Highest Rent Growth in US! (+ 50% more??) Step aside SF, SJ, Palo Alto, NYC, Austin! It's....

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What city beat out San Francisco, San Jose, New York City, Austin, and other hot markets in annual rent increases? (And I wouldn't be surprised to see it go 50% higher by the end of the decade)

"Oakland had the highest apartment rent growth in the U.S., at 9.1 percent in the year ending Sept. 30, outpacing San Francisco’s 7.4 percent, and tying New York for the tightest occupancy..."

Bloomberg was kind enough to point out last week what I've been telling my friends and investor colleagues for the last 4 years... Oakland is blowing up! I remain bullish on rents and prices in Oakland (we can get more into specifics on neighborhoods). And I put my money where my mouth is! Bought a 4plex and a duplex with 2 different partners in 2014 for long-term "fix and holds" in Oakland, and looking for more great deals!

Bloomberg: Oakland Rents Outpace San Francisco as Hipsters Relocate

For all of you who haven't been (because of course you will be shot driving into town if the protestors and looters don't kidnap you!), it's not what you heard from that other guy who's also never been here 10 years ago! You can come say hi to myself, @Daniel S.  , @Kyle Zaylor   , @Shiloe B.  , @Sam McClellan  , @Jessica Yau  , and others who live and/or invest in Oaktown!

I especially think Lake Merritt and West Oakland are going to kill it over the next 1,3,5,10,15,20, and 30 year periods. (with some dips in between - but generally a line charting from the bottom left towards the upper right..)

These areas are great central locations to SF and the East Bay, BART, buses, and freeways. Great restaurants and beautiful outdoor areas. Growing nightlife scene. Constant spillover from more expensive areas in SF & South Bay / Peninsula.

I would not be surprised at all if rents were 50% higher in Oakland by the end of the decade!!! IS THAT CRAZY??

J.

I agree wholeheartedly with your view of Oakland. I live in SF, and I think that Oakland is more dynamic, interesting, diverse and has more energy around it than the city by the bay. 

I would have thought that the areas that you mentioned were already sky high in prices, so if there are still some good values out there in multi-unit buildings, I'd love to hear about them!

Steven

Originally posted by @Steven W. :

J.

I agree wholeheartedly with your view of Oakland. I live in SF, and I think that Oakland is more dynamic, interesting, diverse and has more energy around it than the city by the bay. 

I would have thought that the areas that you mentioned were already sky high in prices, so if there are still some good values out there in multi-unit buildings, I'd love to hear about them!

Steven

Step 1: Identify trend
Step 2: Capitalize on trend

You're half way there! Yes, I think there are good deals, but they just pop up here and there. Last 2 deals I found were 200+ days on MLS (scouring old listing for vacancies) and an off-market wholesale deal (networking). Looking at the long-term view, IMHO, these areas are still undervalued, even though they have increased significantly in price. In fact, many have had rents increase 40-60% while prices did about the same, so some ratios look about the same as they did years ago during the crisis - IF you can find some vacant units that aren't under rent control (or property constructed after 1/1/83 unless you plan on owner-occupying a triplex..)

Wow, 200+ days on MLS! And I know what you mean about rent control units--that can be an absolute killer when looking at properties.

Totally agree with you, especially the Adams Point and Cleveland Heights neighborhoods. Both with easy commutes to both downtown SF & Oakland but far enough out where you aren't surrounded by skyscrapers.

Prices have been bid up a ton already but job growth should lead to a more stable market and sustain these increased rents.

Very interesting, J. M. 

While this focuses on Oakland, are you seeing/finding the same to be true for the cities surrounding Oakland - Berkeley, El Cerrito, San Leandro, etc.?? I'm focused on flips at this time so not sure what rental rates are doing in those areas. Speaking of flips, the last two projects I was invovled with, we sold to people moving out of SF and wanting more space/outdoor area. There seems to be plenty of pent-up demand still from people wanting to get out of the city and into a SFH. Thanks for sharing the article!

@Brandon Foken  

Berkeley sale prices and rents have gone up like crazy. El Cerrito has been rising as well but not as quickly. Can't speak to San Leandro.

It's interesting to hear about your past two projects because it matches my experience in our current market. Homes that get the highest prices have great flow between the living areas and outdoor spaces and are walking distance from transit and commercial.

those rent growth stats are usually composed of 50+ unit bldgs and not accurate for smaller bldgs. So outside of some feel good and self serving puffery, I'd take them with a grain of salt. 

