I have been a lurker for some time and inspired by some of your posts (@manch, @sfdragonboy and others). I too would like to start investing in real estate and am seeking directional advice from some of you seasoned real estate investors in this forum. I created a temporary account today as I am sharing quite a bit of personal info so here it goes:
Personal: Age 40, married with kids, tech job, living in bay area.
Property: Currently own primary home SFH in Southbay. Zestimate approx 2 mil, Mortgage approx 1 mil.
Financial: Single income family. Salary $230k/year, excluding 50k of bonus and stock options. Savings $100k cash and $300k in IRA.
Risk appetite: Comfortable with risk and near term negative cash flow.
My question is how do I get started in real estate investing? Given my current financial, can I invest in the bay area so should I look elsewhere? Should I take out a heloc and purchase all cash or should I take a mortgage? Just need some directional advice to get started. I am including detailed info here in hopes to get specific advice and because I feel my situation is fairly common and this post will serve as a good reference for other individuals. Thank you.
Always get a mortgage loan, especially if you want to invest in Bay Area. Otherwise you may be saving for a decade or two before you got anything.
Other questions like whether you should take out a HELOC is as much psychological as financial. How comfortable are you with risks? Do you mind negative cash flow? How much debt are you comfortable with?
There is no one answer that fits everyone. There is no right or wrong answer.
As for locations and property types people have different preferences. I don’t mind HOA so townhomes and condos are fine with me. Some won’t go near those with a ten foot pole.
I think if you decided on a price range we can chime in on location/property type mix. But since it will be your first rental maybe starting with something in the lower price range?
I am comfortable with risk and have edited my original post to reflect this. So is the next step to work with a mortgage broker and determine what I can afford? That will also likely determine if I can invest in the bay area or not.
Your assets seem top heavy with your primary home being the largest piece. I would diversify into stocks instead using home equity. Get a heloc for $500k and dump it all into your favorite stock(s). You can also play margin with that and accumulate up to $1M portfolio in stocks.
Some like stocks some don’t. But yes think about how to allocate your asset.
If you still want to invest in RE then yes next step is to talk with a mortgage broker. I think you shouldn’t have any problems getting loans. Something along the line of 200k down on a 800k property.
An easy cheap way is to Airbnb a room in your house. Make the kids double up and free up a spare room that can generate $2k per month. Pretty much net free income. Probably a lot more money than you would net from a single fm home in the South Bay. Plus it is a great experience. We used to airbnb our pool house in RWC. Met interesting people from all over the world.
Great conversations and dinners around the pool.
Another option is to bootleg an unpermitted rental unit.
I always used roommates and second units to build equity when I was much younger and had no money and little credit.
Option 3 . Sell the house buy a duplex or a house with an in law unit. Your $1m equity is costing you lots of loss opportunity costs. It is what I did when I left the BA. One $3m house there with a $1.2m mortgage got me 7 houses in Tahoe and an apartment building.
Are there anything that’s <1M near South Bay that would be cash flow neutral? I own a rental 40+ miles away and doing any landlording activity is a pain…
Given the current market, finding anything near cash flow neutral from the get go seems pretty hard in South Bay (or many parts of East Bay I’d assume)?
OTOH, since OP has so much equity in primary, another way is to rent out the current home and get another primary. I’m assuming the current primary will get closer to cash flow neutral / positive? Then you can enjoy lower downpayment + mortgage rates.
I think it makes sense for @Elt1 to buy in Tahoe because he lives there. It makes less sense for @hanera to buy in Austin because he needs to control everything remotely and that incurs much more overhead cost. He could’ve done better staying here in the Bay Area.
My realtor told me, buy homes near by 1 hr driving distance, for investment cash flow go for multiplex, for appreciation SFH (but hard to hold negative cash flow). Remote control avoid as much as possible.
Rates are higher now. Most people have a first mortgage lower than current rates. It make sense to keep that lower rate and use HELOC to get extra money.
Heloc is much better than mortgage. Because you don’t need to use it. It can just act like an insurance which you can rely on in times of trouble. When you don’t use it, it’s zero interest and you just need to pay a negligible annual fee.
Well, welcome to the party,@RERookie!!! Shoot, I just sold my cash positive 4plex in Oakland that honestly had some future upside on rents for the creative minded owner…
Some food for thought would be are you a hands-on kind of guy or would you be using a property manager? I too prefer investment properties that you can reasonably get to take care of or check out easily.
Awesome profile with the salary level, but let’s be honest though an investment property purchase via mortgage typically calls for a down payment more than the plain jane 20% for primary.
If you have been reading all along, places like Fremont (I feel) can still be had for a decent price and is still on the rise with the inflow of tech companies and Tesla’s presence. My tenant is into cloud computing and commutes across the Dunbarton Bridge to work.
Buy properties preferably within 30-45 min of where you live
Self-manage the properties — you don’t need to pay a property manager
Load up on a good umbrella insurance policy and hire the best attorney possible to craft an iron-clad lease agreement. Don’t try to save money.
Use a relationship based bank (like First Republic) — if they know your full financial picture, they are much more flexible than pure metrics-based-banks.
If it is possible, try to own the whole HOA. Meaning if it is a 2-unit condo building, buy the whole thing. Then, you become the HOA, and you also save on property insurance because the insurance company doesn’t need to insure you against the HOA since you are the HOA.
Sorry as this might not be what you want to hear — See if it is possible to go DINK, esp if buying in the bay area for investment, until you are generating enough cashflow to get a 2nd property and then go single income. That 230K + bonuses gets eaten up super quickly as you know, in the bay area. You need room for the unexpected - i.e. another kid, or private schools, or a medical emergency, or hospice care for the parents, etc.