Best strategy for a long-term Bay Area investment?

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Best strategy for a long-term Bay Area investment?

Tyler D.
Member since 2019 · 219 posts · 99 votes

Hey BP,

I'm considering buying a property to first owner-occupy, and later rent out in the Bay Area. I'm looking to accomplish a few things:

1) Take full advantage of Prop 13, by buying a fixer at a low price and locking in my tax rate at a low value.

2) Buy in an undervalued area that is expected to grow in the future. I'm looking at the East Bay, in particular.

3) Not buy at the top of the market. I am wary, seeing the amount of people leaving the bay area, at the current sky-high prices. The alternative would be to simply rent in the Bay and invest elsewhere.

4) Deal with the minimum amount of hassle with rent control/ tenant protections. For this reason, I am thinking my best option would be to buy a SFH and rent out rooms.

What are your thoughts on this? As said in #3, I am very wary given the current market conditions. That being said, I would like to take advantage as historically, the Bay Area has been an excellent place to invest. Should I go for it, and if so, what would be the best strategy to use?

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Arlen Chou
Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes
5y

@Tyler D. I think you need to do a deeper dive into the history of the Bay Area market, and maybe that will sway you one way or the other. If you look back to what people have been saying in each of the past 4 decades, and probably longer, the masses of people have been saying the exact same words as you posted. Most people fear the market is at its peak because they have not done the research. Fear is based upon not knowing... Maybe we are at a peak, but depending on a persons time horizon it may or may not matter. Consistently the successful OG REI people I meet in the SF Bay Area are people who got in and have held for a long time. They weather the down cycles through good fiscal management and reap the benefits on the up swings. I am not advocating you go out and buy because I don't know your specific financial situation in detail. However, I will tell you that I sold 1 property last month but I used those funds to pick one up next month, and I hope to close on another one in January. I wish you the best of luck on your journey.

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  • Brian Garlington
    Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes
    5y

    Is your goal primarily appreciation or cash flow? Don't say both. Which is the priority? If it's appreciation then an SFR tends to always appreciate faster than a Condo. If it's cash flow then I wouldn't even consider California. I would look at the midwest or the southern part of the U.S.

    0Reply
  • Simran Singh
    Member since 2021 · 12 posts · 4 votes
    5y

    Looking for appreciation. Thoughts on the Sacramento market long term? Areas like Folsom, Roseville, El Dorado Hills for long term appreciation?

    0Reply
  • Joe Bertolino
    Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes
    5y

    I think Rancho Cordova and Folsom have a lot of long term upside and you can cash flow with 25% down.  

    1Reply
  • Rick Trivedi
    Real Estate Broker · San Jose, Dublin CA and Florida · Member since 2017 · 165 posts · 48 votes
    5y

    @Simran Singh Central Valley - Fresno, Modesto and north of Tracy/Patterson are up and coming. Near Tracy/Patterson, there are warehouses being built like crazy with massive communities coming up.

    2Reply
  • Justin Thorpe
    Member since 2020 · 437 posts · 675 votes
    5y

    @Simran Singh 

    Unfortunately I am not too familiar with either market. Specific to the bay area, Dublin/ Pleasanton is a much affordable variant to the peninsula and south bay. In the new world where commutes are likely to become a lot easier but still necessary - due to employer flexibility, I think areas like Dublin will continue to be in demand. I know lots of families move into the area as housing is 'relatively' more affordable + there is bart access, but cannot speak to how a condo investment will fare. Also Condo's regardless of location will always have the added burden of HOA fees, which tend to dilute economics.

    1Reply
  • Ramki D.
    New to Real Estate · Member since 2019 · 120 posts · 26 votes
    5y

    Hi @Simran Singh I am across this thread while searching the BP forums. Have you bought your rental yet? If yes, I would like to get some details offline. Please let me know. Thanks in advance

    0Reply
  • Rovin Eyes
    Member since 2019 · 3 posts · 0 votes
    5y

    @All: I just sold my condo here in bay area in South Bay . I would like to know where ( which places in South bay/East bay/San Mateo) etc to invest budget around $1.2mill ? I want to invest in a SFH not in a condo or townhome? Im looking for place which could be rented out easily. I dont want the property to sit vacant without a tenant for long time( 2 or 3 months)

    0Reply
  • Kumar Tummalapalli
    Real Estate Investor · Chicago, IL · Member since 2017 · 172 posts · 47 votes
    5y
    Originally posted by @Darius Ogloza:

    You are describing exactly how things stood/appeared in 1997 when I bought my first Bay Area house.  In contrast, we felt like we were holding a lot of face cards when we bought our new primary in early 2009.  Sometimes waiting pays off.  Sometimes waiting causes you to miss out entirely.  No one has a crystal ball.  Best to look at what people are doing rather than saying.  On our part, we have bought three fixers in the past year and are looking out daily for number four.

    I thought there is no opporutinity for the numbers to make sense on a fixer upper in and around bay area .. what areas and how does a typical deal look like ?  I am wary that the final equation looks like put in 200k cash fr fixing and then you might make 50K if you sell at the top - that is lot of capital at stake fr very less return

    0Reply
  • Kumar Tummalapalli
    Real Estate Investor · Chicago, IL · Member since 2017 · 172 posts · 47 votes
    5y
    Originally posted by @Justin Thorpe:

    @Tyler D'Alessandro

    I have been an investor in the bay for over 20+ years and my start was buying a residential property, living in it for 3 years and renting it out. I bought that home in 2001.

