How Close to the Top? - SF Bay Area Housing Affordability Analysis - (w/ Charts & Graphs!) by me

85 Replies

Originally posted by @TJ P. :
Originally posted by @ANuraag M.:

Hello everyone. It has been a year since this thread was updated. I was curious what the observations for the past year and predictions for the next year.

I randomly looked at Zillow forecast (for what it is worth) for some Bay Area cities and it predicted a 2-4% appreciation for the next 12 months, as opposed to 8-16% appreciation seen for the past 12 months. In fact, it called the evergreen and san ramon markets cold

http://www.zillow.com/evergreen-san-jose-ca/home-v...

http://www.zillow.com/san-ramon-ca/home-values/

But I am not seeing any slow-down in my local subdivision in Fremont, where town homes are being sold for 30-50K above asking without contingencies.

How are things looking in your neck of the woods.

 Funny, I was just looking at this thread. I took an article home from one of the papers yesterday that showed confidence levels in this regard. Things weren't as rosy as they have been recently.

I live in Moraga and prices there are IMHO- INSANE. My job is in Oakland and I hope to stick with it a while but if prices don't adjust in the next few years, we will be forced to move out of state or to the valley with a 2 hour commute.

My personal prediction: A major readjustment/ mild bubble burst not as severe as 2008 by 2019.

Thanks for reviving this thread.... it was an interesting read.

I got some flak on another thread for predicting that rents and real estate purchase prices are bound to reset within the next couple years. I can't find any properties that are even close to cash flow positive.

In most of the desirable neighborhoods in the bay area, buyers are competing with multiple offers. People who can do all cash will do all cash, people who can't, will waive contingencies, bid over asking, and add more downpayment to solidify their offers. It's one of the worst time to be in the position as a buyer now. 

@J. Martin , @Minh Le , @Ben Leybovich , Any further input??

Seems Minh has a crystal ball. My San Mateo property went up nearly 20% since Minh made his prediction of 15%-Ish conservatively.

The Houston market was red hot, until just 2-3 months ago. Most agents think it still is hot, but the asking price vs sales price and DOM say differently. But this depends on the neighborhood and price range.

My tenant in San Mateo is moving out after renting for the last 10 years. He had significantly lower than market rent. But despite his great paying job, could not manage to buy a home. So he is leaving California.

Most of the loose lending practices are back, so this should get interesting. But my agent is selling more than 30% of his sales for cash. So lending may not be the issue. I can't help but wonder if these are purchased by Chinese. And despite what you read in the news, China is not doing that well, and their lending practices are extremely loose.

I am selling my San Mateo property, not because I am predicting anything, but because I can get significantly better investments and cash flow in other markets. So I agree with Minh again, I'm not timing the market, I am just hitting my numbers.

Agreed!

In my opinion, the trigger for a decline in prices will be when the current tech bubble bursts. There are countless people in the area making great salaries at companies that don't make any money.

That party has to end eventually.

I have many friends working at awesome companies in the Bay Area with salaries I would love to have, but still are no where near being able to afford a house. Entry level is $1M on the SF peninsula, and $1.5M in SF. I don't know who is buying. Not investors and not your average tech employee.

Originally posted by @Michael Delpier :

I have many friends working at awesome companies in the Bay Area with salaries I would love to have, but still are no where near being able to afford a house. Entry level is $1M on the SF peninsula, and $1.5M in SF. I don't know who is buying. Not investors and not your average tech employee.

 I'm not tech but am in similar boat. Took a job with a good company for above average wages (compared to peers nationally). Wife grew up in this area and most of my family is from here so we are familiar with the benefits of living here- Education, health care, etc. Child is at one of the top-ranked schools and is done in 3 years. My hope is we time the market then to purchase and then ride the organic appreciation cycle to eventually CF rental or sell and invest in the South where we plan to retire anyway. 

Current sales for condos near me 2/1.5s around 500k with rents 2500-3000 = INSANITY. Subjective of course as some idiots are paying that.

