San Mateo, CA · Member since 2018 · 11 posts · 1 vote
Hello all. My name is Michael M and I currently rent an apartment in the San Francisco Bay Area. I have zero experience in real estate, and I'm interested in learning how to successfully cash flow buy and hold rental properties to supplement my income and provide for a quicker retirement. I currently work full time and am actually fairly successful in my "main gig" so do not want to let my work suffer.
Buying rental property in the Bay Area seems... impossible. Or at least incredibly difficult. I read Brandon Turner's "The Book on Rental Property Investing" and I do not believe I'd be able to find a place that would meet the 2% rule test or even the 1% or 0.5% rule test.
At this point I'm kind of "playing make believe" and researching different markets by going onto Zillow. Some markets seem promising (like Dallas) but long distance investing for a beginner seems daunting!
Anyways, that's where I'm at. Any other Bay Area investors here? Any words of wisdom?
Rental Property Investor · Vista, CA · Member since 2017 · 50 posts · 28 votes
8y
Hi Michael—welcome to BP!
My husband and I lived in the SF Bay Area for 13 years where we began investing back in 2003—more or less by accident you might say. Not knowing anything about what we were doing, we made many costly mistakes, but have still managed to come out on top so far.
Like you, we were renting—first in the city, then in the East Bay. Determined to buy whatever we could afford in order to stop throwing away our hard-earned money on rent, we bought our first home—a 2BR condo in Walnut Creek. Four years later—at the very top of the market just before the crash, we ignorantly bought a single family home, also in the East Bay and rented out the condo.
After the crash happened in 2008, many homeowners we knew at the time couldn't handle that their mortgage was higher than their home value on paper, so they purposely foreclosed. We were in it for the longterm though and, while everyone else was whining about their losses, we celebrated the fact that, due to the lower assessed values, our property taxes went down. ;D
We bought our third property in San Diego in 2011 while renting both the Bay Area properties. Yes—there were a few years of negative cash flow in there, but—against everything the likes of Robert Kiyosaki will tell you—we were banking on appreciation. We sold the single family home a couple of years ago for about $150K net profit, which allowed us to buy a couple of acres of land in San Diego County that we're now under development with for two new homes, and still own the condo which currently yields about $200/month cash flow and $200K in equity.
This is NOT by any means meant to show you an example of a great SF investment, but just to offer you some hope. Personally, I still think there's nothing like the Bay Area for investing because of its strong growth potential that is backed by the highest salaries in the nation. I think no one can argue that, despite high prices and negative cash flow, investors WILL continue to make money there.
My best advice for you right now would be to do what I wish we did when we were starting out and that is to find a duplex to house hack. Check out Brandon Turner's Top 20 best RE books ... a MUST READfor you is Scott Trench's Set For Life. Do everything he says and you'll be on your way in no time. :)
Please connect with me and let me know how it goes. Best of luck to you!!
Hello all. My name is Michael M and I currently rent an apartment in the San Francisco Bay Area. I have zero experience in real estate, and I'm interested in learning how to successfully cash flow buy and hold rental properties to supplement my income and provide for a quicker retirement. I currently work full time and am actually fairly successful in my "main gig" so do not want to let my work suffer.
Buying rental property in the Bay Area seems... impossible. Or at least incredibly difficult. I read Brandon Turner's "The Book on Rental Property Investing" and I do not believe I'd be able to find a place that would meet the 2% rule test or even the 1% or 0.5% rule test.
At this point I'm kind of "playing make believe" and researching different markets by going onto Zillow. Some markets seem promising (like Dallas) but long distance investing for a beginner seems daunting!
Anyways, that's where I'm at. Any other Bay Area investors here? Any words of wisdom?
Thanks!
Welcome, @Michael Martin. You will want to check out some of the REIA meetups. @Sean Walton does one in SF, @Katie P. does one in Oakland / Berkeley.
