I realized that I dismissed Oakland / SF / the relatively close area out of hand -- thinking it can't possibly work because the buy ins are too high, and the cash ROI is too low, but I never actually seriously investigated how people who are here are making it work.
My constraints:
600k max price for a traditional mortgage. No "house hacking" outside of SF proper. No personal sweat-equity rehab projects; I'm busy with my day job and I don't have time to replace a roof or install a new furnace myself (not to mention that even if I did have the time I couldn't transport it). This can be hired out, but obviously that increases the cost.
So, given my constraints, can it work? How does it work? Do the people who make the area work do the work themselves on a run down property, or do a FHA loan on a primary residence? Or do they only make it work because they bought in 3 years ago when the prices were lower?
"I realized that I dismissed Oakland / SF / the relatively close area out of hand -- thinking it can't possibly work because the buy ins are too high, and the cash ROI is too low, but I never actually seriously investigated how people who are here are making it work"
I answered the email you sent to me about your question, but wanted to hop on here and try to help out. First, are you up for buying a duplex or triplex in Oakland or the East Bay, and renting out the other units? What are your goals exactly, and what do you want out of this property? Or are you just looking for a single family home?
There are still 4plexes in your price range in Richmond TODAY where you could hit around the "1% rule" after raising rents (don't have to take a time machine back 3 years...) Should produce about 10% cash on cash with a conventional loan. Just set up a search on redfin for whatever criteria you are looking for, under $600K, and start looking at everything. Do some research on the market rents. Oakland has the owner-occ exemption for duplexes and triplexes after 1 year of living there.
Regarding rehab and costs, if you plan well, you should be able to add more value to the property than it costs to pay someone to do the repairs, so as long as you have a little cash, you should be able to get a return on the rehab. That's what many of the rest of us are doing. I buy crappy buildings, but don't do any of the work myself, and it has worked well for me so far..
"Most of the investment property purchases that cross my desk these days aren't in Oakland/SF/Berkeley/SanJose proper, but in outlying communities. I can only assume that if there were more deals to be had in our core owner-occupant markets, more would cross my desk. YMMV and feel free to prove me wrong! It'll all come out if it's not a good deal when the appraisal comes back."
I can't speak to @Chris Mason and myself in Oakland, and you'll have a better idea of how investors are playing in this sandbox.. You may consider doing a JV deal if you don't have the right entry dollars, or you may have to venture up to more outlying areas like Richmond (which I like, since it still has BART).
Hope that helps!! Best of luck Wes! Meetup on April 7 in SF if you'd like to join us and see what others are up to..
Most of the investment property purchases that cross my desk these days aren't in Oakland/SF/Berkeley/SanJose proper, but in outlying communities.
I can only assume that if there were more deals to be had in our core owner-occupant markets, more would cross my desk.
YMMV and feel free to prove me wrong! It'll all come out if it's not a good deal when the appraisal comes back.
"I realized that I dismissed Oakland / SF / the relatively close area out of hand -- thinking it can't possibly work because the buy ins are too high, and the cash ROI is too low, but I never actually seriously investigated how people who are here are making it work"
I answered the email you sent to me about your question, but wanted to hop on here and try to help out. First, are you up for buying a duplex or triplex in Oakland or the East Bay, and renting out the other units? What are your goals exactly, and what do you want out of this property? Or are you just looking for a single family home?
There are still 4plexes in your price range in Richmond TODAY where you could hit around the "1% rule" after raising rents (don't have to take a time machine back 3 years...) Should produce about 10% cash on cash with a conventional loan. Just set up a search on redfin for whatever criteria you are looking for, under $600K, and start looking at everything. Do some research on the market rents. Oakland has the owner-occ exemption for duplexes and triplexes after 1 year of living there.
Regarding rehab and costs, if you plan well, you should be able to add more value to the property than it costs to pay someone to do the repairs, so as long as you have a little cash, you should be able to get a return on the rehab. That's what many of the rest of us are doing. I buy crappy buildings, but don't do any of the work myself, and it has worked well for me so far..
"Most of the investment property purchases that cross my desk these days aren't in Oakland/SF/Berkeley/SanJose proper, but in outlying communities. I can only assume that if there were more deals to be had in our core owner-occupant markets, more would cross my desk. YMMV and feel free to prove me wrong! It'll all come out if it's not a good deal when the appraisal comes back."
