All Forum Posts by: Johnson H.

@Andrew Brewer - For syndications, you are correct that it is usually a flip and not buy and hold long term. Usually syndicators make their money when they buy and sell. Also, having a shorter time frame will maximize IRR. There is no reason to continue to hold when the property has been stabilized as it will drag IRR. They need to exit quickly, collect their fees, advertise their high IRR track record and churn the money into the next deal to do it all over again.

@Account Closed - There have been some nonprofits that have been around for decades. The one I am thinking of owns over 2,000 units and actually ended up purchasing the 18 unit deal. There are some hoops to jump through when selling to them so its not always the first choice for sellers. 

Infill entitlement projects are some of the best real estate plays out there. I believe it is actually 16th/Van Ness if we are talking about the same project. The developer bought that gas station in 2009 for $2.6 million, cleaned it up, got the entitlements, and sold it for $18.5 million in 2015. If I remember correctly, he bought the property by trading 2/3 condos of one of his newly built project. I can share more next time we meet.

Agree with everything you said Jay. A lot of folks on BP will only buy one or a few properties for a little bit of cash flow. Many dream of getting out of their W2. Many times after capex and selling costs, I am not sure how much they end up with if they bought at retail. 

I do think there is a time to be a hero and have max debt but I don't think now is that time. Everyone makes their bets, especially when you don't have much to lose. But when you start accumulating a decent net worth, you have to protect yourself with lower leverage and holding cash reserves. Cash reserves gives you holding power when things hit the fan. Low leverage allows you to be lent money during a correction and be able to pick up the low hanging fruit. Those that were over leveraged or had no cash reserves went bankrupt during the last downturn. I saw both sides of this consistently and I know which side I want to be on. Banks want to lend money to those that don't need money. When you are in the position of strength and have FU money, a downturn won't affect you. 

This reminds me of Sam Zell in the early 90s reading that he was worth $1 billion and not sure if he was going to make payroll next Friday. He learned the value of having liquidity.

“You can have all of the assets in the world you want, but if you have no liquidity it doesn’t matter.” “Liquidity equals value. At no time in my career has it ever been more clearly brought home to me than in the (2008)-09 period. If you had liquidity, you had value. … Everything comes down to liquidity, everything comes down to exit strategies, everything comes down to knowing when you get in how you are going to get out.”

I liked the old articles when they talked about everyone leaving the Bay Area. Let’s talk about uhaul trucks again! Also, I think this agent is just trying to make a name for himself and this “big data” that he has is just a marketing ploy.  

Great example Jay. Since you’ve been in the game for so long, you’ve seen a ton of stealth wealth. 

An 8 unit building I was chasing was listed by an agent of over 45 years. He owns a ton of rentals in SF and his own golf course too. Again, just looked like a regular guy but is doing quite well. 

I know someone that just retired from her W2. Her parents bought over 40+ units and now her siblings and herself have owned and managed the buildings that have been in the family for 30-40 years all paid off. I saw another building just listed saying it was the first time on the market in 77 years listed for $7.7 million. Think of the appreciation and rent increases owning for that long. You get paid to hold here. 

Depending on the size of the property, it could be a number of buyers which include individuals, partnerships, nonprofits, flippers, syndications, hedge fund/private equity, REITs and institutional money. 

There is a lot of stealth wealth in the Bay Area with folks able to drop a million down payment easily but they are the millionaire next door type. They can be folks working in the tech sector for 5-20+ years, doctors, business owners, etc the folks that have high incomes and have saved or let it compound in the stock market all this time. It is also folks that bought a house in prime parts of the Bay Area 20 years ago and are sitting on a boat load of equity. There are just a lot of folks with a lot of money but they don’t flaunt it. 

I met one seller that owned over 100 units in SF mostly bought after the crash. He was getting ready to sell his 18 unit building working on it with his two helpers. He looked like an ordinary guy but after speaking with him, he was laser focused on real estate. He said he started from the bottom owning in Oakland and continued to invest over a few decades to get to where he was now. Besides myself offering on this building as a syndication, there was a nonprofit that was the highest bidder but not winning, a group offering all cash from the north bay and and the ultimate winning buyer after the building fell out of contract twice if I remember correctly was financed. 

The largest owner of real estate in SF is a private company fueled by institutional money born out of the crash. There are syndications that operate in the Bay Area. Many of them operate quietly and many of them already have the money they need from high net worth clients which is why you rarely see Bay Area projects on crowdfunding sites. Although it’s a capital intensive business, the return on equity is solid from the MFH I’ve seen flipped on the market. 

For myself, I have a few partners that see eye to eye with me on buying MFH. With my conservative underwriting and the long term potential of owning in SF, I think I have the appropriate margin of safety with my offers at this point of the cycle. There are a lot of strategies in real estate but I do believe most people would be served well investing in their own backyard.

