000/mth is worth holding out and hoping it appreciates enough that you don't lose on the sale. Personally, I would probably be inclined to stop the bleeding.
Welcome to Biggerpockets. I’m late to the party, but please allow me to throw in my 2 cents. I’m glad you’ve decided to keep the TH and not listening to advice by the folks who told you to sell and invest OOS.
It looks like you're doing well financially. Here's a way to stop the bleeding from $2k/mo to $500/mo. Go to First Republic Bank and talk to them about a 5, 7 and 10 Interest Only (IO). I believe they can offer you an IO loan in the low 3's IO at 60% LTV. This should drop your monthly mortgage payment from $3.5k to $2k.
Real estate is about control and leverage. If history is any indication as Amit’s chart shown above, there’s a decent chance your TH would worth $2-$2.5M in the next 10-15 years. I can’t guarantee crap so are the folks who are peddling about OOS cash flow.
Even if you lose $12k/yr after repairs & maintenance, that's $120k-$180k loss in the next 10-15 years. Rent should be close to double where it is today if history is any indication so you should break even in the next 7 years or so. Your ROI would still be fine if you have a long-term horizon.
@Huimin Zhang a local agent should be able to tell you what a healthy buyer or sellers market is.
For example (x) months inventory is good. Let’s say 6 months. It’s balanced for buyers and sellers.
9 months inventory means it’s a buyers market
2 months inventory means a sellers market.
Does that make sense?
Typically the inventory drives the market. If you can find this out it may help in your decision making. You may be able to list it for 1.35 and push the limits and get a cash off of 1.3? Who knows. It doesn’t hurt to try. I have heard of crazy scenarios like this actually work( I can’t believe it honestly)
$24k a year is painful. Like a lot of the BP members here are saying, appreciation is a dangerous game. Especially in your situation. I won't make any predictions, but we are definitely in the latter stages of this cycle. Your worst case scenario would be to have this property when the market shifts to a buyer's market. If that does happen, who knows how long you will have to hold the $24k bleeding for? I would look into placing that equity into properties that are performing. I know you stated you are not comfortable with investing OOS just yet, but trying staying in the Bay just because its easier to manage is not the best reason to invest there. If you are completely against OOS, perhaps you can look into other markets nearby? I know of investors in Sac and Salinas, so you may want to look into markets that are at least driving distance.