I’d like to start getting involved in REI. I’ve got a little cash, Fico >770, and live in SF.
I’ve noticed that most investment properties in SF have very low cap rates, that are far below breakeven, but seem to be improving. I expect the cap rate to improve further once the new condo supply starts weighing on the market.
Am I making a mistake by only concentrating on the area where I live?
Globe, my opinion is that SF is a safe place to put money. It’s highly desirable, salaries are huge, jobs are secure, it’s a retirement destination, and supply of land is tightly limited.
However, you can not invest in rentals for cash flow. You will have to use another strategy for investing. There are different ways to make money with real estate besides rentals.
In order to maintain rentals in SF, you would have to have enormous equity in the properties. You can get to that point, but you are going to have to earn that money using other real estate investment methods.
4444, Michael Quarles gives some very good advice. It’s always best to double check any recomendation from any source, but Michael is certainly not automatically suspect, and I suggest that you don’t knee jerk reaction discard what he says.
I would buy myself a $1,000,000 2-bedroom condo. And rent it for $2000 a month.
Propertymanager ---- would that thing generate positive cashflow???
I don’t know a thing about the SF market, and I’m not going to pretend I do. However I have heard about the sky-high real estate prices out there. It’s probably in the top-10 or top-20 major cities in the world in regards to high property values. That would make me consider my real estate investing strategy very carefully. I can go & pay cash (or finance) for a $20k to $50k older rental home here in Dallas, and it’ll generate me a decent APY. However…$20k to $50k probably wouldn’t buy you much more than a trip to Starbucks out there (again, just kidding). But seriously - I would highly recommend you join a local REI club and see what your options are. That’s probably a great place to flip homes, or to build & hold (not buy & hold) commercial property, when the market picks up in CA again.
Wow. $20k - $50k for an older rental home. That affords some great opportunity I’ll bet. You’re right, $50k won’t buy me half a garage in a half-decent neighborhood in the city, but thanks for the advice. I’ll look around for local REI clubs.
Any hints on his strategy in the current environment? The places that have come off in price appreciably are mostly in areas, like Contra Costa County, where it’s not easy to find buyers to flip a renovated home because of all the supply.
Exactly. I’m not willing to speculate that the RE market in San Francisco is going to go up. I think it’s going to go down 10%-20%, because of the massive new condo supply in the pipeline. But I want to be prepared and get my feet wet, for the real opportunities when they appear.
How far away do you folks invest in RE? Within a couple of hours driving distance?
I live in San Rafael (actually moving into SF soon), and invest in Marin/Sonoma counties. I previously marketed to SF county as well, but stopped because I was spreading myself thin.
First off, you have to realize there are a ton of micro markets within the bay area. What works in the east bay, does not work in Marin/SF/San Mateo counties, and vice versa. I’d study the various micro markets and figure out which suits your investing preferences. If you want rentals without a massive downpayment, you obviously have to move away from the nucleus of SF, and move east, or far north/south. But then again, if you want to stay in SF, the retail market is still strong, and there are tons of run down properties that could use a good rehab. Jumbo credit is also very tight right now, another variable to consider.
I personally love the area, and high prices. Just a handful of deals can net profits equivalent to 10-fold what you’d have to do in the rest of the country. On the flip side, you can obviously lose much more.
His strategy is simple… Market like a gorilla Investor and make money… Certainly the area is prime for HIGH profits. As someone mentioned the cab cost are enormous which means profit potential is too. Currently he is marketing to NODs and Expireds… The two easy lists… I am trying to get him into the other four groups and he will in time… Jump starting a business isnt somehting that can be done overnight.
4444… There is Nothing quick about making money in real estate, you have to work your ass off and stick to a program… Please dont believe me.
If you want to get much greater rents, San Francisco would be a great place for a "furnished " rental. Check your paper for what fully furnished apartments are renting for. Furnish your rental for rents 2-3 times unfurnished. That should help with the cash flow problem.
A long time ago I moved to San Francisco. First stayed in a hotel for a few weeks, then moved to a FURNISHED studio apartment.
More recently, I lived in Japan and had to fly to S.F. for medical treatment. A furnished apartment would have been a great place to stay.
Don’t discount the idea of getting a duplex, owner-occupying 1/2, and turning the other unit into a furnished rental.
In some SF neighborhoods, people put their unwanted furniture out on the sidewalk and it is just there for the taking. My niece furnished some of her apartment that way.
It is an easy thing to furnish, decorate, and clean and manage 1 unit. Hotel rents are HIGH. Europeans especially want furnished apartments.
I just had two Belgians here in my office. They were booking their furnished place for next year.
Scoff all you want, spencerB. I’ll take my monthly rental profit anytime.
Insult is the wrong word, but your statement didn’t warrant much of a response.
To save the time writing an essay regarding the SF rental market, I’ll be blunt… your advice has no merit. Furnished rentals go for no more than a 10-20% premium, and it takes the right renter for these, because MOST people in SF have their own furnishings due to the fact that most are rented vacant. IMO, you’ll probably lose money in the long run because most people won’t want to toss/store their own stuff and use the furnishings you provide, especially if you are furnishing the house with items you found on the street. A cheap mentality will not work in the city of SF.
2-3x times due to furnishings… I mean, please, put the happy pipe down. Do you know what rents go for in SF? Its usually in the range of $1000/bedroom. You’d have to find one hell of a fool to pay 2-3x the going rate for some furniture. And again, why would anyone rent your place at 2-3x, when there are available furnished listings on craigslist or through brokers at a 10-20% premium over unfurnished? Simple market economics. Next, are you going to tell me you can polish a brick of gold, put a ribbon on it, and sell it for $2000/ounce?
Again, nothing personal. If its working in your market fantastic, best of luck. :beer
You just don’t get it. You are comparing apples with oranges. To rent furnished, you don’t compare that to the unfurnished long-term bedroom rental price of $1,000/month.
I just googled “furnished rentals san francisco” and in 5 minutes I learned that studios are renting @ $1,850-$3,000/month with 1-bedrooms $3,000-$5,000. Just what I told you.
Saw a really nice 2-bedroom for $5,500. So I am not smoking anything.
Furnished rentals are what I do for a living.
Yes, you can decorate very tastefully using cast-off furniture. Here we call them “antiques”.
globe, you can do a whole new set of numbers projecting rent and expenses on your future rental. Then you list your place online under “corporate housing by owner”. Leave the $1,000/month rentals for others like spencerB.