I can't speak to @Chris Mason and myself in Oakland, and you'll have a better idea of how investors are playing in this sandbox.. You may consider doing a JV deal if you don't have the right entry dollars, or you may have to venture up to more outlying areas like Richmond (which I like, since it still has BART).
Hope that helps!! Best of luck Wes! Meetup on April 7 in SF if you'd like to join us and see what others are up to..
@J. Martin Thanks for the links to people and the reply! I'll start reading through their posts. I'm fine with something out as far as Richmond as long as there's BART access to the city (also fine with heading south, as long as there's bart access). I'm also willing to relax my "no house hacking" rule after really considering it. I love living in SF, and I couldn't afford to move back here if I moved out, but I can always hang on to my below market apartment and leave it vacant for a year if the deal is good enough.
I'd love to join you guys, but I can't seem to find real estate meetups in SF...can you send me details on where/what time it is?
If I'm understanding the owner-occupied exemption right, you buy the property, live in it for a year, and then raise the rents to current-market. Then you move out and the unit becomes rent controlled again, but you're now getting current market rents at 1 year ago prices?
And the deals not even appearing on MLS seems to be one of the big sticking points. Most of the ones on MLS/Loopnet are not exactly great (there's one in the Richmond I was interested in, but it's been there for 45 days so there's probably something wrong with it). Do I need to spend hours a day walking around Oakland in the hopes of stumbling across a good deal? It feels like there should be a better way...
I've been looking in the Oakland/Berkeley market for the past 4-6 months and have come across some deals that will cash flow positive. CoC is usually around 2-4% and cap is somewhere around 5-6%. Not the greatest, but that's me running the numbers and using a conventional loan and looking at vacant turnkey properties (properties that require relatively minor work). I've put in about a dozen offers or so, and have been outbid every time. That's probably because the properties I'm looking into are turnkey, making them super desirable for foreign cash investors - people who can set it and forget it.
Like you, I live in SF but want to invest in the East Bay. House-hacking would definitely be a good idea, but I believe if you evict and occupy a unit, you have to live there for 36 months (folks can correct me if I'm wrong). The other option is to buy properties that require work, fixing up, then renting out. You won't be able to get a conventional loan, and may require a 203K, but I'm starting to see that's the best option in this hot market.
SF MEETUP
"I'd love to join you guys, but I can't seem to find real estate meetups in SF...can you send me details on where/what time it is?"
https://www.biggerpockets.com/forums/521/topics/29...
OWNER-OCC EXEMPTIONI
"If I'm understanding the owner-occupied exemption right, you buy the property, live in it for a year, and then raise the rents to current-market. Then you move out and the unit becomes rent controlled again, but you're now getting current market rents at 1 year ago prices?"
Yes, that's basically it.
LONG DAYS ON MARKET NOT A DEAL?
"And the deals not even appearing on MLS seems to be one of the big sticking points. Most of the ones on MLS/Loopnet are not exactly great (there's one in the Richmond I was interested in, but it's been there for 45 days so there's probably something wrong with it). "
I think you are kind right here, and kinda wrong. If it's been on the market for a while, then yes, there may be something wrong or funky with it - but when most people are thinking like you, you have a better chance of getting a deal!!! My best cash flow property that I wish I could get another one of is my 82nd Ave 4plex in Oakland. Killer cash flow. 200 something days on market when I bought it. @Arlen Chou 's 2 most recent purchases were a) many many days on market b) on market long enough that it dropped off. And both were good deals!!!
THERE'S GOT TO BE A BETTER WAY!
"Do I need to spend hours a day walking around Oakland in the hopes of stumbling across a good deal? It feels like there should be a better way..."
You don't have to walk around Oakland, but if you want a deal with no rehab needed, and not too many days on market, and don't want to dig, spend time calling expired listing, driving by properties, finding out what's wrong, finding a solution that works.. - then you have to go chase 1st week on market deals that are move-in ready with the rest of the retail folks who want a place for them and their kids!! There are better ways than walking around neighborhoods, but maybe not as easy as you might want it. If it were that easy, there would be any good deals out there! How much work are you prepared to do? Or invest in something more passive..
