Tips for beginner real estate investing in the bay area?

15 Replies | San Francisco, California

Hey BP members! My name is Richard, I'm 21 years old with about 8-20 k of money I could use as of now for investing( I don't make that much yet), I am in the process of getting my real estate license , and I am from the bay area.I am new to using bigger pockets, however I have been listening to podcasts, studying, and reading articles for some time now. what would you all suggest for a new person like me hoping to start their jounry into real estate investing? I hope to use the BRRRR strategy however the prices in the bay area are quite high and I don't make a whole lot of money as of now. I have considered OOS investing however I am still looking into that and if that may be a better option for me. I really want to learn as much as I can on here and hopefully connect with some people that may live in California/bay area as well.

Hi Richard,

You may be best looking into OOS investing because of pricing in the Bay Area. In my opinion it’s a good idea to get your first deal under your belt. Don’t worry too much about what that deal is. Start with something small that you can learn with. Then once you learn the ins and outs of it you can grow bigger. The other option I’d recommend is seeing if you can partner with someone in your area on a local place. Good luck man!

keep your cash keep stacking It up... you need at least 50k in reserve fund before you do anything.

Since 2003 I never had luck with people who put 10% or less as down payment in SFBA on homes. This is not to say you can not be eligible for FHA, VA(ex-military). The 3.5% EMD for anything 1M(below median SFH) is 35K. Best wishes.

Invest that money while you add to your savings. Look into money market funds or CDs. 

Unless you can somehow partner with another to provide more capital and experience you should just focus on learning and saving right now. 

Even for cheaper OOS investments, you want a larger cushion for expenses. Your're starting early so in a few years you'll be full of knowledge and flush with capital :) good luck!

Hi @Richard Alvarado ! Welcome to BP! A few tips: 

1. I would stay far, far away from investing in California, as a beginner, as the cost of acquiring ANYTHING here is WAAAYYY too high

2. Look for places to invest where the median rent is under $1000, and the median home price is $200k - $250k, Phoenix, Atlanta, Colorado Springs, Orlando...there are many metropolitan cities that have homes and rent in these ranges - and this includes homes that don't need to be rehabbed (turnkey properties)

3. Out of state investing is your best bet, IF you want to start right now. If you don't want to work with a private lender, you could do what is called "rental arbitrage", where you rent out an apartment or house, and offer it to be used as a short-term rental. You'd want to plan on investing between $5k - $10k, if you decided to go this route. Many people may tell you this can't be done, but trust me, it can. This is something I do for a living, so if you need help in this area, let me know. I currently have multiple clients across five states that have followed this model. Start with smaller, owner controlled rentals, if you decide to go this route. You'll be doing a LOT of work, scheduling appointments with landlords, and visiting multiple properties, but it has one of the lowest start-up costs of any other real estate investment model.

Feel free to PM me with any other questions! 

@Richard Alvarado I agree with @Account Closed . I don't know the Bay area too well, but I'm pretty certain that you won't be able to do anything with $20k.

The only thing I would add to Charity's list is the midwest, especially Cleveland. I live here in Cleveland and people are flying in from California and New York in droves because the cost of entry here is so inexpensive, but the market is hot and stable with an extremely healthy demand for housing from strong working class population.

For $20k here in Cleveland you could pick up a, 3-5 bedroom rehab. I consistently purchase homes for under 20k with rehabs from 15-25k that have ARVs of $70,000 - $110,000k

Last 13 years I was never successful with buyers who can not afford more than 20% down. Anything lower gets disregarded. On top recently the home buyers often need to purchase w/o a loan contingency to get offer accepted. This means if you can not get a mortgage you accept losing the deposit. Considering your age and bright future just keep doing what you are doing.  

You can be a scout for investors providing leads etc. Right now flipping homes is an endangered profession. It is a hit or miss. The investors are cautious not wanting to pay top dollars.

Hope that helps,

Sam

Originally posted by Account Closed:
Originally posted by @Charity Youngblood:

Hi @Richard Alvarado ! Welcome to BP! A few tips: 

1. I would stay far, far away from investing in California, as a beginner, as the cost of acquiring ANYTHING here is WAAAYYY too high

2. Look for places to invest where the median rent is under $1000, and the median home price is $200k - $250k, Phoenix, Atlanta, Colorado Springs, Orlando...there are many metropolitan cities that have homes and rent in these ranges - and this includes homes that don't need to be rehabbed (turnkey properties)

3. Out of state investing is your best bet, IF you want to start right now. If you don't want to work with a private lender, you could do what is called "rental arbitrage", where you rent out an apartment or house, and offer it to be used as a short-term rental. You'd want to plan on investing between $5k - $10k, if you decided to go this route. Many people may tell you this can't be done, but trust me, it can. This is something I do for a living, so if you need help in this area, let me know. I currently have multiple clients across five states that have followed this model. Start with smaller, owner controlled rentals, if you decide to go this route. You'll be doing a LOT of work, scheduling appointments with landlords, and visiting multiple properties, but it has one of the lowest start-up costs of any other real estate investment model.

