All Forum Posts by: Arlen Chou

@Kamal Sharma I realize that you are focused on the dollar barrier to entry, but it would help if you gave more parameters on what you are seeking. For example, what types of properties are you open to purchasing? Are you planning to buy and hold or flip/1031 at a later date? Are you open to condo/townhouses with HOA's? Are you ok with the idea of no appreciation and just cash flow? Are you going to put in sweat equity? There are several more criteria that you might consider or let your audience know so that people can better help you with your goals.

@Narinder Gill 100% a HELOC is a great path. I have personally used this method in the Bay Area to acquire additional properties. However, getting to a substantial HELOC loan position is a little more difficult. In my case, I was able to wrap additional properties on top of my personal home to get access to a 7 figure HELOC, it was basically a portfolio HELOC. I don't think that would have been possible without have a long relationship with a single lender and a strong track record of performance. Additionally, a HELOC is analogous to a giant credit card. Along with that comes inherent dangers if the user is not careful. Therefore, I believe when starting out, it is safer to take the simplest route, learn the process and then level up the complexity.

@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.

@Bill Frog I would look for the crappiest house in the best area I could get, throw a ton of sweat equity into it to drive up the value, refi money out and do it all over again.

@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.

@Ron Singh that is the beauty of the cash-out refi, it is a NON-taxable event.

@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.

@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. 

@Jon Q. just curious are you taking your own advice and selling your Bay Area properties now and planning to buy back in 2022? I am looking to buy right now, let me know what you have maybe I can help you get out.

Thanks,

@Isamar Ochoa I agree with @Jaron Walling you need to be very careful that you don't take on something that is too big for you to handle. With that being said you don't really go into your business plan on how you will afford the monthly payments PITI nor do you indicate how big your cushion could be.

Based on the following assumptions:

• You can afford the monthly PITI
• There is a fat $ cushion 
• The renovations are all above board 
• The comps show that there is a large upside delta between your purchase price and market prices
• You have good credit
• You have a large 6 figure amount of cash for a down payment

In my personal case, I would actually offer a higher interest rate for a lower down payment. Once I am in the unit, I would refi with traditional lending. Keep in mind that the lender will probably NOT take any rental income into account for the refi. I am not suggesting this is what you should do, just what I would do if everything aligned.

Keep in mind, for the above strategy, your credit and W2 will need to carry the weight of the refi process. The big danger is that the seller says YES and your numbers are extremely optimistic and then your traditional lender does not give you a refi out of the situation. This is kind of a complicated situation with lots of moving parts. It could be a great move or a total disaster. I highly suggest that you talk to somebody who knows the area, knows the rental market, and can give you some deep-dive knowledge in leveraging these types of deals. 

Think long and hard about the finances of this situation. Just because it is a good deal does not mean it is a good deal for everybody and every situation.

Good luck with whatever you decide.

-Arlen