As a landlord, I am not a middle man. I am a fixed income bond issuer. I issued a “bond” called mortgage. Every month, I am paying a fixed coupon to the bank (investor in my bond). The fixed period for the “bond” is 30 years with a yield of 6.5%. Banks make money because they are earning my fixed income (monthly payment, or coupon payment). I am using bank’s money to do business that I would otherwise can’t possibly do. Banks are only my investment partners, they are my best friends. If I lose, bank will lose too.

Bayfamily suggested that in high growth area, cash flow is impossible, but in slow growth and low price area, cash flow is good. This statement is in general true, especially in market boom cycle. However, Bayfamily may not have been familiar with market conditions outside of California. While in California, especially Bay area, the market doesn’t tend to drop very much during national slump, basically, Bay area’s housing cycle is not very distintively cyclic, e.g., the market tends to go up for a long time, then stay flat for a while, then resuming the upward trend. Basically, for the last 17-20 years, Bay area has been in a long-term uptrend with almost unnoticable flat or down periods. However, in other markets, especially the east coast corridor market, the up-down pattern is more obvious. For example, markets like Boston, NYC, New Jersey and Washington DC all demonstrate a 10-year (+/-) distinctive up/down pattern. In math, it resembles a wavering sine curve that perpetually goes up with every swing. The market pattern is not the kind people in Bay area have been familiar with, but nonetheless, a familiar pattern in Southern California, like LA county/OC county.

why? because I think focusing on timing is often working better in theory than practice. We’ll never realize the bottom until the bottom is past. The more realistic approach is looking at the the percentage of below market, if it’s -40% below market, and cash flow is even or positive, then, it’s a deal time. I feel timing the market is very hard if not impossible. I rather like the concept of “dollar-cost averaging” into the market in the next couple of years. You may not be catching the bottom perfectly, but with -30% to -40% down, at least the risk of overpayment is not high. The focus should be: Cash flow even. One big caution, you can’t think east-coast market using California mindset. I feel that in California, although the long-term prospect is good, maybe as good as in the past for the future, due to the fact that price drop has been rare and cash flow is impossible, risk in investing in Californian market is higher than east-coast, maybe a lot higher in the short term (next 2-4 years).

A while ago, I discussed my criteria to strictly buy only median priced properties with at least 20% (hopefully 30 or 40% discount). Many people are curious why I choose the median price range, rather than the lower price range because they think that lower price range can make even better cash flow. Here are my reasons:

1) Lower priced homes tend to be old homes sitting in older neighborhood. Older homes are not necessarily lower priced. Lower priced older homes are often in the slum hoods with poor tenant base. Dealing with poor tenant base is one of the hardest tasks, if not the hardest.

Lots of people kind of having that feeling this is a biggest urban cluster outside of California, but they are not very sure why the future potential price appreciation will be fundamentally stronger than new and fast growing areas like Georgia, NC, Texas.

What’s the prime and frontal reason for NJ/NY/DC/MD/VA ? Zoning difficulties !!