I need a pick me up

[Sid23]

I just need to let this out...I hope its okay to do here.

For those of you who don't know, I work in a small real estate development and investment firm in the SF Bay Area. We were walking back from lunch last week and walked past this small, little house for sale right behind our office building. We saw this house was for-sale and immediately I thought, "what a perfect house for them to buy, lease option to me and in a few years I can buy the place from them." I casually mentioned the idea and they thought it was great.

We just came back from the broker's tour. I'm not in a good mood. The house was listed for $1.2M and is 2bd/1ba and about 1250 sf. It is essentially a tear down. My boss said MAYBE he'd pay $500k for that house.

I'm not mad at the house or anything, but I LOVE the area I live in and I get really frustrated to know that a small house in my area is well over a million dollars. I am 29 y/o and am so far away from being able to buy a place it drives me nuts. I sometimes think I'm kidding myself by living here and that I should move to a lower cost of living area. But I'm learning a ton at my job and think I'm in a good spot right now.

AGH. This drives me nuts sometimes. I love paradise but can't seem to afford to live in it.

Thanks for listening to my rant. I just needed to vent. (MJ, you can delete this if this isn't proper for this forum)

 

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[Russ H]

Sean-

I had the same problem.

In the 1980s I lived in Marin County, the only place in the Bay Area with median house prices *higher* than SF (this has actually changed, I think-- SF is now higher).

Every time I'd look at something, I'd just get discouraged. I remember finally, after looking for over a year, finding a house I could afford in Fairfax.

It was an A-frame. You could barely stand up in it. The part you could stand up in was about 16 feet long by 3 feet wide.

And no, I'm not kidding.

In 1989, I finally bought a condo w/help from my mom, in part b/c I didn't think I could afford to go and get one by myself.

I know *now* that I could have done it years earlier.

But, lack of knowledge is a big hindrance.

In 1994, I finally made up my mind that I was going to buy a house.

I looked at the teeniest, tiniest houses in Marin.

All of them started at 300K, or more. Even the major fixers.

This was too much for me, back then.

So I relocated to Napa.

I spent months and months researching the RE market there.

I looked at tons of listings.

The cheapest houses (needing new foundations) were priced at 100K.

But you could get a nice little house that was walking distance to downtown for about $160K.

After looking at the Marin housing prices, I felt like I'd won the lottery.

And I was only 45 min further away from my existing client base.

I finally bought a house (in Sept 1995, 14 mo after I started looking), for $200K.

It was on an acre, on the Silverado Trail.

It was a fixer.

That was the beginning for me.

My advice: Stick w/your job, learn a bunch, and rent a small place (or share it), so you can save up $20K or more for a down.

Then, look at any place in the bay area that you would enjoy living in, that has BART.

Once you buy a place, sell your car, get a reliable, OLD toyota, and just use it on weekends.

You'll need to scrimp at the beginning to save for a downpayment, and then you'll need to scrimp once you have the house in order to pay for it (and, improve it).

But if you buy right, you will be in.

And once you're in the great game of CA real estate, provided you keep up with the payments, you can just keep buying from motivated sellers, improving the properties, and selling.

If you do this every 2 years, $250K of the gain is tax-free.

TAX FREE!

Sounds like a wicked investment to me.

-Russ H.

 

[MJ DeMarco]

Sean,

I know exactly how you feel. Years ago in Chicago Id look around and freak at the cost of housing. With the perpetual rain/snow, my love for exotic cars seemed impractical.

I eventually moved to Phoenix as it was in congruence with my passion for cars and convertibles. Even better, the Phoenix market for housing was, reletively speaking, cheap.

A $1.2 million home in Phoenix is 4,500 square feet, 1/2 acre, pool, spa, 2 fireplaces.

For example, here's a home in the Phoenix area for $1.5mm

In that environment, I was motivated to work and felt the quality of living I was seeking was within grasp. With the sun powering me, I felt all of the things I dreamed of was possible.

I'm not going to outwardly suggest that you move as my issue was both mental and physical. The bottomline is you've gotta ask yourself "whats it going to take?" and "how do I do it?"

For me, the answer was moving.

Your answer might be different.

