First time post but I have been following BP for quite some time. I'm facing this dilemma of whether or not I should hold on to my million dollar, unrealistically tiny town house. Here's the situation:
Situation
Own a townhouse since 2016, in the booming silicon valley town - Sunnyvale. Mortgage is 90% paid off. Seen the peak appreciation 2 years ago where my gain would be close to 40%, now it's came down to 30-ish% and dropping. The property was meant to attract young tech workers with <1 kids, however given the new COVID remote work situation there seems to be less need to live "close" to work
Strategy
The play has always been holding it and generate cash flow once as we move out to a larger space and better school house in 2021. Was betting on the continue tech growth in the area for future appreciation as well. I have a full time job so my effort in RE is always somewhat secondary / passive, not looking at strategy as sell it and obtain 3 BRRR.
Questions
- Do you guys see the housing price in bay area evens out with the remote work future? Understand this can be total opinion but it's ok.
- Is sell now the best way to maximize the gain? Or would you recommend holding and generating cash flow as everything in the bay area seem to have generous return long term.
- What's your play for the next 6 - 18 months? Banking on the dip and enter the market? Would love to hear some thoughts!
Appreciate the feedback and looking forward to the discussion!
Here in SF, tech rentals are emptying a dozen a day. Two houses on my street on Twin Peaks full of young techies are empty now...rentals are down 12-16% and falling. From what little I know- buy and hold is the way to go in SF. My strategy is to buy a small multifamily (or condo, as those prices are dropping), while renovating my current SFH and then rent again when the market returns- basically when SIP is over. The Bay Area will come back alive- and so will the market. Hold on.
@Jack Hou - COVID-19 will not last forever. I wouldn’t sell a property in Sunnyvale at a loss. It’s like selling stocks at a loss. You’ll eventually regret it when you see prices rebound and climb. Unless of course you anticipate any issues with your W-2 job in the near future?
I view houses in the SF Bay Area as long term holds.
-I'm sure some will invest in the Bay area no matter WHAT. But there are better markets out there. Just look at how much rents have dropped during Covid and the exodus of tech companies to other parts of the country coupled with online/work from home trends.
Bottom line - you can get more bang for your buck somewhere else.
-What's your Return on Equity?? ROI may look great, but having paid off 90%, I doubt your capital is working as hard as is COULD for you.
-If you think that you could time buying at the bottom of the real estate market. You're likely wrong unless you can snatch up a distressed hotel or industrial warehouse. This is totally different from 08/09 housing crisis.
@Libby Truesdell Buy and hold has always been my play but it's really good to hear the same thing from you. Another signal I've been looking out is major development and tech expansion - Not sure if you see the same in the city, but even with the pandemic I still see FAANG continue snatching up property in south bay for future campus, and residential developments are still being planned and built. I'm relying on those being good indicators that the Bay Area faith is still there.
@Ana Marie B. Nope. W-2 job is as steady as it can be. Good to hear you're also buy-n-hold.
@Andrew Hogan Good points on stretching the investment dollars. My capital is not working at all and I'm actively changing that. I plan to get HELOC out of it and split it 2 ways:
1. Majority will become the downpayment for next home in 2021 as the family has outgrown the space.
2. Small chuck will be used as downpayment for an additional investment property, which is still unclear on strategy. I've been investing only in CA ( has another buy and hold, currently long term rental in Palm Spring ) but has always been intrigued with out of state opportunity. Will reach out through DM and see your thoughts!
@Jack Hou We have purchased two fix and flips and one long term hold up here in Marin this year. We plan on continuing to buy more. The demand for SFR's is going strong up here and I do not see it abating in the near future.
As for SF it has usually been a market where people will buy hoping for appreciation. IF you got cashflow that was a plus. The generous tenant friendly rules there make it especially crucial that you screen your tenants there probably moreso than any other market of the country. When Covid ends the prices will drop on SFRs and multifamily in SF. They already have for Condos.
I am realising the importance of tenant screening. Here in Houston it takes court fee and three weeks for court date. The judge gives tenant 5 days to move. If house not vacated, you file for writ of possession and wait another 3 to 4 weeks. Sometimes I am tempted to give chance to a questionable tenant. I would like to know what other investors think.
@Jack Hou best of luck with your HELOC, and next properties! Keep us posted with what moves you make. @Darius Ogloza congrats on your successes in Marin. Glad to hear there are independent folks flipping in the bay still. I want to read more stories like this!
