Author Topic: What real estate investments DO make sense on the West Coast  (Read 3033 times)

joenorm

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What real estate investments DO make sense on the West Coast
« on: December 15, 2018, 09:36:11 AM »
So it seems like the 1% rule is a common vein on soooo many of these posts. People wondering if their property idea is good, someone smart introducing them to the 1% rule, then everyone seeing that their great rental property idea is not so great anymore, when all factors are considered.

I am not anywhere close to an area where the 1% rule exits. Nothing i can buy will look good if this is the metric being used.

So my question is what are people considering "good" investments in places like Vancouver, Seattle, Portland, SF?, where you can't really buy places like this anymore(at least for awhile).

It is so much easier to deal in ones own local Realestate market. Shopping out of state is not for everyone, I certainly have less interest in it.

Is it best to just stay out of real estate completely? Wait for the market collapse? Or just maybe be more creative as there are always good deals, even in a crazy market.

Even building, which used to be a shoe-in because you could DIY and save so much is tough now, as building materials, permitting, labor, are through the roof.

So what to do when you live in a market that seems a little untouchable?

thanks






mr.neel

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Re: What real estate investments DO make sense on the West Coast
« Reply #1 on: December 15, 2018, 09:45:36 AM »
It is hard to find a cash flow positive investment properties in SFH in those areas given increasing interest rates. That said those markets don’t decline wildly like other parts of the USA when there is a correction.

But those areas are good for appreciation. And your return on investment is pretty big. If you really want to buy in that region and you can budget it in, I’d buy a investment property and rent it at close to breakeven. Wait for the capital appreciation to kick in after a few years (like 5-10 years) and then decide to keep or sell to get the return and reinvest (1031 exchange) in a region with better cash flow investments.


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Another Reader

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Re: What real estate investments DO make sense on the West Coast
« Reply #2 on: December 15, 2018, 10:37:00 AM »
Other than house hacking, I would not buy.  Won't cash flow or break even.  Probably at or near the top in the real estate cycle.

Wait until everyone hates real estate and no one is buying.  You will likely not realize decent cash flow even then, but you should get both cash flow and appreciation on a purchase if you are patient.

Dicey

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Re: What real estate investments DO make sense on the West Coast
« Reply #3 on: December 15, 2018, 10:44:50 AM »
My first rental was in Riverside, CA. I lived in LA in a rent-controlled apartment and could afford nothing there. Now we buy in Palm Springs/Palm Desert. Not coastal, but lots of sand. These rentals are not making us rich, but they're part of our post-FIRE escape plan.

Real Estate gains are the reason we're FI and I'm RE, but if I had it to do it over, I'd go for index funds, a la jlcollinsnh, all the way. There's no plumbing to break in low-cost index funds.

waltworks

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Re: What real estate investments DO make sense on the West Coast
« Reply #4 on: December 15, 2018, 11:20:37 AM »
If you can't get a 1% rule property (or, to be more clear, a property that won't give you returns comparable to the stock market), you don't buy. It's that simple. Your area may not be a good one for RE investing. C'est la vie.

RE prices are through the roof right now. That won't last forever. In fact, most of the hot markets are seeing huge inventory gains and sales dropping dramatically. I'd expect to see some price declines in the next few years. Maybe pretty dramatic ones if we get a recession (note that I'm not rooting for or predicting one).

-W

joonifloofeefloo

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Re: What real estate investments DO make sense on the West Coast
« Reply #5 on: December 15, 2018, 11:49:15 AM »
Other than house hacking, I would not buy.

+1.

I'll buy when I have the option to move to another part of the country or world, if even then.

Penn42

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Re: What real estate investments DO make sense on the West Coast
« Reply #6 on: December 15, 2018, 12:55:36 PM »
I've wondered this as well.  Perusing RE investing forums like this one I always wonder where the heck people live that the 1% rule actually pans out.  There's nowhere around here that it comes even close.  I have met people who rent properties but they must have bought them long ago or aren't actually doing their math correctly.  I'm not even in a huge and desirable area like Portland or Seattle but it still seems to be a completely out of the question.

Relating to my other thread in this sub-forum, maybe I should hunker here in my essentially free housing for 7 years, hit FI, and move to Iowa or wherever the 1% rule works.

waltworks

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Re: What real estate investments DO make sense on the West Coast
« Reply #7 on: December 15, 2018, 01:22:31 PM »
3 reasons:

1: People are dumb. How many people figure "I can rent it for more than the mortgage! Score!" Answer: almost everyone. So yes, a lot of your friends and neighbors that own rental properties because "the stock market is just gambling" are losing money, because they aren't good at accounting and didn't take repairs, capex, vacancy, etc into account.

2: Prices have been rising for a decade, so people who bought 5-10 years ago feel like geniuses, and that RE always goes up.

3: Some of them have owned the place for 30 years and are "making money" because the property is paid off. Making a net $25k a year on, say, a $750,000 property (yes, people have *posted places like that here*) is not that great, though. Again, people are dumb and many of them don't trust the stock market because they're bad at math or panicked and sold everything at the bottom (perhaps repeatedly).

You are smarter than them. Invest in things that will make you money. Expensive houses that rent for peanuts are not a great bet.

-W

Cwadda

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Re: What real estate investments DO make sense on the West Coast
« Reply #8 on: December 15, 2018, 02:12:58 PM »
Quote
If you really want to buy in that region and you can budget it in, Id buy a investment property and rent it at close to breakeven. Wait for the capital appreciation to kick in after a few years (like 5-10 years) and then decide to keep or sell to get the return and reinvest (1031 exchange) in a region with better cash flow investments.

I'm sorry but this is terrible advice.

#1 Buying a property that is breakeven is NOT an investment. It's a gamble.
#2 Buying a property that is "breakeven" usually is losing money because people don't factor in all costs
#3 Appreciation doesn't just keep going endlessly
#4 Sinking a bunch of money into something with no guaranteed return and for 5-10 years is essentially losing money. Instead, you could be making 7% with the stock market.

