All Forum Posts by: David Song

East bay, Tracy area. South Bay, Morgan hill or Gilroy.

@Scott Shander

I really like your analogy to the value versus growth stock. 

Nice analysis. The methodology used is probably only useful for rental income cash flow investors. The market price of SFH is governed mostly by supply and demand, and comparable, not by rental income.

In a market with limited land supply and strict zoning governance, the supply is reduced. If job market in such market is good, the demand will overrun the supply and cause price appreciation. Therefore, investors catch those opportunities to win big on the price appreciation side.

In a market with unlimited land supply and loose zoning governance, the supply is more plentiful. Therefore, that oversupply limit the price appreciation in such markets. 

For example, in SF bay area, the supply is limited due to no available land within the SF peninsula area. Most of the new development is infill projects or conversion of industrial/office to residential. Almost all open lots from San Francisco to San Jose are already built up. 

To the contrary, in another market where land is plenty (e.g. texas or florida), there is no such geographical limitation. Whenever there is new demand, developers can easily find large parcel of land to build and meet those demands. Therefore, the price increase in those markets are suppressed by the additional supply.

Therefore, the valuation method seems to reply mostly on rental income, which can provide some information for investors seeking to invest in SFH. However, they also need to understand that those market will likely have a slower appreciation rate.

As an investor, the ultimate goal is to achieve high appreciation along with consistent cash flow. As such, my belief is that the market price in any given local market within the US is probably the fair representation of its valuation, considering both future appreciation and current cash flow.

A retrospective mathematical modeling of the past performance of various major US markets might be interesting. In other words, assuming we go back 10,20 or 30 years and invest the same amount of money in various market, what kind of cash flow and appreciation an investor would have made. In that case, you have the retrospective actual data, rental rate per year, price per year, etc. 

Even though I have not done that yet, my gut feeling is that CA investors during the last few decades, even with initial lower cash flow, their final outcome is likely far superior than any other states.

Within CA, SF bay area probably has the higher return of capital.

For the future, where to invest is the million dollar question. Every one can pick own market and decide for themselves.

I invested initially for cash flow only, but over the last 12 years, what I realized is that the main financial gain is from appreciation, not from cash flow. Right now, my main focus is a good balance between cash flow and appreciation.

Cash flow is something you can see right now. Appreciation is something you can not accurately see immediately. 

To estimate appreciation, I currently use the general inflation benchmark as a baseline, with a few extra point for the Bay Area.

As far as the exact appreciation percentage per year, that is not something we can control or accurately predict.

My gut feeling is that higher inflation will translate into higher appreciation. Therefore, in the next few years, the appreciation will be higher than normal.

Bay Area showed tremendous appreciation this year, as high as 30% compared to same period last year. Whether that trend will continue is up for debate. My bet is that it will keep going up as inflation pressure is there.

I have doing that for years in SF Bay Area.
1: all cash purchase, provides competitive edge. Particularly for properties that does not qualify for traditional financing.

2. Repair to like new standard.

3. Rent out.

4. Refinance.

The whole process will take at least 6 months, so the delay is really not an issue.

The appraisal likely will be higher than purchase price, and recuperate typically more than 90%-110% of capital.

 LOL. 

 Super. The building is very old and some of the siding start to pop out.

I am considering building another one on the same parcel. 

Milpitas is better, in terms of service and speed.

Great article. I just bought a commercial property with similar structures, metal roof, metal siding. Looks like this kind of metal structure. Any idea where to get the maintenance items or build another one like this?

Every market have opportunities, just different opportunities. On a national level, I do not see any specific advantage for a particular area. Midwest has lower prices and higher rental return, and CA offer lower rental return but great appreciation.

What is abnormal is that so many people from other states trying to claim their area is particularly good for RE investors, much better than CA. That is totally ********. There is no such area or city, because free market does allow any city to be a superior area for investment. Free market will balance that out. If that city is good, the price will eventually go up and cancel that out.

This makes me question their real motive. Do they have something to sell?