Real Estate Rental Property SH #1 Under Contract! (July 31, 2014)

Wow! A whirlwind of activities has transpired in the last 24 hours; I almost had to pinch myself this morning to actually believe everything that’s been going on…

As readers may know, lately, I’ve been attending some local Bigger Pockets Meet-Ups, and have been picking the brains of the local investors, looking for a way to get back into the Bay Area and purchase another rental property. Because prices are so insane right now, I kind of realized awhile ago that the only way I would realistically have a shot of getting in on a deal would be to partner up with others.

Last Sunday, I attended an open-house for a townhouse property located in a wonderful neighborhood… Actually, this townhouse was located on the EXACT same block as Rental Property #2. Since I was passing by, I decided to swing by and take a look around.

The house was staged very well. Most impressively, everything was basically turnkey, so a new owner wouldn’t have to fork over any more funds for renovations. The place featured: new laminate flooring, new granite countertops, recessed lighting, remodeled bathrooms, stainless steel appliances, and really, outside of the dirty old upstairs carpet, everything else seemed to be in excellent condition.

When I left the open house, I seriously had no inkling that I would try and make a move on the property. Actually, the listing price was for $490,000, so I already knew that it was priced way out of my budget…

But the more I thought about it, the more intrigued I was with the idea of owning another property in this neighborhood… You see, it’s located within walking distance of the new 49er’s stadium, and that whole area is undergoing massive redevelopment.

As of present day, I would classify it as a Class A property… Others might disagree, but eventually, over time, I have no doubt that the area will continue to improve drastically. Quite simply, there’s a ton of money pouring in (to the tune of $6.5 Billion), and that can’t help but bode well for the value of all the properties located in this region.

So, on Tuesday night, I entertained the idea of putting in an offer. I talked to a few friends, and they were on board with the plan. There would be four of us partnering up, total. I reached out to my shark of an agent — the same guy who helped me win Rental Property #1 and Rental Property #2.

On Wednesday morning, my agent informed me that offers were due that afternoon… The only way we could compete was to get a pre-approval letter that same day, and to submit an offer by that evening.

My friends and I wasted no time! We went to the bank during lunch and got a pre-approval letter good up to $600,000. Next, I talked to my agent, and he told me he had past experience working with the listing agent… He felt like he knew what strategy to use to help us win. While on the phone talking, I instructed him to be aggressive with any offers… In fact, I admitted to him that we all really wanted to win this one, and would be willing to pay over listing to make it happen.

My agent countered back… He said, “Let’s go in at listing, $490,000… I think we have a shot if we remove all contingencies — loan, inspection, and appraisal.

When I heard that, my first reaction was that my agent was off his rocker! It had been two years since we last worked together, and I was getting worried that he might have lost his “midas touch”. I blurted out to him, “Seriously?!? You want us to come in at listing for a property in the Bay Area that’s located in a fabulous location?!? I was at the open house… it was pretty crowded!

My agent stood firm on his stance… Because of our past successes, I decided to trust him on this. I felt like it was a complete long-shot, but finally relented, “OK. Let’s remove all contingencies and go in at the listing price… Keep me posted!

Well, by that evening, it was all silence… I got tired of waiting around, so I decided to take a jog outside. By the time I returned, I was greeted with two missed calls and a voicemail.

I didn’t know what to expect…

My agent is also a very even-keel kind of guy… Very expressionless in his speech, so even after 30 seconds of listening to the voice message, I had no clue if we had won or not…

Finally, he broke the news and suspense… Offer ACCEPTED! $490,000… our offer was the winning bid!

And since I’m all on vacation for basically the entire month of August, the real fun begins now! We have 30 days to close escrow! 😉

Here are some more articles discussing the “Stadium Effect” in Santa Clara:

Stadium Effect – San Jose Mercury News

$6.5 Billion in Redevelopment – San Jose Mercury News 

AT&T Park Comparison – Archers Homes

New Stadium Good for Santa Clara? – Bleacher Report

There is no denying the brand name of the 49ers… Further, the stadium and location will be in the national spotlight when Super Bowl 50 arrives on February 7, 2016… Better to get in before all the festivities and redevelopment happens, right?