I know some one in San Mateo who just bought another house in San Jose +900K and what she does is Airbnb. She has 4 properties and two of them were bought this year at over asking price. The last count that I recall was 14 people in one house. She even has sofa beds in living room that she rents out. Most of the people who are renting are new college grads working for startups/tech sector, out of state people who are in contract positions and people who have 3+ hr commute. 

@Michael Delpier

Entry level is $1M on the SF peninsula, and $1.5M in SF.

What is entry level? 1.5m gets you a vacant duplex in/near the Castro with 3 total beds. There's a 3 bed TIC on the market now in a good area for 1.1m (no offers on it yet). A 2 bed in that same area just sold for around 890k. Yes you'll have an HOA fee, but it's pretty far from 1.5m as the starting point. If you want non-HOA properties there was a 3bed w/1 car parking near japantown that didn't sell for 1.3m...because two others on the same block sold recently for 1.2m. This is all in SF proper. If you go out to bernal heights/Crocker Amazon/outer mission you can find 2-4 beds in the 800-1m range with no HOA.

@Wes Brand Can I find something under the $1M or $1.5M? Yes, of course. But do you want to live/buy there? What is your total PITI? And what do you need to earn to be able to pay that? What is the issue driving the lower cost? Is it next to the BART/train tracks? No parking and not close public transpo? In Bayview/Hunters Point, Sunset, Daily City or Brisbane? Has it not complied with retrofits? Is there a special assessment coming up? Does your front door smell like a urinal? Be very careful what you buy here.

TIC's and anything with an HOA have their issues that either drive up total expense or drive the desirability down. No parking in SF means $100/mo in parking tickets or $100-300 in parking rent.

The question at hand is, Is the SF Bay Area affordable? More specifically is it at or near the top?

Say you work at Google, Genentech, or Sun and make $150K/year. (How many people make $150K/year?) (~$9K/mo take home) Your rent is $3k/month, living expenses conservatively at $2K. How long will it take you to save the $50K down payment for a $1M house? Can you qualify for $5K/month mortgage and still pay the insurance and tax? If you are earning $150K/year do you want to buy a condo with a $500/mo HOA? Do you ever want to get married and have kids? Can you still afford it?? I seriously doubt it.

I was born and raised in the SF Bay Area. My entire extended family called this area home for over 75 years. The only family I have left there are my 90 yo grandparents and mom who takes care of them. It is just too expensive to live there.

Now is it at the top?? I don't know. Minh seems to have the crystal ball. :)

@Michael Delpier The first property (1.1m 3bed TIC) was in nob hill. Not "tendernob" but "nob hill". The next one (890k 2 bed condo) was 2 blocks southwest of that. The 1.5m vacant duplex was in Duboce Triangle. The 1.2m 3bed was about a block south of Japantown (not a condo, no HOA there). Not the best area, but certainly safe nowadays and livable. All of the above include 1 car parking at no extra charge with no special assessments or fees coming up. There are several other properties in the same area in the same price range. Do you think that nob hill, russian hill, the marina, western addition, duboce triangle, pac heights, and soma are terrible places to live? (well, maybe soma is)

If you're headed to Daly City you're into 600-800k for a 3-4bed property territory. If you stay a bit closer to SF, around the balboa park or glen park BART stations, you're into 800-1m for a 2-4 bed. If you're headed to the inner sunset or outer richmond you're into the 1.1m range. You can spend more, but there's plenty of inventory at the lower price points. If you do spend more you're looking at around 1.3m at the top end of the market near glen park and balboa park bart. These are all far from your 1.5m entry level numbers. 

If you're willing to drop down to 1bed or studios the prices go down to 700-750k in the "in san francisco" areas, or 300-500k in the "outlying areas" (there are some studios with bay views for 500k and HOA fees of 300-500/mo)

My point is that you have a seriously warped view of what an entry level property costs in SF. What drives the lower cost? The market isn't at 1.5m for an entry level home yet. There's nothing wrong with the properties; that's simply not where the market is, unless your idea of an entry level property is a new build 3 bed condo, or a vacant duplex. I'm not going to answer the "is it affordable" question; my post has nothing to do with what's affordable, only where the market is now. 

