All Forum Posts by: Edward Liu

Across the country, not just in the bay area, real estate is cooling.  I have investments in TX, Kansas City, Ohio, a number of east coast cities, FL, etc.  Every city is reporting signs of slow down - longer DOM, seller reducing prices, etc.  

I can not speak for SF.  Below are 2 example I have personal knowledge on:

My uncle just sold his home in Cupertino (Apple headquarter) in October after house was 2+ months on the market.  A 2300 sq ft one floor 4 bedroom home with swimming pool and big lot (8000+ sq ft).  Asking price was $2.7M, it was sold for about $2.3M.  

I see similar price reductions in Palo Alto, where I live.  In Nov 2017, my real estate agent told me she sold a home in Palo Alto, 2 bedroom 1 bath about 1200 sq ft with 5500 lot for $2.8M!  She told me about 2 weeks ago that she is listing a home 1 block away from it, 3 bed 2 bath 1600 sq ft  with 6500 sq ft lot.   Home is completed remodeled inside.  Price reduced from $2.6M to $2.3M, still no buyers.  Seller has just pulled it from market.

High end home prices seems to have dropped quite a bit in the bay area.  

Try a bank that does commercial loans. I never used commercial loans to refi and cash out, but have used commercial loans to purchase 2-4 multiplexes. I assume opposite should be possible. Lenders told me you can even use commercial loans to buy SFH if you put the SFH into LLC. Many people do it once they hit 10 conventional loan limit. Only caution is commercial loans are not fixed for 30 years.

You are underestimating maintenance cost for duplexes, such as repairs, insurance, etc.  Vacancy rate estimate is very low.  Got to assume at least 5%.

I am not sure where you got the idea that convert a SFH to 2 units will drastically increase value. Buyers for SFH and multiple units on very different. Most SFH buyers will skip duplexes or other types of multiplexes as they are looking for a home to live in, not for investment. In some markets, it will increase value of the home, but in higher cost areas of CA, it will reduce foot traffic whenever you put on the market due to its classification. In many cities, SFH cost a lot more than multi-units. For example, I just put in an offer for 3 plex in this college town about 0.3 miles from the university on the east coast for $185k. Medium price for SFH in the area is $235k. This is quite common in many cities that multiplex is cheaper vs. SFH.

Spend $100-150k to build this in-law unit probably is not the best of return.  It does not add much value to your home as people mostly care about the size and condition of your primary house.  Investors are not going to buy in your neighborhood due to negative return.  Biggest value add for your home is to add 1 bedroom and 1 bathroom to the main house (especially if your home is 2 bedroom in an expensive neighborhood).

If you have the cash (I am from CA also), invest out of state (without moving). with 25% down, you can buy rental properties (try buy more than 1 to spread the risk) worth at least $500k. Even at 5 CAP, your return is better than $1700 per months gross (not net profit).

We are seeing slow down in many cities across the country, not just in TX.  DOM is longer across the board.  Even in the SF bay area (even the best of already expensive areas), many homes has to decrease price quite a bit to sell.  This is unheard of in the previous 5 years. 

I don't ask for too much:

1) Need to understand investor terminology, such A/B areas, CAP, ROI, etc.

2) Willing to walk away from deals with you (too many try to convince you to stick to deal) - best ones tell you which is not good deal

3) Understand our working relationship is not about 1 deal, but many deals over many years

Not clear of motivation of the person who wants to keep current house.  Based on cash flow, his current house would not be a good rental.

Step 1 Sell existing house and get the necessary equity.  

Step 2 has 2 options:

a) Buy house in area with good school

b) Buy rentals in cash flow areas, rent in the area with good school

2a is option for average Joe.  2b is for someone who get out of the rat race.  

Technically he has a 3rd option, refinance existing loan, take out equity and buy another house in desired area and rent out the existing house.  I would not advise this option as he would have too much mortgage (or baggage).  Sure hope he has very stable income since this current house will keep on sucking money (blood) from him.  This could be formula for bankruptcy if there is a bad recession.

I have seen inventory of a number of wholesalers (in a number of cities) over the last couple of years, many of them label certain properties as class A.  Honestly, the classification seems to be inflated based on my own research.  It does not take a rocket scientist to use Google Maps to look at supposedly 'A' neighborhoods and see the condition of houses and cars people parked outside.  I did not find a single property truly in class A location, at best B+.  

I believe many wholesaler's A location properties are targeting out of state investors - if you know what I mean!  Property classification is quite subjective, so maybe my definition of A is too strict.

You should not worry about hyperinflation, chance of it occur in the US is near zero.  Hyperinflation usually occur in a country that had some type of revolution, for example, Russia after Communist revolution is 1917, Germany after end of World War I surrender, France after the French Revolution, Austria during World War I, Philippines after Japan invaded it during World War II, etc.  Do you see the pattern?  How likely do you see US changes to dictatorship from democracy, or a communist country, or involved in the next world war?  

Even hyperinflation does occur, you want to hold real assets, such as gold, land, and commodities.  Paper money and stocks are going to be worth less and less.  So technically you should hope person walk away from the option to buy.  If you are really concerned, you can always put a clause in your lease with option to buy that if inflation hit certain number, this agreement is invalid.  Most tenants won't understand the reason for clause anyway.