Having said that, oakland rents certainly have grown, directly as a result of super high SF rents. There is a hipster trend as well, but that could change quickly if we hit an economic growth kink, as Oaklands unempoyment is presently higher than CA average and twice that of SF. 

If I was a beginning investor without a lot of loot I'd certainly consider oakland. But be prepared for much wilder swings in values and rents out there. Overall crime is still very high, and when we have a downturn expect some wide eyed and bushy tailed hipsters to high tail it outta there.  Plus it's a big city and some areas may only gentrify by the time you become gramps.  

Think of a ship with stability with a large ballast- Oakland has less of it than other Bay Area markets. I still think oakland can be a great play for a starting investor, but be prepared, as its probably not all milk and honey (like SF has been :). Just make sure you don't end up milk toast ;)

I agree with you completely @Amit M.  Oakland probably is the wild wild west, and slight tremors in SF could cause earthquakes in Oakland's real estate scene. But SF rental prices are so insane--2 bedroom places going for 5K--that more and more folks will be heading over there.

But beware--bad areas can be really bad and don't gentrify, at least not quickly. I don't think Oakland is one of those places to invest in sight unseen.

Steven

@Amit M.  

OFFICIAL STATS. 
I think you are spot on regarding the "official stats" being for big MF, and I do take them with a grain of salt (and a little self-serving puffery), but my actual personal experience has been more like 15%ish increase on lower-end 4plex in Richmond in the last year and about same on SFH there, 15%ish increases in low-end E Oakland in last year, 15%ish in Lake Merritt in the LAST 6 MONTHs for nicer units. But that's harder to document than Bloomberg, and would look even more like self-serving puffery since it's anecdotal from the properties I own and manage. So I quoted the scaled-back Bloomberg estimate from their article ;) I believe parts of North Dakota were up 1XX% last year and didn't get included, so my gains are timid.. ;) But they're definitely up (double digits)! I think my bigger point here is about the room to go up, from where Oakland is coming from, and what's around it - so I think it has some more opportunity than many cities (even precious SF!) - see my question below..)

SPILLOVER EFFECT v HIPSTERS.
Amit, I also agree with you that the spillover effect from SF is stronger across than the hipster influence like this article references. Hipsters have driven W Oakland, Temescal, and the South side of the Lake (Eastlake), but I think you’re right that a majority of the increases city-wide in other nice areas like core Lake Merritt, Adams Point, Grand Ave, Piedmont, Rockridge, Oakland Hills, etc have been far past the hipster gentrification phase for a long time and driven by the value provided in Oakland by sky-high SF prices. Yuppies and some young families are already priced out, and the mature professional families who want a bigger yard and sq ft are paying up for Oakland, while saving tons of $$ relative to SF..

As you know, most of my RE investments have been “spillover plays.” Oakland gets the most direct spillover from SF. Then it pulses out through the East Bay as each city gets progressively more expensive.. They definitely don’t have the same price stability as SF during downturns, and of course the less established and low-end neighborhoods will take more of a beating on price, and less so on rents IMHO... “(with some dips in between - but generally a line charting from the bottom left towards the upper right..)”

GENTRIFICATION
I'm going to go out on a limb, and say (as many have said and failed before), that WEST OAKLAND IS GOING TO GENTRIFY BIG TIME AND AROUND A NEAR DOUBLING OF PRICES IN 10 YEARS (around $500/sq ft. We just got in at $115, and decent buildings around $250 - so I'm not counting on it..). As mentioned above, many of these areas have already been established a while back, so they have their own momentum, and don't need the economic steam as much to continue rolling. West Oakland, Eastlake, and Temescal to some extent will still be dependent on further gentrification, probably with good economic support to continue their increases.. But if they really make it, I think the returns are going to be HUGE.

MORE ROOM FOR GROWTH THAN SF?
I think Oakland has a lot more room to go up in rents (and prices) than SF may.. What do you think? Basically, rents in Oakland can go up by another half, and still only be 60-70% of current SF rents, with more amenities. It’s always going to be less than comparables in SF, but I think the gap has room to narrow when people start experiencing and hearing about Oakland more, and realize they’re not going to get shot while enjoying a beautiful day at the Lake ;) I’m with @Devin Ratoosh   that this area has more steam in it.. I think @Kathryn M.  was surprised when she got to spend some time here, but then I think she might have drunk too much of the Kool-Aid! lol

@Brandon Foken  , Berkeley, El Cerrito, San Leandro have been going up in rents too, for sure. But I don’t know the details as well. Maybe @Andrew Fingado   can chime in w/ some more detail..

@Steven W.  