To be perfectly honest with readers, this investment is simply a “side hustle”. I don’t even want to call this investment Rental Property #6 because it won’t cash flow at all! Without factoring for closing costs, my contribution will start at $24,500.

The way I look at it, I’m investing in a hyper-growth stock that doesn’t pay dividends. When it comes to this particular investment, I simply feel that the risk/reward factor is heavily skewed on the reward side… Without a doubt, I have absolute conviction that this area will shine over the coming years, and property values will continue to surge tremendously.

Of course, I could be wrong… and of course, another recession, or market crash could ensue… As such, I am taking on a bit of risk here. By partnering up with 3 other savvy investors (who also make outstanding salaries at their day jobs), I feel like I am doing the best that I can to mitigate risks…

A 3 bedroom townhouse in Santa Clara priced at $490,000 is extremely affordable, if you ask me. If the schools in this area improve and the redevelopment goes to plan, I really feel like the upside here is sky-high. But we’ll see over the next 3-5 years…

Here are the “cash flow” numbers:

Bay_Area_SH

Yikes! Cash flow negative! That’s a no-no, right? Well, luckily each one of the four partners in on this deal also owns other cash flow positive assets to help cover this spread!

Again, this is a risk/reward play on future appreciation… Yes, it’s speculation… But so was Google (GOOG), Apple (AAPL), and Tesla Motors (TSLA), at one point in time… Ultimately, no risk, no reward… The important thing is to take smart, calculated risks… which is what I feel like I am doing here…

In 5-10 years, I hope to look back and say, “Yup, it’s all hindsight now… But even back then, I had a pretty good feeling about this investment.

Time will tell… Wish us luck! 😉

Fight On!

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Real Estate Rental Property SH #1 Update (September 22, 2016)Real Estate Investing: Why You Should Consider Partnership DealsGreed and the Fear Of Missing OutReal Estate Rental Property SH #3 Under Contract! (December 09, 2014)Real Estate Rental Property SH #2 Closed Today! (September 18, 2014) Recent comment authors
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Retire Before Dad
Guest

FIF,
Whoa! Definitely surprised to see this one, a spec. You’re a cash flow hawk, but you make a good case here and spreading the risk among others certainly helps. Gotta take a little extra risk when it feels right. Best of luck! I’m working a new rental too. Should be posting about it in the next few weeks. It’s all about location too.
-RBD

JC @ Passive-Income-Pursuit.com
Guest

I was surprised to see this one as I figured you’d pretty much be taking it easy until you’re back from your trip. But if you see value in something you have to strike when you can. With the new stadium and rebuild of the area it certainly seems like y’all could have a great property on your hands even though it’s starting out cash flow negative. I’m still looking myself but it’s a bit frustrating for various reasons. Thanks for the update!

Evan
Guest

Best thing about having a blog is you can come back in a year, 2 or 5 and re-read your present day mindset!

Good luck, sounds like a fantastic opportunity

Martin
Guest

That was exactly what I was thinking too 🙂 The only problem with this is that in may occasions I cannot find that post anymore as it is buried deep in the blog history 🙂

Jason
Guest
Jason

Yikes, FI!

I’m surprised that you went for it, TBH. Yes, it does not cash flow, but in my mind, the bigger risk is actually partnering with others. I wish you the best.

Do you have an specific exit strategy for this property that everyone has agreed with? If not, now is the time to talk about it and make sure to get it into writing. The last thing you want is for some partners wanting to sell and others not wanting to sell.

Just something to think about.

