Starting out with 200k in Bay Area

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Starting out with 200k in Bay Area

Wenqian Guo
Investor · San Bruno, CA · Member since 2017 · 19 posts · 22 votes

Hello!

I have around 200k willing to use for investing. I can’t decide if I should look for a place out of state as rental or pay down payment for a house in bay area(where I live) and rent part of it out. Or purchase a piece of land...and build something on it. I don’t own any properties right now..looking to take the first leap..not sure where to start..

2Reply
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Arlen Chou
Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes
6y

@Anthony Dooley your fundamental premiss on the lack of cash flow in hot markets like the SF Bay Area is incorrect. Perhaps you are considering immediate cash flow as your key indicator, but the real analysis should consider an overall calculation leading to wealth. Cash Flow + Appreciation = Wealth. It would be absolutely a waste of resources to do a deal that has either cash flow or appreciation = ZERO over a long hold period. Both @Amit M. and @Account Closed have been extremely successful in this market and I am certain the cash flow more than $100 a door per month.

The fundamental rapid appreciation of "A" markets allows an investor to take a short term hit on cash flow. Based upon the down payment size and price negotiation the property can be cash flow neutral at initial acquisition or in many cases cash flow positive. Through appreciation, forced or otherwise, the property can be refinanced to pull most, if not all, of the initial investment out. With proper management and business plan structure, a property can produce an essentially infinite ROI allowing an investor to roll funds into the next deal while at the same time being able to show an increase in assets and income.

To be honest, I have no idea what the market in Columbus Georgia looks like, so I cannot comment on the application of a Bay Area strategy would be in that area. More than not, my strategy would not work in Columbus... but it might, I don't know and I will probably never find out. Cats and lions are both felines, but taming them takes different strategies.

@Wenqian Guo if you are single, doing a house hack is the simplest and most tax-efficient way to start building your wealth here in the SF Bay Area. You will be able to get a lower interest rate. You will be in full control of your assets. You will learn the basics of being a landlord. Just don't tell your tenants you are the landlord. Get housemates and just let them know that you will be handling the master lease and that all issues will be flowing through you.

Good luck with your next step in your real estate adventure!

6Reply
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  • Anthony Dooley
    Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    6y

    I wouldn't invest $1 in the state of CA. Appreciation is probable, but cash flow is negligible. It depends on what you are looking for. I am a cash flow guy, so CA has nothing for me. Best of luck.

    2Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    house

    hack

    locally

    ————-

    3words+chart

    4Reply
  • Amit Saini
    San Mateo, CA · Member since 2015 · 61 posts · 30 votes
    6y

    Getting your primary house & house-hacking (or adding an ADU to it) will help with your dual-goal of owning a primary residence (and benefitting from MID) & generating income from it (partially offset by depreciation). There are some other threads on BP with ADU addition success stories.

    Good luck!

    2Reply
  • Jeff Kobernus
    Real Estate Agent · El Dorado Hills · Member since 2018 · 32 posts · 41 votes
    6y

    I purchased a $344k duplex in Sacramento and spent $12k on renovations.  25% down + 12k = $98k.  Our monthly mortgage obligation all in is about $1700.  Plus property management and Gardner its about $2k.  We have both units rented at $1495 each.  We cash flow roughly $700 a month which would equate to 8.5% return or so.  Cash flow is not impossible in Ca but when there is a decent deal out there you have to have an offer out within a couple hours.  Not possible in the Bay Area in my opinion but the Sacramento region may be the fastest growing market anywhere.

    3Reply
  • 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
    6y

    @wenqian guo    Decide if you want to stay in San Bruno....in which case all of that 200K will go toward the down payment....or move maybe to the East Bay.......Do you work from home?

    Either way get pre-approved with a lender first.

    0Reply
  • Jon Crosby
    Investor · Roseville, CA · Member since 2016 · 893 posts · 1k+ votes
    6y

    @Wenqian Guo 

    Just my 2 cents but you need an investment strategy first before picking a location. Whether you buy one home in the Bay Area or 6 in the mid-west to get the same ROI is sort of irrelevant until you know what kind of investing you actually want to be a part of. You could just throw that all into a 10% Debt Financing syndication and get a quick return on your money with no effort so it really depends on what kind of real estate investing excites you and that you want to be a part of.

