Wholesaling in San Francisco

Greenville, SC · Member since 2013 · 11 posts · 2 votes

Im thinking of doing some wholesaling in San Francisco does anyone have any experience doing that there my profits are just to thin to keep wholesaling here in South Carolina. Thanks

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Amit M.

Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes

12y

I'll third what has been said- there should almost be a biggerpockets/Bay Area edition, as not only are our numbers so radically different, they are actually counter intuitive to the rest-of-country investors. Months ago I remember posting about a typical SF deal, only to have people pleading with me; I think it got the worse deal imaginable award or something!

The bottom line is that you need serious money to make money in the Bay Area. It's almost impossible for a starting investor to get in unless you won the lottery, have a trust fund, rocked out an IPO (choose one.)

But for those of us who are already players, accessing existing equity is a great advantage. It's basically trading cash flow for future appreciation. In SF rents have been at an absolute tear. Example: an 800 sq ft unit in the über-tech-hipster mission district rented for $2200 in early 2011. Just re rented it for $3500. Got to admit it was rather fun having people line up/kiss butt/compete. I ended up taking this sweet techie couple who threw in a $200 bonus. Some nice sushi lunches, here I come :) So it's time for me to trade in some cash flow and get another asset under my belt.

I just recently started making offers, and yes I'm shocked that even POS's in lesser neighborhoods are getting snapped up. Lots of Chinese money and established SF families and investors buying all cash. I actually think my best bet is the fool who over prices, then his bldg sits on the market 30-60 days. Sometimes they soften and you can come in with a marginally lower bid and get the deal. The smart sellers put out the teaser price, and watch punters fall all over themselves in the typical bidding war.

So I quickly adjusted my attitude from "find a deal" to "just get something that is ****ing reasonable." I have a very specific building type and neighborhood demographic that I'm targeting. It takes advantage of SF's screwy rent control laws and gentrification. I'm confident if I get what I want that it will be worth $$ hundred of thousands more over the next 2-4 years.

How about all you guys? How bullish are you on appreciation in the Bay Area over the next 2-4 years? The tech bubble/no tech bubble is the sixty thousand $$ question, isn't it!

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Tyson Cross
Investor · Portland, OR · Member since 2013 · 133 posts · 88 votes
12y
Gregory,

I live in the Bay Area and although I don't have any first hand knowledge of wholesaling in this area, I have heard that it is very competitive and just being able to get a house under contract with room to make a profit is tough. Since prices are so high, people expect that they can and should get more for their house than other markets. Good luck!
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
@Tyson Cross @Gregory Hodges waste of time.. there is no way on gods green earth that you can wholesale in SF and for that matter the peninsula from Marin county to south of San Jose,, maybe east San Jose.. the east bay Oakland Richmond you can do that.. However the competition is so keen as to be really a non starter unless you have 5 to 10 million liquid or more...

stick to the carolinas is my advice
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Tyson Cross
Investor · Portland, OR · Member since 2013 · 133 posts · 88 votes
12y
@Jay Hinrichs - that's exactly what I thought. Haven't tried, but heard the exact same thing. BTW - I've seen you around in posts regarding Portland. I'm planning a move up there at the end of this year and am looking to build my network. Would love to grab some coffee when I get up there if you're game.
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Account Closed
Real Estate Agent · Orem, UT · Member since 2012 · 164 posts · 49 votes
12y
Tyson Cross love to connect - I'm an investor in Portland since 2001. Was investing in eastern WA before that
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
@Tyson Cross being a bay area guy.. there are times a places were investors can come in and make deals.. 1989 to 1992.... 2001 to 2002... but even in 2008 melt down prices in the bay area ( and I am talking the pennisula not the east bay , north bay or solano county,) really held firm Marin , SF , Santa Clara, San Mateo, held value.. maybe the 1.1 mil home slid drastically to 985,000 but that was the extent of it. Most of the people on this site have no clue as to what values are like in the SF bay area.. heck they are buying rentals for less than the price of a car.. so no perspective at all.

Happy to grab a cub of Joe..
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Account Closed
Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
12y
Originally posted by @Jay Hinrichs:
Most of the people on this site have no clue as to what values are like in the SF bay area.. heck they are buying rentals for less than the price of a car.. so no perspective at all.

You're cracking me up Jay. It's so true that it's funny. Properties here are selling like hot cakes so why would owners even want to wholesale their house? If their run down shack is worth $500k, they put it on the market and it's sold for $550k. What's the point of wholesaling it for $400k? LOL!!!