Lynx
Guest

I have been reading your blog for a little while and am intrigued but not surprised. This evolution in strategy to looking for straight out appreciation is bold and aggressive. Deals like these are what but the super charged growth in your portfolio building. I have also made these types of investments but while this is only a small part of my portfolio the potential returns are usually worth the calculated risk. I am enjoying watching the strategies you utilize on your journey to FI. Best of luck.

Refinerr
Guest

Have fun with your adventure and good luck!=)

No Nonsense Landlord
Guest

WOW, no guts no glory. And a partnership at that. This one you should have a manager, as it will be hard to allocate the work involved to all partners equally.

I hope prices go up like you think, but it is all dependent on what wages do. And as properties go up in value, more supply will come on the market.

Good luck!

DoneByForty
Guest

Hey there FI Fighter. I should say congrats for scooping up another property. I’m sure you guys have covered this, but under what circumstances do you guys decide to sell? Did you set up a partnership agreement?

Cody
Guest

How far away is this from your primary residence? Worst case scenario, would any of you guys ever consider living there?

Saw you listed a cap rate, don’t know if that’s an error or not. It doesn’t make sense to cap a negative cash flow property. IRR will make more sense, you’ll need to project a selling price in the future for it to work.

Cody
Guest

Oops my bad I saw your mortgage as an expense.

Charles@gettingarichlife.com
Guest

Fi
Numbers look like hawaii here. At that investment rate looks like a fixed, you’re not going with an arm? If your horizon is 7 years or less that would work

Financial Samurai
Guest

Gutsy! I like it! Who are your partners anyhow and is it a 4 way split on profits essentially?

Tyler
Guest
Tyler

As your real estate empire grows, especially with partnerships entering into the picture, consider consulting with an asset protection attorney. Preferably one who specializes in real estate. Each investment is exposing your personal assets to a growing amount of liability, and this partnership is adding a new wrinkle so I’d recommend looking into some business structuring (land trusts, LLCs, etc) to make sure you’re protected from risks from your tenants, partners, or otherwise. Asset protection is like insurance, you don’t need it until you do. Long time reader, first time commenter wishing you the best of luck!!

Curtis@PayOffMyRentals
Guest

I’m with Jason on this one.

I’ve partnered with others on real estate in Costa Rica. I’ll never, ever, EVER do it again. You might as well buy a REIT. This deal has its upside, but I think it’s mitigated by the downside of the partnership.

I was born in Mt. View and raised in San Jose. So I know the area pretty well. Your market is way outta my league. I love Santa Clara. The El Camino Real is full of nostalgia for me.

I wish you well on this one.

The Wallet Doctor
Guest

Congrats on getting the offer accepted! Your numbers overall are looking pretty good. Keep us updated on how those investments pan out!

Martin
Guest

Wow, Fighter, You are going big here! Hope no one counteroffers your bid and you won’t end up in a price war. So I wish you a good luck on this so it ends as is and you close at this price. I also think it is a good idea partnering with other investors. I wish to do the same in my investing account, but so far I didn’t find anyone willing to invest with me, so I am alone. The reason is, that with pooling cash I can get better commission, better margin (like portfolio margin) and take trades… Read more »

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[…] are funds I have readily available for investing. As it turns out, 3 parters and I just recently won a deal for a Bay Area property this past week, so I will need to transfer this balance (and an additional $5,000) to close escrow next […]

Kathy @ RentalRealities
Guest

Congrats! I know what its like to think “Maybe we’ll look for another property in 6 months” and then find yourself under contract 2 weeks later. 🙂

I’d be interested to hear more about how you’ve structured your partnership. Specifically, are any of the partners silent? Do you vote on major decisions? What happens if somebody wants to sell before the others are ready to? Going in with others has always been outside of my comfort zone, but then again my market is easier to swing without them.

Mary
Guest
Mary

That’s great! So do you mind renting out your parking space for the games!?! lol

How is your interest so high at 5.5%? I’m in escrow in property #3 and received 4.5% just last week. Though my loan is only half of yours.

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