SF Bay Area Economic & RE Update (Ongoing)

J. Martin · 2016-02-13T15:29:25-08:00

I have organized what I believe to be some very valuable information and relationships about the economy and real estate, and will be posting updates about the San Francisco Bay Area marketplace here periodically. I studied a lot of economics in school, and they told me you can't predict real estate prices. ********!!!! Let's lay the groundwork... And a big thanks to @Account Closed for his mentorship and economic There tends to be a strong relationship between changes in employment and changes in real estate prices. Real estate prices in the Bay tend to go up when unemployment is falling. And they tend to flatten or go down when unemployment is rising. This tends to happen in regular cycles. The relationship between changes in employment and changes in real estate prices becomes more obvious when we look at percent change in employment, and the rate of change (second derivative, but don't get bogged down in the terminology..)This is interesting because:1) The relationship appears meaningful2) You can see a deceleration in employment gains (lower growth rate) while real estate prices are still increasing (at a decreasing rate). In other words, you can see the slow down in growth before real estate prices flatten or drop.Coming out of a recession, look how job growth goes from it's worst (about 5% job loss in worst year) to 2% job loss the next year, 0% the following year, then 2% gains, then 4-5% gains, then starts lessening again to 3%, 2.5%, and tends to drift back down towards 0% again, before going negative.. But you can also see that home price appreciation starts slowing (although still appreciating) as job growth slows.Now what if there were some sort of way to predict how employment was going to change..?What if there were a more local index that showed the way the economy and employment is and will do? Turns out, there’s one of those too!!!To me, the picture becomes more clear. In the SF and East Bay Area, employment gains, economic activity, and real estate price appreciation peaked in 2012, and has been on a decline since. If you look at the prior two cycles, you can see each of these indicators reach a peak during the middle of the cycle, then decelerate (grow at a decreasing rate) as the expansionary phase of the economic cycle comes to an end. You can see the leading index for CA, economic conditions for San Francisco – Oakland – Hayward , changes in employment, and real estate price appreciation all grow at decreasing rates, until they approach zero, as we go into a recession…. I’ll post more for Silicon Valley, San Jose, and Santa Clara later. Do you disagree with me? Is this information valuable? Too little time frame? Meaningless? Stupid for thinking we can predict how real estate prices will change over an economic cycle? If it were this obvious or easy, wouldn’t everyone already have figure it out, and we wouldn’t be talking about efficient market hypothesis? Does this change your perspective on real estate price appreciation and its predictability?

Account Closed

Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes

9y

Originally posted by @Anshu Sanghi:

@J. Martin, @Account Closed, it is a delight reading through your insightful posts.

Minh, regarding your above quote, why do you think a recession would make liquidity hard to find? Going by past experiences, during the recession, doesn't the Fed go out of the way to keep interest rates low in order to create liquidity? Or you think this might be different this time.

Anshu,

Based on history, banks tend to tighten their lending stardard and/or have overlay during recession thus the reduction in liquidity. The Fed threw money at the banks during recession, but that doesn't mean the money would make it onto main street so these are two different things.

Just like when the Fed raising short-term rates, this doesn't mean long-term rates will go up. Thus, we have inverted yield curve when short-term rates are higher than long-term. That's another indicator of a recession based on history.

Long-term rates are dictated by supply and demand. Too much money out there looking for yield. That's why long-term rates have been trending down. This has nothing to do with the Fed.

By the way, I don't subscribe to "it's never different this time." History tends to repeat itself.

1 Reply

Robert C.

Investor · San Francisco, CA · Member since 2016 · 338 posts · 444 votes

9y

@Account Closed, I didn't know you were a mind reader! ;) Actually, I kind of figured you're a rather sensible investor - just based on your reputation here on BP and the major props you receive from people who've met you in real life. I appreciate you letting me compare notes.

I'm a little more leveraged right now than normal for me because I'm handling a couple construction projects, but I should be back to where I'm more comfortable next year (50% LTV across the board). I spent part of 2016 locking in some 5/1 ARMs - from 3.08% to 3.33% with the expectation that it'll give me some time to react to the market depending on who's crystal ball is actually right. It might put me in an awkward spot if nothing happens until 2021 or after, but I guess that's up to the real estate gods now! I have a big 1031 coming up, and I'm still deciding what type of loan product to go with - I don't like the idea of all my loans going adjustable at about the same time.

