…And Where You Should Buy Instead

I live and work in the San Francisco Bay Area. So it follows that I would recommend investing in real estate in the area, right? Wrong! When people ask me about investing in real estate here, I advise them against it – for a couple of reasons. Would you believe, I lived in rental accommodation myself for 20 years precisely for those reasons? Read on to know more about my experiences with real estate in the SF bay area and why I advise clients the way I do.

Why San Francisco Bay Area is not the best bet for investors.

Here’s a fact that really amazes a lot of people: I lived in a rented property in Marin County for close to 20 years. So the guy who buys and sells all this property, who owns hundreds of homes and helps others buy thousands more, lives in rented accommodation? It does sound strange. But it was the logical, financially sensible choice to make. For one, the numbers didn’t make sense if I were to buy. Secondly, the laws are not really in favor of the investors.
Now I usually advise people to buy homes in large metropolitan areas where we have a lot of economic activity and job diversity, because this is where people are looking to rent homes. This is where they are willing to shell out top dollar to rent quality homes. I typically recommend buying in the Sunbelt states. While the San Francisco Bay Area ticks all of these boxes, the ratio between property prices and rents does not make sense. At one point I was living in a million-dollar home, but I was paying just about $3000 in rent. And now that same home would fetch maybe four million dollars but the rent in relation to that valuation is still peanuts!
Further, the laws governing rental accommodation tend to favor the tenant in California. So I would much rather be a tenant than a landlord here. This is the other reason why I would still advise investors not to invest in property in the San Francisco Bay Area.

Rent, don’t buy in the San Francisco Bay Area.

Back in the day, we were buying a lot of homes in Phoenix. This was a hot market for people looking to invest in real estate. At the time, we could buy good quality single-family homes for just about $150,000. This same home would then fetch rent in the area of $1100. This is the sort of rent that would help to generate positive cash flows for the investor. The ratio of value of the home to rent is favorable for the landlord. Now, even Phoenix is not a great idea, the reasons for which I’ve shared in previous videos and podcasts.
So to summarize, San Francisco Bay Area doesn’t make sense for investors because real estate is really expensive in the area. It is out of reach for a great many people looking to invest. Also important is the fact that homes there do not fetch rents that are commensurate with the value of the homes. If a four-million-dollar home only fetches about $7000 in rent, that is not great. While 7K is a lot in absolute terms, it is peanuts relative to the property value.
So, where should you invest if the San Francisco Bay Area is not advisable? We are here to tell you precisely that. Check out my videos or reach out to us and know more about our Remote Control Retirement Riches formula.

How Refinancing Your Current Home Gives You a Real Shot At Wealth Creation

Investors often ask me this – is it advisable to refinance my current homes and use that as down payment to buy more homes? The reason they ask is that ‘refinancing’ is something of a bad word in some circles. For some, the very word smacks of risk and fiscal imprudence. For me, however, this has been a great option and one that I have used frequently. Let me explain how I made it work for me and how you can make it work for you:

Why refinancing is a good idea.

So you are still paying for your house – the one you live in or the one you have bought as an investment. Should you refinance this? A lot of people would caution you against this. And to be sure this option is not for everyone. If you are an aggressive investor and someone who is willing to step out of your financial comfort zone, this is a great option for you. 
If you're someone who imagines wealth in your future and not a scenario where you're just getting by, this is for you.
So depending upon the interest rates at the time, you can take a call about refinancing your current assets. This generates a significant cash flow, and one that is tax free, by the way. This cash flow is then used for the purchase of a new home. You use it to make the down payment for this new home. This is something that I have done myself, because my aim was always to buy as many homes as possible. To my mind any asset you currently own represents the potential for creating more assets for you; more wealth for you in times to come. It would be a shame not to capitalize on that!

Don’t regret your decision later.

Now there are a great many of our investors who have been fiscally conservative, unwilling to take any chance that they saw as risky. However, over the years they would realize how it is possible to ‘make money from money’. There would then be some amount of regret that they didn’t go ahead and buy more homes. I have often heard investors saying this: “I wish I had bought more homes.”  They could have used the refinancing option to buy more homes but they did not. They could have been even wealthier in their retirement years than they ended up being.
Refinancing your current home may seem risky but it really is not – it is a well calculated risk at best and one that pays over the long term. When you refinance your home you generate cash flow to make the downpayment for a new home, which will soon start to generate a rental income. This will soon create a positive cash flow or help you break even at any rate. Find out more about this option in my latest video.

How Much & When Does Your Investment Property Need Sprucing Up?

 
One of the things that seem to bother would-be investors is their duties as a landlord. Will they need to make home improvements? How much will this cost? Does a landlord have to spend a lot to earn a good rental income? These are valid questions and I address them in this short video.

A new home needs little or no improvements.

If you’ve followed good advice, you’ve bought a brand new home as an investment. You’ve bought it directly from the builder so that everything in the home is brand new – bath fittings, roof, home appliances, HVAC et al! So there is no need for repairs or upgrading or refurbishing. Your investment is ship shape and read to be rented out to fetch you top dollar in terms of rental income. Your first tenant is happy to pay as well, since they have the chance to move into a new home where everything works and nothing is leaking or broken.
Now say your tenant is moving out after one or a few years of renting your property. There is bound to be a little wear and tear, some few rough edges that need smoothing. Maybe the carpets are a little worse for the wear and the interiors need a bit of sprucing up. Maybe the carpeting doesn’t need to be ripped out and replaced; just steam cleaning could make a world of difference. After some years of use, the interiors will need a coat of paint. A new lick of paint for the exteriors may not be a mistake either after a while. Families looking at properties to rent are looking for aesthetically well-looked after homes to live in.

Why a property manager is your best friend in this case.

So it can all be a little confusing – what to do so that your property continues to fetch a good rental income, and what not to do because it could just be a waste of good money. Here, the insight and experience of your property manager will be of great help. The property manager knows what tenants are looking for, and what factors will decide rent amounts. They will advise you when and if home improvements are required.
Maybe after a few years of the same tenant, a paint job is needed to attract a new tenant. Or maybe not! Most tenants want all of their security deposit back and will ensure that they leave your house in good condition. However, a little landscaping may not go amiss if the previous tenant wasn’t much of a gardener. Remember, the location of the property, local weather conditions will also make a difference. The property manager may be the best person to advise you about what is needed and what isn't.
Maybe your home needs no improvements or refurbishments. On the other hand, maybe it does – it is a case of spending a little money to make more money. The rule of thumb with home improvements for rental properties is this: trust the experience of your property manager and follow their advice to the extent possible. Listen to my podcast or visit icgre.com to know more about real estate investments.
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