Bay area(east bay) or Texas (HOU /DFW)

40 Replies

Is it still good time to buy in sf bay area or Texas for rental /investment purpose : SfR/multi fm

Pro and cons for me :

Bay area appreciation to continue ? hard to get cashflow - can manage locally

TX - cashflow but would need prop management company involved, so cut in cashflow

What would you do , for long term investment at this time ?

My 2 cents.  I live in the Bay Area and aside from my home, I simply can't afford to invest in this area, cashflowing or not.  If I could, I would still use a property mgmt. company locally.  Don't want to deal with the day to day.  I instead invested (and plan to continue to) in the Dallas area.  Many West coasters are going there and the economy is solid, appreciations are decent and when the market crashes, you won't get hit as hard as in California, for example.  You can find decent cash flowing rentals there.  My aim is to buy several properties since the cost makes it affordable for an investor.  I am also looking in other cities in middle America.   Hope it helps.

@Ron Singh For long term I am doing both. I have a project up in Napa Valley that is a BRRRR for a STR and eventual retirement place to generate cashflow and I'm trying to find a team and location out of state to look for doors.

I think you could do either and be successful but it comes down to what do you really want?  Cashflow, appreciation, or both? 

@Collin Chan

good going, btw I am in west Dublin, looks like we are pretty close.

I am curious to know more about napa project, how did you find it(if you can share), i am finding it too hard to get any brrrr in/near bay area.

looks like you are pretty lucky one

Hey,

Yup i'm in East Dublin.  For the Napa project it was just being interested in the area for all the right personal enjoyment reasons but wrong investment reasons. haha

We were looking up there for a retirement home after spending many weekends up there for anniversary's, birthdays, etc.  We enjoy the lifestyle and were looking at buying land to build a home one like some of my other colleagues are doing.  The plan was to build maybe a modular home on some land so we could eventually downsize.  Wherever I go, I usually check listings and sometimes walk into open houses (even on vacations!).  I get on realtors lists and that's ultimately how I found out about this property that they represented.  I had actually been on their email list for 5 years but I enjoy seeing what's out there which also helped me to understand prices in that area.  6 months before we were still looking at land but ultimately we re-evaluated our goals/wants and decided to find a house with land and this showed up in my inbox from that realtor.  Within three days we had an offer for asking (2 other offers came in below asking) and we got the property.

I use to think it was luck but listening the Brandon Turner and David Greene, it was really just being prepared, opening the funnel, and knowing what we wanted.

Collin

@Ron Singh Dallas is a great area. However, as a California owner, you should consider the tax consequences of your decision. Texas has high property taxes which change on a yearly bases. Additionally, you will be taxed for California income tax which we all know is high. Therefore, you will be hit on high taxes on both fronts. If you do decide to go out of state you should really consider a state that has low property taxes. 

@Ron Singh I am a buy and hold investor that focuses on the Bay Area. I know about Texas because I had a business there and I was subject to heavy taxes. The only out of state investing that I do is as an LP in syndications, so I cannot really give you very good advice about the other states you inquired about.

To your original question, cash flow in the Bay Area can be achieved, but it is not as easy as other locations. I can speak directly to the appreciation piece and say that it is 100% real. You just need to take an additional step to get your money out and do a refi when your value goes up. I personally feel that it is not as easy to invest in the BA because of the high barrier to entry, but once you get in the "snowball" effect is magnified substantially.

@Arlen Chou thanks, when you do cash out refinance, whatever amount you take out,do you have to pay taxes at end of the year on that amount ? in other words, does it add up in your yearly income for tax purpose ?

also, in your experience specially in BA when home prices go downhill, like around 2008, does rent goes down significantly too ? ( if more people leaving BA than moving in), that's one of the reason I was looking outside BA.

@Ron Singh the BA is a different animal than most places. The BA proper is geographically constrained with very few transit arteries in and out. Additionally, you have VERY bad zoning laws that keep new housing capped. It may look like there is a ton of new products coming online that will flood the market. The reality is that they cannot build enough fast enough. Trying to get permitting for higher density housing is a very long and costly process. I could write a dissertation on why to buy and hold in the BA is a strong play, but if you do a little research there are graphs floating around here on BP that go back approx. 30 years showing the effects of the various downturns in the market. 

Please keep in mind that the BA is very different than "California", so don't take general CA data and apply it to this local economy. 

As a real life long term example, my first property was purchased in 1997 in Mountain View. It was a 2 bed 2.5 townhouse. The purchase price was less than $300k currently Zillow has it estimated at $1.3M. Unfortunately, I sold it back in 2004 for over $600k. I was young and ignorant back then, I don't sell anything that I buy now. I just refi cash out every few years.

