House hacking in SF Bay Area

36 Replies

Hey BP! This is my first post and I'm still very much a newbie in the REI world. I've listened to about 5 podcasts so far and I'm digging all the great info and interviews.

That being said I live in the SF Bay Area, where homes are VERY expensive and the idea of buying a 4-plex for $100k is comical. Was curious if any members could share any personal investment stories in the Bay Area or could post links to other threads or podcasts that involve the Bay Area.

Thanks!

Ben,

Welcome to Biggerpockets, a great free on-line real estate resource. If you want to hear about how local investors are killing it in the Bay Area, come to

@Johnson H. 's monthly meet-up at Whispers Cafe at the corner of Brokaw & Old Oakland Road on 7/17 at 6:30pm.  Several BP investors typically arrive there early around 4ish. It's free to attend. Based on what I heard from other local investors, once you have cracked the Bay Area housing code, you will not be investing in anywhere else.  

Ben

House hacking, god I hate that label, but to each their own, I guess attaching a computer term even if misused is cool and modern. Now to the point Ben, do not let prices upset your thinking, if you have to, try and think in percentages. 

I had one investor in the Midwest that I had developed a friendship with who was doing well dealing in $25,000 dollar houses and averaging about a 20% profit and doing about 20 deals a year.  His wife was a corporate lawyer at high pay and was promoted and transferred to the S.F.Bay Area. When he started to look into investing in the high priced area they had moved to he freaked out at the prices.

One morning he showed up at my brokerage office and the first thing he said was do you know how high prices are in the bay area? All I could do is smile and say yes I do business in all the bay area counties.  He asked how many rehabs I did a year and I said four, He groaned four an then asked what is your profit margin and I said 10% and he groaned again even louder and looked even more depressed. I let him sink further into his chair and finally said why don"t you ask my average sales price when I sell?  OK he said what is it? $2.7mil I responded, so a $270,000 profit. 

Life began returning to his body and eyes, and he kept saying wow I just need only one a year and I reminded him he could still wholesale and work lower priced properties and other things while hunting these deals. I told him don't worry about the prices, the only thing you need to know is are there buyers for it when your done so you can collect a check and presently the answer is yes.

@Ben Rice

I started off "house hacking" in a 2 bedroom 2.5 bath town house in Mountain View nearly 20 years ago.  Price for that place was around $300k and I sold it in 2004 for over double of what I paid.  If you give Zillow estimates any credit, this place is worth $1.1m now.  My second home in Mountain View, I purchased for nearly $700k and sold in 2008 for nearly $900k.  That home is apparently worth $1.2m now...  

HH can be done here.  You just have to be willing to sacrifice through the process.  The first home I bought, I had roommates to share expenses and saved like a mad man.

Good luck!

-Arlen

Yeah don't be scared anyone can house hack in the San Francisco Bay Area. You can buy a cheap 3 or 4 unit building live in one and rent out the others. Entry point between $1.9M and $2.5M, You see anyone can do it! Come on what are you guys waiting for? hehehehehehehehe :)

Get in now and take advantage of this once in a life time opportunity. These bargain prices won't last long !!!

@Gilbert Dominguez

I did just give an example of what I personally did... When the bubble burst in 2008 I pocketed $200k tax free.  If you need a more recent example of appreciation, I posted while back BP about 2 4 plexes that I purchased a few years ago for $840k each, did the renovations myself and refinanced this year.  Appraisal prices on the properties are around $1.5m EACH.

http://www.biggerpockets.com/forums/223/topics/184...

These were not house hacking examples, so I did not make mention of them on the original post.  However, if I had not gone the route of house hacking earlier in my life, I would not have had the money to purchase these properties.  However, there is no reason that these 2 4 plexes could not have been house hacked by somebody.  I did everything from demo to installing cabinets and granite myself.

-Arlen

@Arlen 

Yeah that sounds like the average BP investor alright. Arlen I am a Bay Area Native , have lived in the Bay Area most of my life. I bought two empty lots in the Oakland Hills in 2004 for $79K and sold them around 2009 for around $624K total, absolutely no improvements whatsoever. I get you. I could have also spent another $800K building a house on each  and sold each for $1.5M

The average investor is not a builder and most would be dealing with and paying a GC, a terrible idea for those that have no experience in construction or rehabbing. 