Jon Bon

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Re: What real estate investments DO make sense on the West Coast
« Reply #9 on: December 15, 2018, 02:14:34 PM »
It is hard to find a cash flow positive investment properties in SFH in those areas given increasing interest rates. That said those markets dont decline wildly like other parts of the USA when there is a correction.

But those areas are good for appreciation. And your return on investment is pretty big. If you really want to buy in that region and you can budget it in, Id buy a investment property and rent it at close to breakeven. Wait for the capital appreciation to kick in after a few years (like 5-10 years) and then decide to keep or sell to get the return and reinvest (1031 exchange) in a region with better cash flow investments.


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WUT?

The Seattle market went from a 192 to a 128, feels like a pretty wild decline to me.

Source: https://fred.stlouisfed.org/series/SEXRNSA

Rising interest rates effect affordability? We have seen somewhere between 25-50 basis points increase, or about 60 bucks on a 200k loan. I doubt that is the answer either.

Lastly hoping for appreciation for your return is just speculation. So if you want to bank on that good luck!

@waltworks  you are turely doing the lords work!

Give me the 1% rule or give me death!


Cwadda

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Re: What real estate investments DO make sense on the West Coast
« Reply #10 on: December 15, 2018, 02:16:03 PM »
I'm making another post because I want to suggest another avenue for the OP. Another option is to buy in another area that does cover the 1% rule. You just won't see the property or tend to it pretty much ever.

If you were interested in this route I could give you a few names of my colleagues here in Connecticut. These are investor friendly agents and property managers who work with out of state investors, with references to back it up. If you're interested just shoot me a PM.

Cwadda

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Re: What real estate investments DO make sense on the West Coast
« Reply #11 on: December 15, 2018, 02:17:03 PM »
@joenorm one more thing, if you ever have any doubts about information being thrown around just listen to @waltworks

He posts gold in this sub forum on a regular basis.

Another Reader

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Re: What real estate investments DO make sense on the West Coast
« Reply #12 on: December 15, 2018, 02:23:33 PM »
With the current market participants in Coastal California being largely comprised of Asian buyers that think in terms of wealth building in generations, not ten years, and are anxious to get their capital away from their home governments, you have a lot of people that buy independent of current cash flow.  You will be outbid every time if you make offers based on cash flow.  In the next major downturn, particularly if those folks have the ability to export wealth restricted, you will find buying opportunities.  What you may not find are properties that meet the 1 percent rule.  If you are willing to risk relying on appreciation, there is a lot of money to be made if you can outlast the downturn.

The other group of people in your way are people that have owned for a long time.    Because of high rents, large capital gains, and the potential loss of low property taxes under Prop 13, a lot of people, me included, have chosen to keep their existing properties, despite the low percentage yields on current value.  I paid $350k for a house 30 years ago that is worth at least $1.5 million now.  The capital gains tax would be unpleasant, even after the exclusion.  Remember, California taxes capital gains at the same rate as ordinary income and there is an additional 3.8 percent federal tax over a certain amount.  The market rent is $4,500.  The equity is not dead money, either.  I can borrow out equity and buy more property for cash in a better cash flow market.  The interest is deductible because it's used to buy rental property.  My choice and that of many others that don't need the money is to stiff the government, let the heirs inherit with a stepped up basis and then they can deal with it. Waltworks thinks I'm "dumb," but I disagree, as do all the other people doing the same thing.

I own a number of rentals, most of which do not meet the one percent rule today, even in lower cost but still desirable markets.  Do I sell?  For the most part, no.  I don't see opportunity in another asset class that makes it worthwhile to sell.  I take the income from that portfolio and buy asset classes that are undervalued, or failing that, stock up on cash for the next asset class sale.


joenorm

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Re: What real estate investments DO make sense on the West Coast
« Reply #13 on: December 15, 2018, 07:13:02 PM »
thanks for all the great responses.

I find it interesting, after learning a thing or two on this forum, how many people I know that would consider a property that is just covering it's own costs to be a sound investment.

It's probably because I live in Appreciation Land. People have seen land and home values go from "giving it away," to only affordable to the .01% around here. It's easy to think this will never end.

I love the hard logic of the folks on this forum, put emotions aside and figure out if what you have is truly profitable or not. Stop kidding yourself.

one way I see to achieve 1% in these markets is to add structures to existing properties. This way you're only dealing with the cost of building, not the land. Seems like it can still pencil out this way.

thanks



mr.neel

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Re: What real estate investments DO make sense on the West Coast
« Reply #14 on: December 15, 2018, 07:33:36 PM »


WUT?

The Seattle market went from a 192 to a 128, feels like a pretty wild decline to me.

Source: https://fred.stlouisfed.org/series/SEXRNSA

Rising interest rates effect affordability? We have seen somewhere between 25-50 basis points increase, or about 60 bucks on a 200k loan. I doubt that is the answer either.

Lastly hoping for appreciation for your return is just speculation. So if you want to bank on that good luck!

@waltworks  you are turely doing the lords work!

Give me the 1% rule or give me death!

Your right if cash flow is what you are going for 1% rule is important. And appreciation is risky but if you find the towns on the west coast where there is less risk there is opportunity.

On the West Coast there are smaller towns that weren’t as affected:
https://www.trulia.com/real_estate/Corvallis-Oregon/market-trends/

Click max range to see median home prices.

And you can find neighborhoods that are similar in large cities.




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Cwadda

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Re: What real estate investments DO make sense on the West Coast
« Reply #15 on: December 15, 2018, 07:40:36 PM »
Quote
I find it interesting, after learning a thing or two on this forum, how many people I know that would consider a property that is just covering it's own costs to be a sound investment.
Interestingly, and at the risk of coming across as a snarky real estate elitist, it seems to be the majority. FACT: if the rent covers the mortgage and no other costs, including repairs, 10% property management fees, capital expenditures, and vacancies, you are LOSING money. That is WORSE than putting your money into a bank account with a .02% interest rate. If it covers all of those and doesn't make profit above and beyond, it is a suboptimal financial decision.

