All Forum Posts by: Joseph Hennis

Personally I steer clear of section 8. Those tenants are brutal to properties and the repair expenses can be big. Managing these tenants is also more difficult.

@Karthik Bujuru So I hate to knock your deal... Cause you may have well thought out investment goals that makes this property a good fit... But, I'm not seeing it, or sold on it, based on the calculations you showed.

From my perspective, that deal stinks. 1035/mo in rent divided by 178000 is 0.58%. It is half the 1% rule. Generally if I buy a property at 1% rule when it reaches 0.5% it means it is time to sell my property, not buy.

Also, you have definitely miscalculated the expenses. This property is negative cashflowing every month even if you self manage it. Repairs expense runs 10-20% and capex 10-20%, you didn't include these expenses.

Just partner with someone. If you can't bring time or experience to the table, bring them a deal, or capital.

The reason for Silicon Valley isn't weather or attracting young workers. The reason for Silicon Valley's existence is the nearby research colleges. Mainly Stanford and UC Berkeley but also other colleges like UC Davis, UC Santa Cruz, CSU San Jose, etc. The research that created and now leads the tech industry came directly out of these colleges. I recently went to school at UC Davis, and can say for certain that their research in driving development.

It's not that tech won't find it's way into other markets. Of course it will. One of the advantages of being a tech worker is I can work from anywhere. But the cutting edge will still be research driven.

One additional thing that is driving tech development here in CA is H1B visas and a very accepting culture towards foreigners. Almost none of my professors at UC Davis were American. They were chinese, Indian, French, German, and many other nationalities. These professors are the top talent from all over the world, come to research here (they are crappy teachers though, lol). Their research is top notch.

Check out this chart here.

http://www.economist.com/blogs/graphicdetail/2016/...

Looks like we are mid-cycle. Prices are a little frothy but overall still affordable except in specific markets. Maybe 2-5 years more of growth, but who knows if it will drop or not. In some cycles the drop never comes, just a plateau, and it really depends on local conditions.

If you dabble in stocks... typically you sell THROUGH an up swing, and buy THROUGH a down swing. You don't try to time the peak, instead you sell off a little at a time as it goes through the peak. Same on the downside. Of course this only works if you have more than one property.

@Ori Skloot Nice job Ori. That's a great deal.

A word of caution about the word "cashflow". It has a specific meaning and I've seen people flamed on the forums for using it incorrectly. $2750 monthly rent - $1950 mortgage is $800... Not $800 cashflow. Cashflow is after additional expenses and capex are factored in. Even if you are self-managing, you need to factor in a management expense as if you had a property manager to come to a proper cashflow number.

From experience, a liberal estimate of your expenses is (conservative here is 50%) 30% of rent for capex, management expenses, and repairs, that puts you at break even cashflow long term. Despite that, I would buy that type of deal any day in the bay area because I know the way these properties appreciate (I have 1 in suisun and 1 in fairfield too) and obviously a big win in the forced appreciation department.

@Account Closed I notice your monthly income is a fixed amount... 

For those of you doing vacation rentals... Isn't monthly income seasonal too? During peak season you can fetch a premium. Later in the year you may have to drop price significantly and have a potentially high vacancy rate. How do you factor this in?

Sorry, one more post... Also consider the local nature of real estate. One area might tank in a market downturn while another area could still go up. Depends on local conditions.

@Account Closed One other thing... This "we are near peak market" bit is definitely not a given. The market could go up for several more years, and then, when it does cool off, it might not come down much at all. Just go flat. So not investing during an up cycle could cost you as a missed opportunity. It's not to say we should just blindly buy into all up cycles. We need to look at the whole situation.

Some considerations about the current market:

Lenders requirements are still high. Buyer's are well qualified for their loans. This means there isn't likely to be a wave of foreclosures from these loans, which would push prices down.

There is still a housing supply shortage in middle income neighborhoods. Builders are tending to focus in luxury markets where there are more profits (but there is a bit of over supply here).

Mortgage rates are still very attractive historically.

Price to rent and Price to income ratios are still in the affordable range.

Here is an article about the current market. It's looking like we are closer to mid-cycle than end-cycle.

http://www.economist.com/blogs/graphicdetail/2016/...

@Account Closed 1.1% is above the 1% rule. This could be a good buy in an area that does see appreciation. It is also unlikely to be 50% expenses. The rules of thumb are just that, rules of thumb, and should only be used to peak your interest in a deal and are not meant to be the deciding factor. Use a real estate calculator such as this one:

https://financialmentor.com/calculator/real-estate...

and this one

http://www.goodmortgage.com/Calculators/Investment...

and the one on bigger pockets to analyze ACTUAL expenses.

I like looking at multiple calculators. The second one is good because it includes the effect of appreciation. 

If you are buying in an area where appreciation is flat, like parts of Texas, then you want more cashflow, and maybe use the 2% rule of thumb. If you are investing in an area that historically has seen appreciation and will likely appreciate in the future, 1% is a good standard. What you don't want, is negative cash flow.

Also, make sure you have enough reserves and you can handle a bad year.