well here is one for the books. Bay area is not easy!

18 Replies

Not great but here it goes! 

For a bit there I was able to make Bay Area work, I could find houses cheap enough that they would cash flow decently. 

I guess it's not possible anymore. Or at least, it's getting really difficult. 

I found a 4 bedroom SFH in the East Bay. It was in decent shape and in a C grade neighborhood.

Paid $385K  (20% down conv loan). Payment is $2,179 /mo

Did $20K of upgrades and remodels. New countertops, kitchen sink, appliances, water heater, bathrooms totally remodeled, new bedroom doors, new floors, baseboards, paint ETC ETC. 

It's looking REALLY clean, nothing overly fancy but very clean.  Got it rented $2,284 /mo 

WOOOOOOOOO $97K to make $100 bucks per month.  Winning  -_-

Pretty bummed. At least I am out there trying. I have to avoid get discouraged. I need to sell this place and try something else.

UGH

Sounds like the Minneapolis market. Every investor/ real estate banker I have talked with this year has found the same thing I have. Extremely difficult to get much of anything in terms of COC. So we are focusing on A neighborhoods, are okay with very low COC as long as we are likely to get good appreciation and have solid tenants.

@Mark S. would you be satisfied with $100 a month for $97K invested? Bay Area is a hot market right now.  This neighborhood is C+ .. would be B in some states but relative to bay area C+

its for those reasons many folks that tire of the actual rental asset will move over to notes.

that same 97k in performing notes that our clients buy.. would be brining you in 808.00 a month and it takes you about 20 minutes to identify read the docs and close on them.. and you don't need to be accredited... super exciting to see that end of the business doing so well.

of course no tax bene's of ownership and no appreciation.. these notes generally go to VERY conservative investors looking to anchor their portfolio with safe growth product while they look for the aggressive growth or higher risk products that are out there today.

That is too skinny even for me with that much invested, especially in a C+ neighborhood. And remember that location is everything - even if you believe it would be a B neighborhood elsewhere, it isn’t anywhere but where it is (if that makes sense). For example, I recently did a deal that only cash flows $50/month but I have only $20k in and will have virtually no capex to worry about since all is new. And it is an A neighborhood that is highly likely to see appreciation.

Yeah, looks like cut my losses and sell is the only best option here. I think the key is to not let this cause me fear. I just need to get on my feet and try again. I don't have loads of properties to compensate for this one. This whole ordeal has been really rough on me. Would love to hear from someone who has had a similar experience.  

@Jason Johnson why would you rent it for so low? Where is this property located? Even in deep East Oakland, you could rent it to a Section 8 tenant for $3500/month. 

You should have a cash cow on your hands. Who rented it? You or a PM? I get $3,000/month for a 3 bedroom apartment in the HOOD, so you are doing something wrong. 

@Saj S. I wrongly thought it would be a Cash Cow myself. I asked for $3250. It's in Baypoint. Section 8 Housing Authority approved me for $2,284. They only tell you this of course AFTER you have found a tenet signed all the papers and all but locked everything in.

@Jason Johnson ouch, sorry I wrongly assumed this was in Oakland. The housing authority should give you an option to cancel after telling you the rent amount. In Oakland, the inspector tells you the approved rent amount during the inspection, and before the lease is signed. They even give you a chance to make a counter offer. Once the rent is agreed and unit passes inspection, we sign the lease. 

At the current COC you are achieving, I agree, you should sell.

@Saj S. I signed a short 6 month lease, so there is always the possibility of asking for a rent increase in 6 months.  I don't know. 

Speaking of inspections, this guy failed me because the heater wouldn't come on. The battery died on the Thermostat. I begged him to hang out for a minute while I go across the street to buy a new battery.  He insisted that he would come back next day if I called in. Took me a FULL WEEK to get him back over there. It's near impossible to get anyone on the phone at the Housing Authority office. Anyway, the end results are that I ended up paying Dec mortgage with NO tenant. Total loss for the month of December.  It didn't have to be like that, it was purely because dealing with the folks down there was so difficult. Granted they are understaffed and lots of work around the holiday time frame but still, ARGH that was rough. Only to find out the rent is WAY lower than expected. I was thinking they would offer low but like $2700 or something close.

ah just figured out that even if I sell at the highest price my agent thinks I can get I would still net out at about $20K loss...  

wow I am really in a pickle.

That’s a negative cash flow situation right there once you factor in maintenance and repairs.

Hopefully you can use the loss for tax benefits either way you choose to go.

Just thought of another possible solve. 

REFI and dump more money into this property to lower the payment and make it positive cash flow. It would be a lot of liquid assets into one SFH so I am not sure it's a good idea but at least it would position me for positive cash flow into the future.

What do you guys think of that idea?

I would sell ASAP , if you have to take a loss apply it against your income .  At  $100 a month just 1 minor problem and you are negative . And you said you had to eat December rent , so that wiped out , what ? about 27 months of cash flow . 

@Matthew Paul selling is certainly one option. I am not super keen on taking a loss on the sale. Another option is the REFI. I talked with my lender. I just need to wait for 6 months to pass. I am already 2 months in.  So in 4 months it can be appraised again. Considering it's now refurbished and the market is peek season in 4 months, I think it will appraise higher.  IF I also add a few funds I think I can get it up to 40% equity and a lower payment. I should be seeing cash flow at that point. 

The sad thing is there is no option I see on the table that is actually a GOOD option. I am only looking for the one with the least loss to me.

Eh, still cheaper than a year of college. 

Either jump off the boat, or use the ladder. Regardless, I'd get off that ship. You're better off playing blackjack. 

ugh.. man that is brutal wrong strategy for the wrong market perhaps.     I don't think you will be cash flowing much of anything when it comes to your home maintenance expenses, time and energy etc etc.  How quickly is your market appreciating.?  I would recommend maybe trying an appreciation play.   Wait 2 years and sell.  Hope that your market appreciates enough where you can make a profit.     

Around hear your money would go a long way.   I can find turn keys for around 80k in c class neighborhoods.   That will rent for 1000.     Cash flowing a few 100.   Or a 4 unit you can get for around 250k and cash flow 5-800  a month.     We have a conservative market that rarely appreciates more then 3%.   Cheap taxes, and good conservative values that provides us with good working class neighborhoods.   

Originally posted by @Jason Johnson :

@Saj S. I wrongly thought it would be a Cash Cow myself. I asked for $3250. It's in Baypoint. Section 8 Housing Authority approved me for $2,284. They only tell you this of course AFTER you have found a tenet signed all the papers and all but locked everything in.

 You mean Gunpoint don't you, LOL  I remember when they changed Pittsburg to Baypoint as part of their "revitalization plan", Everyone just starting calling it "Gunpoint".  I lived in the East Bay for 10 years before moving to Clearlake 1hr north of Napa.  

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.