It's surprising how many people willfully deny actual facts and data. Not much different than those who deny facts of climate change I suppose, which is a sizable portion of the population.

Another Reader

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Re: What real estate investments DO make sense on the West Coast
« Reply #16 on: December 15, 2018, 08:09:56 PM »
Quote
I find it interesting, after learning a thing or two on this forum, how many people I know that would consider a property that is just covering it's own costs to be a sound investment.
Interestingly, and at the risk of coming across as a snarky real estate elitist, it seems to be the majority. FACT: if the rent covers the mortgage and no other costs, including repairs, 10% property management fees, capital expenditures, and vacancies, you are LOSING money. That is WORSE than putting your money into a bank account with a .02% interest rate. If it covers all of those and doesn't make profit above and beyond, it is a suboptimal financial decision.

It's surprising how many people willfully deny actual facts and data. Not much different than those who deny facts of climate change I suppose, which is a sizable portion of the population.

Return on your investment comes from two sources, cash flow and appreciation.  It's possible to have little or no or even negative cash flow on a property bought at the right price in the Bay Area and still make a good profit.  In the RTC days, you could have bought a lot of vacant and partially vacant properties in Silicon Valley, lost money on cash flow for several years and then tripled your investment.  You could have done well buying SFR rentals in 2009-2011, accepted little or no cash flow for a few years of renting and then sold the property for a lot more than you paid for it.

No mass liquidations of distressed properties going on now, so buying properties on sale with a very high likelihood of rapid appreciation in the relatively near term is not possible.  Buying high with the hope the value will go higher is not a good plan.  Buy cash flow somewhere else or put your money in a different asset class.

joonifloofeefloo

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Re: What real estate investments DO make sense on the West Coast
« Reply #17 on: December 15, 2018, 08:26:51 PM »
Some people (including many on the forum) want to own even if it creates lost opportunity, sees a monthly net loss, may never appreciate, and may see a drop in value to below the mortgage (if any). They want to own, period. They feel more safety, security, and freedom owning. Or in a tight rental market, it's the only option for housing children or pets. Or they want to renovate their home's interior. Or they want to ensure they can't be booted on 2-6 months' notice.

I've seen too many issues in ownership to believe there is as much safety as many are counting on. But the above are what I'm hearing from people choosing to own regardless of costs and losses. A lot of us don't have these concerns, or enjoy and prefer mobility, or trust other stuff (our ability to relocate happily, etc). When we don't have those concerns, we skip buying in crazy markets.

(I did own at one point. Cheap, plus a total house hack, so covered every which way.)

Cwadda

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Re: What real estate investments DO make sense on the West Coast
« Reply #18 on: December 16, 2018, 05:53:42 PM »
Quote
It's possible to have little or no or even negative cash flow on a property bought at the right price in the Bay Area and still make a good profit.
I mean, sure. But the key word is *bought* in the past tense. It's always easy 20/20 in hindsight lol. Fact is, appreciation is purely speculative. One could've bought those same SFRs in 2006 and lost over half their net worth in 2 years. Same difference.

The fact of the matter is that you buy for cash flow, you will always be making money. Appreciation is icing on the cake.


Cwadda

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Re: What real estate investments DO make sense on the West Coast
« Reply #19 on: December 16, 2018, 05:55:08 PM »
Some people (including many on the forum) want to own even if it creates lost opportunity, sees a monthly net loss, may never appreciate, and may see a drop in value to below the mortgage (if any). They want to own, period. They feel more safety, security, and freedom owning. Or in a tight rental market, it's the only option for housing children or pets. Or they want to renovate their home's interior. Or they want to ensure they can't be booted on 2-6 months' notice.

I've seen too many issues in ownership to believe there is as much safety as many are counting on. But the above are what I'm hearing from people choosing to own regardless of costs and losses. A lot of us don't have these concerns, or enjoy and prefer mobility, or trust other stuff (our ability to relocate happily, etc). When we don't have those concerns, we skip buying in crazy markets.

(I did own at one point. Cheap, plus a total house hack, so covered every which way.)

There is absolutely nothing wrong with wanting to own a primary residence, even if you are losing money on it each month. I am not arguing against that. My argument is only for rental properties.

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Re: What real estate investments DO make sense on the West Coast
« Reply #20 on: December 16, 2018, 07:51:00 PM »
Quote
It's possible to have little or no or even negative cash flow on a property bought at the right price in the Bay Area and still make a good profit.
I mean, sure. But the key word is *bought* in the past tense. It's always easy 20/20 in hindsight lol. Fact is, appreciation is purely speculative. One could've bought those same SFRs in 2006 and lost over half their net worth in 2 years. Same difference.

The fact of the matter is that you buy for cash flow, you will always be making money. Appreciation is icing on the cake.

Real estate markets differ.  An astute and flexible investor makes money wherever the opportunity is.  There is more risk in buying for appreciation, but the upward trend has been the case here since WWII.  The SF Bay Area is one of the most desirable markets in the world.  I would not hesitate to make an investment in a bad market here, particularly when the cause is outside the market.  Waltworks did the same thing buying depressed property in his markets.  Pretty sure he made as much or more money selling as he did on cash flow.

Fuzz

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Re: What real estate investments DO make sense on the West Coast
« Reply #21 on: December 16, 2018, 07:51:50 PM »
#4 Sinking a bunch of money into something with no guaranteed return and for 5-10 years is essentially losing money. Instead, you could be making 7% with the stock market.

