All Forum Posts by: Arlen Chou

@Patrick Mosca it does not sound like you are in a hurry.  If that is the case I would spend the time to get my finances ready.  Get yourself pre-approved and wait for winter to come.  Typically prices go down in the winter months and the people who are selling have some need to sell.  If the market does adjust you will be ready and can be more selective.  Also, I would refrain from signing any long term leases on your current place.

@Kelly A. prop 10 is so bad on so many fronts for landlords and future tenants that I cannot even comprehend all of the ramifications.  

First you need to consider if you are an investor or part of the social support system.  I own properties in Oakland and I have been in court with the City of Oakland regarding Costa Hawkins. I fought it for 3 years through RAP, Alameda County Court and eventually to the CA State Court of Appeals. I won both at county and at the state level.  I never expected to win at the local RAP level. 

People should expect a wave of rent increases coming up. If you get locked in under the market rents it will not only create a legacy of low returns for you, but it will also be an issue for future buyers.  

100% you will not be able to do step type of rent increase to market, RAP just won't allow it.

I understand your concerns about your tenant and that is something that you have to personally consider.  The worst part of prop 10 is that it is creating this exact scenario.  There are many landlords out there that would probably never raise rents, but now faced with the possibility of losing the option will probably make the decision to make the jump.  This will then hurt low income tents and potentially flood the system with more evictions.  This proposition is creating enemies where none existed before...

Vote no on 10 and tell everybody you know to vote no.

@Ben Payano I was in nearly your exact same position nearly 20 years ago.  Before you think about holding or selling you need to go talk to your HR and your boss.  If they are moving you temporarily for work, you should be able to negotiate a package to offset your costs during your deployment.  In my case I negotiated to have them offset my mortgage and absorb the difference in my taxes.  I was moved to Japan, so they also paid for my housing and transportation there!  During my absence I also rented out my town house.  I had the trifecta: they paid my mortgage, they paid my housing in Japan and I received rental income!  My point is to think outside of the box. If I had just looked at my situation as a traditional buy or sell equation, I would not have had that bonanza.  

Just ask your HR, I am sure you will be amazed at what they will be willing to do for you. On that same trip, I asked them for a bicycle and they ended up giving me a new car... in Japan of all places!

Good luck and have fun as an ex-pat!

@Daniel Tisdale I think the issue is much more basic then cash flow vs appreciation.  The second sentence of your opening post indicates that you have not decided if this is a buy and hold or a flip to a developer.

"Because of this opportunity to potentially sell both lots to a developer, I am very keen on trying to make this work for the first few years because of the potential long term upside. "

Have you really thought about actually selling your home with the lot next door to a developer? Basically it means you have to move... could you buy a better home in your area, would you move out of the area, would you really want to move?  If the answer is "I don't know" or "I am not sure", then the thought of selling to a developer is nothing more then a thought, and it could get you into trouble.

The second part of the same sentence indicates you are considering a long term buy and hold strategy.  It is not clear what that time period will be, but I am guessing that you have not set one yet.  I highly suggest you decide what that time period will be so that you can more accurately understand the potential up and down sides of the acquisition.

I am not trying to dissuade you from buying the property.  I am just suggesting that you put more clarity around your decision making process.  I have been traveling to Austin many times a year from the SF Bay Area for the past 13 years and I think the immediate Austin area is a great location.  If you are anywhere near the core of Austin I am sure that appreciation will continue, just as it has in the Bay Area.  I would buy there in a heart beat if I did not have to deal with CA income taxes and TX property taxes eating at me from both ends.

But if you do go down the buy and hold path, you need to put together a solid plan that will take the unit from cash flow negative to cash flow positive.  This plan should include a process that is tied to a timeline.  To many people leave their "plans" open ended and it slowly bleeds them financially dry.

