patrick.net

Specuvestor talk, nice.

*grabs popcorn*

My HELOC and good name (can take on three more mortgages) are available. What could go wrong?!

I think there is 8% or more cash flow and this return assured by 5 year leases if you are willing to go out of state. NC, Florida etc.

That would be swimming naked. Is ok as long as tide is high.

SFace says

Obviously the tremendous cash flow are gone

How shocking!

SFAce look at torcana and let me know heat you think about them

http://offers.torcana.hs-sites.com/gaffney-student-landing?hsCtaTracking=7595a9d5-49d7-4ab0-8fe8-ddc5bec56de2%7Cc54b3bff-f05e-4e78-9ac3-342c0def280b&utm_content=13274894&_hsenc=p2ANqtz---JPqMJCeMBGyGGIUTyTfntqObt4cufbB89qMyAqRje1UUx9B4H0awx1Z1DVsYeMr9JC5cLvA5kyOgHhvDc3i37kLkTQ&utm_medium=email&utm_source=hs_email&_hsmi=13274894

SFace,

I see a lot of newbies wanting to enter the real estate investment arena at this time. This tells me the market is fairly valued, if not slightly over-valued. Once the newbies are starting to buy, we enter the frothy phase of the housing cycle. Kind of like when the taxi drivers and the cashiers at the grocery are giving us tips on buying real estate investment properties.

At this time, it's an okay play if 1) the yield on the investment property is at least 4%-5% higher than your borrowing cost, 2) you can replenish your HELOC in 2 - 3 years, and 3) having adequate reserves in case the market takes a dump tomorrow. A lot of smart people got wiped out during a market down turn due to the lack of reserves. It sounds ironic coming from me because I went all in during this down turn and made out well for myself, siblings and PK. However, I'm very cautious now.

You can still make money in this market, but you have to be patience and selective in your purchase in my opinion. I'm anti-investing out of state unless you know that market extremely well or have boots on the ground. Sometimes, the best thing to do is doing nothing.

Just my 2 cents.

thanks.

I do not believe in out-of-state when the best investments in still in the backyard. the east bay, deep east bay or even the Sacramento Valley.

I put in an application for 500K line yesterday with around P+1.25% with .50% discount so effectively 4% floating. 10 year draw 10 year repayment.

Just get it ready just in case something happens between now and 2024.

Be VERY VERY careful investing in RE outside of your back yard unless you have already done this successfully because borrowing costs, property management fees, repairs over which you have no control as you can't see them, etc. can wipe out your profits very easily. Price of investment properties have shot up since the lowest prices in 2011 and therefore the profits are NOT that great.

SFace says

thanks.

I do not believe in out-of-state when the best investments in still in the backyard. the east bay, deep east bay or even the Sacramento Valley.

I put in an application for 500K line yesterday with around P+1.25% with .50% discount so effectively 4% floating. 10 year draw 10 year repayment.

Just get it ready just in case something happens between now and 2024.

Meriwest is offering 2.49% fixed for the next 2 years. After that, it's prime + 0.5% with 0.25% discount so 3.5%. 10 year draw with 15 year pay back. You can opt for interest only payment too, which is about $1k/month in debt service for a $500k HELOC. This week is their last week for this promo. It seems like most lenders capped out the HELOC at $500k.

I agree with you about the East Bay. There are still opportunities, but it's very slim picking. My friend just bought an REO 4plex for $385k. He's spending $40k-$45k in rehab. It has one 3/2 and three 2/1 units. The 2/1 units are rented for $1,400/each. He inherited a tenant in the 3/2 unit for $960/month. With 25% down payment and financed 75% at 4.625%, he's doing great. The 4plex is at 1.6.3.9 82nd Ave in Oakland. His tenant base is working class Hispanics and African Americans.

We had an opportunity to pick up an identical 4plex on 80th Ave for $285k in summer 2012. All Hispanic tenants were in-place and was paying $900/month. PK told me to pass on it. In hindsight, that would have been a great asset to add to our portfolio. Well, you can't get it all.

EBGuy says

My HELOC and good name (can take on three more mortgages) are available. What could go wrong?!

@EBGuy,

The property that PK and I backed out was 5760 Robinhood Dr in El Sobrante. It was short sale approved for $218k with $4k in credits. The reason we backed out was because the comps came back at $255k, not enough meat for our cash-out refinance strategy to pull out our equity after seasoning. :-)

cloud15 says

this return assured by 5 year leases if you are willing to go out of state

Are you talking about commercial 5-year leases or residential?

corntrollio says

cloud15 says

this return assured by 5 year leases if you are willing to go out of state

Are you talking about commercial 5-year leases or residential?

I shared torcana in another thread hick I have been interested in from sometime

SFace,

Hope all is well. Since this post, my partner (not PK) and I have bought 7 small apartment buildings in DTSJ and cashed-in on one of them. We still own six buildings totaling 42 units. With the buzz of GOOG building an 8MM square feet office space in DTSJ, prices are now trading at $300k/unit for 1/1's. We got in around $153k/unit and paid as high as $232k/unit on our acquisition last year so we have gained several mills in paper equity.

Although we're in the market everyday, there's not much value/meat on the deals out there. All of our deals were bought off-market. It's quite apparent that we're approaching the top now. Looking 10-15 years out, I don't see tremendous appreciation like the past, which is doubling every 12 years or so. I hope I'm wrong on this.

I believe a good place to make money in the future is to buy deep value assets in tight rent control markets like SF and sit on them. Tremendous value can be added on each turnover when you can bring the rent to fair market. If you can buy out some tenants and turnover those units, it's even better. The way to buy and control these assets is to obtain a 10-year IO loan to keep the payments low. Banks will likely require 35% down. Your cash flow would jump substantial on each turnover. When the 10-year is up, there should be plenty of equity for you to refinance.