Of course, you can still find one of these clueless owners to wholesale his property to you once in a blue moon, but it's just rare here in the SFBA. The days of funny business in 2009-2012 where realtors and flippers short-changed the banks are looooooong gone.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
@Account Closed well if you go to Than Merrils seminar you can learn the secrets of how to buy SF bay area homes for pennies on the dollar :)

I would suspect where you can make money in the pennisula is when you buy a trashed house and do a nice rehab on it.. problem is like you said a crappy rehabber will cost you 500k plus... So when you borrow private or hard money its hard to make any money. I lived in Palo Alto for years. and even back in the late 80's we were paying 500 to 700k for tear downs.. would build new home for maybe 300k and sell at 1.2 .. now the market is double that.. 1.5 for a tear down spend 500k building house and sell for 2.5 thats what you have here. So most of the folks on this site talking about 30 to 100k rentals would not have any perspective .

now there are other areas of the country like this.. prime east coast.. and hawaii Socal etc etc.. but the bigger pockets podcasts are not going to help you with these deals. these are for real money dudes
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Dylan M.
Palo Alto, CA · Member since 2014 · 24 posts · 13 votes
12y
While I've bought, remodeled, and sold a few of my own homes, I'm new to concepts such as wholesaling.

I've listened to all of the BP podcasts, and it seems like most of what they discuss is not applicable to the Bay Area, especially areas like Silicon Valley and San Francisco. Wholesaling, the 2% rule (or even 1% rule), buying and holding SFRs with financing, none of it seems applicable to this area. Distressed owners responding to yellow letters? Not very likely unless you target bad neighborhoods.

Spec building and flipping with significant remodeling seem to be how people are making money in my city. The people buying and holding seem to be foreign investors who buy $1.5M+ properties for all cash for their appreciation. I seem to be on a different planet than the one these BP podcasts are coming from.
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Account Closed
Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
12y
Originally posted by @Jay Hinrichs:
now the market is double that.. 1.5 for a tear down spend 500k building house and sell for 2.5 thats what you have here........these are for real money dudes

Jay,

A tear down shack on 7,200 sq.ft. lot on 3421 Waverly St in Palo Alto just closed for $1.9M. My source told me that it was, in fact, sold for $2.3M, not $1.9M. Unfortunately, that shack is not even in the good part of Palo Alto. I wouldn't be surprised that it could be bought for $30k in the Midwest.

I went to Than Merrill's 3-day seminar last January. My brother paid $197 for it and asked me to go with him afterward. When I heard that, I sacrificed 2 days of my life to go with him because I was afraid he would sign up for the $25k coaching. Yeah, we didn't make it back on the 3rd day.

I talked to several people during breaks and told them that they can learn ALL of these on Biggerpockets. I tried to convince the guy next to me not to sign up for coaching. He was pretty pumped up about it. Unfortunately, his mind was already made up. He lives in Hollister and does elevator service for a living. I hope he makes his money back from the coaching one way or another. Sigh....
2 Reply
Dylan M.
Palo Alto, CA · Member since 2014 · 24 posts · 13 votes
12y
@Jay Hinrichs , I see that as I was writing my last post, you posted some of the same things that I was trying to say.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
@Dylan M.

Dylan the bay area and Socal property appreciation of the 90's created the Turn Key industry of the 2000's Investors have not been able to buy using the 1% rule or any of the other rules that are discussed here since the early 80's and maybe even the 70's.. ERGO some bright RE folks thought hey there is an appetite for RE but so many can't afford CA prices lets bring them Mid west homes and rehab and PM for them and we will call it "Turn Key" CA investor drove this market.. Then the foreigners jumped on the band wagon : Aussies especially because RE in AU is just like the BAy Area 500k and up so they also look at the US and think they can buy homes for 30k and retire. But what they don't know is that 30k homes by and Large in the US are really money pits and management intense and for the most part are not a suitable investment for arm chair quarterbacks. those that do well with them live with in an hours drive BY and Large not all but I would say a very Large %.

I bought a tear down in Barron Park for 795k in 89.. spent 300 building a new home.. I was going to move in but I ended up moving up to Napa Valley and sold that home and made few bucks.. Market was very soft in later part of 89 even in Palo Alto.. My other PA home I sold in 91 for 400k just sold at 1.6 also in Barron Park
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Dylan M.
Palo Alto, CA · Member since 2014 · 24 posts · 13 votes
12y
@Jay Hinrichs , Barron Park is my neighborhood. Where were your houses? I sold my house on Cass Way, near Barron Park Elementary, in 2011. Now I'm trying to buy another house here as my primary residence, but the steep appreciation over the past several months, combined with very little inventory, is making it challenging. I don't want to participate in the multiple offer madness, so I'm trying to find something pre-market.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
@Dylan M.