Right now, I'm planning to have about 15% of my net worth liquid by the end of 2018, assuming things are pretty much the same as 2017. I always find the fall to be an interesting time in the Bay Area. It seems to be the time of year when I find the best investment opportunities, but at the same time I'm anticipating February/March to get the scoop on how the year might look.

2 Reply

Simon Gill

Investor · Los Angeles, CA · Member since 2015 · 56 posts · 7 votes

9y

The Feds plan to start shrinking the $4.5 trillion it holds from the three rounds of QE aka "printing money". The purpose of QE was to keep rates low and boost the economy. Some economists say the effect of this balance sheet reduction may drive up higher rates for loans faster than expected and that could push housing affordability further down!

1 Reply

Anshu Sanghi

Investor · Fremont, CA · Member since 2014 · 35 posts · 15 votes

9y

Originally posted by @Account Closed:

Originally posted by @Anshu Sanghi:

@J. Martin, @Account Closed, it is a delight reading through your insightful posts.

Minh, regarding your above quote, why do you think a recession would make liquidity hard to find? Going by past experiences, during the recession, doesn't the Fed go out of the way to keep interest rates low in order to create liquidity? Or you think this might be different this time.

Anshu,

Based on history, banks tend to tighten their lending stardard and/or have overlay during recession thus the reduction in liquidity. The Fed threw money at the banks during recession, but that doesn't mean the money would make it onto main street so these are two different things.

Just like when the Fed raising short-term rates, this doesn't mean long-term rates will go up. Thus, we have inverted yield curve when short-term rates are higher than long-term. That's another indicator of a recession based on history.

Long-term rates are dictated by supply and demand. Too much money out there looking for yield. That's why long-term rates have been trending down. This has nothing to do with the Fed.

By the way, I don't subscribe to "it's never different this time." History tends to repeat itself.

True, I remember the credit crunch. During that time though, I refinanced my primary house loan multiple times taking advantage of increasingly low rates. I think, if you had a good credit, it wasn't that tough to get loans with good rates. But this observation is only limited to residential loans only. Commercial might have been totally different scenario.

0 Reply

Anshu Sanghi

Investor · Fremont, CA · Member since 2014 · 35 posts · 15 votes

9y

Originally posted by @Robert C.:

@Account Closed, I didn't know you were a mind reader! ;) Actually, I kind of figured you're a rather sensible investor - just based on your reputation here on BP and the major props you receive from people who've met you in real life. I appreciate you letting me compare notes.

I'm a little more leveraged right now than normal for me because I'm handling a couple construction projects, but I should be back to where I'm more comfortable next year (50% LTV across the board). I spent part of 2016 locking in some 5/1 ARMs - from 3.08% to 3.33% with the expectation that it'll give me some time to react to the market depending on who's crystal ball is actually right. It might put me in an awkward spot if nothing happens until 2021 or after, but I guess that's up to the real estate gods now! I have a big 1031 coming up, and I'm still deciding what type of loan product to go with - I don't like the idea of all my loans going adjustable at about the same time.

Right now, I'm planning to have about 15% of my net worth liquid by the end of 2018, assuming things are pretty much the same as 2017. I always find the fall to be an interesting time in the Bay Area. It seems to be the time of year when I find the best investment opportunities, but at the same time I'm anticipating February/March to get the scoop on how the year might look.

I am curious. How do you use LTV, when you look at ability to survive a downturn? When I look at my investments, I only consider whether I have a long term fixed rate and whether mortgage payment is low enough to be sustainable, if rents took a 20% dip. LTV would be important if you anticipate having to refinancing during tough time. Is that why you look at LTV?

1 Reply

Robert C.

Investor · San Francisco, CA · Member since 2016 · 338 posts · 444 votes

9y

@Anshu Sanghi, I look at LTV for a couple reasons:

1.) Banks look at it when they are lending to you. Sure, right now it's pretty easy to get a loan, and it's not that they won't lend to you if you are over 50% LTV - some say 60% is fine. However, when I'm building my relationships with the decision-makers, they can look at my portfolio and see that I'm not an over-leveraging borrower (far from it). And they feel secure that my assets will maintain enough value as collateral in the case of a market correction. It helps now, and it will help if I look for financing in the future because they will know my track record.