I definitely try to get vacant buildings when I can. That's why my 4plex killed it. The duplex I more recently bought has below-market tenants in it, but the deal was just too juicy to pass up!! Getting into a big beautiful West Oakland Victorian at about 1/2 of replacement cost.. $115/sqft.. around 1% ratio at purchase, w/ 2X on upside… yes please!! The 200+ days on MLS on the prior 4plex was a huge advantage in a quickly upward moving market, and gave me good negotiating leverage on terms and price that saved me a lot of money.

I agree it’s largely a spillover play from SF, but Oakland is gaining traction of its own as a vibrant city with **it going on!

“But beware--bad areas can be really bad and don't gentrify, at least not quickly. I don't think Oakland is one of those places to invest in sight unseen.
Are there ANY markets to invest in, sight unseen? I personally talk to almost everyone on the block and then some for long-term buy and holds. Definitely dig in on streets in the Bay! It’s worth your time if you’re in it for the long run!

J. M. This is a fantastic analysis of the market in Oakland--thanks so much! As far as buying a place "sight unseen", I was being a bit hyperbolic, but I think that I could buy a SFR in a "nice" suburban area of Dallas, or OKC, or Memphis with greater ease than doing the same in Oakland. I think that one really needs to know the areas in Oakland to a greater extent. For example, my friend lives in a cute house off of 56th and San Pablo. Very close to shopping in Emeryville, easy access to the bay bridge, great weather, low prices....but, I wouldn't live there with my family no matter what. A drug dealer got shot and killed across the street from them a couple of months ago, and I don't think it was a complete anomaly.

That's why your input is so invaluable to help us understand the ins and outs of the area.

Kudos to you!

Berkeley has rent control and a strong market for transient/vacation rental in pretty much every neighborhood.  The students are also a pretty captive renter pool.  The result is a small number (compared to demand) of units coming on the market for lease with sky-high rents.  

Rent control has turned into a bit of a golden cage for some of my friends.  Their fortunate on the one hand, but there's no way they can move with these rents.  Good news for the people who got in early, got in at the bottom, or the gamblers who bought places with negative cash flow banking on this happening.

@steven w

just a warning...I live here and wouldn't buy a property in Dallas proper sight unseen!  The suburbs are better, but you have to stay north of Dallas or continue to be careful. 

J. M. Has something in the works for SF :)

@Amit M.  I don't have the statistics right in front of me either but I believe your intuition over the past 20 years is correct. However, in the very near term (1-2 years) Oakland has begun outpacing SF. Year-over-year from May 2013-14 Oakland has had 23% growth in median home prices compared to 14% in SF.

@Mel Selvidge  Growth in rents near to UC (and across the board) have been soaring for the reasons you mentioned. We manage several properties near campus and rents for studios and one bedrooms have increased up to 50% over the past couple of years.

J. M. 

I am not as familiar with the San Leandro market, but Berkeley and El Cerrito have seen increases in rents. Berkeley has been crazy over the last year. A lot of the tenants I have been placing into units are San Francisco transplants who can no longer afford living in SF, and see Berkeley as an affordable option. A lot of techies.

They just take BART to their work. As a result of this influx of more tenants into an already high demand/low supply market, rents have gone up a LOT. I'd say close to 15% since 2013, at least in the area of Berkeley I do most of my work in (campus area).

El Cerrito has been going up as well.   There is definitely a spillover.

I'm in the process of negotiating on a 4plex on Ashby (further west from campus) that is miraculously not under rent control. Is there any easy way to see the amount of rentals that are under rent control vs. those that aren't? I could probably just pull up a heat map based upon year built to give me a solid guess, but does anyone else have a more scientific approach?

@Brandon Foken  

You may want to check with the Berkeley rent board on Milvia. You can call them directly at 510-981-7368.

I don't think you're going to be able to find anything exact, but if anyone would have those records it would be them.

Great thread/posts.

This article is a few months old, but the rent $ in SF are still unreal, taking nothing away from Oakland.

http://priceonomics.com/the-san-francisco-rent-explosion-part-ii/

yup, SF rents pretty unreal. I'm about to sign on a new tenant for the 550 sq ft office space in the basement of my Mission District triplex. No kitchen, just a big open work space and a half bath across the hall. Spent $7k turning the old junky basement into industrial-chic-cool with exposed wood beams, lots of shiny new electrical outlets via exposed conduits and OSB (pressed wood) for the sub floor. Polished nicely there even is no need for a finished floor- the sub floor is the finished product!  Kinda like paying extra for (fashionable) torn jeans :)

The monthly rent?  $1800- chaa ching!

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