684 Encina Grande and the other one that I sold as a spec I can't recall the exact address .. There is one builder in BP that made a career in that neighborhood doing tear downs. he would rebuild with a stucco 2 story. you see a bunch of the same houses throughout. Yeah if you took a snap shot of one of the 50's ranchers with no context and put it in the mid west it would be 50k... not 2 million LOL
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Dylan M.
Palo Alto, CA · Member since 2014 · 24 posts · 13 votes
12y
@Jay Hinrichs , Encina Grande is a nice street. I almost put an offer on a house there in 2005.

Some of the Palo Alto spec builders that were active in the eighties and nineties are still doing their thing here in Barron Park.
1 Reply
Amit M.
Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
12y
I'll third what has been said- there should almost be a biggerpockets/Bay Area edition, as not only are our numbers so radically different, they are actually counter intuitive to the rest-of-country investors. Months ago I remember posting about a typical SF deal, only to have people pleading with me; I think it got the worse deal imaginable award or something!

The bottom line is that you need serious money to make money in the Bay Area. It's almost impossible for a starting investor to get in unless you won the lottery, have a trust fund, rocked out an IPO (choose one.)

But for those of us who are already players, accessing existing equity is a great advantage. It's basically trading cash flow for future appreciation. In SF rents have been at an absolute tear. Example: an 800 sq ft unit in the über-tech-hipster mission district rented for $2200 in early 2011. Just re rented it for $3500. Got to admit it was rather fun having people line up/kiss butt/compete. I ended up taking this sweet techie couple who threw in a $200 bonus. Some nice sushi lunches, here I come :) So it's time for me to trade in some cash flow and get another asset under my belt.

I just recently started making offers, and yes I'm shocked that even POS's in lesser neighborhoods are getting snapped up. Lots of Chinese money and established SF families and investors buying all cash. I actually think my best bet is the fool who over prices, then his bldg sits on the market 30-60 days. Sometimes they soften and you can come in with a marginally lower bid and get the deal. The smart sellers put out the teaser price, and watch punters fall all over themselves in the typical bidding war.

So I quickly adjusted my attitude from "find a deal" to "just get something that is ****ing reasonable." I have a very specific building type and neighborhood demographic that I'm targeting. It takes advantage of SF's screwy rent control laws and gentrification. I'm confident if I get what I want that it will be worth $$ hundred of thousands more over the next 2-4 years.

How about all you guys? How bullish are you on appreciation in the Bay Area over the next 2-4 years? The tech bubble/no tech bubble is the sixty thousand $$ question, isn't it!
3 Reply
Andrew Strauss
Accountant · Pasadena, CA · Member since 2014 · 102 posts · 36 votes
12y
Love thread, just putting my home up on the market to get this free cash they are give away. Got in 06 for 700+ homes around me now are selling for 1.3 -1.5mil with 15 offers closing in 7-14 days.

Going to rent for now but looking to take the windfall and buy a rehab or buy and hold somewhere. Not sure if you can do it SF but would love to know anyones thoughts of what to do.

Can these prices keep going higher?
1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
@Andrew Strauss

Hey the California dream...Smart move I did this 3 times in my 45 years of living in the Bay Area.. Nothing like making 500k TAX FREE... And used the funds to start my lending companies and building companies.. Just don't get sucked into buying low end Ghetto properties in the Mid west because they are cheap... You may want to look at lending to very reputable rehabbers at the end of the day you will make more money and do it safely and very passively.. You will no doubt get a bunch of request from BP newbies as well.
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Andrew Strauss
Accountant · Pasadena, CA · Member since 2014 · 102 posts · 36 votes
12y
Hey Jay,

Thanks for the vote of confidence I was stuggling to sell or not. Now getting ready as new investor any tip you would share.
0 Reply
Johnson H.Pro Member
Investor · San Francisco, CA · Member since 2010 · 910 posts · 889 votes
12y
In San Francisco, excluding condo purchases, the average price of a home is over $1 million now. Permitting and rental laws are far more restrictive than most areas in America. I saw a complete tare down in Pacific Heights that went for $4 million and they probably paid all cash for the property. Think you could buy a property with low rents and just jack it up? NO WAY! It is against the law and you can only follow strict guidance from the rent board on the amount you can increase annually.

Think you can do cash for keys for a low paying tenant? Nope! I have heard tenants denying $50-100k because their rent is $1-2k below market and they would not be able to live in the city if they have left. Thinking about doing direct mailing? Many realtors and investors already do it.