2.) You're right that it's not the percentage itself, but the percentage combined with cash-flow and reserves that will keep me afloat. But it's still a simple measurement for me to make sure I'm being disciplined, and something I can compare against other investors who I respect. Just like people use multiple rules to evaluate an investment (1%, GRM, cap rate, etc.), LTV is just one measuring stick.

3.) Keeping it at a designated level gives me peace of mind. To me, that's no small thing when you're borrowing millions.

I do spend a lot of time thinking about the longterm. These last 7 years have been awesome, but in my mind I'm competing on a 20-30 year timeline. Part of that means not maxing out my ability to borrow/purchase now, so that I can have a bigger advantage in a buyer's market.

I should also note that I was much more leveraged earlier on in the cycle, because I knew the growth was there. This is my perspective as we're nearing the top.

3 Reply

Account Closed

Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes

9y

@Simon Gill, I'm not an economist, but I disagree with their assessment. If rates were to increase, it would be insignificant. Too much liquidity out there looking for yields. Time will tell though.

@Robert C., those are fantastic rates you got there. The lowest rates we were able to obtain were 3% and 3.05% in 2014 at 70% and 65% LTV in 2014, respectively. We got another IO loan with them a couple of months ago at 3.2% with a 58% LTV. This is a 5/1 ARM with 10-year balloon amortizing over 30 years. Haven't been able to get those rates from bigger banks.

If we happen to bum into each other at the 10/10 event, please ask me to introduce you to someone who works for Janet Yellen. I've been asking him to lend directly to me at Fed rates, but we haven't been able to strike a deal. At 1-1.25% interest rates, I can make a lot of things cash flow. LOL!

Johnson has a big influence on me. He's been telling me for the last couple of years to build that "Fortress Balance Sheet" which is getting my portfolio down to 20-25% LTV and have some liquidity on hand when the next recession comes so I have him to thank to. He's like a little brother to me. We chat on a daily basis about all kinds of stuff. The best thing I got from BP has been great friendship.

@Anshu Sanghi, you will have to stress test your portfolio to see how much rents you can reduce and still break even. If you have to reduce below that, how much negative cash flow can you absorb. History indicates real estate downturns tend to last 3-5 years so have the liquidity on hand to weather 5 years of storm.

With respect to refinancing when RE values are low, this is why we like to keep our LTV at 65%, when the 10-year balloon comes, our LTV is about 51% of its initial value. Hopefully a 10-year horizon should be adequate enough for your RE portfolio to rebound. However, you should still be able to withstand a 32% drop in value and be able to refinance and obtain a new 75% LTV. By the way, we have been shifting most of our loans away from balloon payment and go with bigger banks where there is no balloon. However, we're paying about 3.75% rather than 3.25%.

Example: $1M asset with $650k loan at 3.75%. After 10 years, loan amount is $510k. 32% drop in value = $680k value. 75% LTV of $680k is $510k.

As investors, we try to minimize our risks while keep on growing at a comfortable rate. If we only look at the downsides without looking at the upsides, we'll be going nowhere. Ironically, if we only look at the upsides without evaluating the downsides, that's how we get in trouble. It's a real balancing act. ;)

2 Reply

Account Closed

Oakland, CA · Member since 2017 · 133 posts · 58 votes

9y

Originally posted by @Account Closed , for showing us a very valuable cash reserve example.

For the buy and hold investors, using the cash reserve example Minh Le shown us,

investors should be able to weather the next recession storm.

Example 1:

Portfolio value: $11,500,000

Portfolio debt: $6,440,000

LTV: 56%

Annual total Rent:$825,000.00 (estimate 7.2% of the portfolio value)

Annual total expenses: $660,000 (80% of "current" annual rent, include operating expenses, debt services, 10% vacancy etc.)

cash flow: $165,000 (20% of "current" annual rent)

Let say rent is dropped 30% this coming recession,

cash flow is negative (-$82,500) annually or negative (-$6875) monthly.

To prepare 3 to 5 years recession with break even ($0) cash flow.

5 years = 60 months reserve for recession.

$6875 x 60 months = $412,500

minimum 60 months reserve to weather the next recession (with 30% rent drop or less) is: $412,500

Example 2:

Portfolio value: $1,000,000

Portfolio debt: $560,000

LTV: 56%

Annual total Rent:$72,000.00 (estimate 7.2% of the portfolio value)

Annual Total expenses: $57,600 (80% of "current" annual rent, include operating expenses, debt services, 10% vacancy etc.)

cash flow: $14,400 (20% of "current" annual rent)

Let say rent is dropped 30% this coming recession,

cash flow is negative (-$7,200) annually or negative (-$600) monthly.

