All Forum Posts by: Arlen Chou

@J. Martin I am not sure if that long winded email is of any real value.  Its just the ramblings of a middle aged old guy with a W2 and a half baked plan!

@Wes Brand in my humble opinion your biggest problem is not finding deals or figuring how to make them work.  Your problem is that you have fallen into the rent control trap.  The biggest issue with rent control is that for people who "feel protected" they loose the reality of market and do not see the dangers of their situation.  Think about your last paragraph...  a large part of you not wanting to do anything is because of the fact you are currently paying below market.  Unless you are actually saving or investing the difference between your current rents and market rates, you are living an illusion of financial security.  

There is an army of people out there who have hid under the blanket of RC for years if not decades, just living their lives, believing the could afford a better life style then their salaries actual command. But they never took advantage of what RC was really meant to do...  RC is supposed to give people the opportunity to save/invest the difference between market and protected rates and get out from renting.  

Because at some point in time, the building will get sold and an Ellis eviction or something like it will happen and then that protected tenant faces the harsh reality of the market.  But because their previous lives were based upon an artificially high level of disposable income, they find themselves not able to continue in the manner they were accustomed.  At that point life just sucks... 

If you are not saving the difference between RC rents and market rents, then you really cannot afford to be living "15 minute walking commute to everything".  You are just kidding yourself into believing that is where you can afford to live...  If you are not careful, in 20 years you will be one of those guys in front of City Hall saying that you have been priced out of the market and that the owner of the building owes you a place to live.  Rent control is an insidious addiction that will lull the unsuspecting into a future of uncertainty.  There are many cases of this exact scenario playing out all across the Bay Area.

There are the wise few who understand what RC can do, and they save the delta between controlled and market rents.  These guys then invest those funds wisely and even end up with rentals in other cities, but enjoy the RC in SF for themselves.  That is a great strategy, because they are actually investing the difference, instead of inflating their comfort of living.  

Pay yourself the difference in rent, use that money to invest and leverage RC to your advantage.  If you can do that, you will see that your nest egg for a down payment will grow quickly.

I will get off of my soap box now.  

@Amit M. RC in MV has been brewing for a long time.  That is part of the reason, jumped into Oakland.  I figured it was better to get some practice on a lower tier market, before having to deal with it here.  My rentals in MV are all close to market now, so I am not to worried.  Also the asset class that I am focusing on right now, tends to have a more transient tenant base so the overall effect should not be very bad for me personally.  

I agree with your observations in your post. RC is actually a very short sighted action.  The politicians like it because it gets them votes.  It might protect some existing rental voters, but over time it drives up rents because units become even more scarce for future renters.  

@Christopher Telles, the experience of a single person from a different era in a single transaction is anecdotal.  Look at the prices of homes in the Bay Area in the late '90's when you made your deal in Patterson and compare them to prices today.  There is a TON of real data showing the appreciation rate of homes in this specific market.  

Even my own experience in the Bay Area, if taken alone, is anecdotal.  However, when combined with available data it becomes part of a real trend line.

As for your observations on the Yuan, this news is not new.  But you are looking at this in general terms.  The impact of damage will not be linear across the US.  To make sweeping generalities by glossing over the nuances of the individual markets is not looking through clear lenses.  

We are not talking about impacts over the US, the discussion is focused on the Bay Area.  Nobody is saying that there will NOT be a down trend in this market.  I am just saying that it will not be as bad in the Bay Area as in the Central Valley, because there is a diverse micro economy in play.  Basically history has shown that the downside in the Bay Area is manageable and the upside potential is huge.

If the strategy is for long term wealth building, then buy and hold is a viable strategy.  If that is agreeable, then why not hold on to property in the Bay Area and prepare finances to take advantage of a market down turn?  

He is already in play in this market.  Why would anybody take the tax hit by selling his properties to move laterally to a comparable market in some far off place that would also be hit by any global economic downward pressure.  The only difference would be that the market outside of the BA would most like not be as well diversified economically and be hurt at a more drastic level.

I again ask the simple question, where is a better micro economy that is as diverse as the Bay Area that has seen decades of appreciation?

@Jay Hinrichs I appreciate and respect those reminders of the market from a veteran like yourself. My real estate working knowledge in the area only goes back to 1997 when I purchased a 2 bed 2.5 bath town house in Mountain View for $298k, and then purchased a 3/2.5 in Mountain View in 2000 for $699k. I sold the first place in 2004 for $616k to flip into a 3/2 ranch in Los Altos and then sold the second place in 2006 for $838k to cover construction costs of my home.  I made money on both deals and ended up with a nice home in Los Altos. But I kind of wish I had figured out a way to hold on to them both and get my home in Los Altos.  Market value on each MV property is well over a million each.  But the appreciation on the Los Altos place makes me feel better ;-)

@Christopher Telles, I would consider William Shockley and Shockley Labs which started in Mountain View Ca in 1956 as the genesis of what is now called "Silicon Valley".  If I use that as a starting marker, Patterson is an approximately 2.5 hour commute one way... If the business model of your development in 1998 was for people to buy homes in Patterson and commute to the Bay Area for work, I am pretty sure the reason why those banks would not touch that project was not because of the tech industry...