3 YEARS VS 1 ON OWNER-OCC EXEMPTION
@Calvin Kwan
"House-hacking would definitely be a good idea, but I believe if you evict and occupy a unit, you have to live there for 36 months (folks can correct me if I'm wrong)."
I just sent this to @Jonny C. .. you are exempt at 1 year, but you are presumed to be in violation (rebuttable presumbtion) if you don't stay there for 3 years. (Basically, you would need to justify why you moved earlier, and basically meet the spirit of the statute, as assessed by Oakland RAP.
Repeating the owner-occ eviction
http://www2.oaklandnet.com/oakca1/groups/ceda/documents/policy/dowd008116.pdf
9. The owner of record seeks in good faith, without ulterior reasons and with honest intent, to recover possession for his or her own use and occupancy as his or her principal residence, or for the use and occupancy as a principal residence by the owner of record’s spouse, domestic partner, child, parent, or grandparent.
a. Here the owner of record recovers possession under this Subsection (9) [Paragraph 8.22.360 A.9], and where continuous occupancy for the purpose of recovery is less than thirty-six (36) months, such recovery of the residential unit shall be a presumed violation of this chapter.
b. The owner of record may not recover possession pursuant to this subsection more than once in any thirty-six (36) month period,
Here are a lot of good links from Oakland RAP:
http://www2.oaklandnet.com/Government/o/hcd/s/Land...
You can also walk into their offices at Frank Ogawa at Civic Center and write your name down for an unscheduled appointment (check hours). They are pretty helpful down there if you speak to one of the regular folks (not talking about RAP Board) And aren't landlord haters (at least to your face!!! ;)
Good luck guys!!! :)
Great knowledge. Thanks again @J. Martin!
@J. Martin
Thanks for the info! I'll definitely check it out. I was searching for REIA in SF and kept coming up with events to the south in Burlingame or San Mateo.
You don't have to walk around Oakland, but if you want a deal with no rehab needed, and not too many days on market
Not at all. I'm completely fine with managing rehab local-ish to me. I just don't want to get into a deal where it only makes sense if I'm the one personally doing the labor for the rehab because we're discounting labor costs.
As an example, let's say the place is selling for 425k, and would rent for 4500/mo, but needs improvements totaling 60k, making it a 485k house, for 4500/mo rent. That deal doesn't make sense to me, even though if I were personally doing the rehab I could probably do it for 30k or less, and that brings us to a bit low but not crazy 455k for 4500/mo rent. If that same place were 375k with 60k of rehab needed I'd be all over it (assuming the same numbers)
"Most of the investment property purchases that cross my desk these days aren't in Oakland/SF/Berkeley/SanJose proper, but in outlying communities. I can only assume that if there were more deals to be had in our core owner-occupant markets, more would cross my desk. YMMV and feel free to prove me wrong! It'll all come out if it's not a good deal when the appraisal comes back."
I can't speak to @Chris Mason experiences, as I don't work a job, or flip the loan files any more. I'm just an investor. But there are a lot of investors buying in those areas, and in my real estate network, my friends are ONLY buying in Oakland, San Francisco, and San Jose - and making a killing on it. In fact, a lot of the BEST deals are never going to cross that desk on a purchase transaction. I know of a lot of them, but here's one example ;) (I don't want to paste all my friends' deals in here, but they are welcome to...)
That's a pretty good point that there's no reason to assume that what crosses my desk as a traditional mortgage lender isn't representative.
Wow, J, how did you guys stumble upon this?
@Wes Brand I have been looking / making offers in Oakland for ~ 7 months now, and I can tell you it's going to be rough! Find a realtor that has off market deals and is a veteran. If yours does not, they may not be too plugged into the market. And work with people here on BP. I am trying to use FHA for a 2-3 unit or I have conventional on an SFR ( rent the rooms if it has enough to make it a good deal ). Approved up to about the same as you ( more on multi since you can use the income from the property to qualify). It seems the last bid the owner wants is FHA, all the bids I have made have lost to all cash or zero contingency deals. So I am looking for the ones that sit 4 - 7 weeks on the market. Maybe something is wrong with it but can it be fixed?!? Is it a bad neighborhood but you look up the permits and there is a new development going in in the empty lot next door? Good luck!