To prepare 3 to 5 years recession with break even ($0) cash flow.

5 years = 60 months reserve for recession.

$600 x 60 months = $36,000

minimum 60 months reserve to weather the next recession (with 30% rent drop or less) is: $36,000

Note:

This example assume that the investor do not rely on this portfolio income to support their cost of living.

If investor rely on this porfolio income to support their cost of living,

they need a positive cash flow instead of break even cash flow,

where the positive cash flow is greater than their cost of living.

3 Reply

Anshu Sanghi

Investor · Fremont, CA · Member since 2014 · 35 posts · 15 votes

9y

@Robert C. Got it. In short, LTV can be used to make sure you are not leveraging too much out of your comfort limits.

@Account Closed, Thank you for detailed explanation.

I just calculated my overall LTV to be close to about 41% (including my personal residence mortgage). Also, my properties can handle 30% drop in rent and still be cash positive. So looks like I am covered. But I will need to review my plan to take equity out to re-invest.

1 Reply

Robert C.

Investor · San Francisco, CA · Member since 2016 · 338 posts · 444 votes

9y

@Account Closed, The 3.08% was a surprise to me too. At the end of 2015/early 2016, Union Bank was running some specials, and I just happened to hit a weird dip back down in the interest rates. It was my first and only time using a loan broker... the rate was great, but the broker left a bit of a bad taste because he over-promised a lot. It ended up taking almost 100 days to close, and put one of my other deals at risk - it's a good thing I always have a backup plan! A couple of the other ones were Chase, with the team that's doing the Sheraton event. I have to admit they make things pretty easy, almost where I would have given up the few tenths of a point for the streamlining. Right now, it seems as if FRB has the best rates, so I will probably visit them about my 1031.

1-1.25%?! Sign me up! It seems like you've made some great connections on BP. To be honest, I'm not really sure what I'm looking to get out of BP. I like talking real estate, and it's fun to compare notes, but I haven't really done much with the platform. It's basically just been online RE therapy! I do find the reputation that we Californians have very fascinating every time the OOS debate or cash-flow vs appreciation talk pops up. I didn't realize until BP that Californians are to the rest of the USA, as China is to Californians!

1 Reply

Account Closed

Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes

9y

@Account Closed,

Those numbers are damn close. Gross rent is $840k excluding laundry income, which is several thousand dollars/year, and we still have another $60k upside potential in rents as some of the units are significantly below market.

If we cash-out $1M and bring the portfolio LTV to 65%, put $200k into our bank account, each guy walks away with $400k tax-free. That should last us 5 years at $80k/year in living expenses. Net cash flow goes down to $110k. Over 5 years, that's $550k of cumulative cash flow that we can tap in year 6 assuming no rent increase/decrease whatsoever. That $550k should last each of us another 3.5 years.

In year 8, we have the option of tapping $800k in equity from $1.3M principal pay down if that's the route we decide to take. There's real money that can be spent for living if need be.

If history is any indication, we could conservative say rent in the Bay Area would at least increase by an average of 3% annually or say $50/unit in this case. Our cash flow should increase by $10k/mo by year 8 assuming 40% expenses. This is why investing in markets with high real estate prices and rent growth can be so lucrative over the mid- to long-term. One just has to look at a 10- to 15-year investment plan rather than Day 1 cash flow. We bought a building last year with $5k/mo of negative cash flow. Within 8 months, we increased the rents and restructured the loan and it produced over $3k/mo of positive cash flow. After that, we did a cash out refinance and pulled our equity out of the deal.

As they say in hockey, a good player goes where the puck is while a great player goes where the puck will be. Thanks for spending the time and breaking down all the numbers for the readers.

Cheers!

4 Reply

Account Closed

Oakland, CA · Member since 2017 · 133 posts · 58 votes

9y

News came out yesterday 9/27/2017. Researchers found, a 20% increase in home buildings is needed to achieve a 10% drop in prices. But the San Jose Mayor said there is no more land. https://www.google.com/amp/abc7news.com/amp/realestate/new-report-reveals-bay-area-home-prices-wont-roll-back-anytime-soon/2459819/

1 Reply

Bac Nguyen

Notes Investor · San Diego, CA · Member since 2012 · 109 posts · 51 votes

9y

@ Robert C & @ Minh Le - you both referring to a meeting with CHASE and a "special guest" on Oct 10. If you don't mind to post and share your thoughts after the meeting that would be great. Thanks.