Please tell me which stock market pays 7% with a guaranteed return, unlike the real estate market with it's pesky no guaranteed return.

joonifloofeefloo

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Re: What real estate investments DO make sense on the West Coast
« Reply #22 on: December 16, 2018, 07:57:05 PM »
Some people (including many on the forum) want to own even if it creates lost opportunity, sees a monthly net loss, may never appreciate, and may see a drop in value to below the mortgage (if any). They want to own, period. They feel more safety, security, and freedom owning. Or in a tight rental market, it's the only option for housing children or pets. Or they want to renovate their home's interior. Or they want to ensure they can't be booted on 2-6 months' notice.

I've seen too many issues in ownership to believe there is as much safety as many are counting on. But the above are what I'm hearing from people choosing to own regardless of costs and losses. A lot of us don't have these concerns, or enjoy and prefer mobility, or trust other stuff (our ability to relocate happily, etc). When we don't have those concerns, we skip buying in crazy markets.

(I did own at one point. Cheap, plus a total house hack, so covered every which way.)

There is absolutely nothing wrong with wanting to own a primary residence, even if you are losing money on it each month. I am not arguing against that. My argument is only for rental properties.

Me, I'm not arguing anything. I'm just stating various facts, unworried about other people's choices and decisions. Once a person is informed, what they do is just dandy. In my post, I was responding to a member's question about why so many people do buy in such markets.

waltworks

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Re: What real estate investments DO make sense on the West Coast
« Reply #23 on: December 16, 2018, 08:34:30 PM »
Please tell me which stock market pays 7% with a guaranteed return, unlike the real estate market with it's pesky no guaranteed return.

Your grammar is a little rickety so I'm not 100% sure what you're asking, but...

Historically, the US stock market has returned about 10% (nominal)/7% (real) over about 150 years of data we have.

Now, there's a mid/late 1800s "everything is railroads" period that isn't really comparable to now, and it's only 150 years. But that's what you should expect if you think the future will be similar to the past. YMMV.

-W

waltworks

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Re: What real estate investments DO make sense on the West Coast
« Reply #24 on: December 16, 2018, 08:38:48 PM »
Real estate markets differ.  An astute and flexible investor makes money wherever the opportunity is.  There is more risk in buying for appreciation, but the upward trend has been the case here since WWII.  The SF Bay Area is one of the most desirable markets in the world.  I would not hesitate to make an investment in a bad market here, particularly when the cause is outside the market.  Waltworks did the same thing buying depressed property in his markets.  Pretty sure he made as much or more money selling as he did on cash flow.

Indeed. My rentals always cash flowed, but they weren't spectacular. I knew prices were depressed and bet on a recovery, and I did great on appreciation, as did many other people.

That said, if you haven't been *paying attention* through multiple RE cycles in your area, buying for appreciation is a fool's game.

By "paying attention" I mean knowing *every* sale in your zip code (yes, every one) for the last several years, knowing every street, knowing many local RE investors and realtors, and generally having your geek-out RE shit together. If you do that, you have a good idea of what's going on.

If you don't have the mental energy/time/focus for that, just buy stocks.

-W

Jon Bon

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Re: What real estate investments DO make sense on the West Coast
« Reply #25 on: December 17, 2018, 05:21:06 AM »
#4 Sinking a bunch of money into something with no guaranteed return and for 5-10 years is essentially losing money. Instead, you could be making 7% with the stock market.

Please tell me which stock market pays 7% with a guaranteed return, unlike the real estate market with it's pesky no guaranteed return.

I really think the underlying factor here is diversification. In the market in a 5-10 period you will most likely make a decent return buying index funds. A house is a very specific item with zero diversification and not liquid.

But buying for appreciation is probably not that much different from trying to pick stocks to beat the market.  Well, it is probably just more risky!


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Re: What real estate investments DO make sense on the West Coast
« Reply #26 on: December 17, 2018, 06:07:29 AM »
#4 Sinking a bunch of money into something with no guaranteed return and for 5-10 years is essentially losing money. Instead, you could be making 7% with the stock market.

Please tell me which stock market pays 7% with a guaranteed return, unlike the real estate market with it's pesky no guaranteed return.

I really think the underlying factor here is diversification. In the market in a 5-10 period you will most likely make a decent return buying index funds. A house is a very specific item with zero diversification and not liquid.

But buying for appreciation is probably not that much different from trying to pick stocks to beat the market.  Well, it is probably just more risky!

Can't agree with you.  Market timing and property picking are easy in real estate.  Waltworks is right, however, like he says, you need to know the market.  If you buy today in most markets, I'm pretty sure you will lose money unless you buy solid cash flow that will survive a serious recession.  Finding those properties is difficult now in most markets.  Buying in 2009-2012 in the markets in which I participate?  It was a no brainer. 

What I will agree with is that most people are not successful at real estate investing.  If you think real estate is passive investing where you write a check, hand the property over to a property manager and collect rent checks, the odds are you won't succeed.  Real estate is illiquid and undiversified, so you need to understand thoroughly what you are buying and be compensated for the extra risk.

SnackDog

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Re: What real estate investments DO make sense on the West Coast
« Reply #27 on: December 17, 2018, 06:11:41 AM »
You need to move over to BiggerPockets.com if you want to talk about real estate investing.  This forum tends to be hit or miss on the advice, as you can see from the input received already.

Stay with the 1% rule and you can't go wrong.  There is a lot more to the West Coast than the megacities, although somehow people can't get their head around that.    Look for smaller cities with tighter rental markets and lower cost of entry.  Modesto. Bakersfield. Fresno. Hanford.  Do your homework.  It's not easy but it can be done. The biggest risk is economic collapse and rent with it in the first 5-10 years when your margin is thin.  Cuidado.

Jon Bon

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Re: What real estate investments DO make sense on the West Coast
« Reply #28 on: December 17, 2018, 06:43:39 AM »
#4 Sinking a bunch of money into something with no guaranteed return and for 5-10 years is essentially losing money. Instead, you could be making 7% with the stock market.

Please tell me which stock market pays 7% with a guaranteed return, unlike the real estate market with it's pesky no guaranteed return.