"Wow, J, how did you guys stumble upon this?"
haha I didn't STUMBLE across it!! I NETWORKED into it!!! I go to lots of meetups and tell people if they ever have a wholesale deal in Oakland, something they can't flip, problems with tenants, etc to give me a call. Eventually, one of those people called me (another BP member and meetup attendee). I took a quick peak. Gave him a non-refundable check for $20K wholesale fee, and bought it shortly thereafter. Not too shabby, eh..? Just took more than all of the purchase price and rehab money back out with a cash-out loan 18 months later.. Wish every deal was like that!! But had a lot of issues with it (probate deal, below-market rents, deferred maintenance..). So it fit my model for getting a great deal but not some folks' criteria..
I think this just goes back to the comments from @Wes Brand above..
"No "house hacking" outside of SF proper. No personal sweat-equity rehab projects... ...it's been there for 45 days so there's probably something wrong with it). Do I need to spend hours a day walking around Oakland in the hopes of stumbling across a good deal? It feels like there should be a better way..."
I wish I were rich and beautiful, with no work required, but here I am stuck in reality with the rest of you suckers!!! lol @Arlen Chou , can I forward your long email about the value of hard work to Wes, on the comments above..? lol Wes, at least go check out some meetups. Mine is on Thursday. @Johnson H. 's tomorrow. Look on meetup.com. There are tons!!!
@Calvin Kwan and @Luke Mccandless , you guys know much about West Oakland? Tell me what price you think would make sense on this. This ~2500 sq ft Victorian duplex on ~5,000 sq ft lot, adjacent to Steelworks lofts, has more than 3br/2ba in each unit, some extra space, nice size backyard, and a quick walk to Emeryville shopping centers and some new development. Can probably rent for about $3k/unit, for a total of $72K in gross rents on an investment basis. But would have to do owner-occ as discussed above to get to market rents..
Still could probably pay the note with just one unit remodeled and live in a beautiful Victorian apt in a gentrifying neighborhood close to SF, for almost free. Or house-hack your unit too for $800-$1k/mo/bedroom, and cover everything and have some extra pocket change. (Oh yeah, and get a 3% sellers' credit to cover the downpayment so you barely have to put a few dollars down hehe) Or turn them into condos and sell them for $500K+/apiece.
http://www.zillow.com/homedetails/3039-Chestnut-St-Oakland-CA-94608/24740050_zpid/
The Zillow estimate of $900K is wrong. But what do you think this property is worth? Knowing that you could get to $72K in gross rents in just over a year, with some remodeling..? What would you pay for it if you could do it with an FHA loan and the seller were to fix issues before loan closing to make it pass the FHA inspection/appraisal..? Some owners are a little more flexible with their buyers than others, when they are not in a hurry ;) Let's hear it!!! (Ignore the purchase price from 2014 lol, and look at the opportunity ahead!!!)
@Jonny C. ,
"Great knowledge. Thanks again !"
Appreciate it Jonny. Always happy to share ;)
@J. Martin I already plan to check out your meetup :) I found Johnson H's on meetup.com, and unfortunately I can't make it to San Jose (no car at the moment, and even if I did have one/took the train, I'm at work until 7:00ish on tuesday)
Again, sweat equity is fine, but personal where it only makes sense if I'm the one doing the labor is not. I can find the time to do a light rehab myself (carpets, painting, maybe some pergo flooring, etc), but there's no way I can do a gut reno myself and hold down my salaried job. I can most certainly (and am entirely willing to) manage contractors to do the reno for me, assuming the cost of having them do it is priced into the deal.
Look, I'm not sitting here waiting for an amazing awesome deal to fall into my lap, but I'm also trying to be realistic about what I have time to do. I'm making a decent salary at my W2 job, enough where I can't just quit it to spend my time wandering the streets of SF / Oakland hoping to come across a deal. I also can't quit it to become my own contractor for a month while I gut and reno a property(well, I could, but it'd be a bad investment). I'm no stranger to making things work; I've lived with roommates my entire life because, well, it just makes sense. At the same time, I'm monitoring the access I have to the MLS (zillow and such) pretty much daily and not finding anything that looks like it's the right price and in the right area, which means either it can't be done, or I need to change my strategy. Since you're doing it, and other people are doing it...it's my strategy that's wrong. MLS doesn't have the deals that I want. Sounds like what you said above is the way to go about it -- networking.