(I will, however, say that chances are your person with a 9k/mo take home salary is not spending 3k/mo in rent -- if they're serious about buying in the city they're likely living with roommates and splitting the 3k/mo between them and another person. And if you're a couple you're both earning 120-150k+, so you have a total income of 240-300k+)

Updated almost 3 years ago

I will say that if you want to do no research and come in and purchase the first place you see 1.5m is a decent number to start at. You'll be overpaying the market by about 300-400k, but you won't have to deal with someone coming in and outbidding you.

Originally posted by @Michael Delpier :

Most of the loose lending practices are back, so this should get interesting.  

 Hey @Michael Delper  ---- What loose lending practices do you think have come back specifically?

@Wes Brand we could argue about the definition of starter home. But the point of this thread is if the SF Bay Area is at the top and if it is affordable.

Part of my day job is to digest research on the trends and patterns of consumers and then design and develop products that fit within their lives.

I would not profess to be an expert on every market, but the research teams we pay millions to say, within the millennial generation the strong trend is to skip the starter home and just buy what they want. They will rent until they get the money. This also means that both my and your definition of a starter home does not match theirs.

I am not the target market for these homes unless as an investment. But these homes are not cash flowing, so they are not an investment.

@Daniel Gonzalez I am not a banking/lending expert so I am just relating what I am hearing from those that are. Probably a bad practice.

My understanding was that lenders started loosening their guidelines to write more loans. But they have not started bundling them into securities yet. Again, I am not an expert here and this is probably for a different thread. But if you have info, please share as I always like to learn.

@Michael Delpier I'm not arguing about the definition of a starter home. You're missing my point. Allow me to restate it:

You can, with some work, find a 2-3 bed home for well under 1.5m. If you think you can't, you do not know the SF market, and should refrain from commenting on it. If you're willing to compromise on location and not be in SF proper, or rehab and buy something that needs sweat equity you can get it down to 1m for the same 2-3bed house. 

 >Entry level is $1M on the SF peninsula, and $1.5M in SF

This is absolutely false. Entry level in SF proper is not 1.5m. That's solidly in non-entry level / retail buyer that has to have *that* house and is willing to overpay to get it. If you're looking at 2-3beds entry level is 1-1.3m. If you're looking at 0 or 1 beds entry level is 300k(sunset, daly city, etc) to 1m (big 1 bed/almost a 2 bed).  If you're looking at 4beds as entry level, you might be right on with 1.5m. I wouldn't know, since I've only studied the market in SF for properties that are 1.5m and less.

Further, with regards to my added point at the end: 

>Do you ever want to get married and have kids? Can you still afford it?? I seriously doubt it.

If you get married you have two incomes making 120k+ per year, which means your total income is 240-300k+. Can you afford a 1 million dollar mortgage on a 240-300k/yr income? I sure hope so. If not, you might want to reprioritize your spending. 

I personally know several families who are buying in Bernal Heights. If you ever attend an open house in Crocker-Amazon or Glen Park for a 2-3bed property listed at 1.1-1.3m you'll find it overrun with small families of a husband, wife, and 1-2 kids. So, where are the families? They're going to the outskirts of SF.

Not truly related, but I've gone through the beginning of the BP podcasts up until #70 or so. Between those, I believe it started in 2011 and I'm up to 2014. Ever since the first few ones, people have been cautioning themselves against the peaks from 2006.... in 2012. People have had conversations about being much more averse in their investing because they think their market is near a peak. I can't imagine what people are saying today on the Podcasts.

