Are there really any cashflow property in Bay Area(CA)?

Investor · Modesto · Member since 2017 · 14 posts · 6 votes

I was wondering , if I am the only one, having hard time finding 'positive cash flow' property in Bay Area(California). Or is this a fact, and known to everyone?

Sorry, i am newbie to biggerpockets, so this question may sound very basic to everyone here. I just wanted to get people's opinion, that Bay Area properties are not for investment anymore, considering cashflow aspect?

I ran the biggerpocket calculator, and also did my own calculations, and most of the properties are running "Cash Flow Negative"

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

why does it have to cash flow.... think about it.. if your cash flow natural or 100 or 200 positive.. or 100 or 200 negative.. is that going to change your life or your lifestyle in any appreciable manner ???? but if you can get in the game in the Bay Area and if your like those that all chim in on BP I am buy and hold for ever... where do you want to do that.. in a market with history is no movement or in a market with a history of wild upward swings over time.

I like many out of state markets as long as you choose correctly and you can scale to your 10 doors quickly.. if your going to buy one or two I would do everything I could to get some prime slice of the Bay Area pie.

Even just buying a lot or two in the bay area you sit on with NO CASH flow is a great investment in my mind. But what do I know.

Podcast Guest on Show #222

JLH Capital Partners51 Review

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Nathaniel Aaron Chaney
Rental Property Investor · Chattanooga, TN · Member since 2017 · 10 posts · 13 votes
9y
Hi Jain, Welcome to bigger pockets! As a fellow newbie in the Bay Area I can agree with most of what you have found. One blog I found super helpful in reshaping how I was looking at it was: https://www.biggerpockets.com/renewsblog/warren-buffet-investing-advice/ There are investment opportunities in the Bay, but as you know, this market is extremely hot and you're going to be competing with other investors or against people who want to make it their home. Plus I've heard for a lot of people they invested and were cash negative for years before they finally got to break even. But there is so much appreciation here that maybe they were just looking for gains there. My fiancé and I are planning on looking outside CA for our investment opportunities long term as we can get more for our money. Anyway that's just my two cents. Good luck.
2 Reply
Kendall Green
Redlands, CA · Member since 2016 · 16 posts · 4 votes
9y
I've looked a lot in Southern California. It's hard to find anything on the MLS that will cash flow. I'm sure it's possible but you will probably need to find creative ways to get the properties for cheaper or find a way to increase the rents. I would look into doing short term vacation rentals. That might help you increase your rents and help you avoid some of the tenant friendly laws on Ca.
1 Reply
Leslie Pappas
Professional · San Francisco, CA · Member since 2014 · 876 posts · 301 votes
9y
Yes @Jain P., what we get in the Bay Area is terrific appreciation, but not great cash flow. My average client tends to be pulling in a 2% COC before I help them redeploy their funds into multiple markets outside of CA.
1 Reply
Jo-Ann LapinPro Member
Loan Officer · Tustin, CA · Member since 2015 · 3k+ posts · 713 votes
9y
I believe that Sacremento. Elf Grove, Modesto , Fairfield still have and upside. Markets are hot and cold but the fundamentals never change location, jobs and potential to grow.
[email protected]
5 Reply
Ali Boone
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
9y
Correct, that's what you will find in SF (as well as LA and most other parts of California). It's not cash-flow friendly. I live in LA and have always invested out-of-state for that reason, as do a lot of CA folks.
3 Reply
Jain P.
OP
Investor · Modesto · Member since 2017 · 14 posts · 6 votes
9y
@Leslie Pappas - I was almost about to finalize a deal, and realized it goes cash flow negative. At that point, I backed out. As of today, i couldn't find COC in positive in CA. May be mostly due to the fact, that I am taking loan, and the investment loan has higher rate of percentage, and hence COC goes negative. Btw, Cap Rate is still positive, but around 2% , assuming I am doing full cash payment.
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Amit M.
Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
9y
it's easy to get cash flow in the Bay Area. You just need to put more money down. That's what wealthy investors do here all the time.
3 Reply
Account Closed
Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
9y
Hi Jain,
Welcome to BP. You're not the only one who is having a hard time finding positive cash flow deals in the Bay Area. In fact, it's a well known phenomena for newbie investors in general.
There are cash flow deals on day one for those who are well-connected, and those who are willing to put in the time and efforts. They're not abundant for the picking on the MLS like in other markets. Everything in life has a price. Something is expensive for a reason and so is something cheap.
No doubt things tends to be a little tough on the inset, but they get easier over time thanks to our amazing appreciation and rent growth market. If history is any indication, something that breaks even today will likely cashflow $500-$1,000/mo 10 years from now. The investment strategy really depends on your investment time horizon.
The Bay Area has created more millionaires through real estate than anywhere else. Just look at real estate prices on the Peninsula and San Francisco regions. Someone sold a house in Palo Alto in the early 1990's for $500k and said prices couldn't possibly go any higher. That same house is going for $2.5M today.
You're in the right place at the right time. Capitalize on it, or others will help to part you from your money. Know your market, and know your numbers. Don't rely on the BP calculator for the answer. It's garbage in, garbage out. One size doesn't fit all.
Good luck.
7 Reply
Manolo D.
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
9y
Jain Prash You are in CA, you need to use CA calculators, anything that you could use nationwide doesn't work in CA. Any property can cash flow. It depends on how much you put it. Sure, it WILL cash flow if you put 100% down, but the real test of cash flow is if you finance it 100%. So putting a DP of 3-5-10-20% is cheating. Just a thought.
1 Reply
Jain P.
OP
Investor · Modesto · Member since 2017 · 14 posts · 6 votes
9y
Thank you everyone for chiming in. Really happy to see experienced folks giving advise, and I hope to leverage it to my best.
@Manolo D. - Thanks for replying. Pls see my comments inline:-
1.)Well, I don't believe there is a difference between state calculators. I use a excel calculator downloaded from BP site. I just put in, the property tax based on the county here(1.25% of sale price), and rest all numbers are same across the entire country.
2.)I have scanned multiple properties in Bay Area, since few months, and I never saw it positive Cash-Over-Cash flow, for 3-5-10-20% . I know it is a real test, but I wish it would have really worked. As other folks mentioned, they are looking outside Bay Area, as an option. Given I am a first time investor, I am more inclined to find properties locally, to build my confidence, instead of trying something remote, as my first deal.
3.)I am uploading a deal, which I was just about to finalize, but after doing calculations with BP excel calculator, I backed out of that deal. Note: This was brand new construction, with possession around early next year. The negative numbers scared me enough to drop out.
After looking it few more deals, I realize, that now i am comparing between properties which are less negative. I am just assuming negative cash flow is way of life here, so find the one, which is less negative overall :)
Suggestions/Advice is welcome. I am very brand new, and reading tons of blogs/books, to make my first ever deal. Hope to find something soon. :)
2 Reply
Manolo D.
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
9y
@Jain P. See, that Downpayment percent should be 0% to test cash flow. You placed 20%. If you want to cheat, just put 100 instead of 20.
0 Reply
Account Closed
Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes
9y
Originally posted by @Jain P.:

