New Investor from San Jose, California!

[Steven Lam]

Hello everyone! My name is Steven L. (age 23) and I’m a long-time podcast listener who finally decided to take action on my interest in real estate. I am from San Jose, California and often commute around the San Francisco Bay Area. Currently, I work as a scientist at a biotech/biopharmaceutical company out in Pleasanton, CA paying out student loans as quickly as possible to build funds for my first investment!

As it stands right now, I am a newbie that has yet to do his first deal, however, I have been taking in a wealth of knowledge to narrow down my market and strategy of interest. The Bay Area & California markets are hot and expensive at the moment so I plan to start off my journey with long-distance real estate investing. I would love to chat with others about their thoughts on current opportunistic markets as well as markets that are up and coming that I should keep an eye on.

I have been analyzing 5 properties per day, running the numbers, and hypothetically strategizing how I would finance/rehab and complete the deal. I’d be very interested in connecting with others who I can chat with about my numbers, different strategies to finance/rehab the property and such.

My goal is to acquire buy & hold rental properties long-distance and put systems in place to manage those properties to increase my passive income to free up time allowing me more family time and time to venture into other interests. I would like to complete my first deal within a year of this post. If anyone in the bay area would like to chat at a local meet-up or over a brew or dinner, feel free to link up and who knows, we could potentially partner up on a deal!

I am very much open to any suggestions that any members have for me as I inch closer to my first deal; let’s link up and chat!

[Chris Mason]

Originally posted by @Steven Lam:

@Brian Garlington Hey Brian! Thanks for the follow up. I wanted to ask if house hacking in the Bay Area market “makes sense” as a good real estate decision.

For example, let’s say I purchase a single family residence (4 bed 2 bath) for $600,000 in the Bay Area, lived in one room and rented each of the other rooms for $1000/each. If I calculate the monthly rent without my contribution, it would be $3000/month based off the other tenants which is 0.5% of the acquisition price (which is less than the recommended 1% rule). In any other market, many would advise against this action due to its low monthly rent to acquisition price percentage, but since its the Bay Area market do we judge properties differently?

I may not have explained the situation well, if you have any questions please ask! Thanks again :)

 Hi Steven,

For that sort of thing, living in the bay area is a tad more about "mitigating" the cost of living here than it is the 2012 Midwest dream that a lot of the legacy BP content is about. In such a hypothetical as you presented, depending on what assumptions we use (down payment, the rate your FICO score can get you, etc etc), you're now living in the bay area for something like $500 to $750 per month out of pocket. Considering how much you'd otherwise pay to rent while living here, that's not doing bad at all. 

And then on top of that you have ballpark $700/mo to $820/mo going towards paying down the balance (again, depending on the assumptions), which basically means your portion of the payment is going directly towards equity while the tenant's payments to you are covering the interest / prop taxes / etc. You're not living for "free" on a monthly cashflow basis, but from a "true net" perspective (zoomed out 10-15 yrs when you go to sell) assuming zero appreciation in the SF Bay Area (lol) you are -- tenants are covering the interest/taxes, and you will get back however much you pay the balance down by when you sell (assuming you ever sell, a different debate entirely). 

You can introduce an appreciation factor if you wish (& many of the graybeard bay area REI often do), but it's not necessary using the numbers you hypothesized.