All Forum Posts by: Michael Cheng

The ultimate goal is income => financial independence. To get to where I can replace 50% of my current income so I can pursue a different career.
I'm also not dead set on having to have a house in CA. It's just that if the market does cool off, I'd like to be able to jump on it and thus my original question.

With that said, again, really appreciate the different perspectives!

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Originally posted by @Joe Kim:

@Michael

@Michael Cheng

I'm in a similar boat to you. I missed out on fantastic appreciation from 2013 to present because I was so focused on out of state (houston, memphis, Indy, San antonio, chicago, atlanta) investing.

Just remember that real estate does not move fast like the stock market. You can see the trends coming and going. @Arlen Chou gave you some great advice.

Now, even though I did not get appreciation like I would have if I invested in California. I did get some decent appreciation in Texas and everywhere else. I bought a home in San antonio for 125K and sold it for 180K in 2 years! Not bad.

#1 Real estate is a long game , not quick and fast like the stock market (unless you are doing flipping or wholesaling)

#2 Leverage - Did you buy your primary home in California? I did and I took advantage with a HELOC. Unfortunately interest rates are rising rapidly but still a good option.

#3 Make more or spend less. I like "make more". Work overtime, 2nd job, 3rd investment vehicles, etc.. It will all snowball. When the recession hits 1 month from now, or 3 years from now- you don't want to invest at the beginning of the recession. so you got time, but we all need to get ready.

I changed my strategy from traditional buy/hold to Airbnb and now making 3-4X rents. So I like the "make more" method.

#4 Start growing your "network capital". More important than money is knowledge. More important than knowledge is relationships.

#5 Talk to me. I life in the SF bay area. I'm super busy but always available during my commute hours.

Wait a second...I re-read your post, you save $25K every 3 months? you should do less buy/hold at 150K level. Why bother with such low numbers? Grant Cardone 10x it. also, do private lending and other passive investing while you grow your capital.

also, with $$$ like that you are perpetuating the myth that everyone in the silicon valley/SF bay area makes BANK and saves $25K every 3 months.

#2 is what I'm interested in! I haven't bought a house in Cali and that's why I ask the question. I am definitely doing long game. With all that said, though, if housing in Cali does cool off (big if), I would like to purchase a home here but I don't know if I'll have enough for down payment if the cash is invested in properties. Did you buy your home with only HELOC or also a loan? I'm concerned I can't get a loan if I can't come up with 20% down payment because the cash is invested..

#4, I definitely need to find time to meet the investors in the area..

From what I've seen, lower range homes have higher cash flow, which is what I'm after. But at the same time, I don't want to deal with "high risk" properties, either, so that seems to be good medium. By "grant cardone 10x it", do you mean buy 10 or a high value property?

I think plenty of higher income earners in bay area contribute to that myth. Hence I am thinking about investing elsewhere since I can't afford anything around the bay right now..

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Originally posted by @Arlen Chou:

@Michael Cheng, ok lets skip the part about in Bay Area vs OOS or OOA. If you are a squirrling away $25k every 3 months, you are way ahead of the game! With reserves taken care of, what you need to keep your eye on is debt to income ratio. If your ratio is bad, you will not easily get a loan if and when a good buying opportunity comes along. Therefore, you need to increase income even farther, without taking on to much debt to screw up your ratio and have a big reserve stashed away. If you can do all three of those you will be golden. If you cannot, you will have a hard time getting a conventional loan. Generically speaking, it is that simple. In more specific terms, you need to figure out what the optimal DTR is and meet or exceed that if you want to be in a good position for loan.

Thanks! Good point. I suppose I can talk to lenders to get an idea what DTI Ratio is OK. I see that you're local. Any local lenders you would recommend that I can talk to about this? (Assuming it's not against forum rule.)

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Originally posted by @Bill B.:

If you're living on 100k less than you make every year most people should be asking you what to do. GOOD JOB. Beyond that...

Your rental income will count, at least after 1-2 years depending on the mortgage source. Lets assume you're making at least $240k a year if you have a spare $100k after expenses and taxes in California. $20k per month means you have at least $7k per month in mortgage payments covered. 5 mortgages of $110k ($150k minus 25% ($40k) down) would only be $3,000/mo even at 5%. I think your golden, You have a spare $4k/mo plus 70% of the minimum $5k/mo rent is another $3500/mo. You have the same $7k/mo you started with for your home purchase.

Reserves should be a non-issue assuming you have retirement accounts with that kind of income. 6 months reserves is only $20k, a pittance. Start there and buy another house every 3 months. But I would raise your target after the first 5 or you'll use up your ten loans on what you might consider a very small amount. ($1 million give or take.)

You did at least bring an interesting "Problem" to the forums.

Love how you analyzed it. Pretty spot on, actually.. Almost creepy. :) In an impressive way.

I'm sure I'm missing something. I feel pretty good about covering a mortgage if I do come to purchase a house in bay area. Also I do expect these properties to at least pay for themselves. I'm more concerned with not having enough cash for down payment, though. You mentioned retirement account. Do you mean borrow from it or just that it would help my ability to borrow? I'm also assuming 20% down. Maybe that's not necessary to buy?
Can you elaborate on "But I would raise your target after the first 5 or you'll use up your ten loans on what you might consider a very small amount. ($1 million give or take."? Not sure what you meant but sure sounds interesting.

Thank you!

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I live in the bay area and we all know about its housing market. So instead of sinking all my cash to buy a home in silicon valley, I'd rather invest in properties in other places for some cash flow. But if the market cools down, then I'll maybe buy a house in the bay area. So here's my dilemma. After investing in a few properties, even with cash flow, it'll take some time to replenish my cash reserve. What if the market cools down and I don't have enough cash? I think I can take HELOCs out on the properties I have for a down payment, but wouldn't that still affect my ability to borrow for the rest? And even if I am able to borrow, the rate of HELOC is much higher than a traditional mortgage, I would want to refinance to a traditional loan. But again, unless I have actual equity in the house, it would be hard to refinance, correct?

To sum up. my question is, how would I be able to borrow and buy a house in the bay area (presumably much costlier) if I don't have enough cash reserve but have equities in investment properties?

And please.. let's not get into the topics of if bay area housing will ever cool down or if I should buy a house in bay area at all. I'm not predicting anything or dead set on anything. I would just like to know what you would suggest if things do happen this way.

Thank you!

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All Forum Posts by: Michael Cheng

Michael Cheng has started 1 posts and replied 5 times.

Post: How will I buy my own house if I invest cash in properties?

Post: How will I buy my own house if I invest cash in properties?

Post: How will I buy my own house if I invest cash in properties?

Post: How will I buy my own house if I invest cash in properties?

Post: How will I buy my own house if I invest cash in properties?