House Hacking vs Renting in Bay Area, CA

17 Replies

Hello everyone,

I've read a few posts on the housing market here in the Bay Area. Given how hot it is, would you recommend:

1. House hacking

2. Renting

If you recommend house hacking, how do you go about finding deals in the Bay? That is, if you were to rent out all units in the multi-family, the numbers would make sense from a cash flow perspective.

I'm not sure what you mean by your two options, but.,,.If house hacking suits your lifestyle I'd start there. Wish I had done that back when I was single and kidless.

There's a lot to take into consideration and not a lot of specifics in your post. But generally speaking...

What area do you want to live in? Start checking prices on room rentals so you can get an idea of what you can charge then see if you can find a deal that makes sense.
Can you find a place to house hack where you can essentially live for free? If so, buy it!

Thanks Maria,

The core issue I was trying to get at is that properties in the Bay Area generally don't cash flow well (as opposed to other markets, e.g., the Midwest).

Given the cost of owning a property here, is it net-net better to just rent, or buy a multi-family and live in 1 unit (i.e., house-hack)?

Ideally I could find a place to house hack and essentially live for free, but I'm not sure how to go about it. Thus I was asking for suggestions on how to go about finding such properties.

@Sunny A. , thanks for asking the question.  I grew up in the Bay Area (Oakland) and worked in the Silicon Valley (Sunnyvale / SJ) for many years, I know there is an uphill battle you are facing with housing and weighing your options.  The facts are that the prices are not inline with the salaries of all in that marketplace, which is why so many people work there, but migrate out to Tracy, Stockton, Patterson, Modesto, Sacramento, etc., for living, where the prices are a bit easier on the wallet.  But, who wants a 2 - 3 hour commute one way?

There are benefits to renting in some markets (NYC/LA) and for some people based on their situation (transitional), although I would not recommend it as a long term solution to building wealth.  I assume you are after that, since you are here in Bigger Pockets, a forum for real estate investors.

That being said, I totally believe it to be possible to house hack in the Bay Area, although it is going to take some investigation and flexibility on your part.  You may have a smaller place.  You may not live in the best area.  You may be a little further from work.  You are going to be living with your tenants, know all of this in advance.  I believe there to be options through using short term rentals (like airBnB) and some long term rental situations (like multi-family) to offset your monthly living expense.  @Ben Leybovich said something in his book on house hacking that was profound to me, which stated "you can afford anything, if it pays for itself".  I really wrapped my head around this statement, and it has changed my whole outlook on affordability and my living arrangements.

Since you are in a market where the prices are higher, I would advise that you should be looking for a living arrangement where you monthly housing cost is either eliminated or reduced significantly through house hacking or multi-family property investments (where you live in a unit and rent the other(s)).

Go online and do some research on home prices, and do some analysis where your can find a living situation in which someone else will be paying the lion share of the mortgage.  Not to make light of your situation, but I can guarantee people are doing this every day in your area.

Good luck, and I hope this helps.

I rent for the following reason:

I "only" had to come up with security deposit and first mo rent. 
My rent is far cheaper than my mortgage would be. I'd of needed nearly 200k down to get to the same payment. Plus I'd likely had to pay closing and I'd still have a 500/mo HOA.

I am only obligated to stay 1 year, vs 30 yr note. I have cash to do with what I want. I am also (in theory) able to live somewhere better than I could buy. 

If you look at amortization chart.... you pay A LOT  of money interest and it takes MANY years to make a dent in the principal. I also feel that home values will go down (from where they are now) greater than I would be able to pay down on a loan in the same amount of years.

200k (which I'd need to match my rent) would get me a paid off in cash house in the Midwest. I could easily get at or close to 1% mo in rent. Let's assume I can pay the taxes and insurance in one payment annually and that I have reserves to take care of repairs. This let's me take and apply 2k a mo towards my rent. Take half if you want for taxes, that's still 1k a month towards my rent. This isn't even the most efficient way to do that, but it is the simplest for proof of concept.

TL;DR 200k investment house makes greater impact than 200k down payment on current CA market priced home.