Feel free to PM me with any other questions! 

Charity, while I like your advice on rental arbitrage, I don’t agree with your paragraph on CA being too expensive and that only OOS will achieve his goals. 

You state to look for cities with a $250K median price and rents for $1000? Why wouldn’t the OP look at Sacramento, where he can buy a $250K house that rents for $1500? 

Wouldn’t you agree that being able to drive to his first property in 2 hours rather than spend $1000 on a trip to the Midwest? Sacramento has similar job growth and population growth numbers as most growing cities in the Midwest.

Too many people write off CA like it’s all Bay Area prices. There are plenty of CA markets that act like just OOS markets, and it’s a 2 hour drive away. 

@Wes Blackwell

 Even those numbers are way higher than outside of California. I have an $80k home right now getting $1,500 a month in Cleveland. For $250k I have a quad here getting $2,300 a month in rent, and that’s UNDERperforming. Make what you can of where you are at, but I definitely understand why everyone in crazy about Cleveland. 

@Peter Ledger Absolutely! And I can DEFINITELY understand why everyone is crazy about Cleveland too! Thank you again for your input. I'll have to PM you about Cleveland. I work primarily with investors looking to open short-term rentals, but at those prices, a fix and flip could also be an option. Account Closed mentioned he had to start with. But if I come across any investors that are looking into property in Sacramento, I will be sure to send them your way! ;)

Originally posted by @Peter Ledger :

@Richard Alvarado I agree with @Account Closed . I don't know the Bay area too well, but I'm pretty certain that you won't be able to do anything with $20k.

The only thing I would add to Charity's list is the midwest, especially Cleveland. I live here in Cleveland and people are flying in from California and New York in droves because the cost of entry here is so inexpensive, but the market is hot and stable with an extremely healthy demand for housing from strong working class population.

For $20k here in Cleveland you could pick up a, 3-5 bedroom rehab. I consistently purchase homes for under 20k with rehabs from 15-25k that have ARVs of $70,000 - $110,000k

 Out of curiosity, how do you hedge against, and/or manage the risk of, declining population and thus housing demand in the area, as well as declining income? Where are things like rent increases and sales value for the future coming from, in your model/strategy, if fewer and fewer people want to live there over time, and those that do make less and less money?

Originally posted by Account Closed

 You should have come to the last East Bay Sunday meetup, it was all about OOS, but the presenter shared that cool litmus test above (where you invest passes with flying colors btw) that kind of guts the standard "turnkey provider" model.

Another market not far off, Stockton, same test as above - steady income (rent increases will likely at least track with inflation, if you zoom out to the 10 yr horizon), gradually increasing population (a driver of asset/home appreciation, 10 yr horizon), 2-4 unit properties still affordable.

Do it for Oakland and obviously you will see incomes through the roof, population gradually increasing, but sticking point will be the prices present a barrier to entry that not everyone will be able to handle. 

@Account Closed : Can you please explain to me how a median rent of $1,000-$1,500 would earn me money if the median price is $200k-$250k and I leverage the deal? This is my biggest hurdle in trying to narrow down the markets to invest in outside of SF, where I live. Thanks!

Hi @Minna Folkman ! It honestly depends on your investment goals. For example, if you are buying the property outright, i.e. no mortgage, that $1000 -$1500 per month goes to your expenses, (utilities, capital expenditures, vacancy, etc.) and the remainder is your net cash flow. For the majority of newbie investors, this situation is not very realistic, as not many of us just have $200k-$250k lying around. If you instead mortgaged the property, i.e. put down 10%-20%, your end goal would most likely be appreciation. Since I don't have experience with the "buy and hold" or appreciation strategy, my advice would be to personally reach out to one of the "buy and hold" investors directly, which you can do with your BP Pro-Membership. I'm sure they would be happy to answer your questions, and help you narrow down your investment strategy.

My expertise is with short-term rentals, and the investors I work with that have acquired properties, instead of using the rental arbitrage model, are specifically seeking a higher net cash flow, than traditional rentals provide. So instead of $1000-1500 per month, they receive $2400-$3500 per month. However, as with ANY investment strategy, there are MANY variables to consider when using this model. Your monthly cash flow will vary from month to month, state to state and city to city, depending on location, target market, marketing strategy, etc. Feel free to PM me if you have any other questions!

@richard alvarado  Did you keep saving up your money? You can do it man, keep pushing.