    A lot has changed since but seems like in many ways nothing has changed.

    Back then “Prices were high”, the market was super competitive and people who could not afford or were scared to buy - often both - were calling a market top and a crash ahead. The same sentiment was 5x worse from people who did not live or invest in the Bay Area but felt they were somehow “uniquely qualified” to opine on the Bay Area market especially how it was a horrible place to live and had a dark future ahead. That sentiment is very prevalent today. Just surf the BP forums and you will see plenty of investors from tier 2 and tier 3 US markets offering their “expert” opinion on the Bay Area market and the “dark” future of California. So history will be a good guide, and history will tell you the long term returns on Bay Area RE are good.

    The principles of investing are still the same. Buy low, add value and sell high or don’t sell if you don’t want to. Buy and hold works too. Listen to your gut and buy what feels comfortable with some element of risk and stretch built in.

    Buy low means the cheapest property on the block and a place which you can forsee or force appreciation on. I can’t see how that is any different vs in the past. Money is made when you are buying.

    There is a degree of speculation and luck surely. One property of mine shot up in value because a major tech co relocated their offices next door and many others followed. It was just pure luck. No research etc. Another one I bought with 100% research and analysis that many corporates were moving into that area, hasn’t done as well given Covid / WFH. Of course in the long term those prices will come back surely.

     can't keep it better than this. Atleast last 20 yrs - every year - the arm chair experts say "Bay area prices are crazy high " "Mass exodus from Bay area "  .No kidding . Even youtube it , you will find videos that say the same thing. But Prices rise , Super high demand , very low supply . That downturn never comes , the arm chair experts / google experts keep saying the same story

    0Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    5y

    @Kumar Tummalapalli  We have experienced 35% to 75% cash on cash return, annualized.  Because projects took less than 12 true returns were higher.       

    0Reply
  • Kumar Tummalapalli
    Real Estate Investor · Chicago, IL · Member since 2017 · 172 posts · 47 votes
    5y
    Originally posted by @Darius Ogloza:

    @Kumar Tummalapalli  We have experienced 35% to 75% cash on cash return, annualized.  Because projects took less than 12 true returns were higher.   

    This is awesome , I see you referred to Marin county. Are there areas where you can force equity by extensive renovation in San Mateo , Santa clara , Alameda or Contra Costa areas ? 

    0Reply
  • Jason Mileshko
    United States · Member since 2021 · 151 posts · 49 votes
    5y

    These are all great points. The Bay Area is going to be difficult to find a good deal in depending on how much capital you are working with. 

    0Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    5y

    @Kumar Tummalapalli I am not invested in any other surrounding Bay Area county but I see no reason why the results in Marin should differ from those to be achieved in Walnut Creek, LaMorinda or most of the towns on the Peninsula.  

    0Reply
  • Gina Tse-Louie
    Member since 2024 · 39 posts · 2 votes
    2y

    Priposition 13 helps you...  but what about your heirs?  Help #FiXProp19 by #RepealTheDeathTax. Download, print, wet ink sign and submit. Signer can be Circulator (witness for self and others). Complete BOTH sections. We need 1.3 million signatures to get on November 2024 ballot. Volunteer and Download petition at ForCalifornians.com or RepealTheDeathTax.com.

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @Kumar Tummalapalli:
    Originally posted by @Darius Ogloza:

    You are describing exactly how things stood/appeared in 1997 when I bought my first Bay Area house.  In contrast, we felt like we were holding a lot of face cards when we bought our new primary in early 2009.  Sometimes waiting pays off.  Sometimes waiting causes you to miss out entirely.  No one has a crystal ball.  Best to look at what people are doing rather than saying.  On our part, we have bought three fixers in the past year and are looking out daily for number four.

    I thought there is no opporutinity for the numbers to make sense on a fixer upper in and around bay area .. what areas and how does a typical deal look like ?  I am wary that the final equation looks like put in 200k cash fr fixing and then you might make 50K if you sell at the top - that is lot of capital at stake fr very less return


     It is the other way around , it is the best market for flipping or live in the flip 

    0Reply
  • Chandana Raghunath
    Member since 2019 · 3 posts · 2 votes
    2y

    Hi Tyler,

    As you rightly said, the Bay Area continues to remain the best place to invest, one of my investments here brings me $20K in revenue each month, the best decision I made many years ago!

    That being said, you shouldn't buy at the market rate, pay the market interest rate, or downpay 20-25%. 

    If you're still looking to scale your buy & holds in this economy, you can hold on to your cash, and increase your net cash flow. Happy to share more info, DM-ing you..

    Chan Raghunath

    Co-Founder & Operating Partner, CR Creative Finance LLC

    1Reply
  • Sean O'KeefePro Member
    CPA | Accepting new clients | 50 States · Member since 2022 · 1k+ posts · 871 votes
    2y

    Following - I'm based in the Bay Area

    [email protected]628-241-0888
    0Reply
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