MJ

 

[Peter2]

I know how you feel. This is what you get for $1,500,000 where I live. A 1481sq ft cottage that was built in 1935. If you love where you live, you have to see it in a positive light. It's a motivation for you to come up with a business that will enable you to earn the money required to live where you want to live.

 

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[Sid23]

Thanks for the thoughts guys. It is definitely discouraging, but you are right when you say if I want to stay here, I need to figure out a way to make it happen. I did a little brainstorming last night, and I think I at least have a few ideas.

Russ - are you saying you should have bought the house sooner, or the condo? I think do need to investigate other areas here within an hour or so. Were you suggesting trying to scrap a buy a condo to get into the market, or try and find a fixer and use what I have learned to improve the value, live there for ~3-5 years or whatever it takes and then sell and move on? I suppose if I did that right a couple of times I could be in a position to buy in Marin or SF down the road.

MJ / Peter2 - you guys are right on. thanks for the ideas and thoughts.

Here is the house I saw yesterday, by the way. I couldn't find any pictures of the inside...but I think we know why that is!

 

[Russ H]

Russ - are you saying you should have bought the house sooner, or the condo?

Yes, I would have done it on my own, sooner. Saved enough, and bought without help.

I think do need to investigate other areas here within an hour or so.

GREAT idea.

Were you suggesting trying to scrap a buy a condo to get into the market, or try and find a fixer and use what I have learned to improve the value, live there for ~3-5 years or whatever it takes and then sell and move on?

I'd consider a house first, as you can make many more improvements to it than a condo. And a condo will always limit your potential upside, since there will be other comparable units also available

I suppose if I did that right a couple of times I could be in a position to buy in Marin or SF down the road.

Yup. :icon_super:
-Russ H.

Oh, BTW-- massive curb appeal on that house. But not for $1.2M!!!

A local example (1 hr from SF, $350K, probably in escrow for $275-299):

 

[Antonio.]

Here in Saint Louis County 1.5 million will buy you the following

4 Bedrooms
5 Full Bath's
1 1/2 Bath
6,509 Sq ft

Its a couple places I would like to live also I use the places for motivation and put pictures and prices on my goal chart and keep on rocking and rolling. As a blue collar worker Saint Louis is one of the only places I would live real estate is cheap here.

 

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[Z5 FILMS]

Houston is pretty cheap. Here's what you get for $1.9

 

[AroundTheWorld]

1.5 in my area (northwest montana) often has more to do with the view or water (lake frontage) than it has to do with the home itself...

 

[Russ H]

OK, OK, since this has turned into a "what you get for your money" thread:

$1.25 million, about 5 min from the town of Napa and world class restaurants.

4 BR 3 BA ~3000 ft2

On an acre of land (dirt runs $500K/acre around here)

Has its own vineyard.

Use your golf cart to ride to Silverado Country Club (a few minutes away)

60 min from San Francisco's financial district.

You can get a bigger house for the same $$ here, but I like a nice view.

-Russ H.

http://greathomes.org/property.asp?PropID=20715872&cat=1#

 

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[MrDoctor]

Here is what you get in the bay area for 500K:

YIKES :smx8:.

 

[Sid23]

Russ - what is the rule that allows you to take $500k of tax free gains on a house if you've lived there 2+ years? is it for a couple?

 

[Peter2]

Capital Gains Exclusion on Sale of Personal Residence

One of the more popular pieces of recent tax legislation is the liberalization of gains exclusion on sales of a personal residence. Married taxpayers can exclude up to $ 500,000 (singles and separate filers can exclude up to $ 250,000) of gain on sale of their principal personal residence every two years.

Note: Losses on the sale of your principal residence remain nondeductible. ​

1. How do I qualify for the exclusion?​

You must satisfy 3 tests - an ownership test, a use test, and a prior exclusion test: * The "ownership" test: You must have owned the home for at least 2 years of the 5 year period ending on the date of sale.
* The "use" test: You must have used the home as your principal personal residence for at least 2 years of the 5 year period ending on the date of sale.
* The "prior exclusion" test: You must not have taken this exclusion for a home sale during the same 2 year period ending on the date of sale.