    Turnkey, land development, multi-family are all very different so you need to figure out which one you want to be part of and focus and learn from on your investment. Personally, I wouldn't touch the Bay Area and have all your eggs in one basket, I would probably buy 5 to 7 SFH in the mid-west (turnkey) or I would invest in a multi-family debt syndication. Once again though, it's all about what excites you in the end and what your investment goals are.

    Best of luck! 

    3Reply
  • Haydn Zeis
    Rental Property Investor · Columbus, OH · Member since 2016 · 60 posts · 100 votes
    6y

    @Wenqian Guo depending on your end goal, many of the suggestions above are good ideas.  What is your main goal as a real estate investor?

    1Reply
  • Alina Trigub
    Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes
    6y

    @Wenqian Guo

    As @Jon Crosby already indicated, concentrate on selecting the investment strategy that fits your needs, funding and long term goals. Take into consideration your desire to do the work and your availability to execute upon your plan.

    Here's the article to guide you further: 

    https://www.biggerpockets.com/member-blogs/10850/86621-six-steps-approach-to-getting-started-in-real-estate

    1Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    6y
    Originally posted by @Wenqian Guo:

    Hello!

    I have around 200k willing to use for investing. I can’t decide if I should look for a place out of state as rental or pay down payment for a house in bay area(where I live) and rent part of it out. Or purchase a piece of land...and build something on it. I don’t own any properties right now..looking to take the first leap..not sure where to start..

     Always recommend taking care of home base first man. You've got to pay off a mortgage to live somewhere. May as well make it your own mortgage.

    0Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    I am local Bay Area (Marin) and have employed both strategies you describe (invest locally and also invest outside of California - I bought 6 "cheap" duplexes and a couple of SFR's in upstate NY specifically) over the past 20+ years. Hands down, my Bay Area investments have created real wealth, whereas I broke even at best on my distant investments. As they say, the past is no guarantee of the future but I discovered that collecting nickels and dimes from properties that need constant maintenance due to weather was not worth the aggravation. I now focus on sunny growth markets - coastal California, coastal Florida, booming college towns, and growing southwest areas like Las Vegas. Just my two cents.

    5Reply
  • Elisha Cummings
    Specialist · Sacramento, CA · Member since 2020 · 3 posts · 0 votes
    6y

    Hey @Anthony Dooley do you have experiance or knowlege about the Sacramento area? Is it a good investment market?

    0Reply
  • Elisha Cummings
    Specialist · Sacramento, CA · Member since 2020 · 3 posts · 0 votes
    6y

    Hi @Jeff Kobernus thanks for the post! Hope you day was well. Im an invester fairly new to the area.Would you be open to share tips on the Sac market?

    0Reply
  • Anthony Dooley
    Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    6y
    Originally posted by @Elisha Cummings:

    Hey @Anthony Dooley do you have experiance or knowlege about the Sacramento area? Is it a good investment market?

    I have knowledge of the Modesto area and Stanislaus County. It's a nice place to live, but a low return investment. I have run numbers on a lot of property there and it comes out to 3% ROI. I can get 10% or more in the stock market. I can get 15-20% in real estate in my market. That is why I stated above that I wouldn't invest $1 in CA. Best of luck to you.

    0Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Anthony Dooley

    Umm...sounds like you’re forgetting about 1 ting....

    3Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    forest

    not

    trees

    ————

    3words

    0Reply
  • Account Closed
    Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
    6y

    @Anthony Dooley fortunately Modesto and Stanislaus counties are not representative of the entire state of CA, which by the way has 40M people, 12M housing units, and is the 5th largest economy in the world. It is not one market. It is comprised of hundreds of sub markets that all act differently.

    I’m sure you can agree Colombus, GA and Atlanta are two different markets and offer different ways to profit. It’s the same over here. 

    There are several of us Bay Area investors regularly earning 30%+ annually, and I’m not talking about market appreciation. 

