I understand that this is a rather vague question since there are numerous variables. However, I am definitely interested in hearing some ideas, whether traditional SFR, duplexes, or even far fetched ones.
2 constants; 1) not to be a primary residence, 2) $1 million as in 300k cash and rest in loans.
Flipper/Rehabber · Golden, CO · Member since 2013 · 590 posts · 319 votes
9y
If you're talking rentals, SF would not be your best bet investment wise Find a better market to put your money in to cashflow. A lot of markets you could buy a nice multi. SF you get an apartment?
Investor · San Jose, CA · Member since 2014 · 294 posts · 113 votes
9y
Jun Yang I'd find an under performing duplex for under a million and slowly up its value. At least 2/1 on each side and if possible one or both sides vacant.
If you're talking rentals, SF would not be your best bet investment wise Find a better market to put your money in to cashflow. A lot of markets you could buy a nice multi. SF you get an apartment?
You sure about that? SF is in the top 3 of all US cities for rental PROFITS since 2000, since 2005, and since 2010.
Professional · San Francisco, CA · Member since 2014 · 876 posts · 301 votes
9y
Hi @Jun Yang, as a real estate broker, I would take my money to a different market. There plenty of other opportunities elsewhere, my clients are involved in institutional grade properties across the country. My recommendation is to choose cities in safe and economically diversified areas with above-average income and population growth. It can also be safer to diversify your investment properties across the country. There is still good money to be made in AZ, FL, GA, TX and other states, however, picking the right submarkets is key.
A very good source of local analysis is rereport.com.
Developer · Long Beach, CA · Member since 2016 · 109 posts · 75 votes
9y
First of all, Bay Area is completely out of that price range for investment if you want decent returns. There is too much buyers with millions in cash and buy properties for 3-5% return. Great if you have millions that you need to spend and aren't dependent on. As soon as you finance investment properties in Bay Area, you will be in negative cash flow or barely breaking even at typical 20-25% down. I own several properties here and flip some regularly, but they are all done full cash and the properties I do own were bought in 2012 when the market was as you know back then. Finding deals now are harder and harder here. Cash buyers paying 10-20+% over asking with full cash, there is just too much competition. I have put over 30 offers the past 2 weeks on several investment properties and they have all been out bid by over 20% full cash. Hell, I'm trying to find a decent home for my parents for their retirement and they are getting out bid even worst.
I've been testing the Cleveland, OH market the past few months and so far they have been amazing with cash flow (barely any appreciation though). You really have to set your goal, is it appreciation play or long term cash flow. For me, it is long term legacy cash flow for my family. I plan to hold all my properties until they are no longer standing (or a bigger developer makes me an insane offer on the lot), and by then, I would have made multitudes back in rental income that I can rebuild and resume.
Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
9y
@Henry LiChi why can't the goal be both appreciation and cash flow? My properties in the Bay Area have doubled (some tripled) in the last 3 years and I average 20% cash on cash returns, even those purchased this year.
I love seeing these posts of local investors flocking to the Midwest....makes my job a whole lot easier.
@Andrey Y. You're telling me there are good rental investment opportunities that cash flow in San Fran right now that Jun should invest his money in?
Yes. The best investing markets over the last 40+ years (pick your period) have been SF, SD, Palo Alto, San Jose, and Honolulu. { Profit = cash flow + capital appreciation }. Even factoring initial negative cashflow that may exist the first year or two, the best ROI has happened in coastal markets. Despite the screams and urges of "cash flow" on BP.
Developer · Long Beach, CA · Member since 2016 · 109 posts · 75 votes
9y
@Account Closed of course it can be both but I am stating what my goal is. All my properties here has since quadrupled in value since I bought then in 2012, which is great and they are cash flowing crazily but that's because I bought it back then. If I bought them at the value they are now, the ROI will be extremely low. I am not suggesting the Midwest as the only option but I get 20-30% returns there and it works for me. I personally have developed a great team there to truly make it passive for me. I am still investing in California regularly but you can't compete with the buy and hold returns in the Midwest, especially if someone is just starting off and doesn't have 7+ figures to invest.
It's great you're finding 20+% CoC returns here, but it is of rarity and the competition here is fierce. Which I applaud your acquisition skills in gaining such properties.
I understand that this is a rather vague question since there are numerous variables. However, I am definitely interested in hearing some ideas, whether traditional SFR, duplexes, or even far fetched ones.
2 constants; 1) not to be a primary residence, 2) $1 million as in 300k cash and rest in loans.
Thanks in advance for your input.
Not vague at all. You had me at $1 mill.. LOL. If you have that kind of dough to play with, I would get the hell out of CA and invest in neighboring states. Allocate some money for traveling, and find properties in places like Nevada, Arizona, Utah. Your money will go a lot far.
Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
9y
@Henry LiChi thanks for clarifying, but I'm still not convinced. I didn't have 7 figures to start, as most don't. I started with $12,000 and bought a 4plex in Oakland. Now I get $2k/month in cash flow just from that one investment. 200% CoC, and it's doubled in value in 3 years.
What you are telling people is that any investment property in the Bay Area with 25% down will be negative or break-even. Or you need 7 figures to start. Both of these are misleading. There are plenty of small multifamily investment properties in the East Bay that can be acquired with FHA financing, 3.5% down, and will be positive. I can send you some links if you'd like.
Perhaps you are referring to SF, Marin, or Lake Merritt/Rockridge A-class properties, but there are plenty of ways to invest in the Bay Area without starting with 7 figures nor able to take a cash flow loss.
And to clarify, what I am doing is not rare. I bought 3 properties last year with these same metrics, and 2 this year (ALL on-market, found on Redfin). Plus I am friends with a few other local investors (some very active on BP) who get similar returns. It's about knowing a niche or exploiting a market inefficiency.