Most of the stuff that cashflows in our area a) isn't in SF city limits and b) has some value-add potential, like an existing landlord with a bunch of bad tenants that they cannot manage that wants out. Those are for good properties.
The truly super duper great ones will often not be a product of going to zillow/mls/redfin, but often will be a product of your own direct marketing efforts.... get it under contract before it hits the market.
San Mateo, CA · Member since 2018 · 11 posts · 1 vote
8y
Thanks @Chris Mason! I'll have to check out Katie and Sean's events. I'm actually on the Peninsula so being outside of SF city limits is fine.
I haven't really looked into direct marketing (or even know exactly what that entails). I'll do some research and if I have any pointed questions I'll be sure to check back into the forum.
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
8y
Oh Michael, we need to be friends. You are my new BP hero for the "rule test" :) Can you publish that somewhere in gigantic bold neon letters so people stop comparing what they find to all the "rules"? :)
And no, you won't find any properties that pass those tests in SF. I'm down in LA and same problem here, as in plenty of other cities. Long-distance is what I've always done and it can really be as daunting, or not daunting, as you make it. (stay away from Zillow...that will only add to the daunt...)
Easiest way to start- just find out what other long-distance folks are doing. Even just in trying to figure out what markets you can do that-
Start there, ask around, see what people are doing and what sounds like something that might resonate for you, and boom! Reach out anytime if I can be of any help! Or anyone on here.
Hello all. My name is Michael M and I currently rent an apartment in the San Francisco Bay Area. I have zero experience in real estate, and I'm interested in learning how to successfully cash flow buy and hold rental properties to supplement my income and provide for a quicker retirement. I currently work full time and am actually fairly successful in my "main gig" so do not want to let my work suffer.
Buying rental property in the Bay Area seems... impossible. Or at least incredibly difficult. I read Brandon Turner's "The Book on Rental Property Investing" and I do not believe I'd be able to find a place that would meet the 2% rule test or even the 1% or 0.5% rule test.
At this point I'm kind of "playing make believe" and researching different markets by going onto Zillow. Some markets seem promising (like Dallas) but long distance investing for a beginner seems daunting!
Anyways, that's where I'm at. Any other Bay Area investors here? Any words of wisdom?
San Mateo, CA · Member since 2018 · 11 posts · 1 vote
8y
@Ali Boone and @Steven Gesis thanks for the direction! Sound like I have some more research to do. I'll poke around and dive deep. If I have pointed questions I'll definitely be back!
I did some direct mail to Richmond and Vallejo and bought a property for $102,000 plus closing costs. It's a condo with $415 HOA and the rent after repairs will be raised form $1250 to $1650 and over time can be raised potentially to $2000 to $2200 but my friend who is buying the deal from me is sympathetic to the tenants and doesn't want to raise it all at once.
There was a decent amount of deferred maintenance so you can't be afraid to get your hands dirty or know good contractors. But it does hit certain rules.
Turnkey is a big debate on BP I'm of the school of thought that you should learn to acquire and manage one place on your own then maybe look at turnkey if you have a great paying job and more money than time. The downside of turnkey is you usually don't have a lot of equity at the time of purchase so you can't get your original investment capital out until it appreciates a lot. Good turnkeys will get in the path of progress in cities and neighborhoods that should appreciate but aren't guaranteed to.
San Mateo, CA · Member since 2018 · 11 posts · 1 vote
8y
@Sean Walton why do you recommend managing a place on my own before moving to turnkey? Are there lessons to be learned going it alone needed for effective turnkey investing?
Hello all. My name is Michael M and I currently rent an apartment in the San Francisco Bay Area. I have zero experience in real estate, and I'm interested in learning how to successfully cash flow buy and hold rental properties to supplement my income and provide for a quicker retirement. I currently work full time and am actually fairly successful in my "main gig" so do not want to let my work suffer.
Buying rental property in the Bay Area seems... impossible. Or at least incredibly difficult. I read Brandon Turner's "The Book on Rental Property Investing" and I do not believe I'd be able to find a place that would meet the 2% rule test or even the 1% or 0.5% rule test.
