Buying a duplex in West Oakland

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Buying a duplex in West Oakland

Jocelyn Ahuja
Oakland, CA 路 Member since 2017 路 3 posts 路 1 vote
Hi BP! I'm new to BP and just started my first deal. Had an offer accepted for a duplex in West Oakland, CA. Home was listed for $850k and I went in above asking at $875k. (A lot I know, but it's Bay Area pricing) Each unit rents for $3200 a month & 6 blocks away from the Bart station. So here's my plan, my husband and I will house hack this property but I have a few concerns. 1)The second unit has not been legalized, is this a big deal? I've started researching the process and it looks like it could cost a couple thousands to permit the space. Has anymore legalized a unit in Oakland, CA? 2) I've been living in Oakland for 3 years now, and have familiarized myself with the Lake Merritt area BUT don't know much about west Oakland ... any insight? It's very industrial and I see a lot of development, what's the culture like? Demographics? Any future projections for the area? 3) I will inherit tenants in one unit (seller says they're great), and will move in the vacant unit. Right now the home has one meter for electric/gas, any experience on splitting utilities? I want to have separate meters for each unit but I'm willing to wait until their up for a lease renewal in Feb 2018. I have about 10 other concerns but I'll keep my first post short. 馃檪 Thanks for the feedback! Jocelyn
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Amit M.
Rental Property Investor 路 San Francisco, CA 路 Member since 2013 路 1k+ posts 路 1k+ votes
9y

The cart is way before the horse here. You need to have answers to all those questions BEFORE getting into contract imo. The unit legalization issue is complicated, and you don't even know basic things like the neighborhood characteristics. So how do you even know if this is a good deal, or if you're overpaying? You've got A LOT more research to do before jumping to make offfers. 

Note to novices: don't do this. 

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  • Calvin Kwan
    Oakland, CA 路 Member since 2015 路 246 posts 路 127 votes
    9y

    25K above asking for Oakland is pretty reasonable.  Most folks pay much for more :)

    I'm curious to know how you were able to get a loan with a non-legalized unit?  Was this a conventional loan?  Any issues with appraisal?  

    You should check if your property is zoned for a duplex.  If not, you won't be able to legalize the second unit.  There are also a ton of other requirements to get it zoned.  It's not an easy process - I've inquired with the city in the past.   If you can't legalize the unit, renting it out will be risky for a variety of legal reasons.  Oakland is a very tenant friendly city, so if you rent a unit out illegally, tenants can bring litigation against you, withhold rent, etc.  Your call if you want to take the risk.

    One more thing, you might not be able to get separate meters unless you're zoned properly.  That's another thing to consider.

    2Reply
  • Chris MasonPro Member
    Moderator
    Lender 路 CA 路 Member since 2015 路 9k+ posts 路 10k+ votes
    9y

    Hi @Jocelyn Ahuja,

    Welcome!

    Out of curiosity, what's your plan that you + your lender + your agent came up with, for when it comes to light in a week or two (when the appraisal comes back documenting tenant occupied SFR, but you are applying for an owner occupant mortgage) and are asked how you plan to move in and owner occupy within 60 days of closing? I always like to know the plans of others to navigate these complexities, when I have an opportunity to do such spying. :)

    2Reply
  • Billie Miller
    Real Estate Agent 路 Denver, CO 路 Member since 2014 路 151 posts 路 101 votes
    9y

    Congrats on your house hack! We must moved out of our house hack and it was a great experience!

    I'm not familiar with CA zoning laws, so I can't speak to the legalizing part. But with regards to the utilities, you could do 1 of 2 things:

    1. Try and guess what your tenants' share of the utilities will be and charge them that amount every month. Make sure and take an average of what you think it will be between warm and cold month. This way, you can just add that amount into their rent payment and you don't have to chase them down every month for their utility payment.

    2. Split the bill with them every month. This would take a lot more work, but you would be sure that you were only paying for your utilities. And they would have incentive not to take super long showers or leave the lights on all day.

    Both come with pros and cons, so it's really about what sounds the easiest for you.

    0Reply
  • J. MartinPro Member
    Rental Property Investor 路 Oakland, CA 路 Member since 2011 路 3k+ posts 路 2k+ votes
    9y

    @Jocelyn Ahuja,

    WEST OAKLAND - depends where you are, but definitely not Lake Merritt. 
    Did you live on the Grand Ave side? Or Eastlake/International? 
    If you lived on Grand side, you're up for some surprises! Eastlake, some spots aren't totally different. I used to live at 2nd Ave & International in Eastlake. Comparable to some areas of West Oakland. I don't like West St and some other stuff up there. West Oakland takes two steps forward on gentrification each boom, then 1-2 steps back again during each recession, talking with folks in the neighborhood. 

    I have a LEGAL duplex in West Oakland near 32nd & Chestnut (bought w/ partner for 300K a few years back ;-). Not bad neighborhood. Still people shuttling recycling around in shopping carts, last I checked, but heard they were going to close down the recycling center. Not super dangerous, although occasional shootings - mostly crime on crime kinda stuff. Some debris dumping on streets. 

    UTILITIES - Just call and ask the city what the current fees are for new meter (which can be a lot) - then can be even harder to "split" between the two units, if they're already wired jointly. 

    I would not pay the normal market price for an illegal unit, because it is not as valuable as a legal unit. In a hot market, people ignore it. In a down market, it will be less liquid if you need to sell without a discount. 

    I second @Calvin Kwan on having the tenant in an illegal unit. They can raise hell if they want to. 
    If there is technically entry between the two (even if the entry stays locked), it's more or less back to a SFH.

    Good call @Chris Mason on the financing piece. Not sure if/what lenders are ignoring the legal # of units..

    RENT LEVELS
    Also, remember that West Oakland gets the spill-over from San Francisco, so is a more volatile version of that.. Rents have gone through the roof in SF & West Oakland. SF is now softening on rents, especially on the high end. And $3,200 is definitely on the high end for West Oakland. With 50-100% increases in rents since the financial crisis, I wouldn't be surprised if some higher-price point rents give back the last year or two of 7 years of increases.. maybe give youself a little cushion on the cash flow.. 

    I definitely don't love the deal paying that much for an illegal unit, but if you decide to do it, good luck!

    5Reply
  • Amit M.
    Rental Property Investor 路 San Francisco, CA 路 Member since 2013 路 1k+ posts 路 1k+ votes
    9y

    The cart is way before the horse here. You need to have answers to all those questions BEFORE getting into contract imo. The unit legalization issue is complicated, and you don't even know basic things like the neighborhood characteristics. So how do you even know if this is a good deal, or if you're overpaying? You've got A LOT more research to do before jumping to make offfers. 

    Note to novices: don't do this. 

    6Reply
  • Matt K.
    Walnut Creek, CA 路 Member since 2015 路 3k+ posts 路 2k+ votes
    9y

    Could Oakland Mini Lot program (if it's even still around) apply/be used for this situation? 

    0Reply
  • Matt K.
    Walnut Creek, CA 路 Member since 2015 路 3k+ posts 路 2k+ votes
    9y

    You also might want to walk a few blocks in each direction to get a real feel for the area... After dark on a fri or sat night would probably be good idea also.

    1Reply
  • Calvin Kwan
    Oakland, CA 路 Member since 2015 路 246 posts 路 127 votes
    9y

    I think we scared her away :(

    0Reply
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