​

2. How much gain can I (or we) exclude?

Single taxpayers and married taxpayers filing separately can exclude up to $ 250,000 in gains every 2 years assuming they meet the 3 tests above - married taxpayers filing jointly can exclude up to $ 500,000 in gains every 2 years assuming they both meet the use and prior exclusion tests, and at least one spouse meets the ownership test. Gains in excess of the maximum exclusion amounts - $ 250,000 or $ 500,000 - are taxable as capital gains.​

 

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[Russ H]

Sean-

$250K if you're single (I think that's what I said), or 500K for married couples.

-Russ H.

PS Mr Dr: You can see a pretty nice cosmetic fixer that I listed in the Bay Area for $300K.

Looks a lot better than your box, eh?

We just bought the house next door (last Dec) for $510K.

Last month it appraised for $650K (hey, I did my magic to it).

Another $170K in HELOCs.

Woo Hoo!

 

[snowbank]

And once you're in the great game of CA real estate, provided you keep up with the payments, you can just keep buying from motivated sellers, improving the properties, and selling.

If you do this every 2 years, $250K of the gain is tax-free.

TAX FREE!

Sounds like a wicked investment to me.

-Russ H.

Russ,

Are you able to easily find places that you think will be worth $250,000 more in 2 years?

 

[Russ H]

Nope.

I just look for a place I can improve.

Our latest problem is that we improved a prop, and it appreciated WAY more than $250K in two years (more like $1.1 million).

So we had to develop a different strategy (1031, anyone?)

Another prop appreciated $1.3 million in 2 years (05-07) --Hey wait-- that was during the RE downturn!

What would the NNWKIA's* over at RD say . . .

-Russ H.

*NNWKIA's = No Net Worth Know It Alls (with thanks to MJ, for inventing this most appropos term! )

 

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[Yankees338]

Sean, have you considered purchasing some type of multi-family dwelling? If you could come up with the cash for a down payment or use some creative financing to get into the deal with $0 down (owner financing?), maybe you could get into the real estate game in the market you desire sooner than you think.

For instance, if you find a quadruplex and choose to occupy one of the units yourself (which you could also share with a roommate), you could rent out the other 3 units to help cover some, or all, of the mortgage. The only problem this leaves you with is the down payment. Feel free to post any questions on here or PM me.

*Disclaimer: I'm 16 and a NNWKIA (see Russ's post above for clarification). Just trying to help...my $.02.

 

[Sid23]

Yankees - thanks for the idea. That is the plan down the road, but in this market, you need some cash to get going. A 4-plex here starts at around $2m or so, so in most cases, you are looking at negative cash flow each month, usually between $2-3k per month. The concept is good, this just isn't the market to play at that level, at least with today's prices. Landlord's who bought 4-plexes 20 years ago with good cashflow are making out well today if they still own the properties.

You really need to go above 10-12 units in most cases to have any attempt at cash flow, and that is usually pretty tough. My firm just bought an 88 unit apartment building at a discount, and it barely cashflows. From what I've seen (and I could be wrong), most Northern California real estate players buy at a discount, force appreciation through rehabbing or re-zoning, then sell off at a profit. Most people aren't looking for cashflow here. Again, just my observations, not necessarily fact.

Russ - how would i get started in the plan we spoke about? my girlfriend (soon to be financee) is hesitant (not 100% opposed - just wants to explore more convenient options first) to move to Napa, particularly because she works on the Peninsula and in San Jose. And since my office is in Southern Marin, it works for me, but would make life really tough on her. And we are both "city people" so would like to still have access to SF. What do you think about San Mateo or another city on the Peninsula? This would be a better fit for both of us and I was thinking I've seen several homes in San Mateo that might work for a rehab play. Although I suppose that is a harder market to break into...

What are some preliminary things I should investigate? We are already devising a plan to save/borrow some money. I suppose first step is to learn the areas I am considering and to see what is available, along with learning as much about the actual rehab process as I can in the next few months. Anythign else you would suggest to get us started? We've already switched health clubs and will now save $800 a year. Also looking at other options to save money and then put that savings in the "house fund."

EDIT: Another idea that came to mind would just be to do a rehab in Napa,etc just without living in the house...For example, maybe I find a fixer in San Mateo County to live in, rehab and take the capital gains tax exemption. But what's to stop me from doing a deal in Napa at the same time? (other than capital, which hopefully I could find)

 

[Sid23]

bump for Russ

 

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[Russ H]

Sean-

Thanks for the bump. I'll edit this post later tonight and try to give you some answers.