I guess the point is - who knows how long the Bay market will be hot. But here is some good reading that suggests the next peak will be in 2023-24 based on the 18 year cycle theory. I bet the people are smacking themselves who were acting to conservative in 2012 right now... how hard would you smack yourself if the market roared on for another 7 years?

https://www.biggerpockets.com/forums/48/topics/152459-18-year-real-estate-cycles---next-bust-2024?page=1

"@J. Martin , @Minh Le Le , @Ben Leybovich , Any further input??"

Check this out..
https://www.biggerpockets.com/forums/311/topics/26...

And here's some updated graphs from tonight..

@Michael Delpier , I don't have a crystal ball. But my position is that the risk/reward equation on Bay Area real estate is not as favorable right now as the opportunity will be in the future. Even if there is not a big fall in prices, I'd rather be buying when unemployment is at its highest, and just starting to peak and improve, then buy when SF unemployment is 3.3%. History has shown that buying near when unemployment peaks produces phenomenal returns for Bay Area RE, whereas buying when unemployment is at its lowest has mixed results - that are never as good as the former. 

Of course, I'm not sitting on millions in cash. So I only invest in RE that I believe will produce a great return. I am signing 1 year leases in my furnished business down in Silicon Valley, instead of, for example, 5 year leases that I signed further back (outside of Silicon Valley). 

Whatever you do at this point in the cycle, you just have to understand the potential downsides, have a plan B/C/exit, and have the staying power to sustain the next softening.. I'm personally building my cash, and tentatively growing my furnished business that does very well in this late part of the cycle.

So I'll pump out lots of cash while things are good, then hunker down, either shrinking the business when the economy softens, or if I can just operate at a lower profit or break even until the next upward cycle.., I'd rather be positioned well to capture the next upside economy. 

As far as timing goes.. unemployment is still low in the Bay Area, and jobs are still growing at a good pace. Spring has been good every year, and hard to see much change this Spring. It does seem that the rate of appreciation is starting to soften. Will be interesting to see what happens Spring 2017. Either way, I will not be crying myself to sleep if the market continues chugging along for multiple years. I plan to make money either way. I think Minh is the same way to some extent. We're not all in or out of the market. Will just make more or less, depending on the scenario...

Isn't it interesting how regularly CA unemployment can only seem to get to 5%, before it reverts each cycle. It probably means absolutely nothing.. Unless it means something! What did you say Minh..? History doesn't repeat itself, but it rhymes..? ;)


Hmmmmm.. How much further can unemployment go down...? More. But it looks like we've already ran most of this race.. 

This is interesting stuff. What do folks predict rents will do in the flatting/down cycle? 

Something that confuses me about Bay Area economics is this... Home prices and rents are driven by the large incomes from people who work in Tech. This is causing some interesting pockets of appreciation and gentrification in Oakland, specifically I'm looking at West Oakland, and I personally live in East Lake in Oakland (this neighborhood is WAAAY different than when my aunt lived here in the 90's).  For example, a guy like me, I make a good salary, but I don't care to blow 50% - 60% of my income on an apartment in San Francisco. So, I choose to live in a "transitioning neighborhood" and spend 20% of my income on rent. 

Then you've got smart guys like Ken Rosen from UC Berkeley's Fisher Center for Real Estate and Urban Economics talking about 2 Big Threats. He's placing the timing of the correction at 2-3 years:  http://www.bizjournals.com/sanfrancisco/blog/2015/...

1. Being that the financial markets are so intertwined... he's saying that if China takes a dip, we take a dip right along side them, here in the USA. 

2. We've got these "Unicorn" startups with 1Billion+ valuations, but that are not turning a profit. 

I'm most concerned with the impending correction in startup valuations, but the truth is I don't clearly understand what the down-side to over-valued startups is. At least when it comes to rents and sales prices for Bay Area real estate. There's a few scenarios I've thought out, but it's hard to see how the people getting hurt by the over-valued startups affect us here in the Bay. Investors want to get their money out of these startups, so that means the start ups need to have an exit. For the unicorns ( startups valued 1 Billion+) specifically, they most likely go the route of IPO. But, the thing is, if these startups go IPO, and the stock flops over the medium term (6 months to 1 year), which it typically does, the people left holding the bag are retail stock market investors. In my mind, those guys taking the loss are not going to be the same guys paying rent and buying homes here in SF, Oakland, San Jose.  So, if retail stock market investors get hit, I don't see how that affects us here in the Bay Area. We are insulated from that specific type of problem. 