I really think the underlying factor here is diversification. In the market in a 5-10 period you will most likely make a decent return buying index funds. A house is a very specific item with zero diversification and not liquid.

But buying for appreciation is probably not that much different from trying to pick stocks to beat the market.  Well, it is probably just more risky!

Can't agree with you.  Market timing and property picking are easy in real estate.  Waltworks is right, however, like he says, you need to know the market.  If you buy today in most markets, I'm pretty sure you will lose money unless you buy solid cash flow that will survive a serious recession.  Finding those properties is difficult now in most markets.  Buying in 2009-2012 in the markets in which I participate?  It was a no brainer. 



You would have done quite well if you had bought dang near anything in 2009. My guess is you are not a billionaire due to shrewd real estate moves in 2009? If you made a mint back then, well mazel tov to you. Its easy to say that yeah buying back then was a no brainier, and it was with the benefit of hindsight.  I did buy my first house in 2009, people were terrified, people told me I was making a mistake. Houses were being given away, there were no buyers. It's hard to swim against that stream in an environment like that. Hell I even got paid 8k by the federal government to buy it and people still told me it was a bad move.

We mostly likely will not see that again. So how are you going to easily time the market and pick winners in today's economy? Personally I have been on the sidelines for 3 years, building up cash and just waiting for the deals to come back. Investing is not easy when there is so much cash out there looking for a return.

There are times when it is easy(er) to make money in real estate, this is NOT one of those times.  Or maybe you are just smarter than me!

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Re: What real estate investments DO make sense on the West Coast
« Reply #29 on: December 17, 2018, 07:10:51 AM »
#4 Sinking a bunch of money into something with no guaranteed return and for 5-10 years is essentially losing money. Instead, you could be making 7% with the stock market.

Please tell me which stock market pays 7% with a guaranteed return, unlike the real estate market with it's pesky no guaranteed return.

I really think the underlying factor here is diversification. In the market in a 5-10 period you will most likely make a decent return buying index funds. A house is a very specific item with zero diversification and not liquid.

But buying for appreciation is probably not that much different from trying to pick stocks to beat the market.  Well, it is probably just more risky!

Can't agree with you.  Market timing and property picking are easy in real estate.  Waltworks is right, however, like he says, you need to know the market.  If you buy today in most markets, I'm pretty sure you will lose money unless you buy solid cash flow that will survive a serious recession.  Finding those properties is difficult now in most markets.  Buying in 2009-2012 in the markets in which I participate?  It was a no brainer. 



You would have done quite well if you had bought dang near anything in 2009. My guess is you are not a billionaire due to shrewd real estate moves in 2009? If you made a mint back then, well mazel tov to you. Its easy to say that yeah buying back then was a no brainier, and it was with the benefit of hindsight.  I did buy my first house in 2009, people were terrified, people told me I was making a mistake. Houses were being given away, there were no buyers. It's hard to swim against that stream in an environment like that. Hell I even got paid 8k by the federal government to buy it and people still told me it was a bad move.

We mostly likely will not see that again. So how are you going to easily time the market and pick winners in today's economy? Personally I have been on the sidelines for 3 years, building up cash and just waiting for the deals to come back. Investing is not easy when there is so much cash out there looking for a return.

There are times when it is easy(er) to make money in real estate, this is NOT one of those times.  Or maybe you are just smarter than me!

We are saying the same thing.  I have not bought a property since early 2012.  I have sold a few and paid off a bunch of older, higher interest rate loans.  I am also sitting on a lot of cash.  My point is that if you understand real estate and are willing to do what you did in 2009, you can make a lot of money in appreciation without meeting the 1 percent rule.  We had an even better opportunity in the early 90's with the collapse of the savings and loan industry and the subsequent liquidation of their holdings and the holdings of other entities that went under at that time.  There is a family company locally that went into the Phoenix market and bought dozens of mostly vacant shopping centers in the early-mid 90's at RTC auctions for $25-$35 a square foot.  When the market recovered, they tenanted the properties and most of them are worth $200-$300 a square foot and would sell on low to mid single digit cap rates.

Will we see a repeat in our lifetimes?  Real estate is cyclical and some cycles are more dramatic than others.  I would expect buying opportunities in the future due to some breakdown in the market.  When, where and how good?  Not predictable.

pmac

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Re: What real estate investments DO make sense on the West Coast
« Reply #30 on: December 17, 2018, 07:39:41 AM »
I see a lot of people in this forum talking about how their rental properties are "cash flow positive"


My big question is are these people factoring in their time into the equation???

I value my time at $70/hour (i'm sure some people here much higher than that)


When I run the numbers on managing properties, I can't find anything cash flow positive when I also factor in my time, so I stick with index fund investing. I spend maybe 10 hours of my time a year on managing my investments in the stock market.


Just curious if the real estate investors are factoring their time in....

Another Reader

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Re: What real estate investments DO make sense on the West Coast
« Reply #31 on: December 17, 2018, 08:14:10 AM »
I see a lot of people in this forum talking about how their rental properties are "cash flow positive"


My big question is are these people factoring in their time into the equation???

I value my time at $70/hour (i'm sure some people here much higher than that)


When I run the numbers on managing properties, I can't find anything cash flow positive when I also factor in my time, so I stick with index fund investing. I spend maybe 10 hours of my time a year on managing my investments in the stock market.

Just curious if the real estate investors are factoring their time in....

That's why you allow for management expense in your calculation, whether you do the work or farm it out to a property manager.

waltworks

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Re: What real estate investments DO make sense on the West Coast
« Reply #32 on: December 17, 2018, 08:14:31 AM »
Absolutely. It's a job, and sometimes a crappy one. I factor in $100/hour for my time.

You are correct, though, that many "investors" don't include any costs for management in their calculations because they manage the place themselves. That's IMO a dumb way to look at it, but as I said earlier, most RE people don't actually know what they're doing.