For 5+ multifamily buildings, lenders usually require enough down payment to have the building cash flow at a minimum of 1.15-1.25x debt service coverage ratio (DSCR). For these types of buildings in the Bay Area, this will take anywhere from 30-55% downpayment or more. Also, if you buy a building with all cash, it should cash flow on day one :) But you are right for 1-4 family buildings and only put 20-25% down, you probably won't cash flow on day one if you get a regular loan. However, I know investors getting interest only loans for 3-10 years with 35% down and great rates and they have breakeven cash flow. I think its safe to say in 10 years we should see higher rents and they can refi and be in a better cash flow position, especially if they are buying mismanaged buildings with below market rent. I agree you need holding power and proper reserves when you invest, but that is true if you invested anywhere.

You have to buy right and see past day one numbers and employ value add strategies. The successful investors that I know are minting cash flow in the bay area. There are a lot of strategies being employed to get this cash flow and create value. No one will hand you a deal in the bay area unless you are a known player that has a track record of being a closer. You have to go out there and find it yourself.

Here is a great example of what my investor friends and I have been talking about recently. There was a 20+ unit building with very low and less than half market rents in a rent control city sold early last year. It's now listed on the market fully rehabbed fully occupied with market rate rents for almost double the price. There is a lot of money to be made if you can figure out how they operator did this. 

Folks say there are no deals in the bay area including myself in the past but I have been proven wrong time and time again so I no longer say this. I've sold all my out of state properties to invest in the bay area. You can make money anywhere by buying right but you get rewarded over and over again by buying and holding in the bay area even if you didn't buy right or mismanage the building, I've seen it very often. 

Thanks for the tag @Arlen Chou!

@Joseph Conti welcome to BP. Come by tomorrow night if you can, details at the link here: https://www.biggerpockets.com/forums/521/topics/697410-san-jose-meetup-thursday-4-25-19

In 2017 and 2018 there were sensational articles about the exodus of folks leaving the Bay Area. This year is this one self called "data" agent that was written about in the NYT and now in this article about the all of the IPO money will drive up property prices. Dissecting this article there is no new news here. The top areas where these software developers have purchased, Mission Bay, South Beach, SOMA, Yerba Buena are all areas with significant new condo developments in the past 5 years. Young people with significant incomes and want the easy/cool downtown lifestyles and have purchased these properties. Tech companies that were not in SF before this cycle have leased up significant amounts of office space. The demand for this office space lead to one tech company signing a lease even before entitlements of an office building have been approved which is unheard of. So due to these companies moving in, there are a lot more tech workers working and now wanting to live in San Francisco.

Where do the post IPO families want to live according to the article? In districts that are majority SFH. SF is hardly building anymore new SFH so the long term trend of the value of these properties will continue to appreciate.

I continue to see multi-million dollar properties sell for all cash. I have been beaten out on my offers for SF apartment buildings for the past few years as investors continue to pay up for buildings. The last building, it was listed for $1.8M, needs $300-400k in deferred maintenance and soft story retrofit, went for $2.1M and I was surprised it didn't go higher. When folks complain about rent control and having no cash flow on buying in SF I chuckle because you build wealth owning in this city. Last year I saw a 15 unit property sell for $12 million, that's $800k a unit in a prime part of town. That is what the wealthy are investing in. 

I agree with the posters above, it is all about supply and demand. I'm sure there will be some correction some day and in other parts of the nation, there does seem to be a slight pull back. It seems like every other day for the past two years there is some article from some investment professional/economist saying that there will be a recession 18-24 months. All I know is that if you purchased property in SF at the top of the market in 2006, you may have had a bad time in 2009-2012 but now you would be sitting pretty with some great gains and high rents. There was a slight chill in our market in Oct/Nov last year but things picked up after Thanksgiving and now with these lower rates, it is looking like a great spring again. Although there have been articles about supply increasing, what the articles don't mention are the months of supply which is still very low and even lower if you remove condos out of the equation.

Hi All,

It's another month and time for another real estate meetup! These meetups have had BiggerPockets and Meetup.com members chatting about investing locally in the San Francisco Bay Area and also out of state. Just come by and mingle, there is no set agenda. We welcome anyone who would like to attend!

When: Thursday, April 25th, 2019, 6:30pm (usually I'm around at 6!)

Where: Parktown Pizza Company (Find us in the back area/room this time.)

1350 S Park Victoria Dr
Milpitas, CA 95035
http://www.yelp.com/biz/parktown-pizza-company-milpitas?sort_by=date_desc

Please support the small business by spending some money and tipping for the great service we receive every month! (I don't pay for the space nor do I receive anything from the restaurant)

In lieu of the round of introductions due to noise, you may introduce yourself and/or list your haves and wants in the comments section of this meetup.

Looking forward to meeting new investors and seeing familiar faces.

Thanks,
Johnson

South Bay , South Bay Meetup , Bay Area , Meetup , Meet up , Meet-up , San Francisco , Oakland , Berkeley , Alameda County , Contra Costa County , Solano County , Richmond , Hercules , Concord , Albany , Pittsburgh , Marin San Rafael , South Bay , Peninsula , Walnut Creek , Pittsburgh , Antioch , Pleasanton , Fremont , Castro Valley, San Jose, Milpitas, Sunnyvale, Fremont, Palo Alto, Santa Clara, Mountain View, Gilroy, Santa Cruz

@Stanley Nguyen Yes, this is still on. @Angelo Wong will be hosting this one and I’ll be there next month!