At this point I'm kind of "playing make believe" and researching different markets by going onto Zillow. Some markets seem promising (like Dallas) but long distance investing for a beginner seems daunting!
Anyways, that's where I'm at. Any other Bay Area investors here? Any words of wisdom?
Thanks!
Understand these 1 or 2% rules are not really reliable predictors for future profits. There are other factors that will be superior to determine total profits and why these 1 or 2% rules are not found in any textbook or taught at any accredited insitution. When you step back and look at the bigger pockets picture stuff like future supply and demand, pop growth, job growth, cost to build, crime, schools etc...and then consider all historical actuals you end up with a much different profit story. For example, the top 3 most profitable locations in the nation for cash flow plus equity since 2000 are LA, SF and San Diego. Yet they typically do not adhere to the 1 - 2% rules as that is just one metric of initial cash flow and has much less weight when all the future years of ownership are factored. Thus these rules are not really rules and again not found or taught formally anywhere or by anyone with credible credentials.
@Ali Boone and @Steven Gesis thanks for the direction! Sound like I have some more research to do. I'll poke around and dive deep. If I have pointed questions I'll definitely be back!
@Sean Walton why do you recommend managing a place on my own before moving to turnkey? Are there lessons to be learned going it alone needed for effective turnkey investing?
I know you weren't asking me, but wanted to throw in my experience with this question. I thought when I first started that I needed to manage my own properties so I could better manage property managers. But what I realized as I went along is that managing a property directly is a completely different skill set than managing property managers, i.e. managing people. In my opinion, there's not a lot of crossover between the two, at least not in terms of rental properties. I started owning rental properties in 2010 and since then, I've never once had to do anything or learn anything involving the direct tasks of the property managers, but rather I've had to learn [sometimes hard] lessons about managing people. So, a separate skill set. And not once would fixing toilets or knowing how to bill or evict tenants helped me with all of that. I'm sure some people could argue for the opposite, but that's been my experience at least!
Valley Center, CA · Member since 2018 · 3 posts · 3 votes
8y
There are many more factors to look at with some of the "more expensive" markets like in California than just initial COC ROI. If you take a long term view, factoring in standard appreciation and rent increases, on top of a good value-add deal, the profit can look much better, even if it doesn't initially meet the 2% rule.
Realtor · San Francisco, CA · Member since 2017 · 408 posts · 361 votes
8y
Welcome aboard Michael. Earlier retirement usually equates with cash flow and where we live is not great for that.
I've plowed through a pile of great books in the past 4 months and have all sorts of notes on them. Happy to share anything with you.
I went to the Thrive REIA meetup in Danville for the first time and it was AMAZING. To be in a room full of people with similar goals, some of whom are already investing in cash flow markets, was fantastic. No pitches, just a fantastic speaker and presentation and great networking.
Welcome aboard Michael. Earlier retirement usually equates with cash flow and where we live is not great for that.
I've plowed through a pile of great books in the past 4 months and have all sorts of notes on them. Happy to share anything with you.
I went to the Thrive REIA meetup in Danville for the first time and it was AMAZING. To be in a room full of people with similar goals, some of whom are already investing in cash flow markets, was fantastic. No pitches, just a fantastic speaker and presentation and great networking.
Good luck!
>cash flow and where we live is not great for that.
I find this statement to not be accurate. So cal and San Fran have poor initial cash flow but ask investors who have owned their property 5 years or more how the cash flow is on their units. I think you will find that a majority of those investors have better cash flow than they would have achieved in those higher initial cash flow locales.
San Mateo, CA · Member since 2018 · 11 posts · 1 vote
8y
@Andrew Stanton and @Dan H. and @Matt R. you guys say that looking at initial cash flow in an expensive area like San Francisco isn't really the right way to look at a potential investment. Appreciation, raised rents, etc. make the investment do better in the long run.