The other possible outcome is that VC and Angel investors get hurt, so they stop funding startups. This is already happening actually, startups are having a harder time raising money. 

So, let's follow this train of thought. That means it's harder to get funding to keep running/growing your un-profitable startup. That can in-turn mean lay-offs, but I don't see any lay-offs above and beyond normal market churn for the Bay Area. 

I know from friends working inside of other startups in SF that VC money is drying up, and that some layoffs are happening. Twitter laid off 7% of people, but by the same token they're hiring lots of developers right now. Optimizely just laid off 5% of it's work force, but the CEO said in an email on the topic that it was what they needed to do to be profitable. Now Optimizely is profitable, and if VC money drys up, they don't care, because they can use their profits to grow. A lot of startups right now are aware of the tightening of VC and Angel money, and they're adjusting course accordingly. Some are doing what they need to do to get profitable. Others startups will stop the "growth engine" and turn to maintenance mode on the VC money they have already raised. I know Fundbox has 51 Million in reserves from money they have raised, and they're hiring with the intent to grow right now.  Other startups that have a lot of cash reserves, and know they are a long way from profitable, will simply keep the cash reserves, continue to build their product with the team they have, and "weather the down turn" until VC money flows again. 

There's definitely a strong correlations between rent and VC deals, see below. 

Which brings me back to my question. What do you guys think rents will do in the coming years?

I'm working on closing on my first duplex, and I'm somewhat concerned. I bought in a blue-collar/transitioning neighborhood. I'm in Oakland, in the 94606, about half way between East Lake and Fruitvale. But, I got an amazing deal on my mortgage, a 3% down loan with no PMI. And I'm planning to rent out one of the units and get room mates in my unit. I'm probably going to be living for the cost of utilities for a while. But, if rents go down I could get F*********CKED.

So who's got a guess as to what rents will do and why?

http://realestateconsulting.com/tech-buyers-only-a...

@Michael Delpier ,

I don't have a crystal ball.  I've been fortunate.  @Johnson H. said I've been lucky with a series of guesses so he will buy me a pizza tomorrow IF I can tell him where's the next opportunity.  Lucky me, another BP member already offered to buy me pizza. I guess I won't be starving at the meet-up tomorrow.

Congrats on your San Mateo condo.  My partner and I have a slightly different approach when it comes to investing.  We don't wait for appreciation; we force it.  We don't wait for cash-flow; we force it to cash-flow.  We got lucky that we was able to come up with a repeatable formula for our crazy San Jose real estate market.  2015 turned out to be our best year.  Bought 4 small buildings totaled $4.625MM, spent $225k on improvements.  Appraisals came back at $6.3MM.  Already cashed out refinance 2 buildings.  In the process of doing cash-out refinance on the other two.  Value is likely over $7MM once fully stabilized in the next year or two assuming rents stay flat from where it is today.  

As of now, it appears our housing market will get another mid single digit in appreciation into spring/summer 2017. Loose lending has not been re-introduced back into the market as far as I know. In fact, commercial lenders are tightening on cash-out refinance with a max 65% LTV with 1.25 DSCR. They require 2 years seasoning before they would do a 75% LTV cash-out. They want us to have "skin in the game" at this stage of the game. That was not the case when we did our cash-out refinance 6 months ago. Some lenders even do a stress test with a 20% vacancy to see if our building would still perform under this condition. Sigh......When you do $6-7MM worth of real estate 10% cash-out is equivalent to $600-$700k.

