All Forum Posts by: Helen Chau

Count me in...

@Amit M. The market has been going up for a few years and is now almost back to last peak, ~450-500k for a 4 bedroom, 3 bathroom SFR. I started out with using a local property management company, but that did not work out. They are slow in maintenance responses and put a bad tenant in my house that I eventually had to evict. I was partially to be blamed for that too as I did not thoroughly review the tenant file, and I trusted the local company that they were eventually able to get the tenant to keep up with the rent. Hard lessons learnt. I now manage them myself. But other than that particular case, I have been lucky with other good tenants that they do some minor self maintaining in the house, and call me if they need someone to come in. I partner with a local handyman who has been great in responding and fixing tenant's problems, and pay him per job per request. I personally believe that real estate is a relationship business. If you treat your tenants well, they will treat you well and be loyal to you. I actually enjoy doing the job. Tracy is about 2.5 hours drive from Monterey. I sometimes spend the night up there, and drive around other cities looking for fun and food. :-) Last time I was up there I played a round of golf at Patterson (where Amazon has a huge distribution center), a Jack Niclaus' designed course. I was surprised to see that Jack's team believed that there is a demand for that lifestyle there in the Central Valley. Sometimes that will give you a hint in real estate investment too.

Thank you all, for your thoughts and tips! I am very exciting about the new opportunity in MF, and I will be cautious and thorough in my feasibility study. Lots of good tips here at BP!

@Kathryn M. I would mainly reply on current cap rate, potential to upgrade and other information available NOW to assess the deal, rather than on anticipation of future appreciation.

@Jeff Greenberg , @Amit M. Right on about not cashing out my SFRs yet. I also see the opportunity of couple more years to maximize equity there. My properties are in Tracy and that and the nearby cities have evolved over time into a major transportation & distribution hub in CA. Amazon has built 2 multi-million SF distribution facilities nearby (in Patterson, 20 min from Tracy), Safeway, Kohl's, etc. also have their NorCal facilities in that area. Developers started coming back to Mountain House and Manteca. I am also talking to my existing tenants to see if they would be interested to buy the house they are living in. These people were hurt by the housing crash but now are back on their feet with good income and better credit to get a mortgage loan. Tracy is still more affordable than the Bay Area and the school is good. Lots of young family here.

I am exploring the opportunity of partnering with a friend to buy a MF so I don't have to put out as much. I will need to talk to the lender to see how they will look at partnership, and how my partner and I can leverage each other on the loan. My friend has a full time job so she would expect me to get the deal and manage the property as the primary operator, which will be fine with me.

@J. Martin Thanks for sharing your success story. I am happy for you in getting a good deal. Very encouraging!

@Albert Bui Thanks for your pointer, Albert. Sounds like Chase has a good loan program. I will definitely check it out.

@Joel Owens Yes, I understand what you were saying. I wasn't too happy after doing the math of what 6% cap will do for me. I am keeping an open mind for out of state opportunities.

@Johnson H. do you own multi-fam in CA or you are still looking? What's your expectation of return here?

Just a quick update, and answer my own question...

Talked to a 1031 exchange officer at a title company, 2 commercial brokers and a lender (the lender reached out to me hearing from my banker that I am going to buy multi-family property).

The 1031 exchange officer seems very knowledgeable about the process. He walked me through the process and marked the critical timeline for my plan.

The lender is a national bank, and their lending criteria are:

1. 3 yrs tax return

2. 75% LTV

3. 1.25 Debt Service Covering Ratio

4. 3,5,7,10,15 years of loan, max 25 yrs amortization, rate 4-5% depending on terms

5. no reserve requirement (I was surprised to find out)

6. unlimited personal guarantee

7. 1% loan origination fee, could do 0.5% for old customers. 3-4k for appraisal.

So, based on the above general lending criteria, I calculate that my target property has to have at least 6% cap rate to cash flow. This could be a challenge here because the listings I saw are mostly 5%.

The 2 brokers I talked to both acknowledged that I need 6% cap to cashflow. Their advise was to find properties that has under market rents and deferred maintenance / upgrade that will help increase the income of the property to bring the cap rate up to 6-7%.

To answer my own question: YES I am ready! And I am excited to see what's out there for me, and ready to dig into numbers and inspections!

@Joel Owens @Tom V. @Pete T. @Valerie Robinson @Daniel Sanchez

Thank you again for sharing your thoughts and advise. I will see you all soon at BP!

Buying your primary, living in it and selling after couple of years and pocketing the gain tax free is a good strategy provided that you are buying in an appreciating market. Otherwise you will be holding your primary longer than you expect and waiting for the next cycle to sell. I personally have that experience where I bought my first primary in Asia at the peak, and have to sell at a loss. Although this is in Asia but the fundamentals are the same in real estate.

Many cities in the Bay Area and surrounding are heating up fast in the last few years that I will be cautious of buying primary now. I had an opportunity to buy my primary in Palo Alto in 2011, but I didn't because of a personal situation change. If I had bought it then, I would be able to sell with a nice gain today. In 2013, I bought my primary in Monterey. Monterey is trailing the Bay Area by about 12 months. Today, I see that the SFR market here starts to gain momentum and houses are selling at a higher price than a year before. So hopefully I made the right decision and caught it at the right time.

Will do, Joe, find the deal then the lender.

Thank you guys! All very good advise... Encouraging...

Next couple of weeks I am going to talk to some lenders. Would be interested to find out what the lenders have to say about my readiness. Will keep you all posted.

Thank you!

@Joel Owens right about PM, include that in cost calculation. For my SFRs, I have been using my own PM company to manage them and charge 10% fee, so I can do the same for the multi-fam.

Great question on what to expect in return on multi-fam investment. I honestly don't know. Would a 8-10% return be reasonable? I understand that the expectation on return on investment on multi-fam and SFRs are quite different. For SFRs, I am looking for appreciation more than cash flow, and the value of SFR is determined by market price (comps of similar houses and neighborhood etc). For multi-fam, the value is primarily determined by cash flow (value = cashflow / cap rate). Higher the cash flow, higher the value of the property. So my goal as a multi-fam owner is to try to increase cash flow of the property. Correct?

I would love to hear from multi-fam owners in California, what's your expectation of return?

Thank you all!

@Valerie Robinson , I am actually planning to sell the SFRs to get cash out instead of using them as collateral for the multi-fam purchase. Good point to consider using professional property mgr, although I may want to get actively involved in managing my first multi-fam to learn from it. Also, I think it depends on the size of project and cash flow etc. to see if I can afford a full time mgr and handyman.

@Joel Owens , let's say by selling the SFR properties I am able to get about 400k cash that I can put into the multi-fam property. So for a 75% LTV, I can purchase a property up to 1.2M, right? Depending on what's required for my personal income, I do have a business partner (my husband) who has a full time job with stable income, and a healthy balance sheet should the combined income not sufficient to get a loan. Good point on trying to get owner financing 10-15%, which I will factor in when looking for properties. I have not thought about investing in other States yet at this point. Being my first multi-fam, I hope I am able to find properties closer to home.

Another question is, what can I buy with 1.2M in California? Probably just a 4-plex. LOL