0.5% Rule

Bay Area
21

For multi family, are you guys talking about 2-4 units? Cap rate for 2-4 units are still very low in BA, not much better than single family.

You may buy 50 units somewhere for 1M. In BA, it could be 20M.

22

May not be cashflow neutral in a downturn, yes. It may turn negative. But if the said downturn is 5 years away and there is some healthy appreciation in rent then it may not.

Cashflow neutral at Year 0 may not save my ass in the next downturn. But thatā€™s a risk I am willing to take. If I am too conservative I canā€™t play in this market.

23

What if your tenant can live in your rent controlled apartment for eternity? And she can even pass that right to her kids or any random people, provided they live there for 2 years before she moves or passes away?

Welcome to NYC:

http://www.nycrgb.org/html/resources/faq/succession.html

I wonder when SF will pass a law similar to thisā€¦

24

Again, you are talking about an exception case. Most owners have multi units, so their risk (good and bad) is spread over many tenants. I honestly donā€™t know any owners that have it so literally bad that they are doing financially poorly from owning a multi unit building. In fact, most owners I know are doing well cash flow wise even if they have one or two low paying tenants. You have to keep in mind that things happen in peopleā€™s lives every minute of every day. People lose jobs or situations change where they end up having to move out. This is played out all over the place. At the same time, you have to be smart about it. I mean, I wouldnā€™t test fate and go buy a multi unit building full of protected senior citizens either, right?

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25

Itā€™s pretty hard to avoid protected class tenants, when the definition of protected class keeps expanding. I think when schools are session teachers are protected class now? Things are manageable right now. I am worried about the future. The trend is not looking good.

26

You canā€™t worry too much about everything or the future. Things will develop and you will roll with the punches as you have always done. Letā€™s be honest, no one here who is an owner would seriously trade places to be a renter because oh they fear some calamity down the road to the owning class. Your life span is not that long honestly to be so concerned about wholesale changes to society.

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27

Multi units, baby!!!

28

With Trump getting up to 4 supreme court appointments the renter class may not have that much clout for the next twenty yearsā€¦He gets one right awayā€¦plus Ginsburg is looking pretty frailā€¦
Plus there are hundreds of decrepit Federal judges whose average age is 70. And many in the 80s and 90s
Trump will have a huuuuge influence on the judiciary. ā€¦
http://www.latimes.com/opinion/op-ed/la-oe-0202-garrow-aging-judiciary-20160202-story.html

29

The holy grail for landlordsā€¦10% cap, 10% appreciation and 10% cash on cashā€¦Multi family is the only way to get close to thatā€¦Eventually you will want to trade your sfhs into multi family, it increases cash flow and wealthā€¦

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30

MF are too good cash flow with right location. Appreciation may be different from SFH, but ROI is better. I do not whether I will be able to do or whether I will do such trade off, but I feel this best to trade when you want high cash flow.

31

I have tried most asset classes and sfhs have the lowest capsā€¦Self storage is the best I have invested in for ROI, but hard to find near the BAā€¦Never tried trailer parks but they can have amazing capsā€¦up to 30ā€¦Multi family is the preference for the prosā€¦The whole sfhs rental boom phenomenon is from the 2006-2009 crisisā€¦The bloom may come off the roseā€¦Low cash flow and more management headaches. .PMs charge 8-10%ā€¦only 3-6% for MFsā€¦

32

1% Rule will not work in bay area.

  1. This is for SFH

If someone gets 75% of rent = PITI, it is a greal deal for bay area. This assumes 25% down payment.

However, in bay area, we normally get 75% of rent =PITI when down payment is appx 35% or 40%.

  1. MF

It may be 80% or 90% of rent =PITI when down payment is appx 25% for 4-plex or similar.

If someone gets better cash flow, it is a deal.

33

Havenā€™t researched about MF and Storage, but my Austin PM doesnā€™t do those, only SFHs :grinning:, wonder why if they are so good.

Buying SFHs in SVs is a hedging strategy. Rather than wait for children to get married and then look for a house, buy for them now, and if they donā€™t like the house, can always sell and buy a new one. It works so farā€¦ price has rocketed.