The REI world West of the "tri-Valley" is a completely different animal. The original poster is IN the Bay Area proper.  He holds property in San Mateo, Foster City and East Palo Alto.  @Thomas Seay is in the middle of one of the longest running and hottest markets around AND holding 3 winning tickets that most investors could never touch.

When the market wobbles, is when true investors really need to analyze the nuances of their individual market, and not base decisions on anecdotal observations of empty windows and far away dead projects from a distant past.

I stand by my original recommendation that the OP, hold his properties, refinance and get finances in place for when the market does take a dip.  That way he will be in a strong position for the next up turn.  More importantly, I believe that the Bay Area will continue to go up and to the right when averaged over a long period of time.

@Christopher Telles where was this giant track of land?  I am not sure what your geographic boundaries of the Bay Area are, but if you had that much land inside the actual Bay Area, you would be as rich as King Midas.  Over flow areas South of San Jose or East of Livermore will always be dependent on what happens in the Bay Area, but I would not consider part of the Bay Area proper.

The issue I have is that people lump everything that they don't understand into the catch all phrase of "technology".  The "tech-industry" is much more nuanced then people give it credit. 

As an example, Pets.com and Netscreen were both in start up mode in 1998.  Back in the day, ".com" was the buzz term, now it is "tech", but the effect is the same: a generalized definition for those who are outside of the market.  Pets.com went belly up in 2000, Netscreen leveraged what was happening around the ".com" phenomenon and went on to be bought by Juniper Networks for $4 Billion dollars.  Those who were not carefully following the ".com" world saw total disaster.  Those who understood the underlying technology and value in companies made money.

I am just saying that to read only the headline news and to believe the generalities of a few articles is akin to "the sky is falling" mentality of the ".com" bust.  Sure the was a bust, but those people who really looked at and understood the details of the market made some serious cash.  There are hundreds of start ups getting funded every month.  Most will die and never see the light of day.  Others will make a splash and disappear under the waves.  A select few will remain and dominate their market segment.  That has always been the way of Silicon Valley and the Bay Area at large.  

There is more to the Bay Area then just start ups, unicorns, tech or bio companies.  Tell me where there is a larger and more established diversified micro economy.

By the way how much would that 3000 acres you had back in 1998 be worth today?

@Leslie Pappas I did not say that the technology was not a big part of the Bay Area.  As a matter of fact I referenced in my post several technology companies, along with many other companies that are not tech related.  My point was that there are many industries here in the Bay Area.  To be more clear, what I stated is that the Bay Area is not "start up" or "unicorn" dependent.  Here in the BA, there are software, hardware, and chip design companies along side companies that are involved in biotech, pharmaceutical, banking, shipping, etc. I was agreeing with you that diversity is a key component to a market.  If the Bay Area is not a diverse market, please tell me where you believe is a more diverse region.

@Thomas Seay, yes the start up climate in the Bay Area is changing quickly.  But keep in mind that start-ups/unicorns are only a part of the overall economy in the region.  As @Leslie Pappas has pointed out, look for areas that have a diversified economic base... People seem to miss the fact that the Bay Area is exactly that, a diversified economic base.  Apple, Google, HP, Intel, Symantic, Pixar, Genentech, Tesla, Stanford University, Safeway, The Port of Oakland, 3 international airports, just to name a few companies/entities in various industries that make their homes in the greater Bay Area, and none of these are "start-ups".

The Bay Area is not a one trick pony.  It will have its ups and downs, but search BP for charts spanning decades on the real estate prices, and you will see the charts rise to the right.  

Also keep in mind that we have Prop 13. This is the golden ticket for long term buy and hold investors. I am an old school buy and hold guy. Don't sell your properties in this prime market. Position your finances so you can take advantage of any down turn. Get refinance down any high interest rate loans you have and get HELOC's in place. If/when the local market does go down, you will be in position to be the guy with cash to buy.

-Arlen

Looking forward to a BP meet up in Manila @J. Martin and @Ards Aram!  But can we have it in Palawan or Boracay instead?

@Bryan C. What is a "no brainer" is that when you are single and without kids is when you SHOULD have the drive and hustle.  It does not make any sense to say that you hope to have that once you have more responsibilities...  When you are older you will wish that you had done the hustle early on so you would have time for the kids...  I hustle because I want the time and freedom to relax... just got back from Northstar at Tahoe, fresh powder over the weekend, snowboarded in and out of of the Ritz.  I can do that because I push it hard, in work and in play every single day.

I am not going to try and convince you or anybody else to invest in the Bay Area.  That is a personal decision based upon to many factors.  Everybody has to come up with their own strategy that fits their strengths and minimizes their weaknesses. I am just pointing out that big money can be made here. 

But if you are going to get into REI and invest out of state, don't go into this thinking that "turn-key out of state" is a "no brainer" and that it will make you money. The guys who are making money out of state are also hustling hard.  If you go into this thinking that making money out of state is as easy as sending out a few posts and looking for "turn-key" guys, you might as well just go to a casino and place your money on red at the roulette table.

The only thing that is different between people who are financially secure and those who are not... is what they do with their time.

To expand on what @Kathryn M. had said, both Kobe and Lebron were successful because they hustled and worked harder then everybody around them.  By the way Jordan was better then both of them...

Good luck to you,

-Arlen