I'm currently living in SF proper for well under(1/4th - 1/3rd) market rent, which is where some of my "I don't want to "house hack" outside of SF comes from. It's not lazy, it's that I currently enjoy an apartment in the center of the city with a 15 minute walking commute to everything (and under 5 minutes to grocery stores). To give that up would be a significant quality of life hit, but...I can take that hit if I see a clear path to improving the situation in the short to medium term.
@J. Martin I am not sure if that long winded email is of any real value. Its just the ramblings of a middle aged old guy with a W2 and a half baked plan!
@Wes Brand in my humble opinion your biggest problem is not finding deals or figuring how to make them work. Your problem is that you have fallen into the rent control trap. The biggest issue with rent control is that for people who "feel protected" they loose the reality of market and do not see the dangers of their situation. Think about your last paragraph... a large part of you not wanting to do anything is because of the fact you are currently paying below market. Unless you are actually saving or investing the difference between your current rents and market rates, you are living an illusion of financial security.
There is an army of people out there who have hid under the blanket of RC for years if not decades, just living their lives, believing the could afford a better life style then their salaries actual command. But they never took advantage of what RC was really meant to do... RC is supposed to give people the opportunity to save/invest the difference between market and protected rates and get out from renting.
Because at some point in time, the building will get sold and an Ellis eviction or something like it will happen and then that protected tenant faces the harsh reality of the market. But because their previous lives were based upon an artificially high level of disposable income, they find themselves not able to continue in the manner they were accustomed. At that point life just sucks...
If you are not saving the difference between RC rents and market rents, then you really cannot afford to be living "15 minute walking commute to everything". You are just kidding yourself into believing that is where you can afford to live... If you are not careful, in 20 years you will be one of those guys in front of City Hall saying that you have been priced out of the market and that the owner of the building owes you a place to live. Rent control is an insidious addiction that will lull the unsuspecting into a future of uncertainty. There are many cases of this exact scenario playing out all across the Bay Area.
There are the wise few who understand what RC can do, and they save the delta between controlled and market rents. These guys then invest those funds wisely and even end up with rentals in other cities, but enjoy the RC in SF for themselves. That is a great strategy, because they are actually investing the difference, instead of inflating their comfort of living.
Pay yourself the difference in rent, use that money to invest and leverage RC to your advantage. If you can do that, you will see that your nest egg for a down payment will grow quickly.
I will get off of my soap box now.
@Wes Brand Have you ever considered turning your objective around and ask, 'What value do you add that other do not?"
To be candid, you are trying to compete in one the mist desirable real estate markets in the world today however you have all these 'issues'. Part time, don't want to do this, don't want to do that, etc.
With so many cash buyers chasing so few deals you are in an immediate disadvantage. I have no clue as to your real estate acumen however there are so many bright investors in the Bay Area it must be daunting for you.
My solution; invest your money in RE education, title research and Foreclosures. Study marketing, segmentation and niches. Map out your geographic "farm" area and become an expert in neighborhoods tg still interest you and what demarcation creates the better communities.
If you're going to play the other guy's game, you need to either master their game or play a different one.
@Arlen Chou I'm saving more than the difference between market and my current rent. While I'm not going to post net worth related things on the public internets, suffice it to say that I'm on the path to retiring in 10 years or less (depending on stock returns) if I invest in solely index funds and never get another raise. Could I afford market rent? It'd cut into my savings rate, and I'm not willing to save under 50% of my income, so...no? I wouldn't be homeless, but I'd be searching for a way to get my savings back up to my goals. I'd probably go with a 3 bed and 2 roommates, or a 2 bed and airbnb it. I'd easily qualify for either of those options as the only person on the lease.
Does it make any sense to give up my below market apartment for the privilege of paying a bank interest + the state of CA property taxes? Not unless it has positive monthly cashflow implications or gives me some kind of other benefit.
@Rick
I'm definitely prepared to hear this market isn't for me and I should focus on out of state instead. I do have real constraints on the time I can dedicate to real estate, and I would be competing with people who have far more time and real estate acumen than I. I'm more curious how the people that make it work do it. From what I've gathered, it's a mixture of getting in at the right time, being willing to sacrifice certain things (or having them be not a sacrifice at all), networking, and having the time to spend putting in some personal sweat equity.
