All Forum Posts by: Alex Vidal

@Jim Witten

 I saw this old post, I'm actually from Orinda and I own 2 properties there, did you end up purchasing the home and doing the flip?

@Account Closed

Here are some very intriguing quick facts to further cement our points:

http://www.bayareaeconomy.org/bay-area-fast-facts/

The 2nd part of the answer to your question is in commercial properties, as opposed to single family homes, there's much less of an intrinsic value for the real estate and less demand for the specified uses if you lose a tenant. These reasons lead most commercial properties to be priced largely on the cap rate produced. In order to invest in a stabilized commercial property, there has to be an arbitrage between the prevailing interest rates and the cap rate, creating a return (highly sophisticated individuals will occasionally buy negative cash flowing value-add investments, but this is uncommon). Over the past 3-4 years, the spread between cap rates and interest rates has continued to compress over the past 24 months. This is unsustainable in the long run and is largely driven by the fact that there are few other viable alternative investments available and private and institutional investors have entered the commercial market seeking yield. We're now currently back at 2005-2006 levels for cap rates. Since commercial properties cap rates are in essence directly tied to interest rates, in the event of a 100 bps increase in interest rates over the next 18 months (which I believe is likely) I would fully expect cap rates to increase 100 bps as well and values to therefore decrease.

@Account Closed

This is a two-fold response for single family homes vs. commercial properties. In the Bay Area, where the average income is substantially higher than the rest of the country, I don't project that a rise in interest rates will affect the single family housing market values all that much. Supply will continue to be very scarce and the previous bubble was created was due to relaxed lending practices and over-speculation which led to foreclosures. I've been through 2 refinances and gotten 1 new loan in the past 12 months and I've seen first hand how difficult it is to get financing today. Luckily the banks aren't repeating the same mistakes again and an increase in interest rates will also most likely lead to an increase in rents since more people will choose to continue renting rather than purchasing a home. It's also important to note that home ownership is currently at 20 year lows in the U.S. and eventually all of the pent up demand from the Millenial generation will boil over and cause another upswing in the single family market. 

As long as the economy keeps churning along, the Bay Area will continue to thrive along with the rest of the country. Our diversified economy, however, offers a much better alternative to a turn-key market in a downswing. The turn-key secondary/tertiary markets have far fewer jobs, a much higher supply of properties and excess land available. Any downturn or increase in interest rates in those areas will cause more drastic downward fluctuations in home values. They simply don't offer the same fundamentals and in my opinion their prices are currently very overheated. 

@Account Closed all you need to do is explore a market you're familiar with in the Bay Area with the correct fundamentals: jobs, high-income earners, attractive school districts, growing population ect.,  buy one of the lower-end homes in the area and put some money and sweat equity into it to make it a winner! 

Thanks @J Martin very helpful especially since I'm used to commercial real estate which is very different from SFR's. I'll PM you my info.

Hello Everyone,

I'm 25 years old and I work in commercial real estate in San Francisco. I'm planning on making my first real estate purchase with my parents and we're targeting a single family value-add home in the upper middle class town that I grew up in and that my parents still live in in the East Bay.

We're going to be purchasing the target property all cash, making some improvements and then subsequently putting traditional financing in place and hold the asset for the long term. I will be a 25% equity partner in the deal and I was wondering how we should structure this arrangement? Should we be setting up an LLC with all of us as members? I know that an LLC is probably the safest route, but in CA it is very costly and I don't know if it's even possible to then subsequently get financing on an LLC owned SFR property after we complete the improvements. I additionally want to make sure that I'm able to reap the tax benefits of being a property owner. Lastly, regardless of what form of partnership we put in place I want to make sure that down the road we wont be hit with a reassessment for the property taxes, since that's a huge benefit to buying and holding in CA.

If anyone has any experience in forming this type of partnership in CA any feedback would be greatly appreciated. Thanks in advance for your help!