@Sunny A. , I wanted to mention to you as well, you may want to go find a lender in your area, not to just get prequalified, but to also use their knowledge of the area as leverage, as they will know more about what type of financing is possible and could help you formulate the appropriate strategy and area to focus on for the type of investment you are interested in.

@Chris Mason seems to be a good resource for this and his BP post history indicates he has a lot of experience in this area - Reach out to him to see if he can help.

Knowing where you wanna live is gonna help so much here, the bay area is hecka big! You can cash flow in Oakland, Richmond, San Leandro and Hayward, however, most of these are not gonna be "A" neighborhoods that have Starbuck, Philz and a CVS on the corner. These properties on the average will need some love and work from you to shine again and you will need to come into the deal with a sizable amount of cash down or have some liquid assets to force some of that appreciation!

House Hacking will prob not make your cost of living $0 in the Bay but you can get ~70% of your living costs covered thus giving you the cash to either pay the property down quicker, have some financial freedoms or whatever!

I currently see 14 MFR properties for sale in Oakland that at current rents (Which are all below market) and with proper holds in place are generating >4% cap rates, even a couple 5%'s in there too. (I am not counting any costs that you'd have to bring for rehab though).

Get an idea of what you can afford given your current situation. IF you have the cash to perform then getting a house hacking deal may be a great gig for ya as you'll be building equity either quicker than normal or with less of your own capital. (Rates are low now too!) If you do not have the funds then now may not be the best time and Renting and saving up will be the way to go! 

@Robert Marston aren't those MFR going to be rent controlled and difficult to bring up to market rates?

I'd love to see some examples of a house-hack that would make sense... I've casually looked over MLS and haven't seen anything too exciting.

Originally posted by @Michael Hastings :

@Sunny A. , thanks for asking the question.  I grew up in the Bay Area (Oakland) and worked in the Silicon Valley (Sunnyvale / SJ) for many years, I know there is an uphill battle you are facing with housing and weighing your options.  The facts are that the prices are not inline with the salaries of all in that marketplace, which is why so many people work there, but migrate out to Tracy, Stockton, Patterson, Modesto, Sacramento, etc., for living, where the prices are a bit easier on the wallet.  But, who wants a 2 - 3 hour commute one way?

There are benefits to renting in some markets (NYC/LA) and for some people based on their situation (transitional), although I would not recommend it as a long term solution to building wealth.  I assume you are after that, since you are here in Bigger Pockets, a forum for real estate investors.

That being said, I totally believe it to be possible to house hack in the Bay Area, although it is going to take some investigation and flexibility on your part.  You may have a smaller place.  You may not live in the best area.  You may be a little further from work.  You are going to be living with your tenants, know all of this in advance.  I believe there to be options through using short term rentals (like airBnB) and some long term rental situations (like multi-family) to offset your monthly living expense.  @Ben Leybovich said something in his book on house hacking that was profound to me, which stated "you can afford anything, if it pays for itself".  I really wrapped my head around this statement, and it has changed my whole outlook on affordability and my living arrangements.

Since you are in a market where the prices are higher, I would advise that you should be looking for a living arrangement where you monthly housing cost is either eliminated or reduced significantly through house hacking or multi-family property investments (where you live in a unit and rent the other(s)).

Go online and do some research on home prices, and do some analysis where your can find a living situation in which someone else will be paying the lion share of the mortgage.  Not to make light of your situation, but I can guarantee people are doing this every day in your area.

Good luck, and I hope this helps.

 Michael - you are actually the first person on the forums the verbalize the main idea in 'House Hacking'. You made my day, man!!!

@Sunny A. , in less than 5 minutes, I logged into realtor.com, searched for multi-family units and pulled a 3-plex in a nice area in San Leandro, right off i-580 and 150th Ave. for 599,000.  The units are a 3 BD, 1 BTH, and two 1BD, 1 BTH.  Yes, the units need work.  Yes, this is not the ideal area, but is more than livable and near some great properties in the SL foothills (as I lived near here in East Oakland many years ago) and with some elbow grease, the correct loan and your flexibility, this will work for house hacking, and I would bet WILL get you close to very little out of pocket monthly if you take one of the 1BD rooms.  Heck, you might even be able to get some money for fix up and work with a contractor to add bedrooms to the 1BD, to get more money for the rents.   Maybe more with a short term rental after it is fixed up?  This is not far from Merritt College, rent the bedrooms to traveling students?  People visiting for Warriors games?  People who don't want to stay at a hotel near the airport?