I'll look into foreclosures. I haven't researched them at all yet (way too many things to learn :)
My intent and I'm sure @Arlen Chou 's intent on this thread is not to criticize you. I'm not trying to say you are lazy (and never did). I'm trying to share what has worked for me, and try to answer your questions the best I can with what I have seen others do, and my personal experiences. And that at the end of the day, HARD WORK tends to be what produces results (in my experience).
Wes:
"So, given my constraints, can it work? How does it work? Do the people who make the area work do the work themselves on a run down property, or do a FHA loan on a primary residence? Or do they only make it work because they bought in 3 years ago when the prices were lower?...
No "house hacking" outside of SF proper. No personal sweat-equity rehab projects... ...it's been there for 45 days so there's probably something wrong with it). Do I need to spend hours a day walking around Oakland in the hopes of stumbling across a good deal? It feels like there should be a better way..."
I currently enjoy an apartment in the center of the city with a 15 minute walking commute to everything (and under 5 minutes to grocery stores). To give that up would be a significant quality of life hit, but...I can take that hit if I see a clear path to improving the situation in the short to medium term.
Response:
In my experience, the "people who make the area work" put in the work to make the area work. (Or they had good timing during downturns, or both). You missed the timing. So you're left with putting in work.. There are a lot of different strategies outlined by a lot of great investors in these forums - many from the San Francisco Bay Area.
Highly successful strategies in the Bay Area do not always require a ton of capital. The strategies don't always required a ton of experience. The strategies don't always require a ton of personal labor/sweat equity in physical work on the property.
But most people who are successful in the San Francisco Bay Area that I have met have put in a lot of hard work, research, growing pains, calculated risks, etc to make it work well. For every one of those investors, there are probably 10 investors that have questions just like you. Unfortunately, I don't think the latter group of investors do as well as the former...
So at the end of the day, I guess the answer is:
If you don't want to put in the work, you're probably not going to get a good deal.
Tips to Try:
1) As we said, definitely network in person if you can. Too bad you can't make it Johnson's. It's a great group. Sounds like I'll see you in SF on Thurs for mine..
2) Don't ignore long-on-market deals. Seek them out. Or get a hungry agent to scour them, contact the listing agents, and find out what is wrong for you, so you don't have to spend time on it (to meet your low-time goals)
3) Give up or wait? If you don't want to do any of these things: network, find an agent to scour deals, consider deals that are too long on market, research and implement a strategy that works, house-hack, NOR any other effort that typically produces a better investment... Then you may want to consider waiting until the economy softens, choose a more passive investment that does not require your time/effort, or partner up with someone who has the time, effort, and capability to do a great deal. I am not accepting money from outside investors, and not trying to pitch to say to partner with someone. But I'm not sure if your situation from what you stated best lends itself to getting a good deal on RE in this environment.. What do you think?
4) Short/Medium Term? Or Long Term? You said you would be willing to make a sacrifice if you could improve your situation over the short/medium term. What do you think about the long term? Is it important to you? I agree with Arlen that your situation is living on borrowed time. Just like you are looking at all the rent control exemptions in Oakland to get a great deal on a buy, some owner in SF is looking at how to get your @ss out of there, and there will probably come a day of reckoning... It would be highly profitable for someone to throw your @ss out of the apartment.
Seriously, if you are going to buy a place to move into, you should ask your landlord if they want to buy you out. I hate to say it, but you could probably get a chunk of that downpayment money!!
I know @Anja Brey has put in the hard work to research what works and what does not, although it can be frustrating trying to find something that matches what you need for your situation.. Any advice for SF-rent-control Mr. Wes here..?
@J. Martin Long term I won't be in the SF area. I plan to end up on a mountain, actually several mountains in different locations around the world so I can be in winter all year round. :)
I always consider deals that have been on the market for a while. Typically there's a very good reason they've been on the market for a while, but that reason might have nothing to do with me, or the seller may have finally gotten beat up on price enough to come down and I get lucky. I have no problems contacting listing agents, spending time on phone calls, and various things like that. I don't need to find an agent to do all of the work for me(Of course there's value in a good agent). That said, most of what pops up is nowhere near breakeven, even considering I rent out a room or airbnb it.