Cheers,

2 Reply

Account Closed

Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes

9y

Originally posted by @Bac Nguyen:

@ Robert C & @ Minh Le - you both referring to a meeting with CHASE and a "special guest" on Oct 10. If you don't mind to post and share your thoughts after the meeting that would be great. Thanks.

Cheers,

Sure Bac. One of the agents we work with married the speaker's daughter so I already got the inside scoop, but it's always fun to meet a real estate legend in person. How often does one meet a billionaire real life? Just found out Chase normally gets about 100 attendees for this kind of events, but they already had 130 attendees signed up for this one. I've personally done 5 deals with this agent in the last 2 years, and referred my neighbor to him where they closed a $3M deal two months ago.

Real estate is a relationship biz. I can't emphasize that enough. I've seen individuals who only know and care about themselves. You could see the writing on the wall that it would be a one deal and done. Don't be one of those individuals. It's a two way streets.

Looking forward to seeing you this weekend at the Summit.

3 Reply

Bac Nguyen

Notes Investor · San Diego, CA · Member since 2012 · 109 posts · 51 votes

9y

@ Minh Le - yes, sir. I can echo that in the notes business as well. It's all about "building the relationship". I believed in any business, you treat people with respect and most importantly pull the trigger to "close the deal" and not jerk around.

Look forward to seeing you as well. Actually, I make this trip "mainly" because I want to meet you!

Cheers,

2 Reply

Account Closed

Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes

9y

Originally posted by @Robert C.:

@Account Closed, The 3.08% was a surprise to me too. At the end of 2015/early 2016, Union Bank was running some specials, and I just happened to hit a weird dip back down in the interest rates. It was my first and only time using a loan broker... the rate was great, but the broker left a bit of a bad taste because he over-promised a lot. It ended up taking almost 100 days to close, and put one of my other deals at risk - it's a good thing I always have a backup plan! A couple of the other ones were Chase, with the team that's doing the Sheraton event. I have to admit they make things pretty easy, almost where I would have given up the few tenths of a point for the streamlining. Right now, it seems as if FRB has the best rates, so I will probably visit them about my 1031.

1-1.25%?! Sign me up! It seems like you've made some great connections on BP. To be honest, I'm not really sure what I'm looking to get out of BP. I like talking real estate, and it's fun to compare notes, but I haven't really done much with the platform. It's basically just been online RE therapy! I do find the reputation that we Californians have very fascinating every time the OOS debate or cash-flow vs appreciation talk pops up. I didn't realize until BP that Californians are to the rest of the USA, as China is to Californians!

Robert,

I haven't gotten much financially out of BP. However, I've made some life long friends, and some of them are like brothers to me. One of them is like a mom to us. She nags when we're having too much fun fooling around. She claimed she has adopted us as her sons. For me, I don't mine, but I just want to be sure my name is on her will. ;)

I went into a JV with a couple of BP members and made over 100% ROI when we exited a year later. Went into a JV with another BP member, who I love as a brother, and both of us lost $15k each and wasted a whole bunch of our time and efforts, but we learned a lot. I already wrote it off as a $75k loss from the get go, but we were able to recoup $60k of it. I still love him and we chat regularly. No hard feelings at all.

Although BP hasn't done much for me financially, I believe the friendships I got from it will make us a boatload of money years down the road.....I hope. ;)

I've made great contacts by attending meet-ups especially Johnson's. You have to open yourself up to others before they open up and share what they do to you. When I attended @J. Martin's meet-up back in the days. His first impression of me was some newbie who was still wet behind the ears. Then he came around and realized this newbie actually knows something.

Your point above proves that the money is in California. People around the world want to own real estate in California, specifically the big cities around LA and SF while Californians take their money and invest OOS. They live on a goldmine, complain it's too expensive, take their shovel and go dig elsewhere. It's like huh?

I've been able to convert some of BP members to invest locally. So far, they are happy with the results, and some are starting to see the light at the end of the tunnel. I'm a bad influence. If everyone is quitting their W2, who is going to pay me rent? Sigh...I need to think this through before sharing more info. ;)

7 Reply

Keong Kam

San Jose, CA · Member since 2017 · 75 posts · 42 votes

9y

All I want to say is that I love this discussion thread. Love seeing so many insightful ideas and thoughts from various investors. Makes me realize how much I have to learn.