I was wondering , if I am the only one, having hard time finding 'positive cash flow' property in Bay Area(California)....
The capital structure usually affects property cash flow; If you buy properties using cash only, it most likely cash flows. It also would cash flow if mortgage rates were negative in those markets
0 Reply
Maria D'Aura
Real Estate Agent · Livermore, CA · Member since 2016 · 173 posts · 74 votes
9y
It's definitely harder to find property in the BA that works. In March got a 1/1 condo in the tri-valley where the numbers worked, but I think it was a lucky find and good timing. Put $100k down, mortgage, insurance, taxes and HOA are $1431/mo. Put about $4000 to update the kitchen, bathroom and new paint job. Rented it for $1900, but probably could have gone a little higher. Three months later a nearly identical unit (purchase condition and floor plan) in the complex sold for more than $50k more. It's not the same coc I see posts about in other areas of the country, but I think in the long term it will prove to be a good investment with appreciation. I'm a real estate agent so that helped a bit saving on commission. I keep my eye on properties in the tri-valley and Silicon Valley weekly since these are the areas where I own property.
1 Reply
Account Closed
Investor · Santa Clara, CA · Member since 2014 · 138 posts · 54 votes
9y
Jain,
It will be hard to find cash flowing properties in the Bay Area.
My rule of thumb to get a cash flow you rent need to be at least 1% of the purchase price.
Meaning if you are buying $150000 property rent need to be $1500 monthly to be
constantly cash flow positive.
This rent to price ratio is unachievable in the bay area.
If you are looking for the cash flow I would recommend to concentrate on out of state investments.
If you want to learn more feel free to check this meetup:
meetup.com/Los-Gatos-Real-Estate-Networking-Meetup/
2 Reply
Account Closed
Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes
9y
Originally posted by @Account Closed:

Jain,
It will be hard to find cash flowing properties in the Bay Area.
My rule of thumb to get a cash flow you rent need to be at least 1% of the purchase price.
Meaning if you are buying $150000 property rent need to be $1500 monthly to be
constantly cash flow positive.
This rent to price ratio is unachievable in the bay area.
If you are looking for the cash flow I would recommend to concentrate on out of state investments.
If you want to learn more feel free to check this meetup:
meetup.com/Los-Gatos-Real-Estate-Networking-Meetup/
I usually would get accused of rendering a hate speech for suggesting this very line of thought. I guess it just sounds better when someone in CA says it.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
why does it have to cash flow.... think about it.. if your cash flow natural or 100 or 200 positive.. or 100 or 200 negative.. is that going to change your life or your lifestyle in any appreciable manner ???? but if you can get in the game in the Bay Area and if your like those that all chim in on BP I am buy and hold for ever... where do you want to do that.. in a market with history is no movement or in a market with a history of wild upward swings over time.
I like many out of state markets as long as you choose correctly and you can scale to your 10 doors quickly.. if your going to buy one or two I would do everything I could to get some prime slice of the Bay Area pie.
Even just buying a lot or two in the bay area you sit on with NO CASH flow is a great investment in my mind. But what do I know.
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
10 Reply
David Song
Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes
9y
I just bought a mobile home park in Modesto. It cash flows well.
2 Reply
Ori SklootPro Member
Investor · Berkeley, CA · Member since 2016 · 242 posts · 304 votes
9y
I agree with @Jay Hinrichs that if you can get into the Bay Area market you will be better off for it in the long run. I have managed to find cash-flowing properties in the East Bay area. It takes a lot of work, but I love having a little cash flow and getting "rich" from appreciation.
1 Reply
Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
9y
Originally posted by @Jay Hinrichs:
Even just buying a lot or two in the bay area you sit on with NO CASH flow is a great investment in my mind. But what do I know.
You know a lot more than most of us, of course (I tell people to listen to podcast #222), but taken to the extreme I can't help but point out that I've got an agent struggling to sell a $100k vacant lot in the the Oakland Hills. And another person with two acres of vacant land in San Francisco directly adjacent to a city park that can't even unload it for $350k.
"A lot or two," if vacant, contains uncertainty that most REI are unwilling to take on!
1 Reply
Matt K.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
9y
Park that money out of state in something boring and stable, wait for this market to cool off, refi, then buy in CA.
0 Reply
Matt K.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
9y
Originally posted by @Jay Hinrichs:

why does it have to cash flow.... think about it.. if your cash flow natural or 100 or 200 positive.. or 100 or 200 negative.. is that going to change your life or your lifestyle in any appreciable manner ???? but if you can get in the game in the Bay Area and if your like those that all chim in on BP I am buy and hold for ever... where do you want to do that.. in a market with history is no movement or in a market with a history of wild upward swings over time.
I like many out of state markets as long as you choose correctly and you can scale to your 10 doors quickly.. if your going to buy one or two I would do everything I could to get some prime slice of the Bay Area pie.
Even just buying a lot or two in the bay area you sit on with NO CASH flow is a great investment in my mind. But what do I know.
Lots seem like a bad idea here... new construction is so slow for SFR and BOOMING for commercial in SF it's making construction costs go through the roof. I feel like I've seen a lot of the same lots stay stagnant because no one wants to deal w/ it and rather get a built house or the ones that do can't get the funding..
0 Reply
Andriy Boychuk
Rental Property Investor · Staten Island, NY · Member since 2013 · 480 posts · 197 votes
9y
@David Song nice! everybody says it is hard to buy a mobile home park in CA but you did it. Nice job!
0 Reply
David Song
Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes
9y
I only buy properties around myself, with potential to appreciate and with current positive cash flow. IMO, it is a compromise between appreciation and cash flow. You can not only rely on cash flow. If the property depreciates over time, your cash flow may not be that real.
0 Reply
Jain P.
OP
Investor · Modesto · Member since 2017 · 14 posts · 6 votes
9y
Thank you everyone for chiming in. This really helps. I am now convinced, that I indeed missed a good deal in CA, with negative cash flow(around 500 bucks per month). But I will take this as a good learning experience.
0 Reply
Account Closed
Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes
9y
Originally posted by @Jain P.:

I was wondering , if I am the only one, having hard time finding 'positive cash flow' property in Bay Area(California). Or is this a fact, and known to everyone?
Sorry, i am newbie to biggerpockets, so this question may sound very basic to everyone here. I just wanted to get people's opinion, that Bay Area properties are not for investment anymore, considering cashflow aspect?
I ran the biggerpocket calculator, and also did my own calculations, and most of the properties are running "Cash Flow Negative"
Unless you are putting a significant amount of money down, in excess of 20%, the negative cash flow often may exceed the $500 you mentioned. Of course, not sure which particular city you were buying in.
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