For example, there was a listing that appeared on the market recently for a 2 bed in SF at 1 million. I could rent it as a 2 bed for 4-5k, but that doesn't even cover the debt service, let alone any of the other fees. If I moved there and put my current under market rent towards it and rented a single room, well, if I get lucky I could get 2k for the room. That still leaves more than my current rent to make up just to cover debt service. (or, since debt service has some equity, to cover taxes + HOA +interest)
@Wes Brand sorry if my post seemed like a slam, it was not intended to be that way. That is great that you are saving the difference between your RC rate and the market rate. It is even better to hear that you have enough socked away to be able to retire in 10 years, especially if it is based on index fund growth. That should mean that you have a good chunk of change put away. Banks will like that when you are out shopping for loans.
Like I had said, if you are saving the difference between RC rates and markets, then you should stay in your situation and look to buy outside of SF. It sounds like you are using the 1% mark, from time of purchase, as one of your criteria. As @J. Martin pointed out there are deals in places like Richmond that already hit or are close to the 1% mark, but you have to be ok with Richmond.
Good luck to you and I hope to see you around at a meet-up.
@Wes Brand sorry if my post seemed like a slam, it was not intended to be that way. That is great that you are saving the difference between your RC rate and the market rate. It is even better to hear that you have enough socked away to be able to retire in 10 years, especially if it is based on index fund growth. That should mean that you have a good chunk of change put away. Banks will like that when you are out shopping for loans.
Like I had said, if you are saving the difference between RC rates and markets, then you should stay in your situation and look to buy outside of SF. It sounds like you are using the 1% mark, from time of purchase, as one of your criteria. As @J. Martin pointed out there are deals in places like Richmond that already hit or are close to the 1% mark, but you have to be ok with Richmond.
Good luck to you and I hope to see you around at a meet-up.
No worries. It didn't seem like a slam just that I was misunderstood -- I'm totally fine with 'house hacking' if it improves my situation (I currently live in a '2 bed with no living room' situation with a roommate). I'm trapped by rent control but it's a trap of my own making...I mentioned in another thread, but when I lived in NYC I moved every year as rents increased, so I was always in the same price range. I won't compromise my savings rate.
That being said, I don't view personally living in Richmond and doing rehab work as improving my situation unless I get paid for it (purchase price low enough where the rehab makes sense, or rents high enough). Ideally I find an in demand location and manage to force some appreciation via rent increases. Now, an investment property in Richmond...especially if it's near 1% now, in a decent area, and likely to appreciate...that's more tempting.
My budget numbers are to ensure I don't get overleveraged if the SF/surrounding area rental market goes south and the tech scene goes poof, not the maximum I can qualify for. I don't want to go anywhere near the maximum leverage I can take out based on DTI unless there's a significant upside.
EDIT: Actually that's true of all my conditions...I can compromise on any of them if the returns are right, but the more things 'wrong' the better the expected returns need to be.
"Wow, J, how did you guys stumble upon this?"
haha I didn't STUMBLE across it!! I NETWORKED into it!!! I go to lots of meetups and tell people if they ever have a wholesale deal in Oakland, something they can't flip, problems with tenants, etc to give me a call. Eventually, one of those people called me (another BP member and meetup attendee). I took a quick peak. Gave him a non-refundable check for $20K wholesale fee, and bought it shortly thereafter. Not too shabby, eh..? Just took more than all of the purchase price and rehab money back out with a cash-out loan 18 months later.. Wish every deal was like that!! But had a lot of issues with it (probate deal, below-market rents, deferred maintenance..). So it fit my model for getting a great deal but not some folks' criteria..
I think this just goes back to the comments from @Wes Brand above..
"No "house hacking" outside of SF proper. No personal sweat-equity rehab projects... ...it's been there for 45 days so there's probably something wrong with it). Do I need to spend hours a day walking around Oakland in the hopes of stumbling across a good deal? It feels like there should be a better way..."
I wish I were rich and beautiful, with no work required, but here I am stuck in reality with the rest of you suckers!!! lol @Arlen Chou , can I forward your long email about the value of hard work to Wes, on the comments above..? lol Wes, at least go check out some meetups. Mine is on Thursday. @Johnson H. 's tomorrow. Look on meetup.com. There are tons!!!
@Calvin Kwan and @Luke Mccandless , you guys know much about West Oakland? Tell me what price you think would make sense on this. This ~2500 sq ft Victorian duplex on ~5,000 sq ft lot, adjacent to Steelworks lofts, has more than 3br/2ba in each unit, some extra space, nice size backyard, and a quick walk to Emeryville shopping centers and some new development. Can probably rent for about $3k/unit, for a total of $72K in gross rents on an investment basis. But would have to do owner-occ as discussed above to get to market rents..