    5Reply
  • Anthony Dooley
    Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    6y

    @Amit M. Umm... I'm not talking about price appreciation. You should read my comment again. I am talking about investing in income producing real estate. Cash flowing property. 

    0Reply
  • Anthony Dooley
    Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    6y

    @Account Closed that's great. I'm glad you are doing well. I only mentioned the markets I have researched and did not include any other markets in the state. I did not say or imply that Modesto represented the entire state. Based on that information, I have ruled out CA in any type of investment. 

    2Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Anthony Dooley I’m talking about how to make the highest returns, and returns in RE include appreciation. There’s much more to RE than simply analyzing for cashflow. As I said one should think forest not trees. 

    3Reply
  • Anthony Dooley
    Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    6y

    @Amit M. We are talking about two different things. Appreciation is not ROI until you either sell or refinance. I am talking about positive monthly cash flow, regardless if the property appreciates or not. I don't include speculation and hope in my calculations for returns.

    1Reply
  • Joe Bertolino
    Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes
    6y

    @Wenqian GHouse hack a 4 plex. Getting 4 units in the Bay Area with 3.5% down with 30 year financing at 4% is still an insane deal.

    1Reply
  • Arlen Chou
    Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes
    6y

    @Anthony Dooley your fundamental premiss on the lack of cash flow in hot markets like the SF Bay Area is incorrect. Perhaps you are considering immediate cash flow as your key indicator, but the real analysis should consider an overall calculation leading to wealth. Cash Flow + Appreciation = Wealth. It would be absolutely a waste of resources to do a deal that has either cash flow or appreciation = ZERO over a long hold period. Both @Amit M. and @Account Closed have been extremely successful in this market and I am certain the cash flow more than $100 a door per month.

    The fundamental rapid appreciation of "A" markets allows an investor to take a short term hit on cash flow. Based upon the down payment size and price negotiation the property can be cash flow neutral at initial acquisition or in many cases cash flow positive. Through appreciation, forced or otherwise, the property can be refinanced to pull most, if not all, of the initial investment out. With proper management and business plan structure, a property can produce an essentially infinite ROI allowing an investor to roll funds into the next deal while at the same time being able to show an increase in assets and income.

    To be honest, I have no idea what the market in Columbus Georgia looks like, so I cannot comment on the application of a Bay Area strategy would be in that area. More than not, my strategy would not work in Columbus... but it might, I don't know and I will probably never find out. Cats and lions are both felines, but taming them takes different strategies.

    @Wenqian Guo if you are single, doing a house hack is the simplest and most tax-efficient way to start building your wealth here in the SF Bay Area. You will be able to get a lower interest rate. You will be in full control of your assets. You will learn the basics of being a landlord. Just don't tell your tenants you are the landlord. Get housemates and just let them know that you will be handling the master lease and that all issues will be flowing through you.

    Good luck with your next step in your real estate adventure!

    6Reply
  • Zab Khan
    Contractor · Fremont, CA · Member since 2018 · 50 posts · 17 votes
    6y

    @Anthony Dooley

    I grew up in Modesto and know the city and surroundings like the back of my hand..

    I purchased a vacant lot there for 54k and Plan on putting a 3/2 duplex there which rents for about $1300-1400 each unit. Previously had a home there so building fees are credited. My construction cost should about 150k. Am I missing something?

    2Reply
  • Wenqian Guo
    OP
    Investor · San Bruno, CA · Member since 2017 · 19 posts · 22 votes
    6y

    @Zab Khan hi, how did you calculate the fee for construction ?

    0Reply
  • Anthony Dooley
    Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    6y
    Originally posted by @Zab Khan:

    @Anthony Dooley

    I grew up in Modesto and know the city and surroundings like the back of my hand..

    I purchased a vacant lot there for 54k and Plan on putting a 3/2 duplex there which rents for about $1300-1400 each unit. Previously had a home there so building fees are credited. My construction cost should about 150k. Am I missing something?

    Assuming that your estimates are correct, you should make about 10% on the investment. If that is a good return for you, great. Based on numbers I have run in the area, I have never found anywhere close to 10%, so good for you.

    0Reply
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