Developer · Long Beach, CA · Member since 2016 · 109 posts · 75 votes
9y
3.5% is if you plan to house hack it, which of course is an option. I am telling people my case scenario and in no way am I trying to deter individuals from investing here. I do agree that Oakland has its own game and it has been mentioned here, but you really have to know Oakland. I am born and raised in Oakland and have owned homes here but yes it is in its own niche. I personally don't own in Oakland anymore besides being an equity partner for a new 300 unit apartment deal in Brooklyn Basin. Yes you can find deals with 3.5% down but if it is an amazing deal, majority of the time, a cash investor is going to offer the seller more than a buyer that is going to need financing.
Like I said, I am amazed at your deals and great for you. What you are doing is not rare, but finding properties with such great returns in the Bay Area are. You may disagree but it is purely just my opinion and to each their own.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
9y
Are we not worried that the value of these properties will drop more than the amount paid down on the loan in say 5-10 yrs? Also curious why kind of properties are working and what the numbers look like.... if anyone kind enough to share.
Developer · Long Beach, CA · Member since 2016 · 109 posts · 75 votes
9y
BTW, this was a great debate between locals here in the Bay Area and I apologize if it got off topic. Everyone has their own opinion about investing in the Bay Area and there is a reason why so many that invest here are wealthy, but the competition is fierce and challenging for the most part if you are just starting off. Should not deter any investors from investing in this great state but like any investment, do your own due diligence and take advice from others lightly.
Flipper/Rehabber · Golden, CO · Member since 2013 · 590 posts · 319 votes
9y
@Andrey Y. I guess my point is that its not very easy to walk into the SF market right now in 2017 and buy something that makes a ton of sense as a rental, unless you're banking on appreciation. Do people do it like they do everywhere else? Of course. But just going off of cash flow and market prices its probably not the best place to try and find something.
Developer · Long Beach, CA · Member since 2016 · 109 posts · 75 votes
9y
@Matt K. that's always the risk. If you are purely in the game for appreciation, there is always that risk. If you can hold onto the property and the rents are covering your mortgage or breaking even, then I would assume one would just hold through the the downturn.
I'll share specifically two of my properties I bought in 2012 because the others are with partners and not for me to share.
Single Family in Pittsburg bought in 2012 for 124,000 cash. Spent 25k in renovations and repair since then, now appraised at 389k+, but had offers in the mid 400s but I decided to keep it cause I got a consistent long term tenant that pays currently 2200 and covers all the utilities.
5 unit townhouse in San Lorenzo bought in 2012 for 564k and some change. Was completely run down and spent over 200k since then. This was bought through a family friend who had financial troubles and I helped him out. Each unit now rents for 3,125 per month, that's over 15k per month in gross, expenses equal to about 5k per month, plus or minus depending on maintenance. This property is now valued at over 2.6m.
By all means, East Bay has great rental potential if bought back then, and many still find great deals, but I personally find it harder and harder to find deals. I may find one or two good ones a year. Some call it luck that I acquired these properties, but as others mentioned, opportunity presents itself to those that are prepared and I was prepared with cash back in 2012 to make these acquisitions.
Loan Officer · Tustin, CA · Member since 2015 · 3k+ posts · 713 votes
9y
If that is truly you goal to be in that area. Find a value add property with long term in mind. Getting longer term financing of possible and good insurance .
I am glad to have generated such a healthy dialogue/debate.
I share the same sentiment as many of you, specifically @Henry LiChi. The current market in the Bay Area is just absolutely insane, especially for a novice without the aptitude like me. I clearly understand that the area is flushed with wealth, but I just can't imagine how this is sustainable. $1M really gets very little and I keep escalating my price point in the hunt for some real returns. More importantly, I don't have a desire to jump into a market where just about everything is going 20-50% above asking, even though my plan is to buy and hold.
I even got shut out in Sacramento after generating an all cash offer.
So...I'll be just on the sidelines observing for now.
@Matt K. that's always the risk. If you are purely in the game for appreciation, there is always that risk. If you can hold onto the property and the rents are covering your mortgage or breaking even, then I would assume one would just hold through the the downturn.
I'll share specifically two of my properties I bought in 2012 because the others are with partners and not for me to share.
Single Family in Pittsburg bought in 2012 for 124,000 cash. Spent 25k in renovations and repair since then, now appraised at 389k+, but had offers in the mid 400s but I decided to keep it cause I got a consistent long term tenant that pays currently 2200 and covers all the utilities.
5 unit townhouse in San Lorenzo bought in 2012 for 564k and some change. Was completely run down and spent over 200k since then. This was bought through a family friend who had financial troubles and I helped him out. Each unit now rents for 3,125 per month, that's over 15k per month in gross, expenses equal to about 5k per month, plus or minus depending on maintenance. This property is now valued at over 2.6m.
By all means, East Bay has great rental potential if bought back then, and many still find great deals, but I personally find it harder and harder to find deals. I may find one or two good ones a year. Some call it luck that I acquired these properties, but as others mentioned, opportunity presents itself to those that are prepared and I was prepared with cash back in 2012 to make these acquisitions.
Thank you for sharing this... I appreciate the insight. Have you refi to take your money out at least? Your deals make sense to me from the 2012 stand point.... but if you were to buy them again at current values would you still do it? I feel like we're close to the peak that if I tie up too much capital into a local property I'd lose out on the equity and be stuck until the next upturn or be forced to cashout at a price where it just didn't make sense....
Your Pittsburg property could basically what a lot of people are chasing in the midwest currently... better than some deals even.