It would be awesome to meet some of the successful investors in the bay like @Account Closed - learned so much and super motivated to get to where you guys are.

1 Reply

Account Closed

Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes

8y

Originally posted by @Keong Kam:

All I want to say is that I love this discussion thread. Love seeing so many insightful ideas and thoughts from various investors. Makes me realize how much I have to learn.

It would be awesome to meet some of the successful investors in the bay like @Account Closed and @J.Martin at the summit this weekend. I am super excited about it. Today I had awesome time meeting with @Sandeep S. - learned so much and super motivated to get to where you guys are.

Did Sandeep give you a ride in his Tesla? Now, that's one inspiring car. When you drive that car, I can guarantee your mind won't stop thinking.

Last summer, I went for a test drive on the Father's Day weekend with my neighbor. He bought the car on the spot after the test drive while I had to think how to pay for it. I went home, slept on it and figured out how to pay for it the next morning.

I have a 3/2 SFH rental in San Jose where the tenant (former owner of this house who lost it to short sale during the downturn in 2009) was paying $2,150/mo in rent. FMR is $3k. I figured if I spent $30-$35k to remodel the house, raise the rent to $2,950/mo, put a new $450k loan on the house (current loan balance is $280k), I would have $135k-$140k left to buy myself a Tesla. My mortgage payment would go up about $800/mo, but it would be off-set by the new rent.

March of this year came around, I had a chat with my tenant. He acknowledged he knew FMR is $3k, but he couldn't afford to pay that amount. I asked if he could absorb $100 rent increase, and he said yes so I raised the rent to $2,250. This has been their home since 2002 so I didn't have the heart to kick them out so I put my Tesla dream on hold.

April came, my partner and I completed a cash-out refinance on one of our buildings. Each guy walked away with a $100k check. He said let's go shopping and took me to Stanford where he ordered himself a Tesla. Then the sales guy and he looked at me. I said no thank you, I have better use for the money. My partner could buy 50 new Tesla's all cash if he wanted so he's in a different position than me. LOL!

Since we're expecting to get about $600k back from our investment later this year and the $7,500 Fed tax credit is likely going away next year so I went ahead and bought myself one. Instead of having my SFH tenant pays for it, I'll have tenants from our apartment building pay for it. Different approach, same result.

I love problem solving. There's always a "How" in my head. We have bought 8 buildings offering all cash, but we never had to pay cash, and we knew it going in. All buildings were financed with 75% LTV at purchase even though they didn't perform at the time. My buddy calls me a strategist while my partner is the executor. I come up the game plan and send him to execute it. When the strategy is a little convoluted, we would go to the bank together, I'd talk to the underwriter while he sat there listening, and we would walk out with our LOI the way I wanted. You can feel the power when you can accomplish such thing. Just like driving a Tesla, the power is always there when you need it.

I'll share how we do it at J. Martin's Summit this weekend. Let's call it the "No Hold Bar Real Estate Session." Come with your questions ready, and I'll share everything I know. The rest is up to you.

4 Reply

Keong Kam

San Jose, CA · Member since 2017 · 75 posts · 42 votes

8y

@Account Closed haha awesome story. Sandeep biked that day so didn't get to see his Tesla! Yes it is a piece of machine I would dream to own one day. Like you said, I need to figure out how to pay for it to buy ; )

Really looking forward to meeting you all in the summit tomorrow.

2 Reply

Kevin Q.

Investor · Oakland, CA · Member since 2016 · 6 posts · 1 vote

8y

@Account Closed are you coming to J. Martin's summit in Oakland? Will you be there on Sunday too cuz that's the only day i can attend?

0 Reply

Account Closed

Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes

8y

Originally posted by @Kevin Q.:

@Account Closed are you coming to J. Martin's summit in Oakland? Will you be there on Sunday too cuz that's the only day i can attend?

Hi Kevin,

Yes, I’ll be there both days this weekend.

The thing is that I have nothing to sell and everything to share. I’ve been fortunate enough to be where I’m today and would love to help others get to the same destination.

Based on my experience, you only need to do one deal a year to make a good living in the Bay. If you can do 2 deals a year, you’re home free. So come with your questions and lay them all on me. Looking forward to seeing you and others this weekend.