@J. Martin , you're correct.  History does not repeat itself, but it rhythms.  No two recessions are a like so what would be the catalyst for the next recession?  I have my theory, but I need to spend a little time to myself, let the mind clear and see what I can come up with. 

@Daniel Gonzalez, I had the pleasure of listening to Ken Rosen presented at Sharon Heights Golf and Country Club in 2014.  It was another economist that presented in 2015 at St. Francis Yatch Club in San Francisco.  Both events were sponsored by First Republic Bank.  I have never seen so many nice cars in a parking lot like that.  :>)

Johnson and I actually discussed about the next recession catalyst a couple days ago.  Ken has a decent chance of being correct with item 1 above as that's one of my theories.  

Now is NOT a time to be a hero. It's time to raise your liquidity, keep your powder dry, hone your skills and wait for the next opportunity in 2020-2022. Don't be a hero as your first deal may end up being the end of your REI career. Tread carefully. Just my 2 cents.

@Daniel Gonzalez I know I'm a little off topic but I have to ask, how did you get a 3% down mortgage with no PMI?? I've never heard of such a thing and am curious.

Market wide we are closer to a top than a bottom.  It is hard to predict the exact timing.

Originally posted by @Chris May :

I got some flak on another thread for predicting that rents and real estate purchase prices are bound to reset within the next couple years. I can't find any properties that are even close to cash flow positive.

Chris,

Rents appear to have topped out in my market since 3rd quarter of 2015 till now.  I start to see some rents softening in the high end market.  

For the savvy investors, it's a good time to do a stress test on their portfolio to be sure it can withstand the rent decrease in the coming years.  It's hard to believe, but rents in MY MARKET dropped 6% during the Great Recession peak to trough while vacancy only inched up a couple of percentage points amazingly.  This shows that my market has been having a housing shortage for years.

With respect to not being able to find positive cash-flow properties, it's likely because you're not plugged into your market.  I tell people this all the time "KNOW THEIR MARKET."  I guess I must have a definition of it.  Seriously, and I'm not saying it in a condescending way.  I say it in a "Just be silent, tone everything out, and see if you can see the intangibles.  See what others can't see."  Man, that sounds almost like meditation.  :>)

To demonstrate what I mean.  I'm closing on an 8-unit building in Japan Town next week, and it will have positive cash-flow.  @J. Martin saw the building in person last month.  It's a prime piece of real estate, being bought at the top of the market, and it has positive cash-flow.  How can that be?  Prime asset in this pocket of town rarely gets turnover, and I can get it to cash-flow?  Ponder on that for a moment and see if you know what I mean when I say KNOW YOUR MARKET.  Are you really plugged into your market?

Best of luck with your hunting.

Originally posted by @Minh Le :
Originally posted by @Chris May:

I got some flak on another thread for predicting that rents and real estate purchase prices are bound to reset within the next couple years. I can't find any properties that are even close to cash flow positive.

Chris,

Rents appear to have topped out in my market since 3rd quarter of 2015 till now.  I start to see some rents softening in the high end market.  

For the savvy investors, it's a good time to do a stress test on their portfolio to be sure it can withstand the rent decrease in the coming years.  It's hard to believe, but rents in MY MARKET dropped 6% during the Great Recession peak to trough while vacancy only inched up a couple of percentage points amazingly.  This shows that my market has been having a housing shortage for years.

With respect to not being able to find positive cash-flow properties, it's likely because you're not plugged into your market.  I tell people this all the time "KNOW THEIR MARKET."  I guess I must have a definition of it.  Seriously, and I'm not saying it in a condescending way.  I say it in a "Just be silent, tone everything out, and see if you can see the intangibles.  See what others can't see."  Man, that sounds almost like meditation.  :>)

To demonstrate what I mean.  I'm closing on an 8-unit building in Japan Town next week, and it will have positive cash-flow.  @J. Martin saw the building in person last month.  It's a prime piece of real estate, being bought at the top of the market, and it has positive cash-flow.  How can that be?  Prime asset in this pocket of town rarely gets turnover, and I can get it to cash-flow?  Ponder on that for a moment and see if you know what I mean when I say KNOW YOUR MARKET.  Are you really plugged into your market?

