patrick.net

FJB says

I personally don't see that strategy lasting though.

I don’t know either. It’s a formula that has been working for my partner and I. We’re up over $10M in equity in the last 8 years, not including the stuff we own by ourselves. We go at our own pace and not trying to force deals that don’t pencil out. We only take on deals where we can get our equity out in 5-7 years. It was 3-5 years in the early years, but the market has taken off since. Haven’t been able to buy any apartments in the last 2.5 years.

It’s not stress free due to homelessness in downtown San Jose. However, I’d rather deal with these issues than a W2 and the politics. I work 2-3 hours/day and can take off anytime I want. No boss to report to. I can pay others to make the headaches go away. Can’t do that with a W2.

With commercial real estate, banks don’t over lend. If a building brings in $10k/mo with $4k/mo in expenses, the maximum the bank will lend is $5k/mo in debt service out of the $6k/mo net cash flow. It’s called 1.2 DSCR (debt service coverage ratio). Bank underwrites with 5% vacancy so the break even is 15% vacancy, and investors lose money after that. In our case, we under-leverage a little so our break even is around 25% vacancy.

In 2020 during the pandemic year, our actual vacancy was 1.2%. In 2021, 2% vacancy. Rentability is strong in San Jose.

My partner and I have a $25M real estate portfolio together. We owe $14M on it. At an average annual appreciation for Bay Area real estate, how much does our net worth increase each year? Also, the tenants pay down $250k/year in principal. Net cash flow is around $200k/year, $100k for each guy.

Every year, we make an effort to convert $500-$800k in equity from our buildings, and use the proceeds for new acquisitions. If there’s nothing to buy, I use the money to pay down debt on the stuff I own at 3.5-4% interest. Then obtain a HELOC on them so the liquidity is there if I ever need it. The plan has been working…..until it doesn’t of course.

Eman says

I do a cash out refinance, get all my equity out of the building, and let the tenants pay-off the building. Rinse and repeat.

A tip of the hat to you. Around here, it is very difficult to get banks to loan on rental property.

Blue says

Given the out of control gov. spending, its hard to expect downturn in prices for longer periods.

https://realwealth.com/learn/housing-market-predictions/?source=patrick.net

11 More Housing Market Predictions for 2022, 2023, 2024 & 2025

Looking for a real estate forecast for the next 5 years? You’re in luck. This is the only article on the web that includes real estate market predictions beyond 2022. And we go even further than that, outlining our predictions through the year 2025!

Here are my top 11 predictions for the housing market for 2022, 2023, 2024 and 2025:

Low mortgage interest rates through 2021
Home prices should continue to rise in many markets

This is Kathy Fettke of Realwealth Network. Unlike what she claimed in the article, she got hurt pretty bad during the last housing bust. However, she was able to pivot and does quite well for herself so more credit to her. To me, she’s nothing more than a glorified used house salesperson, who collects her commissions by connecting clients with out of state (OOS) turnkey providers.

With respect to her predictions, she basically stole those talking points from Bruce Norris. Bruce is considered “the oracle of real estate” in the real estate investing community.

Thanks for sharing the article. It brought back old memories of Geraldine Barry, who was the president/founder of SJREI. She tragically passed away. Lori Greymont, who took over SJREI, let’s just say be careful taking her advice.

Good luck.

Eman says

by connecting clients with out of state (OOS) turnkey providers.

What is a turnkey provider?

Eman says

The plan has been working…..until it doesn’t of course.

Those are fantastic numbers!

Well, if CA goes from Facist to full Commie with your skills you could make that work in any state in the union. For that matter, from what I've read that strategy works in virtually every nation on the planet.

WineHorror1 says

Eman says

by connecting clients with out of state (OOS) turnkey providers.

What is a turnkey provider?

Turnkey providers are people who sell old housing stocks in rough and declining neighborhoods to the naive, unsuspected folks in the expensive markets, who are chasing faux cash flow.

In general, there are more bad turnkey providers than good ones. Turnkey houses tend to sell above appraised value so investors are in the hole from the get go, but they’re buying for cash flow so who cares right? Well, the tenant profiles are bad to begin with and they don’t treat your property with respect so every time they move out or getting evicted, your property is destroyed. You would spend so much money fixing it up. All your faux cash flow is gone and more.

There are a ton of them on Biggerpockets looking for fresh meet. There are a few brokers in the Bay Area as well as SoCal who would throw you to these turnkey shysters and collect their outrageous commissions. We’re taking about 5-8% a pop.

FJB says

Eman says

The plan has been working…..until it doesn’t of course.

Those are fantastic numbers!

Well, if CA goes from Facist to full Commie with your skills you could make that work in any state in the union. For that matter, from what I've read that strategy works in virtually every nation on the planet.

FJB says

Those are fantastic numbers!

Well, if CA goes from Facist to full Commie with your skills you could make that work in any state in the union. For that matter, from what I've read that strategy works in virtually every nation on the planet.

Thanks. Anything is possible. We all make bets and live with the consequences.

People actually told me that. If I could make it in the Bay Area, I should be able to make it elsewhere. I hope I don’t have to move from the Bay Area. Life is great…except the politics, intolerance and homelessness are getting crazy around here.

Eman says

Turnkey providers are people who sell old housing stocks in rough and declining neighborhoods to the naive, unsuspected folks in the expensive markets, who are chasing faux cash flow.

Caveat emptor

The formula for the Bay Area is pretty good. Once you got it figured out, you no longer wanted to go out of state and chase the faux cash flow.

We’re grossing $1.7M on our apartments. An average 3% annual rent increase = $51k/year. Let’s say $15k goes to pay for the increase in expenses, we net $36k/year. $3k/mo can service $600k. We also get $250k/year in principal pay down. This is how we have been able to extract $500-$800k/year in cash out refinance (tax-free) and use the proceeds however we see fit. Then rinse and repeat.

Onvacation says

We're all going to die and all have to pay taxes.

That second part is made up by government. There was not direct tax on income for over half our countries existence.

Onvacation says

Without making any definite predictions I don't think it can last more than a couple more centuries.

You are aware the world used Silver until the late 1800's, and gold until the early 1900's to back it currencies. With some small regulation between banks extending to the 70's. So the current system has existed for less than 100 years. Feel free to look back in history for any 100% unbacked fiat system that's lasted longer.

The arrogance or ignorance in assuming things have always been as they are in our time is the biggest reason people are caught in catastrophe. Not intending to insult anyone, but this is fact, something we must always be on guard against.

CA is driving me out of the flipping biz. It’s always someone else’s fault, not theirs. What a loser mindset.

https://www.cbs8.com/article/news/local/new-ca-bill-would-impose-25-gain-tax-house-flippers-sell-within-3-years/509-557ac4de-8125-422e-beb3-8162972ef5e0?source=patrick.net