I congratulate you on your accomplishments but that is just not your every day investor. You had years to build up in the area and know the market. Your every day investor from other areas of the county have no idea whatsoever about the San Francisco Bay Area market and wouldn't know where to start. Do you think the average new investor just getting started can put together $840K. Its just not going to happen. 

The point is the the Bay Area is ok for those that have always been here but it won't work for the average joe from other parts of the country unless they are very well financially well healed and very experienced that is just not most folks, period. 

Here's a house hacking candidate currently for sale in my neighborhood: a duplex (2682 square feet, 3/2 and 2/2, with 3 car garage) in the Ortega Park neighborhood of Sunnyvale, in the Cupertino Unified School District, close to 280 and 85, and walking distance to Apple in Cupertino, listed at $1,798,000. You could live in the 2/2 unit (and rent out the other bedroom), and you could probably get $4,000 for the 3/2 unit:

1640 Albatross Dr., Sunnyvale, CA 94087

@Gilbert Dominguez The original poster is from the Bay Area and my post was directed to him. I never suggested that somebody from out of state or even out of the area should invest here. That in fact would be a very tough thing to do... However, the OP asked for examples in the Bay Area, and my intent was to provide local examples to a local investor.

My first examples of what I did were from when I first started out. People were saying the same things about the Bay Area 20 years ago as they are now. People thought buying a 2 bedroom town house for $300k was a crazy price. I was fresh out of college and my first job paid $23k per year. I am pretty sure back then my salary was below average, but my long term commitment to REI was not. Scraping together a down payment is not easy now, but it was not easy back then either.

If you search my posts you will also see a recent deal that I did in Oakland for 5 units for $600k and I got seller financing!  This was not house hacking either, but then again it totally could have been. Granted the Bay Area is a tough market to find and convert deals. However, if people just give up based upon generalities, I believe that they automatically fall into the "average" mindset. 

A partner and I almost closed on a vacant triplex in Oakland that was very near move in ready for less than $500k. We walked away because we were concerned about some work that had been done on the property that looked to have been done without permits. But that could have been a houses hack for somebody getting into REI. I even posted here on BP about passing the deal to somebody who might want to house hack, got some tire kickers but nobody who wanted to engage. 20 years ago when I was young and single, I would have jumped on the deal and handled the permitting issues myself while living in the crappiest unit. This could have been a 1% property for a first time investor.

The excuses of not finding deals or not having money to start in any market are the excuses for the average Joe. Finding creative deals, and finding money to make the deals are what pull investors ahead. When I started, I had an average job, with a below average knowledge base for REI. But I had an above average desire and commitment to make it work in my back yard. If I could do it back then and make money in 2008 there is no reason that somebody with a long time horizon and a willingness to sacrifice and work hard could not do it now.

-Arlen

@Arlen 

Obviously someone one is doing it now Arlen otherwise properties would not be selling and the selling is hot right now prices being as high as they are someone is still bidding above asking price so of course it can be done, is being done, and always will be done by someone. 

Nothing wrong with your posts I love them. However I wanted to present more clarity for those that do not have exposure to our market and realize its difficulties before thinking they would get on the next bus headed here. Just expanding on the topic a bit. I too would not have the money I have now were it not for my start in the Bay Area. I became a millionaire by the age of 30 because of being in the Bay Area and because of real estate investing. 

The one point I wanted to focus on is that the Bay Area is not very good for cash flow but luckily it has been great of appreciation. I have never been able to cash flow very well in the Bay Area needing to keep up with 3 jobs at a time just to make my mortgage payments and had to make it through times when I was negative on properties. I was lucky the properties appreciated and I was able to come out of properties with a good profit in the end. 

I hope you do not mind I have chosen to expand on the topic a bit. Yes its possible to house hack but not just in the San Francisco Bay Area but in Chicago, Certain high end cities in Florida and other places around the USA. 