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Re: What real estate investments DO make sense on the West Coast
« Reply #33 on: December 17, 2018, 08:32:34 AM »
You need to move over to BiggerPockets.com if you want to talk about real estate investing.  This forum tends to be hit or miss on the advice, as you can see from the input received already.

Stay with the 1% rule and you can't go wrong.  There is a lot more to the West Coast than the megacities, although somehow people can't get their head around that.    Look for smaller cities with tighter rental markets and lower cost of entry.  Modesto. Bakersfield. Fresno. Hanford.  Do your homework.  It's not easy but it can be done. The biggest risk is economic collapse and rent with it in the first 5-10 years when your margin is thin.  Cuidado.

The markets you mention are secondary and tertiary markets.  Not a lot of good tenants there, as the barriers to buying are fairly low for stable employed people.  They are the last markets to go up and the first to go down.  Buyers, both owner-occupants and investors, flock there when they are priced out of the better markets.  I would only look at them after a major downturn, after all the strong markets bottom and start to come back.  I would only buy to hold for a few years, and then take profits.

Bigger Pockets is full of sketchy people hawking crap investments.  It was good when it started, not so much today.

Jon Bon

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Re: What real estate investments DO make sense on the West Coast
« Reply #34 on: December 17, 2018, 08:36:43 AM »

We are saying the same thing.


I am sure we can find something to argue about!

I just need this stupid recession to arrive to assets prices become reasonable again. But I hear you, lots of money on the sidelines. I am sure there are still some 1% houses somewhere, but not near me and I dont want to do the long distance thing.



Another Reader

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Re: What real estate investments DO make sense on the West Coast
« Reply #35 on: December 17, 2018, 09:04:45 AM »

We are saying the same thing.


I am sure we can find something to argue about!

I just need this stupid recession to arrive to assets prices become reasonable again. But I hear you, lots of money on the sidelines. I am sure there are still some 1% houses somewhere, but not near me and I dont want to do the long distance thing.

I live in Silicon Valley, where house prices start at $1MM and the rent is $4,000.  I would not buy here without a huge drop and I would be betting on appreciation more than long term cash flow.  Out of state for most of my investments.

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Re: What real estate investments DO make sense on the West Coast
« Reply #36 on: December 17, 2018, 11:55:58 AM »
Please tell me which stock market pays 7% with a guaranteed return, unlike the real estate market with it's pesky no guaranteed return.

Your grammar is a little rickety so I'm not 100% sure what you're asking, but...

Historically, the US stock market has returned about 10% (nominal)/7% (real) over about 150 years of data we have.

Now, there's a mid/late 1800s "everything is railroads" period that isn't really comparable to now, and it's only 150 years. But that's what you should expect if you think the future will be similar to the past. YMMV.

-W
This @Fuzz

Quote
Can't agree with you.  Market timing and property picking are easy in real estate.
Of course they are, in hindsight. Lol. Just like any other investment in hindsight. Even those damned bitcoins.

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Re: What real estate investments DO make sense on the West Coast
« Reply #37 on: December 17, 2018, 03:18:35 PM »
Please tell me which stock market pays 7% with a guaranteed return, unlike the real estate market with it's pesky no guaranteed return.

Your grammar is a little rickety so I'm not 100% sure what you're asking, but...

Historically, the US stock market has returned about 10% (nominal)/7% (real) over about 150 years of data we have.

Now, there's a mid/late 1800s "everything is railroads" period that isn't really comparable to now, and it's only 150 years. But that's what you should expect if you think the future will be similar to the past. YMMV.

-W
This @Fuzz

Quote
Can't agree with you.  Market timing and property picking are easy in real estate.
Of course they are, in hindsight. Lol. Just like any other investment in hindsight. Even those damned bitcoins.

Perhaps you live in a stable, unchanging market which is why you don't accept what Waltworks and I are both saying.  I have given you several examples of situations where market timers made a lot of money.  Knowledge and skill make a difference in timing the inefficient real estate market.  Not so much in the stock market.

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Re: What real estate investments DO make sense on the West Coast
« Reply #38 on: December 20, 2018, 06:21:38 PM »
Forgive the rickety grammar and cheek, but I do think that assuming an easy 7% in the stock market is a bit sloppy--especially, where there is plenty of nuance in the analysis of real estate investing in this thread, but much less nuance in the analysis of investing in the stock market.

True, over the last 120 years, the market returned an average of 7%. However, you can also find many 10 year or 20 year periods where the market was close to flat, or returned less than 7 percent. You can also find lots of years where it returned 20% plus. If you bought in 1929, it took until 1954 to get back to peak. Those 10 or 20 year chunks where the market is meh are meaningful when compared against a human's lifespan. I say this as someone that paid back student loans from 2010 to 2014 and then switched to investing in the market and basically earned 0% between 2014 and now (my investments in 2014 were comparatively small and their gains are more than offset by my 2018 losses). That's okay--I'm in it for the long haul, dollar cost averaging and all that. I doubt I am saying anything @waltworks or @Another Reader doesn't already know.

I tend to think that my particular timing of index fund investments will take a long time to get to a 7% annual return, and that if I make in money in real estate it has more to do with luck and timing, and less to do with any skill as a real estate investor. So I guess I am putting money in the market mostly because I don't have a better idea. And I certainly don't think I am capable of finding current real estate deals on the west coast that are better than stock market returns.

bearman

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Re: What real estate investments DO make sense on the West Coast
« Reply #39 on: December 29, 2018, 12:33:51 PM »
Hi there OP, I was posting many of the same questions here 5+ years ago and got a similar dizzying array of answers. I wanted to share the best answer I ever got: What are your goals? Once you define this (in a way that's measurable and with a timeline), then you can set to work looking for solutions. 1% SFRs are one of many solutions.