I don't doubt that, but I wonder two things.
1. It seems that the cash flow isn't just low in these areas, it's negative. Really negative. Do these investors simply take a hit the first 5 years or...
2. Am I just really bad at finding deals? Thus far I've only looked at places listed on Zillow and Redfin. Is this a fool's errand and would I require a realtor that can access MLS?
@Andrew Stanton and @Dan H. and @Matt R. you guys say that looking at initial cash flow in an expensive area like San Francisco isn't really the right way to look at a potential investment. Appreciation, raised rents, etc. make the investment do better in the long run.
I don't doubt that, but I wonder two things.
1. It seems that the cash flow isn't just low in these areas, it's negative. Really negative. Do these investors simply take a hit the first 5 years or...
2. Am I just really bad at finding deals? Thus far I've only looked at places listed on Zillow and Redfin. Is this a fool's errand and would I require a realtor that can access MLS?
In San Diego county I can still find listings on the MLS of duplex to quad that cash flow. Of those maybe 20% do not have an obvious item that makes them not desirable to me. Mostly these are PM headache items like no parking or not a nice enough area. That does not leave many properties that I would desire and there is competition for these properties. So you can either be patient or diligent or put out the effort for off market properties.
I have never purchased a property that was negative cash flow but have purchased one that was about cash neutral. It had significant opportunity for forced appreciation which also resulted in increased rents. All but 2 of my purchases have been Properties on the MLS.
Assuming no huge expense upon purchase I find that 0.7% rent to price ratio will provide likely cash flow if conventionally financed at 80% LTV. If you wait for a 1% rent to price ratio you likely will be waiting a long time.
Rental Property Investor · Vista, CA · Member since 2017 · 50 posts · 28 votes
8y
Hi Michael—welcome to BP!
My husband and I lived in the SF Bay Area for 13 years where we began investing back in 2003—more or less by accident you might say. Not knowing anything about what we were doing, we made many costly mistakes, but have still managed to come out on top so far.
Like you, we were renting—first in the city, then in the East Bay. Determined to buy whatever we could afford in order to stop throwing away our hard-earned money on rent, we bought our first home—a 2BR condo in Walnut Creek. Four years later—at the very top of the market just before the crash, we ignorantly bought a single family home, also in the East Bay and rented out the condo.
After the crash happened in 2008, many homeowners we knew at the time couldn't handle that their mortgage was higher than their home value on paper, so they purposely foreclosed. We were in it for the longterm though and, while everyone else was whining about their losses, we celebrated the fact that, due to the lower assessed values, our property taxes went down. ;D
We bought our third property in San Diego in 2011 while renting both the Bay Area properties. Yes—there were a few years of negative cash flow in there, but—against everything the likes of Robert Kiyosaki will tell you—we were banking on appreciation. We sold the single family home a couple of years ago for about $150K net profit, which allowed us to buy a couple of acres of land in San Diego County that we're now under development with for two new homes, and still own the condo which currently yields about $200/month cash flow and $200K in equity.
This is NOT by any means meant to show you an example of a great SF investment, but just to offer you some hope. Personally, I still think there's nothing like the Bay Area for investing because of its strong growth potential that is backed by the highest salaries in the nation. I think no one can argue that, despite high prices and negative cash flow, investors WILL continue to make money there.
My best advice for you right now would be to do what I wish we did when we were starting out and that is to find a duplex to house hack. Check out Brandon Turner's Top 20 best RE books ... a MUST READfor you is Scott Trench's Set For Life. Do everything he says and you'll be on your way in no time. :)
Please connect with me and let me know how it goes. Best of luck to you!!
@Andrew Stanton and @Dan H. and @Matt R. you guys say that looking at initial cash flow in an expensive area like San Francisco isn't really the right way to look at a potential investment. Appreciation, raised rents, etc. make the investment do better in the long run.
I don't doubt that, but I wonder two things.