First time post but I have been following BP for quite some time. I'm facing this dilemma of whether or not I should hold on to my million dollar, unrealistically tiny town house. Here's the situation:
Situation
Own a townhouse since 2016, in the booming silicon valley town - Sunnyvale. Mortgage is 90% paid off. Seen the peak appreciation 2 years ago where my gain would be close to 40%, now it's came down to 30-ish% and dropping. The property was meant to attract young tech workers with <1 kids, however given the new COVID remote work situation there seems to be less need to live "close" to work
Strategy
The play has always been holding it and generate cash flow once as we move out to a larger space and better school house in 2021. Was betting on the continue tech growth in the area for future appreciation as well. I have a full time job so my effort in RE is always somewhat secondary / passive, not looking at strategy as sell it and obtain 3 BRRR.
Questions
- Do you guys see the housing price in bay area evens out with the remote work future? Understand this can be total opinion but it's ok.
- Is sell now the best way to maximize the gain? Or would you recommend holding and generating cash flow as everything in the bay area seem to have generous return long term.
- What's your play for the next 6 - 18 months? Banking on the dip and enter the market? Would love to hear some thoughts!
Appreciate the feedback and looking forward to the discussion!
If you have accumulated a good profit on that property maybe this is a good opportunity to sell it now and, taking into account prices are dropping, buy some other property in a year or two at a better price.
It is likely that the economy continues deteriorating.
Just my two cents on the economic outlook. Some of the world's biggest industries are going to suffer for at least two more years, and maybe more, particularly aviation and carmaking. Regarding aviation, traffic is at around -50%, Boeing is having new problems now related to the 787, and there is the never ending fight about subsidies and state aid alledgedly received by either Boeing or Airbus.
Petrol demand han rebounded even less than forecasted due to an increase of new COVID cases.
People who used to commute are teleworking and not using their cars, and relocating to less expensive areas, where they can afford larger properties that are also cheaper.
The tech industry will do well, only if it is not regulated before, submitted to antitrust measures or to more adverse taxation. This has been discussed for years and years and at some point needs to be done.
I cashed out all my bay areas rentals about 2-4 years ago, near the peak. All the money has been invested in out of state markets at much better return and cash flow.
When stock market is breaking records in the last 2 years, but housing market has been flat or down in the bay area, it tells you something. Positive cash flow with 90% already pay off is not good investment strategy. 2 options:
1) refinance and get money out to invest in better cash flow areas
2) Sell and invest in better cash flow areas
Personally I prefer option 2) as I am not optimistic about the market in the near to mid term. Many friends in the bay area have told me their companies are starting to do major lay offs, from Cisco, to Stanford University, to non profit such as Girl Scout. Google just terminated 2000 contractors positions. Even more companies started hiring freeze and reducing contractors. This wave does not seems to focus on few companies or industries, but across many segments of the economy.
My wife and I are talking about selling our house in Palo Alto and rent for few years. We did that before, sold in 2007 and brought larger one in 2011 for lower price and made tremendous profit in both transactions. We still have not decided as my wife really likes our current home. This shows how optimistic I am about the market in the bay area
Thank you all for the discussion, and curious where else everyone is looking at in terms of widen the search radius to areas that usually takes 1-2 hr to commute.
This is purely anecdotal, but several friends in tech has moved further out to areas like Discovery Bay, Sac, Sausalito, Santa Cruz area, even Tahoe. I read articles that those market are gaining as well.
I sold my Seattle properties back in 2015 to cash out then and went into syndications which are better for accredited investors due to No more managing tenants, vacancies, maintenance and the managing the manager (who is a $12-20 dollar employee who's compensation structure us not aligned with your goals) By passing the control of the day to day operations to true experts who are literally partners (direct alignment of compensation and motivations).
Diversification: Many commercial real estate investments have high acquisition prices (think $10M+) where most people don't have access to. You want to get away from these other Mom and Pop invests like these 1-40 units. When I was a syndication newbie and thought I could do everything by myself and did not trust anyone. I then realized in a few months that 1-40 unit deals had horrible pricing because all the amateurs were involved and the ones that looked good from a per unit price prospective were under 80% occupied and had ISSUES. Investing passively in a group can allow you to invest in multiple asset classes (apartment/mobile home/assisted living), in multiple locations and with varying business plan duration.