The first goal I defined was getting $50k/yr in passive income in 3 years. After a few babies, I revised that to $100k/yr (Goals change over time!). To make sure I didn't do anything too stupid or risky, I defined some guide rails like 1.) Income not dependent on my regular involvement 2.) No ARM debt 3.) In a place that, worst case, I could move my family and run the business if necessary and still enjoy life. Etc, etc. These are all personal guide rails unique to you.

With that in place, then you can set off on a massive learning mission. Read all the books in this section's sticky, read every bigger pockets post, every bigger pockets marketplace post, etc. You want to get really good at 1.) Slicing and dicing opportunities 2.) Fast accurate analysis 3.) Informed, confident negotiating.

Real estate is an old school investment category still. The best deals are not clearly offered online. They're found via relationships or seeing an obscured opportunity that no one else notices. You need to use the phone and talk to real people in many locations.

With this knowledge and patience, you can find good returns in most places. I'm on the West Coast as well and this approach enabled me to find returns on the East Coast and Mountain West.

I hope this helps show the importance of goals. A goal of income in a short period of time has a certain set of solutions. A goal of generational wealth, for example, has another set of solutions.

joenorm

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Re: What real estate investments DO make sense on the West Coast
« Reply #40 on: December 30, 2018, 07:39:35 AM »
Hi there OP, I was posting many of the same questions here 5+ years ago and got a similar dizzying array of answers. I wanted to share the best answer I ever got: What are your goals? Once you define this (in a way that's measurable and with a timeline), then you can set to work looking for solutions. 1% SFRs are one of many solutions.

The first goal I defined was getting $50k/yr in passive income in 3 years. After a few babies, I revised that to $100k/yr (Goals change over time!). To make sure I didn't do anything too stupid or risky, I defined some guide rails like 1.) Income not dependent on my regular involvement 2.) No ARM debt 3.) In a place that, worst case, I could move my family and run the business if necessary and still enjoy life. Etc, etc. These are all personal guide rails unique to you.

With that in place, then you can set off on a massive learning mission. Read all the books in this section's sticky, read every bigger pockets post, every bigger pockets marketplace post, etc. You want to get really good at 1.) Slicing and dicing opportunities 2.) Fast accurate analysis 3.) Informed, confident negotiating.

Real estate is an old school investment category still. The best deals are not clearly offered online. They're found via relationships or seeing an obscured opportunity that no one else notices. You need to use the phone and talk to real people in many locations.

With this knowledge and patience, you can find good returns in most places. I'm on the West Coast as well and this approach enabled me to find returns on the East Coast and Mountain West.

I hope this helps show the importance of goals. A goal of income in a short period of time has a certain set of solutions. A goal of generational wealth, for example, has another set of solutions.

Thank you! Yes, goals are important. There is a sea of opportunity out there and part of the challenge is just as you say, narrowing down where you want to focus attention.

So are you on track to accomplish your goal? I hope so. Did you have a large amount of capital to start? Or are you leveraging everything heavily?

Any specific good reads you found helpful?

thanks again

bearman

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Re: What real estate investments DO make sense on the West Coast
« Reply #41 on: December 30, 2018, 10:07:17 AM »
Hi there OP, I was posting many of the same questions here 5+ years ago and got a similar dizzying array of answers. I wanted to share the best answer I ever got: What are your goals? Once you define this (in a way that's measurable and with a timeline), then you can set to work looking for solutions. 1% SFRs are one of many solutions.

The first goal I defined was getting $50k/yr in passive income in 3 years. After a few babies, I revised that to $100k/yr (Goals change over time!). To make sure I didn't do anything too stupid or risky, I defined some guide rails like 1.) Income not dependent on my regular involvement 2.) No ARM debt 3.) In a place that, worst case, I could move my family and run the business if necessary and still enjoy life. Etc, etc. These are all personal guide rails unique to you.

With that in place, then you can set off on a massive learning mission. Read all the books in this section's sticky, read every bigger pockets post, every bigger pockets marketplace post, etc. You want to get really good at 1.) Slicing and dicing opportunities 2.) Fast accurate analysis 3.) Informed, confident negotiating.

Real estate is an old school investment category still. The best deals are not clearly offered online. They're found via relationships or seeing an obscured opportunity that no one else notices. You need to use the phone and talk to real people in many locations.

With this knowledge and patience, you can find good returns in most places. I'm on the West Coast as well and this approach enabled me to find returns on the East Coast and Mountain West.

I hope this helps show the importance of goals. A goal of income in a short period of time has a certain set of solutions. A goal of generational wealth, for example, has another set of solutions.

Thank you! Yes, goals are important. There is a sea of opportunity out there and part of the challenge is just as you say, narrowing down where you want to focus attention.

So are you on track to accomplish your goal? I hope so. Did you have a large amount of capital to start? Or are you leveraging everything heavily?

Any specific good reads you found helpful?

thanks again

Yes, on track with $70k/yr now and projected to be at $85k/yr by fall (after renovate + release on 4 units). One of my guard rails was a max of $1M debt (including primary residence, all at 30yr fixed). That is slowing down the final stretch, but should be possible one way or another in the next year or two.

To get the ball rolling, we sold our primary residence and bought a small house in a lower demand location and that freed up $150k of initial capital. I put 25% down on everything.

The best book was suggested to me by Ars and also in the sticky: What Every Real Estate Investor Needs to Know About Cash Flow... And 36 Other Key Financial Measures by Gallinelli. Do every calculation in there until they're mastered. In my opinion, if your goal is income, 1% rules don't matter - cash on cash return is the best measure.

One point I forgot to mention earlier is that listed price is not the price in all cases. With patience and the right conditions, you can buy for 20% less than list and then reposition or slightly renovate and unlock new revenue within a year. Most of mine weren't quite "1%" but within a year were more than that. In two cases, just 3 years later, they're at "2%." If you're building income for life, a few years of patience is well worth it.
« Last Edit: December 30, 2018, 12:28:16 PM by bearman »

joenorm

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Re: What real estate investments DO make sense on the West Coast
« Reply #42 on: December 30, 2018, 07:31:40 PM »
So if you're buying out of state, how do you even begin to know where to look, let alone sink a giant lump of cash?

