All Forum Posts by: Arlen Chou

@Account Closed I think you are doing great work in the Oakland area.  I have seen some of your posts regarding your deals and I think it is great.  But I would comment that you have or are creating your own unfair advantage that many on the forum do not have or will never capture.  The skill in finding "undervalued assets" is actually an "unfair advantage".  Not everybody can find those properties...  My point in my post is that what an undervalued asset to Amit or Juan, might not look like an undervalued asset to somebody else who is focused on a different business plan.  Most people will never take the effort to drive neighborhoods on a consistent basis to see and feel change, let alone get out of their cars to talk to people.  Most people will never seriously learn what it takes to fully rehab a property let alone add square footage or convert to condos or learn what the process is to raise rents through the banked rent process.  These are all skills that create, what I believe to be an unfair advantage for people to find undervalued properties that fit their particular business model.

-Arlen

@Perry Z. your question is to generic for the Bay Area.  You need to analyze deals not just by the numbers but also by your own personal strengths and weaknesses.  @juandiaz just had a great meet up at a property he bought in Oakland and his plan to sell the property for double his purchase price!  This property is in the HOT Temescal area of Oakland 2 blocks to BART! No way, I could do what he did on that property, because he has an "unfair advantage" in his specific market niche.  I would have looked at that property and not seen the "value" he did, because my plan, resources and skill would not allow me to pull the profit levels that he can.  @Amit M. sees value in buildings in SF, because of his specific "unfair advantage".  He is able to buy buildings and convert them into condo's in a way that I could not do with the same profit margins/goals.  @Account Closed does multifamily buildings in San Jose in a way that I cannot do, again because he has an "unfair advantage" that most investors do not have.  @J.M. is doing wonderful work with properties in the East Bay and also with short term rentals.  What I have seen is that people in the Bay Area who are blowing things up all have identified their own "unfair advantage" in a specific niche and look for properties that fit that specific business plan.  Figure out your own unfair advantage first, and then envision the value in properties that others do not or cannot see and then you will find "deals".  I am currently looking at a small multifamily in the Oakland Fruitvale area that I can do some serious value add improvements that will drive me over the 1% on rents and potentially increase the value of the property substantially allowing me to pull my money out within a year.  

If you use generic rules found on BP, in the Bay Area, the numbers will drive you to look farther and farther outside of the Bay Area and into less desirable areas.  Find your unfair advantage first and the deals will become easier to find.

-Arlen

@Jin Kim I have 2 four plexes in Mountain View and a lite industrial building in Milpitas and 4 doors in Oakland.  I am not clear if you already have kids or if you are planning to have kids. If you are young and DINK's (double income no kids), I would look to get in the way of BART and look for a small multi-family in Milpitas or San Jose.  That is based upon the assumption your jobs are in the South Bay or On the Pen.  If you are more adventurous, I would look for a duplex or triplex in Oakland.  

If you already have kids and you have $1.8m available, I would look for my primary home in a good school district: Palo Alto, Los Altos, Mountain View, Cupertino, etc. Keep in mind nice move in ready homes in good school districts are still being sold on a cash bases in the Bay Area.  You could live outside of a nice district and go the private route, but those schools are well into the tens of thousands of dollars per year.  You can still get a 3/2 in Milpitas for under a million...

Good hunting to you,

Arlen

@Nicholas Varner "inversion" is a completely different animal then actually physically moving a corporate headquarters out of the country or to a different state.  It is done for tax purposes, simply put it is just moving the corporate mailing address to take advantage of a more friendly tax environment.  Many new companies incorporate in places like Delaware, it does not mean that Delaware is full of tech start ups...

The reality is that tax moves, like inversion, are done specifically for tax efficiency purposes.  It is not the same as moving out 9,600 Google employees out of Mountain View.  To make a move of that size it would take substantially longer then the 18 month window you are referencing and real estate investors would have a substantial amount of time to react before the exodus.

Yes affordability is an issue here in the Bay Area.  However, doesn't that help smart RE investors?  If affordability is high, doesn't that mean that there are more people renting and renting for a longer period of time?

Just my personal take on the Bay Area market and that is why I am still investing here.

-Arlen

@Alice K. if you are looking for a small duplex or triplex, you can get into Oakland for under $500k. Your options get much bigger if you expand your budget to $750k. The best part is that there is no RC if you owner occupy one of those units. At $500k you are looking at properties that need renovation, but that should not be a detractor for an investor. Look at the work needed as the opportunity to create forced appreciation and take advantage of a FHA.

Good luck to you,

Arlen

@Nicholas Varner I often hear people talk about "what will happen if Google or Apple" leaves....  However, the fact of the matter is that it is extremely difficult to move corporate headquarters of those sizes. It is not as easy as just moving equipment and changing letterhead.  The huge loss of employees or cost in relocation of those employees will undoubtedly slow down or kill that move.  Moving within the Bay Area or choosing to expand in nearby cities makes more sense, which is what we are currently seeing in the market. 

Even in an acquisition situation where the acquired entity will be absorbed by a company with a corporate headquarters in a different geography will take time.  That measure of time is most often in the range of years and not months.  This massive amount of time gives real estate investors substantial time to analyze and plan for change.  

A good example of this is the old IBM disc drive facility in San Jose.  They were purchased by Hitachi in 2002 and the consolidation of the business is still going on.  A smaller version of that massive facility is still there but now surround by many new homes and retail outlets that grew out of that merger.

In reference of capital flight from countries like Russia, China and Brazil I believe that money is flowing into the US because the referenced economies are doing poorly.  Those people want to protect their wealth and therefore will move assets from their bad economies into real estate in the US. So I would take the opposite position and bet that more foreign money will flow into the US RE market until those economies become healthier.  Of course this is dependent on the willingness of the governments of those nations to allow capital fight.  I would expect the respective governments to put limitations on offshore balance transfers which might halt less sophisticated investors from moving money out of native accounts and into the US.  If this happens smaller investors might start to disappear and might make competition for smaller properties easier for local small investors.

Just my simple counter point.

Arlen

@Catherine Decker there is a meet up this Friday hosted by @Johnson H. in Milpitas. It's a long drive in traffic, but often times people start gathering early just to have more time to talk. 

-Arlen

@Al Williamson please book me a spot! I am looking forward to meeting you and the guests!

@J. Martin I will definitely be there to see everyone!

@James H. These are not cheap tests, but it is nice to know for future reference.  However, remember once you know the status you must disclose it if you sell...  You can get do it yourself kits and test on your own.  Once  you get that info you could decide to do full testing or not.  

I bought some buildings that were nearly 70 years old did a DIY for lead.  I got negative results and then paid to have a third party run a full test just so I could have that on file.  Lets me sleep a little easier and tenants with young kids feel better seeing the results.  

Good luck,

Arlen