Still could probably pay the note with just one unit remodeled and live in a beautiful Victorian apt in a gentrifying neighborhood close to SF, for almost free. Or house-hack your unit too for $800-$1k/mo/bedroom, and cover everything and have some extra pocket change. (Oh yeah, and get a 3% sellers' credit to cover the downpayment so you barely have to put a few dollars down hehe) Or turn them into condos and sell them for $500K+/apiece.
http://www.zillow.com/homedetails/3039-Chestnut-St-Oakland-CA-94608/24740050_zpid/
The Zillow estimate of $900K is wrong. But what do you think this property is worth? Knowing that you could get to $72K in gross rents in just over a year, with some remodeling..? What would you pay for it if you could do it with an FHA loan and the seller were to fix issues before loan closing to make it pass the FHA inspection/appraisal..? Some owners are a little more flexible with their buyers than others, when they are not in a hurry ;) Let's hear it!!! (Ignore the purchase price from 2014 lol, and look at the opportunity ahead!!!)
@Jonny C. ,
"Great knowledge. Thanks again !"
Appreciate it Jonny. Always happy to share ;)
Wow, tons of info here!
I'll be at the meetup on Thursday, so would love to learn more about this W. Oakland property. I've been looking at property in West/North and Berkeley every weekend, so this deal may be up my alley. We can chat on Thurs. I'm open to house hacking for the year, but would love your guidance. I've been pre-approved for a convention loan, but I'm not sure it would apply for something like this. Again, I'm a newbie so I'd just love to pick your brain on how to make this work.
I'm also in the same situation as Wes. I live in a RC 1bdr in SF for significantly less than market. I have made several investments with my savings (in restaurants), but definitely want to diversify my portfolio. I'd love to ride out this RC in SF as long as I can, so I can continue to save/invest. I'm wondering if I could Owner Occ. the unit, fix it up, AirBnB it, while still living in SF. Would that be violating the OCC terms legally, or just in spirit?
Anyway, excited to meet everyone on Thursday! It's also my first meetup, so I'm looking forward to this.
@Wes Brand and @Calvin Kwan happy to meet you guys on BP. And hopefully I'll see all of you at the meet up on Thursday. I just did a successful owner-occupied deal in North Oakland that I found before it hit the market. Vacant duplex that needed minimal work and it'll definitely cashflow if/when we decide to move out. Yes, there was some luck involved but mostly it was the result of seeing every possible building in Oakland for a couple months. I'm interested in moving on to the next MFH in the East Bay as soon as possible, in part so i can put my current market knowledge to good use. I'd be happy to hear about the West Oakland opportunity and just trade thoughts. So... see you Thursday!
@J. Martin Wish I could make the meet up on thursday I will be out of town. Depending on the condition of the units I would say your first estimate of 650k (a lot changed in 18 months!) would not be too far off. And that seller's credit sounds like a nice extra. Would be happy to discuss it in more detail!
@Arlen Chou I would say that you perfectly described the Rent Control "drug" that tenants are happily taking. But, politicians are smart foxes, and they have a portfolio of solutions to keep the Rent-Control-Ellis-Acted tenant as a valued customer (i.e. voter): one of them is the Ellis Act Housing Preference Program (http://sfmohcd.org/ellis-act-housing-preference-program). The issue here is that rent-controlled tenants become so brain-numb that often times don't even take advantage of it...well, probably because in the meantime life has passed in front of them....but their rent was a very good deal ;-) !!
Very interesting thread - thanks to all of you for all of the comments and info. I live in the East Bay and I am struggling with the same questions of where to find value as an investor in this market. Other than my primary residence, I have only invested in units out of state up to this point, but I would love to be more localized. I am a new member to BP and looking forward to the meetup in SF on 4/7. Hopefully I can meet some of you face to face then.
@Wes Brand and @Calvin Kwan happy to meet you guys on BP. I'm interested in moving on to the next MFH in the East Bay as soon as possible, in part so i can put my current market knowledge to good use.
Ah, to be one with the market! Priceless, yet so much focus on 2% this, 70% that! It's the market, stupid!