All Forum Posts by: Arlen Chou

@Llewelyn A. IRR is definitely the analysis tool that everybody needs to learn. Great job on those deals. I did something similar to your second stage/HELOC purchase. Feels great to own a property that cash flows and was purchased without any of my own money!

@Kuang H. this strategy totally works... been there done that and got the T-shirt. I won't go through posting all of my numbers again, but if you play your cards right you can get infinite ROI using this strategy. All of the details of my Oakland CA deal can be found here:

https://www.biggerpockets.com/forums/311/topics/49...

This thread was not about your specific question, but my example should shed some light on how this strategy can really make  you some serious money.

@Nate R. JUST riding a wave is a novice approach. What I did was what a true INVESTOR should do...  I discovered hidden value and turned it into cash in my pocket.  You are correct in that I have done no renovations.  All I have done is increased rents using the allowed rent controlled rates.  I still have the rent increase step to further increase value.

The real secret is I how did I find so much hidden value when the deal was sitting on Redfin for so long for everybody to see.  I have DVD's for sale for a low low price of $99 that explains this process..., just kidding.

What I and guys like @Account Closed are doing is true investing... just focusing on the 1% rule or 50% rule GRM or a few hundred dollars a month is like walking in the dark with a candle. People need to up the research and analysis, looking around at night with a Q-Beam makes the world much more clear.

@Joe Scaparra come on, your arguing for the sake of arguing now...

"If we back up just a moment and take a more realistic approach" the is a real deal, how more realistic can anybody get?

Let me clarify, the value in the property did not magically double in 20 months via MARKET appreciation.  A large part of the value was already in the building at the time of purchase. As an investor, I am looking for hidden value in terms of unseen equity or potential income streams.

The original theme of this thread was about getting into the market at these low unemployment rates was dangerous.  Some how it turned into a Texas vs California debate.  I believe my REAL example addresses both points.  It is 100% true that these deals are not common, BUT they do exist and can be found ON MARKET if investors do some work.  As I had said in one of my previous post, I personally have more examples, this one just happens to be my most recent one.

It is not a Texas vs California strategy debate.  The focus should be Cash Flow + Appreciation = Wealth. It is totally fine to focus on CF with low A if you are in a market that does not appreciate at a rapid rate, it still gets to W.  My point is that a strategy that gets BOTH CF and A will get to real wealth much faster... its just simple math.

@Account Closed made reference to a 6 plex and rent control in Oakland.  The person she is referencing is NOT me.  

However, my property is under RC.  This is a completely different topic, but RC is not as bad as the general population believes.  Just a high level understanding will expose the fact that RC is a political tool NOT a housing solution.  RC protects CURRENT constituents (VOTES) at a cost to FUTURE residents by artificially constraining supply.  Basic economics theory will tell anybody that less supply, creates higher demand, which creates higher prices.  The most immediate issue for investors in RC markets is how to get to those higher prices if there are tenants in place.  This also is a totally different topic then the original topic. But rest assured it can be done and is being done by many people.

But back to the original topic, there are deals out there in this specific market.  I know of 3 that would be close to 1% at time of purchase, if bought right. This market is not for the casual investor but investing should never be taken lightly.  People need to do more research, do more math, and have a plan to high profitability.  The fact is that people are making money in this market with both CF and A.

@Joe Scaparra seriously you don't like the deal?  Did you do the math, with some basic general numbers. Should show you that it cash flowed from day 1.  

But lets get more transparent and get into more of the details:

The initial $678k was all borrowed via a HELOC. The rate that we have is prime minus 1%... Just for the sake of argument lets say the rate is 4% (totally higher then the actual rate on the HELOC). Our actual new rate will be 3.9% fixed for 10 years with a 30 year am.

Property taxes + Insurance = approximately $1000/month.  

For arguments sake lets say prop management is 7% of gross rents per month and round up to $390/month. 

Lets add cap/ex at 10% month and round that up to $600/month.

Using the BP mortgage payment calculator we get a monthly PITI of $3320.20, lets round to $3325.

So we have $5559 - $3325 - $1000 - $390 - $600 = $244 per month with no money in the deal.  That is totally free money with nothing parked in the deal.

This is nothing to write home about. But the fact is that the ROI is INFINITE because we have nothing in the deal.

In this real life example we get BOTH cash flow and appreciation.  The appreciation is massive.  Yes, I got a smoking deal and they are not all like this, but you asked for an example.  Obviously the research I did on the particular property/owners and negotiation to get that price point is a key factor in the final purchase price.  But if I can find and execute deals like this part time, I am pretty sure that there are others that can too.  

You asked for a real example and here it is. How many "mom and pop" deals do you know in Texas that have infinite ROI from day 1, and $40k in your pocket in under 24 months?

Cash flow + Appreciation = Wealth

This is simple addition, so either cash flow or appreciation can be zero and still equal wealth.  But having positive numbers in both CF and A will get you a bigger W...

I gave you all of my numbers on a recent California deal so people can see that it really can be done even at historically low unemployment rates.