Avoid Credit and Liability Risk: Investing passively allows one to avoid being exposed to credit or liability risk. No W2 documented income no problem! You do not need to personally guarantee multi-million dollar loans and and be the fall guy.
Taxes: All the deprecation benefits of single family home being your DIY direct investing but even better! Bigger deals are able to pay for a cost segregation to squeeze out even more depreciation.
I have a townhouse in Campbell fully paid off. I am keeping it. It rents reliably, I get high quality tenants and predictable income plus appreciation. I sold my other home last year but I will always prefer to keep at least one home in the Bay Area. Because everyone knows once you are out of that market its almost impossible to get back in.
As someone actively shopping the bay area (east bay), market is still hot. Properties will go < 1 week above listing price. Inventory is still low and interest rates are historic lows. If you want to sell now, you'll get top dollar. At the same time, I don't see a point where we have a glut of inventory and prices decline in the near future. Demand is high, supply is low
@Edward Liu So glad to hear your story between 2007 - 2011! That IS exactly what brings me here and asked for opinions! I've played out the Sell now and Rent a few years scenario in my head but I couldn't get the math to work out. Here's the basics and please challenge me coz I'd love for it to work:
If the idea is to Sell by EOY 2020, rent for 5 years, and use the money to invest for returns ( cash flows, appreciation or both )
- Given the 2% max annual drop on my home value ( worst prediction I've seen ), the lost is about $20k/yr. This means I'll make 100k more if I sell now instead of 2025.
- Basic rent for a decent home at good school district ( I have a young family and I'm not considering house hacking atm ), it'll cost me minimum 3k/month. This means the rent for 5 years will set me back 180k
This means I'm starting at a negative 80k if I sell and rent for 5 years to invest. Unless the housing completely collapsed which I doubt in this area, I can't make sense of this strategy.
Do you see anything wrong with the basic logic up there? Love to be proven otherwise.
I work in Silicon Valley. I still go to the office.
My building’s parking lot is at about 30% of its pre-pandemic use. My next building over (same company, but different type of work) is about 5% occupied - ~95% of workers in that building are working remotely. I have no idea how much longer that will last, but am not aware of any productivity impact of those workers’ WFH so far.
Within about 1 mile radius of my job, I know of hundreds of advertised rentals (a quick look on Zillow in one direction just showed 199 available rental units from among just 3 large properties - and there are plenty of others. Two of these three complexes are currently offering various bonuses for new tenants, up to and including 8 free weeks.) And this does not account for what I am still seeing under construction and (wisely) not listed as “coming soon.”
A co-worker, who has to work on-site, recently moved to a cheaper apartment, closer to the job site. He also got some moving incentive, but I don’t recall the details.
I have never owned anything in Silicon Valley, but I own in the East Bay:
My (original) 10-year tenant in an East Bay condo just moved out into her own mobile home in a 55+ community (where just the HOA is over $1,000/mo.)
There are now dozens of brand-new, amenities-filled apartments that have become proximate competition for my class C condo. And some of them are also offering “up to” 8 free weeks. I know that I can lower the rent, and get an OK tenant that way. But California, and that municipality, have changed some laws since I first bought there in 2010 - not in landlords’ favor... I was actually glad when the tenant gave me her notice - I could choose to sell, which is what I am doing.
The bigger picture is that the condo is now zestimated at almost 6x (give or take $100 on a given day) my purchase price. My tenant was paying just under 2x more in 2020 than what she was paying me in 2010, at market. I can probably get that again today. Maybe. But I have long ago “moved on” to other states. I will do same this time.
Do I think that this condo will be “worth” more sometime in the next 20 years (a time I expect to be making major decisions with my portfolio?) I do. However, the concern I have - besides the fact that I am predominantly a cash-flow investor - is that I don’t know where its market value will be in the next five years. You see, before I was able to buy it in 2010 for almost a song, similar units were selling for almost the same prices as today. While that, in itself, means nothing about its underlying value and expected value in the future, given today’s (known) facts about the economy (including what is keeping it afloat) and changing (reportedly shrinking) Bay Area population with still-increasing rental stock, I’d like to take the opportunity to sell this property.
If I am right (in guessing) that it will go down in value in the near future, I’ll be happy to buy it again in that future. If I am wrong, did I mention that I am predominantly a cash flow investor?