I am just saying you have to be flexible and creative in hot markets.  As @Robert Marston demonstrated, it IS possible, IF you are flexible.

Originally posted by @Ben Leybovich :

If you can blend AirBnB into the rental mix, you can get a good bump on your income. 

I like that strategy ... my only concern and what I would call its Achilles heel if there were one would be that STR may be more cyclical ... I could very easily imagine that folks would go on vacation far less often or not at all during a recession for example, so I'd expect your vacancy rate would be much more cyclical ... that and the regulatory risk of the city effectively outlawing it ... Perhaps there is something I'm missing, though ... thoughts?

Originally posted by @David Faulkner :
Originally posted by @Ben Leybovich:

If you can blend AirBnB into the rental mix, you can get a good bump on your income. 

I like that strategy ... my only concern and what I would call its Achilles heel if there were one would be that STR may be more cyclical ... I could very easily imagine that folks would go on vacation far less often or not at all during a recession for example, so I'd expect your vacancy rate would be much more cyclical ... that and the regulatory risk of the city effectively outlawing it ... Perhaps there is something I'm missing, though ... thoughts?

 David, this is why what I am proposing can best be described as Luxury House Hacking. Luxury in this case is a function of several things:

1. 10X of your life-style, which means...

2. Higher quality location and asset class. 

3. By definition, higher quality of location and asset class makes you appealing to higher class of traveler, who:

4. Who are much less susceptible to economic cycles :)

In other words, these people are aware of market conditions, but these market conditions aren't likely to cause disruptions to their vacation/business travel plans. Which means what?

5. It means that chances of stable income and price inflation are better than 50/50.

And, as a side-note (or central premise), you get to live in a more upscale location/asset. That's the gist of it. For more just read the book.

@Sunny A.

I made some sacrifices to house-hack my first 4plex by moving to a better cash flow (and not as nice area in the Bay - Richmond - from SF.) I eventually started doing Airbnb there, like @Ben Leybovich mentioned. (See you in Oct in Oakland Ben!)  If you're in it for the long term and can keep the costs covered, I think the SF Bay is a great place to hold real estate. (I bought 4 properties since 2012 and have not sold anything). Great feedback from former Bay Area dweller @Michael Hastings .  And quoting Ben!! Love it! 

I travel the world, and have lower net housing/living overhead than anyone in the SF Bay, and have similar income. "Afford anything" is another great blog along those lines. 

As I think @Maria D. is alluding to, there are always more than 2 options also ;) 

Hope to meet you in person when I get back from Washington Sunny!

Originally posted by @J. Martin :

@Sunny A.

I made some sacrifices to house-hack my first 4plex by moving to a better cash flow (and not as nice area in the Bay - Richmond - from SF.) I eventually started doing Airbnb there, like @Ben Leybovich mentioned. (See you in Oct in Oakland Ben!)  If you're in it for the long term and can keep the costs covered, I think the SF Bay is a great place to hold real estate. (I bought 4 properties since 2012 and have not sold anything). Great feedback from former Bay Area dweller @Michael Hastings .  And quoting Ben!! Love it! 

I travel the world, and have lower net housing/living overhead than anyone in the SF Bay, and have similar income. "Afford anything" is another great blog along those lines. 

As I think @Maria D. is alluding to, there are always more than 2 options also ;) 

Hope to meet you in person when I get back from Washington Sunny!

 Looking forward, J!

As already mentioned how you do it is going to depend on where in the Bay Area you are looking. If you want to be in A or B class area then you're going to need to think outside the box. When I look at places I really consider the layout. i.e. can this be reconfigured to split into a multi and will the city permit me to do so? 

Can you find a 3-4 bedroom house in a A or B class area where you can split off the master into a studio with separate access? In the right neighborhood this could be great for you to live in while you rent the larger side of the house and is some areas Airbnb will make it even more appealing. Think outside the box.