This has been in the works for a while, but we’re thrilled that the Bawld Guy himself, Jeff Brown, plus his son Josh, will be gracing us with their presence next weekend.  No, he’s not coming up here for a haircut…he’ll be holding three real estate investing events.  We’re pleased to sponsor his trip up here, along with our friends at Equitas Capital.

Hint:  Jeff’s the one on the right.  Josh is on the left.

We’ll kick things off on Friday night (February 29th) from 6pm to 8pm with a light dinner/reception for Jeff and Josh.  On Saturday (March 1st) from 10am to noon and 2pm to 4pm, he’ll be giving a talk on real estate investing in general, concentrating on his thoughts for the Bay Area.

If you’d like to attend, click here to register.
Jeff was kind of to provide some information in the form of a guest post.  Those who have been reading his blog will know that there are many reasons why he recommends folks with real estate equity in California should sell or refinance and invest in other areas.

Take it away, Jeff…

How Bay Area Investors Can Safely Improve Their Portfolio’s Performance

I’m asked this question everywhere. “How can I improve my annual returns, and/or capital growth rate?” This is invariably followed with the need for them to stay local, as if the ability to drive by their property makes their investments safer.

The answer is simple - you can improve your capital growth rate by stepping back and being objective. For example, I’m based in San Diego, an area often associated with Paradise. Yet I’ve been saying for years now - get outa Dodge. Real estate investors are a curious breed. They focus like laser beams when looking for an investment, yet shoot themselves in the foot time and again by insisting on investing in their own backyard. Allow my smart aleck self to emerge here - your capital doesn’t know where it’s been invested.

As bad a place for your investment dollar as San Diego is these days, the Bay Area is even worse. If the investor’s agenda is to take current capital and grow it through real estate investing, they will tend to avoid high priced areas offering horribly low rent to price ratios. Let’s say that more plainly. Are you as an investor more attracted to a million dollar property with $25-50,000 annual gross income OR would you prefer a properties worth a million bucks sporting gross annual incomes of around $95-100,000?

Your choice - take your time - no rush.

Here’s the point: Insisting upon local product in San Diego or the Bay Area will not only retard your capital growth within an inch of its life, but in chronological terms you’ll delay your retirement many, many years. In the 30 years ending in 2005, those who chose to invest in San Diego (not in most of those years absurdly valued) instead of the Bay Area were literally two commas ahead in terms of dollars. How is that possible? Weren’t there some years when the Bay Area out appreciated San Diego? Possibly, but so what?

In 1975 San Diego leverage was at least twice that of the Bay Area. By the mid-’80s it may have already been triple. When you as an investor can control more property safely your capital growth rate is turbo charged. This isn’t anything new or groundbreaking - just widely ignored. Real estate investors as a group have become infatuated with appreciation. Wrong wrong wrong.

Given the same $250,000 with the ability to make an informed decision regarding what region in which to invest, anywhere in California isn’t even on the C-List. Why? It’s a simple 8th grade math problem. Would you prefer 5% appreciation annually on $2 Million in property OR 10% appreciation on $500,000 in property? The former enjoyed capital growth of $100,000, or a capital growth rate of 40%. The latter accumulated capital growth of $50,000 or a capital growth rate of 20%.

Now bring in the concept of compounding and tax deferred exchanging to periodically recharge your growth rate, and those numbers grow further and further apart. After only 5-10 years the investor who chose to go where it made sense can’t even see the other guy in his rear view mirror any longer.

The lesson is clear: Keep your eye on the ball - and the ball is capital growth rate not appreciation rate. California properties simply can no longer compete with other growth regions.

If you’re a Bay Area investor wishing to safely improve your real estate portfolio’s performance, just keep your eye on the ball - the right ball. That ball cannot be found in the Bay Area.

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Tags: Bay Area real estate investing, Consumer, Industry, Investing in the Bay Area, Jeff Brown, Real estate investing

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With starter homes in some parts of the Bay Area over $1M, even well-educated high-earning, dual-income couples are having a hard time getting in, especially with interest rates creeping up.

Enter a long-existing but obscure concept called “equity sharing” and a new online service called — appropriately enough — HomeEquityShare.com.  The idea is simple:  match prospective priced-out and/or risk-adverse home buyers with real estate investors who don’t want the pain of landlordship.  The home buyer and the investor together come up with an appropriate down payment, sign an ownership agreement, and buy a suitable property.  The investor gets the best of all possible tenants:  one who treats the home as if it were his own — which of course it largely is.

At the end of a specified time period, the home owner buys out  the investor, or they sell the property and split the money.

The devil, as always, is in the details.  The site explains some of the basics of how these agreements are structured, who pays what, how the taxes work, and so forth.  The “Chief Real Estate Officer” of the company is Marilyn Sullivan, a Santa Barbara-based real estate attorney with two decades and 3000 transactions’ worth of equity sharing experience.

The site includes a calculator to estimate the co-ownership structure of the deal.

My thoughts?  I think it’s a brilliant idea — partly because it’s something a friend of mine and I toyed with already several years ago but simply never executed on.  Many local couples with $300K plus year combined salaries are simply being priced out of areas like Palo Alto, and this makes it possible for them to get in the market.  Many investors are wary of getting into consistently negative cash flow real estate investments.

The major red flag I see is one of branding:  this looks and feels very much like a tenancy-in-common arrangement.  (In fact, according to Marilyn Sullivan’s site, it is tenancy-in-common.)  When I hear that phrase, warning bells of real estate deals gone awry in the People’s Republics of San Francisco, Oakland, and Berkeley start ring.  Due to ownership laws in those cities, condo-type ownership is difficult for certain older buildings, and so people resort to tenancy-in-common arrangements, which are more difficult to structure, more difficult to get loans for, and greatly dependent on good cooperation amongst the co-tenants.

Still, I’ll reserve judgement about the efficacy of this kind of ownership.  If Marilyn has done several thousand of these deals, I’m sure the agreement itself is pretty solid and caters for all sorts of thing that could go wrong.

Time to go register to join their network and learn more.

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Tags: Alternative business models, Co-ownership, Consumer, Equity Sharing, HomeEquityShare.com, Industry, Real estate investing, Tenancy-in-common

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