Best of luck with your hunting.

 Minh, appreciate the comments. I have to say though, I feel I absolutely do know Berkeley and the more desirable parts of Oakland. I'm not just looking any rental (I'll be owner occupying), and don't have the resources to go as large as the properties you're mentioning.

When I add stress testing to the equation, there aren't properties that even come close

@Chris May You want to take half of a building out of circulation and expect it to be cashflow positive in a tight market? You might be able to get away with that in a tri(for rent control) or bigger, since you'll only be removing 1/3rd of it and possibly making some back from having roommates, but a duplex or SFH is going to be rough / not surprising you can't get cashflow positive from it.

That said...if you're serious about making something work: think about airbnb in oakland near bart instead of long term rentals. Buy a 4 bedroom house, airbnb 3 of the beds for 50-70/night. You'll have no shortage of people who are interested in it at that price range(50/night = 1500/mo for a bed, 70/night = 2100/mo), and that puts you at around 5-6k/mo with 100% occupancy, and since your rates are semi-competitive with long term rentals but you're offering more value(furnished, short term), you shouldn't have much trouble reaching those numbers. You're going to be airbnbing to startup employees who are in town for a brief time to meet with the team, or people being flown in for interviews in this case, probably not too many vacationers (though that's just a guess on my part, I don't have direct experience with it).

With a little bit of luck you can get a 3-4 bed in west oakland for ~400-600k, which should cashflow at those numbers easily. There's one 5 bed that needs some sweat equity currently listed on the MLS near the MacArthur bart station for 600k, for example. It would not cashflow right away if you just rented it long term, but if you're willing to live there and deal with the turnover, cleaning, and rehab yourself you can make it work.

But, personally, I wouldn't be looking for cashflow positive with me living there -- I'd be looking for an offset of rent. If I'd normally spend 1k/mo on rent, I can take a 1k/mo loss on the property and still come out ahead. (actually it's a bit better than that if I have the cashflow to support more, but that's a different matter)

Originally posted by @Wes Brand :

@Chris May You want to take half of a building out of circulation and expect it to be cashflow positive in a tight market? You might be able to get away with that in a tri(for rent control) or bigger, since you'll only be removing 1/3rd of it and possibly making some back from having roommates, but a duplex or SFH is going to be rough / not surprising you can't get cashflow positive from it.

That said...if you're serious about making something work: think about airbnb in oakland near bart instead of long term rentals. Buy a 4 bedroom house, airbnb 3 of the beds for 50-70/night. You'll have no shortage of people who are interested in it at that price range(50/night = 1500/mo for a bed, 70/night = 2100/mo), and that puts you at around 5-6k/mo with 100% occupancy, and since your rates are semi-competitive with long term rentals but you're offering more value(furnished, short term), you shouldn't have much trouble reaching those numbers. You're going to be airbnbing to startup employees who are in town for a brief time to meet with the team, or people being flown in for interviews in this case, probably not too many vacationers (though that's just a guess on my part, I don't have direct experience with it).

With a little bit of luck you can get a 3-4 bed in west oakland for ~400-600k, which should cashflow at those numbers easily. There's one 5 bed that needs some sweat equity currently listed on the MLS near the MacArthur bart station for 600k, for example. It would not cashflow right away if you just rented it long term, but if you're willing to live there and deal with the turnover, cleaning, and rehab yourself you can make it work.

 Sorry, I should have been more clear. My last post submitted before I was done.

When I'm taking about cash flow positive on an owner occupied rental, I'm taking into account my personal contribution to "rent" at market rates.

The airbnb model makes me a little nervous because of my overall outlook on the tech sector, but I see your point. It's my opinion that the tech sector is going to crash hard in the next 18 months or so. I don't really want to make a long term commitment based on short term market conditions.

Again, appreciate the comments.

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