I would think you would hone in on one area, develop a relationship with a property manager, and go from there. Sounds easy in theory, but daunting at the same time.

I suppose it's just math, examine the numbers, buy what works. Seems like one has to have a pretty high tolerance to risk in the system which you describe.

Good for you for making it work!

bearman

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Re: What real estate investments DO make sense on the West Coast
« Reply #43 on: January 01, 2019, 03:58:03 PM »
So if you're buying out of state, how do you even begin to know where to look, let alone sink a giant lump of cash?

I would think you would hone in on one area, develop a relationship with a property manager, and go from there. Sounds easy in theory, but daunting at the same time.

I suppose it's just math, examine the numbers, buy what works. Seems like one has to have a pretty high tolerance to risk in the system which you describe.

Good for you for making it work!

You're right that zeroing in on an area is not the easiest part. I have about a dozen criteria I look for that support the overall goal. And of course the suitability of an area changes with time, particularly as prices have risen. Probably the main way I reduce risk is by only considering smaller markets (100k population or less), because (I think) it makes the good area / bad area easier to get your head around.

After that, you're right, success hinges on a great agent and great property manager. With that, the risks are much lower. It's enabled me to buy properties I've never personally seen until a few years later.

You bring up an interesting point about risk. I remember feeling a rush of risk worry when I got the first under contract. What I've come to see is that most "risks" are just perceptions, and they disappear with knowledge, experience, margin and reserves. It's not for everyone of course, but for those inclined the ROI can be very good. It's probably more like starting a business and outsourcing all the work more than selecting a risk level on Vanguard and depositing funds.

To your original question, I think if you define goals and guide rails (aka comfort zone) and then absorb all the great info out there, you'll be surprised how your perceptions shift and opportunities come into focus. I say all this, because I was asking the exact same questions 5ish years ago. It's surreal to be on the other side of the discussion!

joenorm

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Re: What real estate investments DO make sense on the West Coast
« Reply #44 on: January 01, 2019, 10:12:53 PM »
Thank you for the encouragement. Your story is inspiring indeed!

I do have a foot in the door, being partners in 3 out-of-state rental properties and having pretty good equity in my home.

So the concepts are not totally foreign and I believe I have a pretty good mind for this kind of stuff. Again, it's breaking into a good market that seems like the challenge. I've ordered a few books and look forward to continue to educate myself on the topic.




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Re: What real estate investments DO make sense on the West Coast
« Reply #45 on: January 04, 2019, 08:05:33 AM »

 Most of mine weren't quite "1%" but within a year were more than that. In two cases, just 3 years later, they're at "2%." If you're building income for life, a few years of patience is well worth it.

Definitely if you can buy coastal real estate and get 2%, you should do it.  This would be like purchasing a Bay area home for $500,000 and renting it out for $10,000/month.  Great deal if you can find it.

Dicey

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Re: What real estate investments DO make sense on the West Coast
« Reply #46 on: January 04, 2019, 08:36:11 AM »

 Most of mine weren't quite "1%" but within a year were more than that. In two cases, just 3 years later, they're at "2%." If you're building income for life, a few years of patience is well worth it.

Definitely if you can buy coastal real estate and get 2%, you should do it.  This would be like purchasing a Bay area home for $500,000 and renting it out for $10,000/month.  Great deal if you can find it.
Oh sure, there are unicorns roaming all over the Bay Area ;-)

Jon Bon

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Re: What real estate investments DO make sense on the West Coast
« Reply #47 on: January 04, 2019, 09:05:13 AM »

 Most of mine weren't quite "1%" but within a year were more than that. In two cases, just 3 years later, they're at "2%." If you're building income for life, a few years of patience is well worth it.

Definitely if you can buy coastal real estate and get 2%, you should do it.  This would be like purchasing a Bay area home for $500,000 and renting it out for $10,000/month.  Great deal if you can find it.
Oh sure, there are unicorns roaming all over the Bay Area ;-)

I feel the rental real estate game for the past 2-3 years has SUCKED and anyone saying its easy to find 1% or even 2% deals is either the best real estate person on the planet or less than truthful. I could probably slum lord it up and hit 1%, but no thanks.

Please prove me wrong by posting links so I can buy them!


waltworks

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Re: What real estate investments DO make sense on the West Coast
« Reply #48 on: January 04, 2019, 09:15:35 AM »

 Most of mine weren't quite "1%" but within a year were more than that. In two cases, just 3 years later, they're at "2%." If you're building income for life, a few years of patience is well worth it.

Definitely if you can buy coastal real estate and get 2%, you should do it.  This would be like purchasing a Bay area home for $500,000 and renting it out for $10,000/month.  Great deal if you can find it.

I'm also curious about this. For a property to go from <1% rule to 2%, you'd need either:
-Massive (double!) rent increase
-Massive (half!) property depreciation
-Some combination of the two

The property depreciating isn't really a great way to get there, of course. Bearman, did rents in your area/your properties really more than double in 3 years? Oil patch?

-W

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Re: What real estate investments DO make sense on the West Coast
« Reply #49 on: January 04, 2019, 11:25:01 AM »

 Most of mine weren't quite "1%" but within a year were more than that. In two cases, just 3 years later, they're at "2%." If you're building income for life, a few years of patience is well worth it.

Definitely if you can buy coastal real estate and get 2%, you should do it.  This would be like purchasing a Bay area home for $500,000 and renting it out for $10,000/month.  Great deal if you can find it.

I'm also curious about this. For a property to go from <1% rule to 2%, you'd need either:
-Massive (double!) rent increase
-Massive (half!) property depreciation
-Some combination of the two

The property depreciating isn't really a great way to get there, of course. Bearman, did rents in your area/your properties really more than double in 3 years? Oil patch?

-W

Suspect he is looking at return on the original investment, not on current value.