San Francisco or South Bay?

I had an interesting conversation with a builder/architect today. I asked him, where is the better place to buy rentals? And where is the better place to flip homes?

What do you think his answers are? How would you answer those questions yourself?

For Flip, the opportunities are available everywhere, it depends on our knowledge about the area, budget and plan.

Real estate is high amount involved, know the location, how much it costs to buy, fix, how much we have in hand to do it, how much (and how easy) to sell it.

Nowadays, I stopped posting the deals as I see in bay area.

Here is the flip (probate sale) good to have

Here is the condo to buy and rent

We can have similar in Hayward, Stockton, SF and SJC too, but someone needs to focus on these areas. Ask elt1, he will tell about RWC, Stockton and Tahoe.

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At the end of the day, rentals means you need renters. So, areas that are the economic or job centers certainly need consideration. Now, if too expensive already or too much building on the supply side, then the surrounding areas might be best since those are probably cheaper yet close enough to the job centers that renters will like the lower pricing yet getting to work is doable and not too expensive. That paycheck is key. Now, this would probably be the strategy for someone who has the the money and wants income stability long term (assuming job centers are reasonably diversified), because there will be a day when the economy might stall or even contract. Can you weather the storms? I say renting out in the sticks, you are taking a chance if should the economy falters. Those areas are typically the first to be impacted quite hard as we have seen in the past.

Needless to say, all of the areas around here, Fab 7x7 or South Bay are great areas to live as we all know and enjoy as our properties are going up with every passing minute. The problem that could arise I fear is if the relative “attractiveness” of the region starts to falter vs other areas (like Seattle or Austin) due to high pricing or congestion. Chances are, SV should be fine for a long time as the biggest of the big titans are here but one should never assume anything. Rome fell too…

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Long term holds require quality assets.

Short term holds require speed. Fewer regulations, fewer nosy neighbors, and lower expectations.

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Are you hedging by buying some rentals in Seattle and Austin?
At present, Seattle is king of AI/ ML and Austin is receiver of lower tech.
Buy there now before they morph into SV equal… hedge.

SV <===> NASDAQ, I am long on SV, no let down since 1975 Tech revolution !

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There is no hedging as all these are tied to tech. For true hedging you need something with less correlation, ideally even correlated in the opposite direction.

What area would be opposite? I think most areas will go up/down with the overall economic cycle.

SF is better for long term hold. Flip is easier in South Bay, but SF flip can also work

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Markets like Dallas or Florida won’t crash just because tech goes down. I think if we had another Dot Bomb, Dallas and Florida RE would still go up. They will just do their own thing. Correlation is more like 0, not -1.

We don’t need opposing correlations and mediocrity. We want concentration and outperformance.

IMO, you are speculating real estate like stocks, trying to predict future…etc, it is good to analyze, but I see opportunities are higher here than those places… During 2000 and 2008, fall and raise of California was steeper, while fall was high in those places like Dallas, Florida, but recovery has not made.

Fall is an opportunity, but where growth and population recovers is important for recovery. The down turn causes ripple effect or domino effect on credit system. When down turn strikes, it affects everywhere no matter whether it is real estate or oil or tech. Low average income places will be worst hit than higher income places.

Here is the true one: Twenty years before we (group of friends) and my friend landed here as software engineers. One year later, seeing this CA high cost of living he moved to Plano/Dallas (good school areas) and we stayed here (mostly Cupertino). I compared many of my friends stayed here and their net worth with him. His net worth is almost 1/4th what our group (individually) have. He has a company and his income is almost similar to ours, but his investments, esp real estate investments, did not stand up to California (Bay area) investments. It is not we compared his net worth, but he himself compared his net worth when he visited here once, stunned by seeing the changes and opportunities !

This may not be the case for many (reverse is possible), but higher leverage, higher appreciation and faster growth really helped bay area. I visualize Bay Area, even after many UPs and Downs in economy, flourish like Hong Kong, Singapore and London Market.

This is why I always insists on accounting both cash flow and appreciation than looking at cash flow alone.

Positive cash flow is like stock dividend. You are supposed to re-invest those dividend to have any compound growth. But human nature gets into the way. In the case of Bay Area RE you can’t take the money out of appreciated value easily, so your money stays in the property and compound. In Dallas you are handed cash in the form of cashflow but many are tempted to spend it away.

If your friend reinvest the cashflow into buying more properties in Dallas I don’t think the difference in net worth would be that big. But it’s hard psychologically.

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Good, me think similar. :smile:[quote=“Jil, post:12, topic:2319”]

This may not be the case for many (reverse is possible), but higher leverage, higher appreciation and faster growth really helped bay area. I visualize Bay Area, even after many UPs and Downs in economy, flourish like Hong Kong, Singapore and London Market.
[/quote]

:grin:

Agree

At the risk of sounding like an echo chamber I agree too. My better half was of this opinion and she invested in multi-family in the south bay, I invested in Sacramento (a few years back when we each changed jobs and cashed out on the previous). She turned out to have made the better choice. Since then I have seriously examined all my assumptions and keep coming back to you have to look at the fundamentals and potential of where you are investing in (just like stocks) and not the current book value. So Bay Area it is.

Can tech bust without an overall recession though? If there’s a recession, then everywhere will decrease in value. I think rentals for college students would be the most recession proof, but the appreciation is probably limited to inflation. When there’s a recession, even more people go to college (especially grad school programs).

Berkeley is a college town but also part of BA. Is Berkeley recession proof? I think Berkeley appreciation is above BA average.

Hayward has a CSU. Why is Hayward not getting any more love due to this CSU?

2001-2002 was a Tech bust…Hard on local landlords and a few home sellers, but relatively mild effect on everyone else

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I think rent should stay stable during a recession nationally since national population does not change much. But for high cost places such as BA, local employment recession can cause rent plummet, that happened during the dot bomb.

How did rent change in college towns such as Berkeley, Haywayd and Santa Cruz?

Expect 20% down on rent and 10-15% Down on value on the home, again both depends on location where max lay off affects the demography.