1. It seems that the cash flow isn't just low in these areas, it's negative. Really negative. Do these investors simply take a hit the first 5 years or...
2. Am I just really bad at finding deals? Thus far I've only looked at places listed on Zillow and Redfin. Is this a fool's errand and would I require a realtor that can access MLS?
Sure, negative cash flow needs to be turned into positive or at least close to neutral if that is the case in the nearest term. Some starting might consider doing airbnb, rent garage storage, going farther outside city limits, partnering, flips or some alternatives if we are talking residential. However more than that is what the longer term future cash flow growth picture might look like. Idk if you noticed but rents have tripled in some areas since 2000 and thus one reason why LA, SF and SD are 1,2,3 nationally for total profits since 2000. It may take awhile to find something feasible as well. Keep in mind sometimes there is a redevelop stage as well.
I agree SF would not be a good initial cash flow market or even horrible right now and also understand that may have very little to do with longer term total profits was my OG point. Just like anything good stuff is not cheap and cheap stuff is not good. If you can make more profits elsewhere great. If you want to invest in the historically most profitable area outside of LA in the nation...you are in luck as you live in it. I have nothing to sell.
If you can find another location with a historical graph from Case Shiller that looks like this even better. Good luck!
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
8y
If you desire more initial cash flow to start, there are some places on the coast north of you that might work. You can still find sub 200k homes that I understand rent easy like SF and still have low vacancy rates 200 yards from this pic. Understanding the odds are it would not be as historically profitable cash flow + equity than Bay area on average.
Rental Property Investor · San Francisco, CA · Member since 2016 · 85 posts · 31 votes
8y
Hello Michael,
If you're in San Mateo, I would also recommend that you attend meetups in San Jose. Here are the ones that I think are really great. @Johnson H. hosts his in Milpitas- just drinks and talk, but great locals show up to his. Ryder Meehan and Chris V have their VIG meetup now held near downtown SF. Lastly, @Jeff Pollack has his meetup in San Jose, again it's worth the drive.
Valley Center, CA · Member since 2018 · 3 posts · 3 votes
8y
@Michael Martin, I'm thinking along the lines of @Dan H. and @Matt R.. The initial target should be at a minimum net-neutral, but more desirably net-positive cash flow out of the gate. It's just that the initial COC ROI may not look that great compared with other out-of-state locations. But a proper consideration of all the factors based on the specific location may help with a long term view on the profitability of these desirable but expensive areas.
The MLS is not the only place to find a deal, and there is a lot of info here on BP for learning other methods to find a deal, but they will take effort. You're asking the right questions. I love how helpful the BP community is! Good luck to you.
@Andrew Stanton and @Dan H. and @Matt R. you guys say that looking at initial cash flow in an expensive area like San Francisco isn't really the right way to look at a potential investment. Appreciation, raised rents, etc. make the investment do better in the long run.
I don't doubt that, but I wonder two things.
1. It seems that the cash flow isn't just low in these areas, it's negative. Really negative. Do these investors simply take a hit the first 5 years or...
2. Am I just really bad at finding deals? Thus far I've only looked at places listed on Zillow and Redfin. Is this a fool's errand and would I require a realtor that can access MLS?
Sure, negative cash flow needs to be turned into positive or at least close to neutral if that is the case in the nearest term. Some starting might consider doing airbnb, rent garage storage, going farther outside city limits, partnering, flips or some alternatives if we are talking residential. However more than that is what the longer term future cash flow growth picture might look like. Idk if you noticed but rents have tripled in some areas since 2000 and thus one reason why LA, SF and SD are 1,2,3 nationally for total profits since 2000. It may take awhile to find something feasible as well. Keep in mind sometimes there is a redevelop stage as well.
I agree SF would not be a good initial cash flow market or even horrible right now and also understand that may have very little to do with longer term total profits was my OG point. Just like anything good stuff is not cheap and cheap stuff is not good. If you can make more profits elsewhere great. If you want to invest in the historically most profitable area outside of LA in the nation...you are in luck as you live in it. I have nothing to sell.