@Frank Leone it is a difficult question to answer because it is very case specific.  In my area the quotes I got for the work on the 1b/1b units were between $30k to $50k.  This was for a fully licensed contractor to do everything from pull the permits to get the materials.  Obviously, there was a ton of work on each unit.  My material costs, when I did the work myself was less then $9k.  It was easy for me to see that my 3 month holding cost was not going to be anywhere near the low end quotes that I received.  I think it might be best to get some quotes and just do the math to see where your time value vs dollar value intersect and make a decision based upon that...  Basically when you start out you have decide if you will spend money or time.  I just did not have the money, but I had the time.

I wish you the very best of luck on your first project.

@Frank Leone I am in the minority here on BP on this topic, I like doing my own work. I do everything from flooring to granite and everything in between. I also have a W2 that is not related to REI, so I understand your concern about time. I had no background in any construction work, but youtube became my best friend. You are 100% right about controlling costs and quality of work when you do it yourself. However, the time commitment is not something to take lightly. I did 8, 1b/1b units in a small complex a few years ago as my own personal training program. 1st unit took 3 months of part time labor to complete. The last unit took 3 weeks of part time labor. The learning curve is steep. But the upside is that I now have the experience to negotiate intelligently with sub contractors and create fairly realistic renovation schedules.

@Nikki Beall There is an infinite amount of stuff to read or watch regarding REI. You probably already see that and that is why you are asking the question. You will know when the fear of NOT taking action is greater then the fear of making a mistake...

@Joe Villeneuve you bring up a very interesting question.  In the market that I invest in (SF Bay Area), it gives me appreciation and cash flow.  Getting both is not easy, but it can be done.  In my thesis, I believe that the end goal should be to get to infinite ROI while maximizing cash flow. Meaning, I want to gain AND force appreciation as quickly as I can while staying cash flow positive. Depending upon the asset class the strategy must be different but the end goal for me is the same. But in generic terms, I push to draw out my original investment dollars while keeping cash flow positive. Once all of my initial investment dollars are out of the building, I am playing with "house money", and I continue to build appreciation and increase cash flow. Over a 30 year period monies for cap ex will be paid out of the "house money", either in the form of tapped appreciation or cash flow that is set aside, and therefore does not impact me.

The natural question is "what happens if there is a crash" and the unrealized value of your property drops. My answer is; as a generational investor, I am planning for my kids wealth not my own, if my ROI is already infinite I don't care what the paper value appears to be. The only issue for me is if rents can cover costs and I can stay CF positive. That could be a dissertation on its own, but needless to say that I look for properties that have low rent at purchase, but have the head room to get to market rents. It just becomes a question of how to get to market rents in a heavily rent controlled region.

@Maxwell Milholland the question is conceptually simple but in reality the answer is nuanced and complicated.  There are different strategies for different markets and even down to individual buildings.  I am personally a long term buy and hold investor in the SF Bay Area.  When I go into a deal, I analysis it for 1, 5 and 10 year performance based upon my strategy for that building.  I want both sides for the equation: Cash Flow + Appreciation = Wealth.  The question should NOT be which is better, the question should be how to maximize both cash flow and appreciation to get you to the wealth.  

If you read between the lines of many of the posts, you will see that nobody will accept negative cash flow forever...  Some people may accept it for a short term, until they can implement a plan to get to cash flow.  The issue of appreciation is also similar, nobody successful will hold a property for long if the value of that asset continues to dive toward zero.  At some point the area gets so bad the rents plummet and whatever cash flow you are getting gets eaten up by maintenance and management costs.  The negative extremes of both lopsided strategies would spell disaster.

The fact is that some markets have strong cash flow but weak appreciation. In other areas, an investor might find very strong appreciation, but very weak cash flow. As an investor the focus has to be on strengthening the part of the equation that is weaker to make your particular asset as strong as possible. Keep in mind that the strategy to accomplish this should be different for SFR's vs multi-family residential vs commercial residential. These nuanced differences often get glazed over but are in fact the key component of putting together a successful strategy.