All Forum Posts by: Garmeon Y.

If investing in the Bay Area is so unappealing, why is the market so hot? I think it's because of investor psychology. Most people prefer the idea of money-now in their hands, even if it's a couple hundred dollars a month -- rather than wait a little longer for a much bigger payoff.

You can cite all the historical occurrences of a market crash you want, but the overall trend is still one direction: UP. How much will the market correct by in the event of catastrophe? Will reasonably desirable homes in San Francisco or the greater Bay Area ever drop back to prices 20-30+ years ago? If so, maybe a Millennial like me can finally move out of mom's basement.

Citing another example, John Jacob Astor invested in what is now Manhattan for pennies on the dollar. At the age of 40, he was one of the richest people in the world at the time. Do you think he cared about a couple grand a month to buy groceries? Was he a speculator? Per Wikipedia, "John Jacob "Jack" Astor IV (July 13, 1864 – April 15, 1912) was an American businessman, real estate builder, investor (I.N.V.E.S.T.O.R.!!!), inventor, writer, lieutenant colonel in the Spanish-American War, and a prominent member of the Astor Family.

Was he a speculating forty-niner chasing the hopes of striking it rich? If so, maybe someone should write a ticket to Wiki and get that part of his bio edited. Whatever you say or calculations you throw out, scoreboard don't lie.

In my short time in the REI and BP world, I've learned that everyone has different investing strategies -- no right or wrong. Just listening to the BP podcasts, I have so many questions of bewilderment because I hear so many contradicting, but all convincing ideas -- still finding my true niche.

Just my $0.02.

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Do you still qualify for bank loans if your income is solely passive rental income, but no w2 income?

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Originally posted by @Account Closed:

@Garmeon Y.,

The concept is nothing fancy really. Wouldn't it better to get your 25% down payment back shortly after purchase and ride it with the house money while your tenants are buying you the building, and if you do it right, you would also get some yield? Inflation overtime will increase your cash flow substantially as you have witnessed with our "growth" market.

Once the rent growth kicks in, you can take 6-figure equity out of the building via cash-out refinance instead of collecting $1k-$2k/month of positive cash flow. $1k-$2k of cash flow in OUR MARKET is equivalent to $150k-$300k of cash-out equity. It's a freaking game and a legal ponzi scheme. Do you want to collect pennies over a period of time, or dollars upfront?

Real estate is about control and leverage. You control as much assets and leverage with OPM as much as possible. Let inflation work its course and your tenants pay down and/or pay-off the assets overtime. No need to rely on social security and 401k.

The million dollar question is how do you find these deals? How much would you pay to get a deal I describe above? I'll let your neighbor @Johnson H. share with you the secret ingredient as he had witnessed it first hand. ;)

So that upfront return is appreciation? So does that mean you need at least break-even cash flow, or would you go negative and rely on appreciation?

And yes, please, share the secret ingredient!

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Originally posted by @Dante Pirouz:

If it doesn't happen in your market then maybe you shouldn't do the deal or look for another market where it does happen...or look for another deal...or wait until you have the cash/capital to make the deal happen...those are your alternatives if you don't want to get burned...sorry for being blunt.

Wise words. Agreed. Yet another Millennial gets priced out of the first-time home-buyer market...

1 Vote

@Account Closed Homes in my market are at least the price you cited...times 10.

@Dante Pirouz Someone correct me if I'm wrong, but seller financing doesn't happen here.

From what people have told me here on BP, the Bay Area is an appreciation bank -- tough to cash flow.

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Originally posted by @Account Closed:

@Garmeon Y.,

Welcome to BP. I'm clueless about the San Francisco market, but I know my market and my numbers. I suggest you spend sometime to get to know your market and your numbers.

Here are some numbers for you to digest. My property manager charges 5% and no tenant placement fee. My lender uses 3% of gross rent for cap-ex and 5% vacancy for their underwriting. I doubt lenders are using the same parameters to underwrite other tertiary markets.

Using my numbers above, should we use 50% rule across the board where others are charging 10% for PM plus 1st month rent for tenant placement? Should we use 50% rule where the property taxes are 2.5-3% compared to 1.25%? Does it cost a lot more to maintain a 2,500sf house in Palo Alto renting for $10k/month compared to a 2,500sf house in Elk Grove renting for $1,800/month?

I invest using a different set of parameters compared to others, and it has worked out for me so far. I don't care too much about the initial CoCR because I can get 10-15 years worth of yield upfront. Would you rather get 10% yield over 10 years or would you rather get 100% yield upfront and no yield for the next 9 years? I've shared this with many local BP investors so they know how I do it.

Having been investing in the San Jose market in specific and Bay Area in general, I don't see how I could ever invest in non-appreciating markets or even declining markets. I guess that's where the high yield comes in. The cap-ex will catch up to you eventually. This may explain why some properties get foreclosed multiple times.

Once you know how to invest in the Bay Area, you'd realize that appreciation is the cake, not the icing.

Have fun investigating and finding your own niche.

As mentioned in my profile description, looking to make my first acquisition in the San Jose market so you're the perfect person to ask away to.

This 100% yield upfront you speak of, you're saying this is realized in the form of appreciation/flipping a house? Everything that I've looked that so far are pretty much negative CoCR to extremely negative CoCR. I've heard all the no-no's, but people I know are telling me "just consider it rent expense" etc.

Would you mind digressing on your investing model?

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@Michael Totman not confident in my underwriting abilities, but haven't seen anything close to 12-15%.

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Thank you all for your replies. Looking for someone in the Bay Area for market-specific follow-up questions!

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"Fair" in quotes, unintended sarcasm? Fair for him, might not be fair for you, or to another individual. If it's outrageously over-priced, just wait it out and your landlord will realize what the market is telling him eventually (hopefully). If it's over the price of what you want to pay, don't get emotionally attached -- just walk away and look for the next deal.

2 Votes

All Forum Posts by: Garmeon Y.

Garmeon Y. has started 10 posts and replied 40 times.

Post: One Year Later - 10 units and full time investor

Post: Who's cashflowing investing from a market like SF Bay Area? How?

Post: Rental Income Only - no w2

Post: 50% rule flaw - missing out on deals

Post: Personal Line of Credit

Post: Personal Line of Credit

Post: 50% rule flaw - missing out on deals

Post: 50% rule flaw - missing out on deals

Post: 50% rule flaw - missing out on deals

Post: How to counter my my landlord's "fair" price he will sell for?