If your intent is to invest for appreciation, San Francisco is still an excellent place to invest. In the City, we have a massive housing shortage and incredible demand. There are ways to be creative with the goal of obtaining cash flow as well. The most successful investors in the City are seeking options that allow for the buildout of additional units. The City has fast-tracked ADUs (additional dwelling units)--seeking a multi-unit building with an existing vacant garage with the ability to build out one or more ADUs is an excellent strategy. As tenants turn over time, you have the potential for substantially increased returns.

@Arlen Chou I agree it will work, the only drawback I see the monthly payment might increase after cash out, also hope the interest rates don't start going up in future

@Heather Wilkerson true, but prices are already all time high.

I found a 2k sq ft mixed use unit in city for around 750k. would that appreciate more or a duplex in the valley /tracy ( which is alot cheaper and with cashflow) ?

I live in Texas and have been investing here for 20 years...and I always get a good chuckle when folks from California talk about high property taxes in Texas. California taxpayers are being raped by high taxation and it's getting worse every year. Check out U-Haul pricing and ask yourself why it's twice the price to take a truck from California to Texas as it is the other way around. There is an exodus of investors and other businesses from California due to non-business friendly regulations and outrageous taxes, utilities, etc. Yes, our property taxes are high but it is more than made up for by not having a state income tax, burdensome regulation and much lower property acquisition prices. 

@Luis Rolando

Hi Luis. First time posting on BP. I live in Dalls and have been looking at properties and I don't see any that present the opportunity for cash flow. I will likely invest elsewhere. Can you explain what you said about getting decent cash flow here?

This is not flame bait, and I am not saying you're wrong. I'm asking where you see what you see. Rents around here seem to be about 0.5% rv as far as I can tell. I even drove out to Sherman today to look and there are a ton of available rentals all hovering around that same 0.5% rv and that's nearly an hour and a half outside of Dallas. In the burbs where I live it's even less.

My son goes to college in Denton and I was thinking a fourplex he could occupy would be a great first investment but again the prices are super high.

I would be very grateful for your insight. Thanks!

@Dan Engberson I bought in Lancaster and my RV% is 0.78 or so. You might want to look in that area. I’m not super familiar with all of the DFW neighborhoods but I bought in Lancaster and got it rented quickly on a 2 year lease and an rent increase in the 2nd year. Hope it helps.

@Ron Singh For your concern with refi vs cashflow you are correct.  It's also something I've thought about as I have a number of properties in the Bay Area with equity but if i refinance too much out, my cashflow won't be as good.  To offset it, I'm working with out of state investors (build up a great network in the past 2 weeks) to find cash flowing properties that will help to keep my overall cash flow high while I refinance.

Borrowing 100k at  4% (very conservative here) will cost you $477 per month for a 30 year fixed.  But that 100k can buy you 4 properties with 25k down that will net you $200-300 per door conservatively :).

You will still come out positive since money is cheap to borrow.  Find the right lenders for good rates and investment team and obviously your positive cash flow could be much better.

@Ron Singh yes, when you do a cash-out refi your monthly payments will go up. You need to balance the payment against the rents that you should be increasing. The idea is to be cash-flow neutral on your books. But you sit on top of a large pile of cash that was pulled out of your property at the point you refi. This is basically a tax efficiency strategy that puts working capital in your accounts, but at the same time keeps your taxes manageable. There are more working parts to this type of strategy, but it builds wealth much more quickly than a few dollars of positive cash-flow a month.

@Ron Singh

Is there vacant commercial space in the building? If so, I would focus more on multi-family as the City just initiated penalties to owners of vacant commercial space.

Also—neighborhood matters for appreciation. What neighborhood is the property in?

@Ron Singh ,

Let’s put things in perspective. $500/mo = $6k/yr of positive cash flow. $100k cash in your hand today is equivalent to 16.5 years worth of cash flow, and it’s tax free money too. You get to decide what to do with that $100k now rather than wait and collect it over 16.5 years.

Next, if you can scale your real estate investment through value-add aka BRRRR, then you can really grow your REI biz. 10 units at $500/door net cash flow = $1M worth of cash in your pocket. 100 units at $500/door = $10M.

Then, every year, raise rent $50/unit. At 100 doors, that’s equivalent $1M in equity not including the principal your tenants are paying down, which is another $250k-$300k/year. Every 3-4 years, that’s another $1M to cash out, tax-free, IF you want to scale your biz further.

Lastly, which other markets out there that can offer an almost guarantee annual rent growth year in and year out like our Bay Area markets? Based on your knowledge, wouldn’t you say $50/unit rent increase is ultra conservative? 

You’re sitting on gold. It may look dull to the untrained eyes, but to the investors who are willing to put in the efforts, millions could be made right here at home. The grass is very green here. Just some food for thought.

Best of luck.