It happens that house hacking has been introduced here on Bigger Pockets as a way to get started generating cash flow and in that I feel the San Francisco Bay Area is not conducive. People are looking at house hacking as a way to get started. 

Why do you have and why do you need a partner Arlen?

There is no debate going on Arlen there is simply an effort to present the San Francisco Market as it is and give examples of how this market can be worked. 

Ben,

To echo what @Arlen Chou said above, if you want to be average, do what the average Joe does.  If you want to join the 1% instead, you will have to think and do like the 1%.  As the saying goes  "It's not easy to make it to the top.  Once you've made it, the view is incredible."  If it were easy, all of us would be millionaires.  The good thing is that we get to choose our friends.  We just don't get to choose our parents and siblings though.  :-)

@J. Martin house-hacked and bought a 4-plex in Richmond a couple of years ago with an FHA loan. It recently appraised for over a half million. He refinanced out of the FHA loan in the hope of picking up another 4-plex in Oakland using another FHA loan. For an up to $1.2MM 4-plex, you only need to come up with $42k for the down payment.

When Colonel Sanders, at the age of 66, realized that living on his Social Security check wasn't enough, he went around the country selling his recipe for fried chicken.  He was turned down 1,009 times before someone said YES.  You know the rest of the story.  

It's quite simple to me.  Here are two options:

1) Listen to people who have never done it, and they're telling you why you shouldn't do it, or

2) Listen to people who have successfully done it, and they're telling you to go for it.

Join the 1%, or stay in the 99%.  Just know that you have plenty of companies in the 99%ers.  Thank god you get to choose.  :-)

Originally posted by @Gilbert Dominguez :

The one point I wanted to focus on is that the Bay Area is not very good for cash flow but luckily it has been great of appreciation.

Gilbert,

I beg to differ.  Not only you get good cash-flow in the Bay Area, you get great appreciation too.  Talking about having your cake and eat it too.  I would argue that appreciation is the cake while the cash-flow is the icing.  

The great thing about appreciation is that it comes with rent growth.  2 bedrooms in downtown San Jose, was renting for $1,800 last year, is now renting for $2,400/month.  That's $600 rent growth goes straight into the landlord's pocket.  These 2-bedrooms were just renting for $1,300-$1,350 in 2012.  

As Warren Buffett said, if you're buying properties/assets at FMV, you're not an investor, you're a speculator. By that definition, a lot of people are speculators without realizing it. People can control 100% of the asset with 3.5% down. That's a great incentive to house hack with about a 30/1 leverage. 3.5% annual appreciation is 100% ROI. How cool is that? First Time Home Buyers should thank Uncle Sam for being so generous.

Best.

@Account Closed

Like I said , there is no debate going on here Minh. My question is are these properties entry level?

Right now if you had no experience whatsoever in real estate investing and getting started with little to no money or established credit could you get into these properties?

@Account Closed ,

You see guys no body wants to see who is right or who is wrong. What people are after is knowing the San Francisco Bay Area Market and how to work it. That is what I am after. What can be done today not 2 years ago and not 10 years ago. The first one bedroom I rented went for $60.00/ Mo in San Jose and today its renting for $1,300.00/Mo. 

When I first came to California in the late 50's you could buy a home in San Jose for $4,000.00 and today that same house goes for about $1.2M

We are not really interested in the dynamics of the San Francisco Bay Area over the last few or many years. What people want to know is how to work this market today, 2015. 

If there is way as there most certainly is a way how do people go about it?

@Gilbert Dominguez ,

Of course we are talking about now.  I just closed a deal two weeks ago and two deals in mid May.  All deals are in San Jose.  All properties have positive cash-flow. J. M. helped me obtain two loans from his bank contact.  I'm more than happy to share the details of the deals if you go to Johnson's meet-up tomorrow afternoon. 

Have a good evening. 

I am not interested Minh. I am into commercial building now . However if you can show start up investors how they can get going in the San Francisco Bay Area that would be of benefit I think.

for anyone is new here , any post in cash flow in SF will ALWAYS garner irrelevant antidotes from proud Bay Area home owners wanting to talk about how much money they have made due to appreciation. This is as sure as the sun rising do calling them out on it is pretty much a waste of time