A few days ago, a client from China consulted me, expressing an interest in purchasing an investment property in the San Francisco Bay Area with a full payment of several hundred thousand dollars. However, I advised them against it.

This friend is currently still in China, and their child might come to California for school soon. Therefore, they wanted to buy an investment property first to appreciate the asset and then purchase a home in a good school district for their child in the near future. After a detailed conversation with the client, I suggested they hold off on buying for now, as it wouldn’t maximize their interests.

There are two main reasons for this:Firstly, given the budget, it’s highly likely that the property they can afford in the Bay Area with a full payment of several hundred thousand dollars will be a condo. Some condos have rental restrictions, meaning there could be a queue for renting out the property, which is quite troublesome. Regarding rental income, as a homeowner, you need to pay several hundred dollars in HOA fees each month, 1.1%-1.2% in annual property taxes, and various maintenance costs, such as replacing the air conditioning, painting the walls, and changing the stove or oven. Additionally, there are various insurance costs, like homeowner insurance and landlord insurance. Since the homeowner is not local, they will also need to hire a property manager to handle things, which costs about 8%-12% of the rental income. So, after considering all these expenses, the monthly income is not as attractive as one might imagine.

Secondly, condos take longer to appreciate in value. I found the appreciation data for condos over the past ten years in three cities: Fremont in the East Bay, Sunnyvale, and Santa Clara in the South Bay. We can see that in the first five years, from 2013 to 2018, the median home price nearly doubled. However, in the recent five years, from 2018 to July 2023, the prices have been fluctuating within a range. For example, in Fremont and Santa Clara, the median condo prices mostly range between 600,000 and 800,000 dollars, or just over 800,000 dollars. In Sunnyvale, they mostly range between 800,000 and 1,000,000 dollars. Therefore, if one intends to quickly use the appreciation of a condo to buy a home in a good school district for their child, it might not be a good investment strategy. After hearing my analysis, the client agreed and appreciated the early insight, preventing a potential pitfall.

Whether buying an investment property or a home for personal use, it’s crucial to have a professional agent who can provide personalized advice based on the client’s specific situation. If you’re considering investing in or relocating to the Bay Area, we should definitely have a detailed discussion.