People out here have a ton of money and they accept a lower rate of return for doing business locally. I have heard of a flipper that returned his investors money in his second multimillion dollar fund cause he cannot find enough deals.

Sorry to be a negative Nancy here but I would not try to wholesale in San Francisco. I'm sure there are better markets for you close by.
1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
@Johnson H.

Much like rent control in Manhatton one of my associates has a co op on about 54th and his rent control is 2500 a month.. fair market would be 15k a month.. Berkeley has the same issues. AS well as mobile home parks in CA.
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Johnson H.Pro Member
Investor · San Francisco, CA · Member since 2010 · 910 posts · 889 votes
12y
@Jay Hinrichs

That's nuts! I have seen $200 a month rent when the remaining 7 units are at market rent at $2400 in San Francisco. However, these long time San Franciscian's made it what it is today. Sucks to be the landlord but I think they have every right to stay. However, the tech money elite is taking over San Francisco these days and its not looking pretty.
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Account Closed
Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
12y
Originally posted by @Johnson H.:
@Jay Hinrichs

That's nuts! I have seen $200 a month rent when the remaining 7 units are at market rent at $2400 in San Francisco. However, these long time San Franciscian's made it what it is today. Sucks to be the landlord but I think they have every right to stay. However, the tech money elite is taking over San Francisco these days and its not looking pretty.

Johnson,

How knowledgeable are you with the Ellis Act?
1 Reply
Amit M.
Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
12y
@Johnson H. Appreciate your comments but my perspectives are different on three of your points.

1- buy outs of low rent tenants can and do work often (but not always.) It's really a private negotiation between the tenant and bldg. owner.

2- yes it's very hard to buy property in SF (for the reasons you mentioned) but that does not mean the returns are lower. With smart and successful tenant buy outs you can get a very good cash flow, and the appreciation in SF has been phenomenal. BUT, it is a very tricky market to operate in, not to mention that you need significant funds to gain entry.

3- tenants who hoard their unit because they are on rent control are purely milking the property owner! Why should a private property owner subsidize tenants? If SF wants to offer low rent units, tax everyone; one individual should not have to foot the bill. Also, rent control is not means tested. Basically, there are many wealthy tenants who purposely keep their low rent unit forever and use it as a pied-a- terre. They may even own vacation property, homes in other countries, etc, but "claim" their primary residence in SF. This is total BS IMO.

Having said all that, I also agree that attempting to find wholesale deals in SF is next to impossible. Or, you're damn lucky if you find a good one!
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Johnson H.Pro Member
Investor · San Francisco, CA · Member since 2010 · 910 posts · 889 votes
12y
Thanks for your comments @Amit M.! I think we are both in agreement that San Francisco is a difficult place to get deals. However, anything is possible and if you keep working hard at it, eventually you'll find one!

I guess the people you have talked to are luckier than the landlords I have talked to. It's been very difficult to get a tenant buy out these past few years during the rental run up from what I have heard.

Talking from a purely capitalistic standpoint, I completely agree. I would want all of my units to be renting at market rent and I would not like to subsidize anyone. I enforce late fees and even though I have a tenant that lose their job, they will have to go. I run my real estate like a business and completely understand.

However, as a native of San Francisco, I see the gentrification of the city and it saddens me. Chinatown is becoming smaller and smaller as FiDi and North Beach continue to encroach on the area, evoke the Ellis Act and kick out low income folks. The Mission, Dolores Park, and Dog Patch are filled with techies able to afford a lot more pushing people out. Sadly, I will probably leave in a few years as well due to the cost of real estate.
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Johnson H.Pro Member
Investor · San Francisco, CA · Member since 2010 · 910 posts · 889 votes
12y
@Account Closed I know a bit about the Ellis Act. Basically, you can invoke it for a rental building if you change the use of the building, ie from apartments to condos. All tenants must be evicted and you cannot rent out the units unless at the same rental rates as before within 5 years. One year notice needs to be given to senior and disabled tenants and 120 days for the rest. Payments of up to $18k need to made to each tenant.

Andy Sirkin is the leading lawyer on Ellis Act, condo conversions and TIC's. I have emailed him before and he answered my questions promptly. For more information, take a look at his website here.

http://www.andysirkin.com/HTMLArticle.cfm?Article=3

The Ellis Act has been in the media recently due to some sad evictions that had the media spotlight. The Board of Supervisors are trying to slow down the pace of Ellis Act evictions.

Are you thinking about using it in the city?
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