Newbie Advice: Multi-Family in Bay Area / Silicon Valley, CA

[Kyle Buyers]

Hello Everyone,

I found BP a few weeks ago and have been voraciously reading and listening as much as I can since. I’m hoping to (1) introduce myself, and (2) get some guidance/wisdom on my current situation.

First off, nice to meet all of you and thank you for spending your time helpfully here. I’m a Bay Area, CA resident (most of my life) looking to make my first purchase in the next year or so. I’ll be getting help to make the down payment (still confirming the upper limit), and I hope to have it be a live-in property so I can funnel my usual rent payments into equity instead.

Based on the BP eBook, I’ve identified that the best strategy for me is to get a small multi-family unit. This is for several reasons:

• I have a W2 day job that I very much like and plan on keeping; this definitely limits the approaches I can take/strategies available, given it’s a 40+ hr/week job with some travel

• My goal here is to increase my net worth first, and earn cash flow second. I am 30, and aim to retire/earn financial independence by 45.

• Ideally I want to earn cash flow, though I realize in this area it’s a pipe dream and at best I will just cover my costs (which I believe is okay, because building equity will still help)

• The markets I know best are the ones I’ve lived in for many years, which is the Bay Area first, Vancouver BC second (though I’d prefer to not deal with cross-country finances), and Lake Tahoe, CA third. Though I’m open to investing in Tahoe, I won’t be able to live there while working (it’s a 4+ hour drive) so I believe that’s out for now.

Current situation:

• Excellent credit

• Down payment ready, though I am confirming exact number with my father who is planning to help with this

• Working in San Jose/95125, would prefer to not have to commute more than 40 minutes/day

• Family is in Sunnyvale, Foster City, and SF so I’d rather not move too much farther south than SJ

• My skills: I’m extremely detail-oriented, good with numbers, and work in Marketing for a living. I am less handy though (so house-flipping is out). I’m the type of person who looks into the fine print and has the grit to push through to make something happen; I understand real estate is a challenging, long-term game and I’m comfortable with that.

Questions and challenges:

• Should I look into down payment assistance and use the money from my father to improve a property/force appreciation instead?

• Is a multi-family property even possible/available in my price range?

• Alternatively, should I try to find as large a house as I can afford with many rooms, then rent out to roommates/tenants instead?

• If I’m looking to make money off this and lower my tax burden, should I start a separate company that owns the property, pays the team (contractors, accountant, etc.), and manages the tenants? Or is that overkill?

• Given my current situation, are there other approaches I’m overlooking that I shouldn’t?

• Anything else I’m missing?

Again, THANK YOU all for your willingness to help (or even read this long intro). I know the Bay Area is a unique and challenging market. Hopefully I meet some of you along the way, and I’d be happy to buy you lunch and glean some wisdom if you’ve been working with real estate here for 5+ years. :)

[Chris Mason]

Welcome, @Kyle Buyers. 

• Should I look into down payment assistance and use the money from my father to improve a property/force appreciation instead?

I'm not aware of any down payment assistance programs in the Bay Area that are not income capped, and that will go for 2-4 unit. Typically by the time you earn enough to afford to live in the Bay Area, boom you're over the income cap of the FTHB program. With a few exceptions that I do not believe will be applicable here.

• Is a multi-family property even possible/available in my price range?

You didn't mention a price range. :)

• If I’m looking to make money off this and lower my tax burden, should I start a separate company that owns the property, pays the team (contractors, accountant, etc.), and manages the tenants? Or is that overkill?

The BP tax strategy for REI book has a plethora of examples showing that creating entities all over the place doesn't necessarily save you a dime come tax-time, but can be great at generating fees for folks that provide entity creation services.

Take a look at IRS form Schedule E. You get to write a whole bunch of stuff off, even depreciation, without any fancy entities. The IRS already makes buy-and-hold tax advantaged by default, without you doing anything but filling the forms out. Toilet is clogged and you need to call the plumber, boom you can write that off. Etc.

The Bay Area crew is super active and helpful, don't hesitate to reach out to anyone!

[Kyle Buyers]

Hey @Chris Mason, thanks so much for your reply!

Down payment assistance: didn't realize this has an income cap; makes sense. In that case I likely won't qualify.

Price range: hah, absolutely right. I think it's largely dependent on how much of a down payment I can swing with my father. I could see it being tight (for the Bay Area) around 750k if we are trying to do 20% down, but if we're aiming for 3.5% then that definitely expands the range to $1m+. It also depends on the property's cash flow; I'm comfortable with a higher mortgage if it means I also have more cash coming in monthly to offset it.

IRS, Schedule E: thanks for the tip! Looks like I have more homework to do (which I'm happy to have!). I know there's a lot more learning for me in the near future.

Again, thanks so much for your advice and willingness to help out. Glad to hear there's a great crew for the Bay Area on here. Is there anyone else who has experience in multi-family properties in Silicon Valley you think I should reach out to?

Cheers!

[Chris Mason]

Hi @Kyle Buyers, add "silicon valley," "California," and "bay area" to your keyword watch list, and you will see the conversations and the people. :)