4 Reply

Ethan Cooke

Rental Property Investor · San Francisco, CA · Member since 2016 · 227 posts · 365 votes

8y

@Account Closed recently, I'm inspired to shift to furnished rentals as soon as the tenants move out of my long-term rentals. I'm also fascinated by tiny homes and planning to set up a tiny home on AirBnB in 2018. Looking forward to meeting everyone!

2 Reply

Account Closed

Oakland, CA · Member since 2017 · 133 posts · 58 votes

8y

News came out on Oct 2, 2017. 17 Bay Area cities rent shows continued increases. https://www.google.com/amp/www.mercurynews.com/2017/10/02/bay-area-housing-pressures-continue-rents-climb-again/amp/

0 Reply

Account Closed

Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes

8y

@Bac Nguyen,

Here's the summary. Nothing too exciting IMO.

Two persons on the panel were Jim Glassman, Head Economist of Chase and Tod Spieker who is a Bay Area multi-family investor. He owns 3,800+ units from Los Gatos to Burlingame (basically Santa Clara and San Mateo Counties) and 200+ units in the LA Basin. Why LA? He went to UCLA so he knows the area and does some investing there.

According to Jim Glassman,

The Bay Area economy is one of the stars in the last decade.

Our economy as a whole has been growing at an annual rate of 2% since 2008. Historically, it grew at 3.5% as we came out of a recession.

There has been a demographic shift from the baby boomer generation to the millennial, and it reflects in the slower growth and smaller labor participation.

Funny he used the unemployment rate chart and showed how we tend to make a U turn every time we get to peak employment. He titled the chart "History Has a Sober Story to Tell". He said we're at the top of the 9th inning but believes we'll go the extra innings this time around.

The bright spots are the East and West Coasts. There are some other bright spots in middle America including TX, UT, Nashville and Reno.

He thinks the Fed will push rates to 2.25-3% in the coming years while he believes the 10-year T bill will hit 3-3.5% by the end of next year.

Tax reform is going to be difficult to achieve because it's much more complicated than the Health Care Bill, and they couldn't even get that done.

According to Tod Spieker,

The market is healthy but frothy. Prices are too damn high. Rents have plateaued since last year while prices continue to climb. Buyers are stretching to buy while sellers are getting away with it.

He doesn't think Costa Hawkins will get repealed. That would kill new development. If we think there's a housing shortage now, it'd be 10x worse if repealed.

He doesn't think 1031 exchange and depreciation will be eliminated under the Tax Reform Bill.

Just for giggles, one investor asked what would lead to the next downturn? Jim's response was "A meteor strike."

@Robert C., feel free to add if you attended the meeting.

Here's my 2 cents. The stock market has been going up since Trump got elected. I guess investors are counting on money repatriation due to the Tax Reform. This can be a catalyst for the next recession if this Bill doesn't pass. We'll have to wait and see.

In the meantime, we do what we can control. We submitted a $3M offer on a 14-unit building in our market yesterday. I'll show it to you when you're in town next week Bac. Thank you very much for your generosity and donation to Duc Son Orphanage.

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Robert C.

Investor · San Francisco, CA · Member since 2016 · 338 posts · 444 votes

8y

@Account Closed, That pretty much sums it up. You're right, it didn't seem as interesting this year. Actually... Tod seemed a little grumpy (although rightfully so when that one guy sorta attacked him with the community involvement question). Guess I was off on how many units he currently has, but what's 1000 units for a guy like that?? Ha.

Jim Glassman seemed to be talking more from a national economist perspective, so I'm not sure how much is currently applicable to the local Bay Area. He seemed to be telling us to go to Colorado or Utah! Maybe if he's right, that means that the folks buying further east of us are going to be okay for a while longer than some people think.

Sorry, I didn't get to meet you, Minh. I was in and out - basically arrived for the presentation portion and then had to run to relieve the babysitter.

Regarding your potential deal, how are you handling the new rent control laws in San Jose? I was reading up on some of the more recent regulations, and MAN, some of it is worse than SF when it comes to vacancy decontrol. Have you tried petitioning for increasing rents more than 5%? I was looking at a listing down there where the owners have current rents at $700-$800 range. I couldn't find a loophole to make the numbers work for anything near what they're asking. I may actually prefer the rent control game in SF better just because things haven't settled in SJ yet - but maybe that's because I don't know enough.

I'm heading into a pretty large 1031 exchange, so I'm looking around for some decent size apartment buildings.

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