If you can find another location with a historical graph from Case Shiller that looks like this even better. Good luck!
If this were a chart/graph of the rent instead of the home price how do you think it would look? I speculate that the slopes in both directions would be a little less steep (the increases not quite as large and the decreases not quit a big) with a little bit of lag (i.e. first year of property decline may still have rent appreciation) but that it would have a similar look.
It explains how there can be a big difference in the statements: 1) has poor initial cash flow versus 2) has poor cash flow. There is no way that a rent graph that has a similar look to this graph has poor cash flow for a buy n hold investor regardless of what year post 1984 that the RE was purchased. In my market, San Diego, this statement holds true for purchases going back at least 50 years.
On the included chart the biggest decline is the -27% that started in 2008 and culminated in 2011. Even a purchase in 2008 (the worst time to purchase since at least 1984) would look like an outstanding purchase today and have huge positive cash flow.
In summary, San Fran, San Diego, LA may have poor initial cash flow but they have very good cash flow (possibly better than anywhere else in the US) for the buy n hold investor and this chart shows why that is the case and can be verified (i.e. the great cash flow of those cities is not opinion and can be verified).
I recommend all investors start their RE pursuits local but I cringe when I see less experienced investors from coastal So Cal or San Fran invest OOS. I think OOS should be reserved for those that already have a certain level of experience and knowledge and that for most RE investors in coastal So Cal or San Fran their best ROI will be achieved investing local.
San Mateo, CA · Member since 2018 · 11 posts · 1 vote
8y
Thanks @Dan H.. I think it's a matter of figuring out how to weather the initial poor cash flow. And how to find a "deal" to temper/eliminate the poor cash flow.
I'm now focusing on house hacking and what that might look like. It really does seem like the best of all worlds. The rental property would be literally right next door, I'd be buying in a ridiculously hot market, I'd get an understanding of the ins and outs of RE investing, etc.
I think turnkey OOS investing (eventually) is still not out of the question, though, as I'm someone with a fairly demanding/high-paying job so I'll have more money than time for the time being.
Thanks all again for the input. This is one of the best forum experiences I've ever had. I'm very impressed with BP.
Vallejo, CA · Member since 2017 · 50 posts · 9 votes
8y
Hey Michael! Welcome to BP!!
I'm also an aspiring investor and a licensed agent. I've been studying rental investing for about a year now. Yes, the bay is really expensive. I currently live in Vallejo and ran the numbers on properties in the area and they don't generate enough cash flow!
If you're interested, there is a workshop that's going to take place Feb. 13 in Napa. If you would like to attend let me know to send you the website to register for the tickets! It's a free event. People from my office are going to attend as well. It'll be an awesome networking opportunity for you since you're just getting started! It'll probably help you with some decision making of either investing in state or out of state!
I'm on the same boat as you, I've researched markets out of state and the seem more promising than in state, I'm just building up capital to get started!
If you can't make it, I would still love to connect with you. I am always open to any questions or concerns, and I love to help out in any way I can!
Thanks @Dan H.. I think it's a matter of figuring out how to weather the initial poor cash flow. And how to find a "deal" to temper/eliminate the poor cash flow.
I'm now focusing on house hacking and what that might look like. It really does seem like the best of all worlds. The rental property would be literally right next door, I'd be buying in a ridiculously hot market, I'd get an understanding of the ins and outs of RE investing, etc.
I think turnkey OOS investing (eventually) is still not out of the question, though, as I'm someone with a fairly demanding/high-paying job so I'll have more money than time for the time being.
Thanks all again for the input. This is one of the best forum experiences I've ever had. I'm very impressed with BP.
Wise choice in a hot market and kind of hard to go wrong long term...perhaps check out BP Scott Trenchs book, Set for LIfe as he has a whole system/philosophy for doing the house hacking deal.