All Forum Posts by: Arlen Chou

@Jeremy Chaser your not crazy for thinking your brothers approach is dangerous.  The flip side of appreciation only, just cash flow, is also crazy.  But what you describe in your thought process is correct, look for cash flow and appreciation.

The discussion of cash flow vs appreciation always seems to fall into the "one or the other" category of debate.  As an investor you should be looking for both pieces, never one or the other.  The equation is never cash flow = wealth OR appreciation = wealth.  In my personal opinion the equation should be ASSURED cash flow + FORCED appreciation = REAL wealth.  I define assured cash flow as being a rent rate that YOU created, not what the market around you has created.  Meaning no matter what the market rental rates do, you will always be cash flow positive, even during the worst of times.  As for forced appreciation, that basically means you buy a problem building and fix it to get the best use out of it.

Don't be the guy that buys a "cash flowing" property that is just like all the others in the neighborhood.  When the economy goes bad and market rents start to go down, everybody will be going down the rabbit hole and lowering rates.  You need something that differentiates your units compared to the others, so that you don't have to go down as far as all of the other vanilla rentals.

As for appreciation, don't let your brother "be that guy" who buys in an area "just because it is booming" and hoping that prices will keep rising. 

I think you are already on to the path that I am talking about.  You touch on the point of both cash flowing the property and looking for something in a neighborhood that has the potential for general market appreciation.  I would just suggest you add the piece about forced appreciation and assured cash flow.  If you can find that property, you should be safe on the downside of a market and you should reap the benefits of either/both the rent rates or property values going up.

@Osazee Edebiri First Republic Bank will take your bag of coins.  But I am pretty sure you need to be a customer.  They have a branch in San Jose.

@J. Martin @Johnson H. looking forward to seeing you guys tomorrow!  I will be there early to hear J's travel stories!

@Anne Whalen welcome to BP.  You are in luck, there is a big one on Thursday hosted by @Johnson H. It is at Parktown Pizza in Milpitas.  You can find it on Meetup.com.

@Edwin W. the added info makes things a little more clear.  How about unit number 4?  Is that at market rents?  Are you related to the tenants in the other units?  

Raising outward cash flow, via added debt of any type, without raising income is an extremely dangerous play for somebody in their retirement years.  Normally people will look to lower risk and protect cash for the golden years.  Even if you money out and buy something, it will take time to get that property operational and cash flowing.  That added cash flow will only be a few hundred dollars and the investment to fix the property will be in the thousands.  Is the down side risk really worth a few hundred dollars of cash flow?  If they are retiring that means they will probably not be around to directly benefit from any appreciation.

What I would suggest is to focus on improving their cash flow without taking further risk.

First things first, use the formula on the RAP website to figure out how much you can raise rents via "banked rents".  You will then need to give notice of increase and improve your mother's cash flow with virtually no risk.

If they have cash reserves, you can try "cash for keys", and then do a fast renovation and rent out at market rates. But again, you should really think about the added benefit against the time, hassle and effort required to take this step.

As @DG A. has mentioned you can do improvement pass through as a strategy, but again you need time and money to implement this piece. However, you will be forcing appreciation, so there is some potential gain in the form of a "cash out refi" or a HELOC. They could then do some personal lending with the money they got out. Setting all of that up is different topic.

As investors get older, a bird in the hand is worth WAY more then 2 in the bush. 

Just my .02 cents.

@Jason Crow I am not flipping, but what I am doing is using the HELOC to look like a cash buyer in my crazy market. Last year was the first time I did it, but with the rate I found it made the plan a "no brainer"... prime - 1%. In my case my HELOC is first position on my primary, which is essentially the same position you would be in on a paid off home.

I then let the property "season" and build up equity. I have been recently hunting for a "cash out" refi to put on the property and expect to get all of my initial HELOC money back out. I plan to use those funds to "re-charge" my HELOC and take my time looking at new deals. I like this strategy because it makes me look like a "cash buyer", so I can move fast in my market and I can take my time after COE to look for a good loan.

Because I am a buy and hold investor, I am still getting loans and paying fees, but it is after the fact and all of the pressure is off.

There is so much freedom in this strategy, I really don't know why somebody with a ton of equity would not follow this plan.

@Jessica Shinneman try using a product called DynaPad.  It is made by a company called Dynamat.  They originally made material used for sound deadening cars for aftermarket audio enthusiast.  It is a sound deadening adhesive sheet that would be stuck to the interior of door skins, flooring etc. DynaPad is basically the same concept but for the home.  I have used Dynamat on cars, but I have never used it on a home.  But if it works in a "giant tin box" it should work in your home.  If you do use it, please report back to us on the effectiveness.

@Edwin W. you are asking a financial planning question, not so much a real estate question. If your question is truly about your mother's retirement then you need to look at her financial situation as a whole and not just plunge into REI. Take a look at her expenses and the income from the rentals and see if there is a plus or a minus. You need to look at her age and her life expectancy and what her financial goals/needs are during retirement. It would not make sense for her to take additional risk late in life if she already has cash flow and she is happy with life as it is.

With the current balance on the loan, I would assume that her monthly payments are very low.  You might want to look at the property itself and see if you can optimize the rents further.  I would further suggest that she potentially could get a HELOC so she has access to money if she needs it for emergencies.

@Sagar Mata not knowing what your current loan situation makes giving targeted advice a little hard. However, if you already have a good fixed loan rate I am not sure if doing a cash out refi will put you into a better position. Once you get the cash you will feel the burn to spend it and put pressure on yourself. I would personally opt for a HELCO. Once you get it, you don't pay anything for having it. It just sits there until you do a draw. If and when you find a property you can use the HELOC funds for a down payment or if it is large enough, you could buy a property "as a cash buyer". After purchasing the property, I would then take my time to shop for a good loan for the new property, to replace the HELOC funds. At that point your HELOC is now charged to use for repairs or buy another property. The best part is that you only go through the loan process one time.

@Gloria Grotjan I use Daniel Bornstein.  He has offices in SF and Oakland.  I am sure he will be able to help you.

http://bornstein.law/