All Forum Posts by: Arlen Chou

@Amit M. thanks for bringing me into this discussion. I am not sure if my perspective will help, but it might be entertaining for a few...

@Louis A.

My personal time horizon is measured in decades and generations, so take the following with a grain of salt.

There are many good reasons to be on either side of this fence. I personally came up through house hacking, then SFR's, then a light industrial building, then some small multi-families, and most recently into "commercial" residential. There are many good reasons to focus on any one of these market segments. Each market niche has its strengths and weaknesses. I believe that matching your personal strengths and weaknesses to the niches is how you will find the right strategy for yourself. Although maximizing things like COC and the best interest rates are extremely important, I think a strategy that fits your lifestyle/personality is more important.

My personal philosophy is to always be a noobie, so I push my boundaries to test myself and see what I like and dislike and invest in several arenas. I will eventually focus on a single strategy once I either find one I really like or get to tired and need to settle for a market that works on paper.

I cannot really comment on what might be the best strategy, because as others have said it depends on your goals and timelines. What I can tell you is that I have found through the various market niches is that the common denominator is financing... If you can figure this piece out for yourself, you will be able delve into different market niche and jump back out if you find that a space is not to your liking. At least that is what I am doing. The physical analysis process for the different types of buildings might be slightly different, but the basic principles apply to all properties. On the financial side, I am strong believer in forced appreciation. This can be accomplished in both types of MFR's, the way you justify the new "value" of the property and the way the "value" is capped is just different.

On the topic of scale, I have found very little scale delta between a 4 plex or a 6 plex.  I made the move knowing that I would not see a real advantage, but it was an easy way to test the financial side of my investment strategy and also to further build up my investment resume. I don't plan to get into many, if any more of the small commercial residential buildings.  I personally think the real advantages of scale start to kick in after 10 doors per building.

I guess that was a long winded way of me saying, try it out and if you don't like it you can easily get out... IF you bought correctly in the first place.

Good luck to you and let us know what you decide to do!

-Arlen

@Spencer Hsu your in luck there is a meetup tomorrow in Milpitas.  @Johnson H. will be hosting the event. Just look it up on meetups.com for details.

@Bruce Lee your post is missing a critical piece of information.  What do you plan to do with the money from the sale of the property?  Your decision path should start from this point.  If you are going to sell and just put the money in a bank account and buy "toys" and travel, you will probably get a certain response from BP.  If you plan to sell and buy another property, you will get a different response.  If you truly need the money for something like medical emergencies or long term care, then you would be looking at a completely different base of replies...  To give you a more detailed answer, it would also help to know where your properties are and the age of your kids.  This is a potentially life changing decision, give us some more info so somebody can give you more thought out answer.

-Arlen

@Gerardo Varela think of a HELOC as a giant credit card tied to your property. Once you have that line of credit you don't have to go through a loan process before buying a property.  In a competitive market it makes you look like a cash buyer.  Once you have the property you should "season" the property and then get a stand alone loan on it and pay down your HELOC.  At that point you will have reloaded your buying power and look like a cash buyer for your next property.  Rinse and repeat...

-Arlen

@Simon Gill I like KWW, they sell chinese cabinets, but the boxes are plywood construction.  I have used them in nearly a dozen small reno projects and they work well and are priced right.  They have a locations in SF, Oakland and San Jose.  Lead times can be long because they import as needed, so plan accordingly if you use them.  You should be able to get all 14 boxes for less then $4k.  Depending on our style choice you might be able to get cabinets that are even more affordable.  If you are going to live there, just do the demo and install yourself.  It is really easy and should take 1 or 2 weekends at the most.

-Arlen

@Preet Bains also as a side note, I am not sure you are aware that you must occupy the property for a certain amount of time before it comes off RC.  That time frame is a little up in the air right now because the City is in the process of making adjustments.  I don't use this strategy myself so I am not up to date on the exact amount of time.  But I am pretty sure it is at least 1 year from the point you move in. You might want to dive into this point so you can adjust your numbers accordingly.

Good luck to you!

-Arlen

@Christopher Moore check out @J. Martin, he has a meetup in SF that is very popular.

-Arlen

@Victoria S. you can go about it with cash funds or leveraged funds.  This discussion starts to get into the weeds so it is probably better in person.  I usually get to @Johnson H.'s meet up around 4pm.  If you are still interested we can talk more about the use of both of these types of funds to get positioned for the next round.

@Kathryn M. thanks for your kind words, but I am no where near @Amit M. or @Account Closed No hard pitching, just a bunch of people eating pizza, drinking beer and talking REI.

-Arlen

@Victoria S. this argument has been going on and will go on forever...  But I will say that your primary residence CAN BE a tool to energize your real estate investing.  This is particularly true in the SF Bay Area.  As @Jay Hinrichs has pointed out, the $500k tax free gain you get at the point of sale is HUGE!  Most people outside of this market will never see that, but in this market it is a reality.  I am not saying it is a guaranteed upward trend.  There are definitely drops/corrections. However, over a longer time horizon this is a definite plus. Yes, you will pay into this pot of gold through maintenance costs, etc and there is a heavy reliance on appreciation, but at the end of the day investment is a risk vs reward equation.

I have personally used this method 3 times and the tax free money that flowed into my pockets could never be matched by $200/unit monthly cash flow figures.  I would continue to follow this strategy, but I am married with kids now and having a stable home is more important then tax free money. 

With that being said, I did recently pull a first position HELOC on my primary residence that allowed me to purchase a 6 plex in Fruitvale. The gross rents on that purchase cover the HELOC, and all of the costs associated with that building. What is left for me to pay on my primary residence are property taxes and maintenance. I plan to re-position the building and get a stand alone mortgage on that building after 1 year of seasoning. At that point the HELOC will be paid down by the new loan pulled on the Fruitvale property, and my HELOC will be reloaded to do another "cash purchase". By using the HELOC I have made my primary residence generate income while retaining my prop 13 status and other tax benefits. Additionally, if I ever decide to move I have already locked in $500k of tax free money. I say "locked" because my property has more then doubled since I purchased it. Sure it could drop below my original purchase price, but the possibility/probability of that, for my specific home/city are extremely low, if not near zero. Again, I think this type of strategy only works in highly appreciating markets, like the Bay Area.

Real estate, no matter what type of building or investment strategy you take, is just a tool to get you to the financial goal you set for yourself. Not every tool is correct for every situation.

What every you do, study the charts that @J. Martin posted before you make any decisions.  There are lots of indicators pointing to a correction in 2017/2018.

Good luck to you,

Arlen