I think that if this property were an SFR, I'd likely err on the side of keeping it: I have no idea whether there'll be a downturn in the next year or five, or whether it would be as bad as from the last recession, etc. But, from experience, I know that if one comes, there is a good chance that certain types of residential real estate (condos, to not name one) may suffer more than other types in some markets.
This is my own perspective, based on my specific facts, each of which I choose to value as I please for my own calculus of decision making. As part of this, I choose to discount certain historical perspectives in favor of putting a premium on other historical perspectives. But I don’t know it all. Make your own decisions based on your own situation.
Like Derrick Dill says,....East Bay Market is still Red Hot......FOR SELLERS! Yes the banks are telling everyone that "now is the time to buy because interest rates are at Historic Lows"......but they don't tell you that their lending requirements right now are very, very very constricted.
my guess is that 2021-2024 the banks will say, "now is the time to buy, because INVENTORY is the highest it's been in years".....which will also make sense because more sellers will be on the market, more supply....interest rates will not be nearly as low, but lending requirements will be a little less restricive AND because of much higher inventory, buyers will be able to be more choosy and get better deals.
NEWS FLASH.....It's already happening with Condos in certain areas. The buyers I'm working with in two very specific parts of the 510 area code are seeing more condos hitting the market and they are going UNDER the asking price.
About a year ago I started noticing a lot of new construction of high density apartment buildings popping up in Silicon Valley, all renting for very high monthly rates, and I started to get nervous about my rental condo. Nervous that if something were to happen those larger buildings would start offering rent reductions and move-in incentives. Born and raised in SV, I've seen the cycle happen before. There isn't a great return on rentals in SV. The numbers just don't pencil out to invest for cashflow. I had mine for nearly 20 years and still the cash flow compared to its market value wasn't good. I sold it in late February just before SIP began. Around that time I noticed a lot more for rent and vacancy signs out on sidewalks all around Silicon Valley. Something that I haven't seen in a very long time and sure enough... those move-in incentives of low deposits and 1-2 months in free rent with leases have begun.
For me it was time to shift goals from appreciation to cashflow. I'm glad I sold. Sure, 20 years from now I might be saying... if only I'd kept it I'd have 5x the equity, maybe, but I made a good return from when I bought it (bad cashflow) and now I've 1031'd into a multi family property with a good cashflow.
It seems there are a lot of people, home buyers and renters alike, relocating to the Tri-valley area. Pleasanton, Dublin and Livermore where home prices are the highest I've ever seen them before, a less expensive than SV, more affordable to get an extra bedroom some may now need for at home office space, and not too far to make it back to the office if/when that returns to some level of normalcy.
It was a matter of time - the Bay Area lived very well through 2008, but past performance is no gurantee for the future.
Real estate is always based on supply and demand and Covid is showing the industry you don't have to be there.
Prices have been out of touch for years and you can't keep gaining the same % forever, you'll have exponential growing prices.
Prices are always anchored by two things: cost of new construction (about $200 per SF) and rent (1% o value). Any time you go far away from these two as a base line you are looking at a potential bubble.
I would get out and look for a lower priced market.
I'm a Silicon Valley native. People will always want to live here because it's beautiful and the weather is awesome. It's also an area that is not likely to catch on fire in the coming years (although yes, the smoke is horrendous but less likely to lose your house than some of the surrounding areas) - to me that's an advantage. CA has been an expensive place to live since the 70's when my parents first moved here and even if people leave to telework, I believe it will always be expensive.
@Cathryn Sta I think the question is whether it's over-valued. Even if prices crash by %50 in the valley houses will still be overpriced. (i.e. a house anywhere decent will still be > $1M). I have a lot of cash at hand and am waiting til next summer.
For a place where prices are geared very much towards appreciation and not cash flow, I think the risk is outweighing the reward. My prediction is a 20% cut on prices across the board.
@Jack Hou I know that Bigger Pockets likes to push for cash flow and tell us that appreciation is just icing on the cake. But after speaking with hundreds of local Bay Area investors, I think the true wealth is created from the appreciation and equity buildup from holding. Cash flow is just the way we're able to hold on to the properties long enough to see the growth. If you have the financial means to hold on to a Bay Area property, I'd say keep it. The more you try to "maximize" your ROI by selling and buying, the more fees you'll incur due to miscellaneous closing costs. Bay Area real estate is here to stay.