I don't mean to sound condescending, but there is no other way for me to ask, how about you give me the same transparency on a recent Texas deal?  I have been looking at the North Dallas region and the Austin area for years and I just do not understand how anybody creates large wealth without the appreciation piece.  I would honestly like to better understand this market/strategy.

At the end of the day the original post was not about Texas vs California.  It was about waiting for unemployment rates to rise before getting into/back into the market.  My point is not Texas vs California.  It is just to show people from the original thread that real deals can be had in hot markets.

@Joe Scaparra Austin is a "blue" city in the middle of a "red" state.  I travel there 1 once a quarter in my W2 to meet Freescale Semiconductor who is now NXP for the past 15 years.  Bass concert hall is really beautiful and a great place to catch a show.  I also have a small factory up in Allen.  We were originally in Richardson 10 years ago and I moved it Plano and then to Allen 2 years ago.  I like to pretend I know something about the real estate market in Texas, California and the tech industry.

I will take your challenge just because I am tired of people saying that there are no deals in CA and you can't cash flow:

MLS40717720 

1707 28th Ave, Oakland Ca

6 plex all 1+1 units.

Almost 1/4 acre 10 min walk to BART (Bay Area Rapid Transit)

Rents at time of sale $5559/month

Originally asking price $749,000

Purchase price including fees $678,000

BP .08% deal at time of purchase

Closed Feb 2016

Only cap ex/upgrade since purchase was a water heater replacement.

Currently doing a refi with First Republic Bank: value of building $1.2M with a LTV of 60% will get $720,000.  Just to be clear, we will be zero into the building with an extra $42,000 in our pocket after closing and we will still be cash flow positive.

Oh, and this is not a 1 off, I have more personal examples.

I don't do this full time. I aim for 1 deal/transaction per year. This was NOT an "off market deal.  I found it on Redfin.

Anybody still think there are no deals here for the "mom and pop" investor?  Would anybody sit on the sidelines with this deal?  Inquiring minds want to know...

@Eli Sorey congrats on finding BP and also a have a good job. You are already doing some of the right things at the start of you journey.  Get use to saving money, don't "live up" to your salary, "live down" to what you need and save the rest.  The reality of the world is that you need to build a "war chest" and gain some skills.  The way I, and many successful people did this was by "house hacking".  Get a place to live in and get roommates.  This is totally not sexy or glamorous, but it is 100% tried and true.  Your roommates will be building equity in your property every month, and they won't even think twice about making you richer!  You will also learn the basic skills of property and tenant management. 

If you bought well, you will be able to cash out refi at a later point or sell the property and pocket any appreciation tax free.  You should then have a good size pile of cash to start looking at other strategies or just continue expanding this one.

This strategy has worked for decades in markets all across the US.  There is no need to re-invent the wheel or to make life more complicated when you are just starting out.  Get creative after you have some cash on your side and experience under your belt.  It worked for me...

This is just my opinion... your mileage my vary ;-)

@Julie Huynh unfortunately you are literally 1 weekend late in joining BP... There was a very big real estate summit just across the bay in Oakland with hundreds of attendee from all over the country. I suggest you reach out to @J. Martin and get on to the mail list for next year and ask if you can buy a video of the event.  I believe that main room sessions are available on video.  I am not sure about the class room or break out sessions.

As to your main question, the "poke you in the eye" truth is that off market deals are very scarce and the few that are out there are discussed in very private settings. In the Bay Area, there is really no reason for a seller to do a true "off market" deal at any discount. Anything of any real value will sell very quickly on the MLS. With that being said, I moderated a panel yesterday about investing in the Bay Area. People are doing it and they are cash flowing... you just have to find the deal and negotiate hard.

Good luck to you and hope to see you at next years summit!

-Arlen

@Beda Yang first thing you should do is reach out to @J. Martin and see if you can get tickets to the summit in Oakland tomorrow.  There will be a ton of people YOU specifically should speak to on this topic.  Specifically, I would suggest you speak to Amanda Han and talk to her about how this will positively effect your taxes.  If I am correct, you will no longer have to pay state income tax on your rentals.  I am not a tax professional so please seek further advice on this topic.

There will be a 50 min session specifically on "how to invest locally", where several local investors will talk about how they are killing it in this hot market.  There will also be break out sessions for local investors that would be perfect for you to raise questions.

As for Fruitvale, I am personally very bullish on that area. I purchased a 6 plex on 28th ave and 17th st. Total cost was $678k. I started working on a cash out refi and the value accepted by the bank was $1.2m. My LTV at 60% will be $720k, not bad for 1 year of seasoning without touching the building physically. Current rents are around $6k, making it a .9% monthly rent/purchase price deal.

As a side note to all the people who say there are no deals in the Bay Area, this deal was originally on Redfin...

@Katherine Tsay welcome to BP.  My original post was removed by the BP posting police...  There is an event this weekend in Oakland, that apparently I am not allowed to mention but has been widely discussed for many months on BP.  I am not the host, but I think that this event would be of great benefit to you and your husband.  There is no high pressure selling or boot camps to sign up for.  There will be local investors like @J. Martin and also people who invest out of state.  If you are interested, just do a search here on BP.