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Why I Love Bay Area Real Eatate…


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2022 Sep 4, 11:34pm   5,835 views  53 comments

by Eman   ➕follow (7)   💰tip   ignore  

As some Patnet old timers know, I started my real estate investing journey in 2009, a year after iwog did. We accumulated about the same number of rentals by 2012-2013, about 10-11. Iwog seemed satisfied with that while I kept scaling up.

Now, my biz partner and I own just shy of 100 units here in San Jose. A couple buildings are co-owned with investors….mainly immediate friends and family. My share of ownership is 40% with about 45% LTV.

To put things in perspective on how wealth is built, Bay Area real estate tends to double in value every 15 years. If history is any guidance, a $40M real estate portfolio should appreciate $40M in the next 15 years, not including principal pay down, cash flow and rent growth over these years. If nothing more is done other than just maintain the assets, they should worth $160M, free and clear, in 30 years.

As a former engineer, when I analyzed Bay Area real estate back in 2009, I realized it was an opportunity once in a lifetime so I quit my W2 and gave it a try. I cashed out my IRA over 4 years, 2009-2012, paid the penalty, used the proceeds and bought whatever real estate I could get my hands on at a discount. I used the BRRRR approach to acquire more properties during these years. Fortunately, it has worked out.

Looking back, I’m so happy I took the plunge. If anyone saw a potential opportunity in their life, I’d say go for it. We only live once. If you don’t make it, you’ll be wiser. If you made it, you’d be glad you did so would your spouse and future generation(s).

Best of luck and cheers!

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51   GNL   2022 Sep 9, 6:14am  

Eman says

There are winners and losers among us. Not all trust fund babies are lazy and couch surfers. Some are smart and self-driven while others just want to coast through life. That’s what makes us a society. Money will transfer from the lazy to the productive. Time will be sure it happens.

Yes, good points. If you want great kids who contribute positively to society (I sure hope that's what we all want), money without work is nearly an abomination imo. Money doesn't create a good society or person. Reading, learning, loving etc...those are the tickets.
52   FortwayeAsFuckJoeBiden   2022 Sep 9, 9:17am  

Eman you mentioned some stuff about loan advice from federal reserve friend. Can you share any of that advice please? Like loan terms, types? Im looking at commercial land and properties lately too, just not in CA.
53   Eman   2022 Sep 9, 6:26pm  

FortwayeAsFuckJoeBiden says


Eman you mentioned some stuff about loan advice from federal reserve friend. Can you share any of that advice please? Like loan terms, types? Im looking at commercial land and properties lately too, just not in CA.


@FortwayeAsFuckJoeBiden,

This mainly relates to commercial loans. When you buy a non- or underperforming asset/building that doesn’t generate adequate income for a 75% LTV, you ask the bank for a bridge IO (interest only) to perm (permanent) loan.

Let’s say you need 1 year to stabilize the asset, you ask for 18-24 months IO with a 3-5 year ballon payment to give yourself some buffer. Once the asset is stabilized, you can convert it to a perm loan, which is typically a 5/1, 7/1 or 10/1 ARM loan with 30-year amortization.

Example: Buy a $1M building with only $5k/mo of income. After $3.5k of monthly expenses, net cash flow is $1.5k. 80% allowed for debt service is $1.2k. Max loan amount is $240k. You need to bring in $760k to close the deal.

You propose/request for a 75% LTV (Loan to value) IO bridge to perm loan with reserve, which will be released once the DSCR (debt service coverage ratio) has been achieved.

Debt service on the $750k IO loan is $30k/year at 4% interest. 18-month terms = $45k to be set aside in the bank’s reserve account not to be touched. At 24 month = $60k. Your total cash outlay is $295k to $310k vs. $760k

Once your net cash flow is greater than $3,125/mo, you ask your property manager to send the monthly statement to the bank, they will release the reserve immediately. $3,125 is 1.25 x $2,500/mo of debt service.

If you can achieve $4.5k/mo net cash flow within 24 months, you can ask the bank to convert it to a perm loan. If you can achieve $6,250/mo in cash flow within 24 months, you can ask the bank for a cash out refinance loan of $1M.

Note: the interest rate is fixed for a 5-, 7- or 10-year perm loan. Interest rate is float/adjustable on a bridge loan. It’s normally prime + 0.75%. Today’s prime rate is 5.5% so that’s 6.25% interest.

There are other terms that you can ask the lender to carve-out or modify like pre-payment penalties. You can also ask for an earn-out like for each milestone of cash flow that you achieve, the lender would give you $50k or $100k of equity so you can achieve higher cash flow, etc….

Basically, whenever I have a scenario, I would run it by him. He’ll share how he would structure it and pitch it to the lender. Hope this helps. I’ve learned so much this past decade thanks to generous people who are willing to share their knowledge….all for free.

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