-Russ H.

 

[Russ H]

Er . . . make that in a day or so.

Lots going on over here right now.

(it's all good )

-Russ H.

 

[venom]

What are you doing now ?
Are you looking at properties and seeing what they list for and what they sell for ?
How many properties have you gone to see physically ?
You want to get as much of your research done now. So when its time to pull the trigger you will be able to recognise a good deal when you see it.
I didnt start this process until I was "ready" . Which then meant many months of looking and feeling. Which cost me big time.
Rob

 

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[Sid23]

bump for more ideas...

 

[Diane Kennedy]

Just saw this thread. First of all, MRDOCTOR, I almost damaged my computer because I was drinking water when I saw what $500K buys in the Bay Area. Those posts should come with a warning!!

SeanS, I have a client who loves San Fran and always wants to live there, but can never make investments pencil. The rents just didn't seem to support the price of buying. So, he didn't buy. He rented in San Fran and bought investments in Phoenix. He lives in a great place, pays way less than he would for a payment and meanwhile has cash-flowing investments.

A few questions:

(1) Are you trying to create cash flow or net worth?

- If Net Worth, then forced appreciation is definitely the quickest way to do it...but maybe not in San Francisco. What about going inland a little? It's been a while since I've seen the market, but I remember some deals from about 3 years ago southeast of the Bay

- If Cash Flow, you can probably figure out how to do it in San Francisco, but it'll be hard work. Why not invest where it's easier? (Phoenix comes to mind)

(2) Buy in a fringe area. I have a friend buying right on the edge of Japantown and making an absolute killing when he cleans the property up. (Just make sure the buyer looks out the right window - usually one or two sides are good, rest are junk)

 

[Sid23]

Just saw this thread. First of all, MRDOCTOR, I almost damaged my computer because I was drinking water when I saw what $500K buys in the Bay Area. Those posts should come with a warning!!

SeanS, I have a client who loves San Fran and always wants to live there, but can never make investments pencil. The rents just didn't seem to support the price of buying. So, he didn't buy. He rented in San Fran and bought investments in Phoenix. He lives in a great place, pays way less than he would for a payment and meanwhile has cash-flowing investments.

A few questions:

(1) Are you trying to create cash flow or net worth?

- If Net Worth, then forced appreciation is definitely the quickest way to do it...but maybe not in San Francisco. What about going inland a little? It's been a while since I've seen the market, but I remember some deals from about 3 years ago southeast of the Bay

- If Cash Flow, you can probably figure out how to do it in San Francisco, but it'll be hard work. Why not invest where it's easier? (Phoenix comes to mind)

(2) Buy in a fringe area. I have a friend buying right on the edge of Japantown and making an absolute killing when he cleans the property up. (Just make sure the buyer looks out the right window - usually one or two sides are good, rest are junk)

Diane, thanks for the reply. At this point, I'm trying to accumulate net worth (in fact, mine is about -$50k right now). I have read many posts and understand how its easier to build the passive cash flow once you've achieved a certain level of net worth. Russ had the idea that I should look into a rehab as well, perhaps buying something to live in and then taking the $250k tax free gain. I've been looking, but I'm having trouble finding anything remotely close to SF (where both me and my financee work). I hadn't thought about just doing the rehab without living there, but I suppose that can be done, huh?

Thanks for the thoughts.

 

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[Sid23]

Another bump for Russ...

 

[Russ H]

Wow, I never ever responded to this . . .

Things have changed--- but let me try to answer both q's-- from the heyday of the RE boom, and from today's perspective.

I'll see if I have time after putting KT down tonight.

-Russ

 

[andyhaus44]

Here in Saint Louis County 1.5 million will buy you the following

4 Bedrooms
5 Full Bath's
1 1/2 Bath
6,509 Sq ft

Its a couple places I would like to live also I use the places for motivation and put pictures and prices on my goal chart and keep on rocking and rolling. As a blue collar worker Saint Louis is one of the only places I would live real estate is cheap here.

Antonio, I am from St. Louis MO too.. Would you be interested in starting a STL Fastlane Group?

 

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