All Forum Posts by: Arlen Chou

@Lesley Resnick reality is different then the calculators on BP.  @Chris Mason brings up a key point in California real estate investment.  Also strong appreciation is part of the reality of investing prime areas.  Yes, many many many people say appreciation is just the frosting etc, etc, etc.  However, once a person experiences the power of appreciation in these markets they throw the frosting analogy out the window.

To directly address your question, it depends on what you do with the primary residence.  It should be part of an overall strategy.  Unfortunately for many it is just a place to live.  They park their money there and they are happy just having a home they "call their own".  

The Robert Kiyosaki line of thinking is that we should not accumulate liabilities and focus on assets.  I believe that point he was making was specific to how we spend money, not specifically the type of building.  More clearly, I believe that a person can own a home and it can be a liability or they can be smart about it and their home can be a asset.

I have personally done many "house hacks" over the past 30 years.  Appreciation helped me pocket very large amounts of cash upon selling.  I did not buy fancying things.  Instead I stepped up in class for my primary home upon each sale.  I reached what I consider my final home over 10 years ago.  The appreciation during that holding period has tripled the value of the home.

I don't just sit on that appreciation.  If I did and just paid the mortgage my money would just be stagnating.  Instead, I have steadily pulled cash out of the house through cash out refinancing.  

More recently, I have switched over to a GIANT HELOC. The HELOC has allowed me to add 6 Bay Area units to my portfolio and also to pay off a seller financed loan that had a 4% rate (my HELOC is prime minus 1%). The rents from all of the units have I acquired with the HELOC more then pay off my PITI for all of the rentals AND my primary. Now my tenants are paying for the rentals and my home. All of this is because of primary home that I purchased 14 years ago.

The point to my long post is that sometimes you need to look at the LONG VIEW to make serious money.

@Kelly Byrd I think you are looking at the issue from the wrong point of view.  You should know what the property is worth and stick to that.  From the concern in your post, it sounds like you are actually willing to go up in price, basically preparing to loose the negotiation.  If you are going into a gun fight don't start off with a knife.  I personally go in with "highest and best" and plan to negotiate down, not up.  If I don't get it, I just move on to the next property.  Am I leaving any money on the table?  Who really knows, I just know I paid what I thought the property was worth.  I don't worry about any profit the seller got above his bottom number.

The seller wants to know that you can close and that the deal is not a stretch for your finances.  As an example if 2 offers come in at the same price, the seller will more then likely pick the person who has stronger financials.  I like to go in strong and show the seller that I have no problem closing.  I will explain my price clearly and let them know it is my "highest and best".  If they want more money, I will expect them to also put something on the table.

@J. Martin sweet donation. I will commit to match that dollar amount!  Time to make a real difference.

@Johnson H. your meet up is always a great gathering of like minded people.  @J. Martin I will be rolling in around 5pm, not sure what time you are planning to be there.  Ready to plan Vietnam, got my kitchen pass!

Knowledge:

• Starting businesses and growing "mini mes"
• Properties in Oakland, Mountain View, Milpitas
• HELOC investing
• DIY renovations

Looking for:

• An experienced property manager in Oakland who speaks SPANISH.
• Gardner in Oakland

@Jimmy Ho In my person experience elbow grease = forced appreciation.  If what your doing is working for you, don't worry about what everybody else is doing.  Remember Prop 13 is the friend long term buy and hold investors here in CA.  It is something that most people who push out of state investing gloss over.  Where in the CV are your properties?  I see you are in Milpitas, are you doing the PM yourself?

@Jimmy Ho so let me get this straight... you have a property in the SF Bay Area that has doubled in "value" in 2 years AND you are getting good cash flow.  Assuming  you are doing your cash flow calculations correctly, and also understanding that you got the property at a discount to market, I would suggest 2 steps:

1) Grab a favorite beverage and congratulates yourself on making this happen

2) Slap yourself on the side of the head for thinking about selling a building that has BOTH high appreciation and cash flow

3) Grab another beverage and congratulate yourself from saving yourself from the "grass is always greener" trap.

You are already starting to understand that DTI is going to be a huge barrier for you moving forward. If you are going to do buy and hold in the Bay Area, this will be a difficult mountain to get over. Don't hobble yourself by giving up "A". Address the issue of "trapped" equity by pulling cash out after you stabilize unit "B". Take those funds and put them into a bank account to season it. As long as you can do that and stay cash flow positive, then you will be in good shape when you decide to go after another property.

Just my $.02

-Arlen

@Anne Whalen as @Account Closed that Everbank is a good option. I pulled a first position HELOC on my primary in late 2015/ early 2016 from them. On the surface its not a great way to free up much cash, because they will lend you enough to cover you existing primary mortgage and an additional 10%. However, I was able to wrap an investment unit into the calculation, which in the end freed up enough cash to purchase a 6 plex in Oakland. Therefore, that newly purchased property is 100% financed.

I am currently expanding that HELOC to incorporate additional loans I have on other properties. The benefit of this is that it makes my "total loan count" substantially lower, allowing me to get additional loans for investment properties. Essentially, I am creating my own portfolio HELOC. I don't know if that is actually a "thing" in the lending industry, but that is what my loan will essentially be when I am done. This of course only works because of the rapid appreciation we have seen in the Bay Area. I was also just at First Republic Bank and I think that they have a similar offering, but I have not sampled their product.

There are many people who will argue that leveraging your primary residence is a dangerous strategy. However, in most cases in the Bay Area, appreciation is exponentially higher then most people can even imagine. In my particular case, the appraised value is over 3x what I paid for it 14 years ago. Even if I lost 50% of the value in my home overnight, I would still be above water because I have nearly a dozen doors, purchased through the HELOC funds, paying the "mortgage" on my home.

This is just 1 strategy and your mileage may vary... but I thought I would throw it out there for your consideration.

Good luck to you!

-Arlen

@Nick James are you involved in that building?  That is a great bit of tracking.  I remember when that building first came on the market.  It looks great now!

@Atish Shah I posted yesterday about the 6 plex in Oakland I purchased last year in another post from @Diane G.  Admittedly that was not 1% it was only .9% at time of acquisition.  The deals do exist, but they are not laying around for the average person to pick up.  Anybody who is familiar with the area will know that my building is not in a "war zone".  Again, admittedly it is not downtown Los Altos, but it is not Baghdad either.  The housing market that we are in will freeze anybody who lives in the world of generalities.  A generalist, will only see the impossibilities and the be stopped by the perceived barriers to success.  Dig deep and find your "unfair advantage" and apply it to well researched specific markets and properties.

Good luck to you Atish,

Arlen

@Diane G. I don't consider myself a guru, but last time for me was February 2016: 6 plex (all 1/1) in the Fruitvale district of Oakland, 10 min walk to BART.  Purchase price was $678k rents at time of purchase a little above $6000.  No down payment... 100% leveraged.  It cash flows like a king! 

The secret is in the financing...  In this market you have to have a tight relationship with your financial institution and your documentation has to be rock solid and you got to be creative like a wizard.