Otherwise, new development is where value can be created. However, one must have the capital to acquire land and get it entitled during the coming downturn. I don't expect a big correction in the upcoming downturn, but it would give enough of a chance to get into the market at slightly better prices. Now is a good time to raise liquidity and get ready for it.

Best of luck.

Who, there is a big retro thread revival on Patnet today, starting with Patrick himself. E-man is back, too. And he is calling a top soon.

>>It's quite apparent that we're approaching the top now.

Thx for the update. All is well.

The affordability index is nosebleed level. Even
Historically so it makes no sense to buy now unless it's primary.

I was at Cupertino village square last week, hotdamm, the Apple spaceship is huge.

E-man says

Otherwise, new development is where value can be created. However, one must have the capital to acquire land and get it entitled during the coming downturn. I don't expect a big correction in the upcoming downturn, but it would give enough of a chance to get into the market at slightly better prices. Now is a good time to raise liquidity and get ready for it.

How much of a downturn are you expecting and how soon? Will it be limited in locality or global/nationwide? What will cause the downturn? Spooked investors, debt crisis, war, something else? It would be interesting to have an explanation for your expectations.

Thanks E-man!

@justme,

Hope all is well with you and your family. Yep, I'm calling the top for the housing market. Employment for the Bay Area has peaked. If history is any indication, we should enter a recession in the next 12-18 months. The housing market may get another price increase in spring-summer 2018 due to the lack of inventory and that should be it IMO.

@SFace,

I drove by it last week while I was in the area. It's huge. However, GOOG is planning on building 8MM square feet of office space on 240 acres in DTSJ to accommodate 20,000 employees. That's even bigger than AAPL campus. They have spent $124M to acquire some land in the target area and are working with the San Jose Redevelopment Agency on acquiring more land to accomplish their goal. If GOOG's plan materializes, I think we just hit the jackpot with our investment in DTSJ there.

This recovery has been non-uniform. The Housing Affordability Index (HAI) for core markets such as San Francisco, San Mateo and Santa Clara Counties are approaching historical levels while the interior markets are still lagging although it seems like the Sacramento market is heating up due to the spillover effect.

My friend put in a bid for an 18-unit at 1201 Powell St in Nob Hill for $4.2M and lost it to an all cash buyer. I really like your SF market due to deep value because of rent control. Unfortunately, a sizable down payment is required due to low in-place rents. However, it's such a safe long-term bet due to its desirability.

@PeopleUnited,

Initially, I was thinking of 20-25% in price correction. Now, I'm not sure we'll get there as buyers in this cycle have been quite strong. My forecast is only for the Bay Area. I have been thinking of a catalyst for the next recession but couldn't come up with one. I thought the oil crisis would do us in, but it didn't. Others are thinking of an external force such as China entering a depression. I really don't know. As the old saying goes "No two recessions are a like."

"This recovery has been non-uniform. The Housing Affordability Index (HAI) for core markets such as San Francisco, San Mateo and Santa Clara Counties are approaching historical levels while the interior markets are still lagging"

Prime property are always first to go up and last to go down. There is no surprise there, what one willing to stretch and buy at a prime location is at a whole different level than rent. I said this for many years, in 1970, its location, location, location. In 2000, it's location X4. In 2020, it's location (x5). That will never change. Wealth drives prices (in these locations), not income. No one cares how much you make, they care how much $$ one have.

"although it seems like the Sacramento market is heating up due to the spillover effect."

Combination of putting equity to work and migration to cheaper areas of CA. Sacramento Valley has the perfect condition to grow weed. They love to rent a home from Bay area investors and have no idea. 99% of grow house are renters.

"My friend put in a bid for an 18-unit at 1201 Powell St in Nob Hill for $4.2M and lost it to an all cash buyer."

that person will be known as slumlord. I have never seen owners get so much verbal abuse for subsiding 80% of your rent.

"I really like your SF market due to deep value because of rent control. Unfortunately, a sizable down payment is required due to low in-place rents. However, it's such a safe long-term bet due to its desirability."

Only in SF that you want a 0% occupancy rate vs. 100%. That 4.2M property would be worth 7M delivered empty. We speak to lawyers all the time, the going rate is 150K and 25K in legal fees "to buy" a normal person out. You know $$ and developer speak when certain homes have rent control (big time landlord), Small time landlord is sorry out of luck.

Btw, 3 years ago, the hot areas were Mission, Noe Valley, Pac Heights, now its more west that are getting 20% yoy. There are little pockets that will be next (SF City college)

Hmmm, maybe I should put more focus on housing again.

* A separate housing-only site?
* Just promote https://patrick.net/topics/housing?

Ideas?

rando says

Hmmm, maybe I should put more focus on housing again.

Perhaps, but if you do, maybe you should explain why you will do better this time. I say that because by and large, anyone who was here and didn't buy (say 2009 and beyond) was royally screwed. Your price to rent metrics are nice, but for the vast majority of your users who simply want to buy a house they know they can afford and be somewhat near the bottom, renting for life is not really an option.

In other words, if you do housing bubble 2.0 what did you learn from your the last 15 years to ensure this generation is not as screwed as the last?

Sigh - so no changes? Have you forgotten the people like meetykats who cursed this site? Or what about the people in your neighborhood who followed your advice only to have the old owner sell and the new owner jacked the rent up to 6K?

Again, why not incorporate what you have learned? For example make the new slogan "why in some neighborhoods it NEVER makes sense to buy" and explain why the rent historically never reaches parity with the purchase price? Also, explain (for those neighborhoods) that IF you must buy, the best signs of a bottom are ___ and ___ and ____?