Hello guys. This is my first post on these forums although I have been reading it for a few months now and I have learned a ton. I live in the SF Bay Area, Northern California. I work as a licensed real estate appraiser and I feel that it has helped prepare me for a future beyond appraisals and hopefully becoming a savvy investor. My question to all of you is, can decent money be made in the Bay Area considering the high real estate prices here compared to the rest of the country? I know that a lot of the pros here recommend market rents that reap at least 2% of the purchase price of the property for it to be a sensible investment. I work on rental surveys for multi-unit properties in my county all the time and the 2% rule would be hard to come by. Even the properties that are being sold at the bottom of the market which are either foreclosures or contractor’s specials still can be pretty expensive. For instance I appraised a bank owned duplex yesterday that was worth $500,000. The rental survey I conducted showed that they should be able to fetch $1,700-$1,800 per month for each unit. That is only a potential gross monthly income of $3,600 at best. $3,600 x 50 = $180,000 which is well short of the $500,000 purchase price. My question is, can money be made in this market area as a landlord owning multi-unit properties and do the normal rules apply in this area? Would a better option in this area be to rehab and flip properties instead? If this area isn’t good investment wise, would it be recommended to invest in properties out of the state even though I wouldn’t be able to oversee them in person as much as I would like to? My intention is to invest in this area if it does make sense. What do you guys think? Any and all feedback is greatly appreciated.
The rules of finance will not change no matter what area. Weather you are buying and holding or rehabbing the same rules apply. Buy low sell high. With your duplex example we take the rent and work backwards to arrive at a purchase price that will allow us to make money every month, just as you did. If no money in it no deal. As for rehabbing that same rule applies that you would have to purchase that property for about 60% of value to have a spread at the end. If no money in it no deal.
With your experience as an appraiser you should be able to find a bargain property and arrange to buy it, and at least flip it to an investor for a few bucks. Who knows your area better than you?
Redhawk
with the numbers that you folks in the Bay Area are up against, I don’t see how a buy and hold approach can work. You’ll have a negative cash flow from day one.
I’d hold onto my cash and invest with options and lease options. Minimal cash needed, low risk, no negative cash flow.
I really appreciate the responses. I will have to do more homework on my end and continue to learn more from these forums. It is interesting because I constantly appraise multi unit residential properties and the borrowers are always convinced that they purchased a good deal with positive cash flows. But when I input the numbers into the formula it never makes sense to me. Are there any landlords/flippers on these forums that invest in the Bay Area market? I would really like to hear from them and their experiences as well. Thanks again.
Welcome to the forum.