Multi-Family and Apartment Investing

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Diane G.
  • Real Estate Investor
  • Sunnyvale, CA
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San Francisco CAP rate up to 4.5%

Diane G.
  • Real Estate Investor
  • Sunnyvale, CA
Posted Jun 14 2019, 22:34

I was looking recently at MFH in SF, most listings that are currently contingent or pending have a CAP rate of around 4.5%.....That is where one can break even after 20% down...

I remember just a year ago, CAP was 1.5% and you need 40% down to break even...

Love to hear your thoughts over this..

I am currently in contract on a small condo, trying to close escrow by July 1..... But for MFH purchase, I am waiting for 6% CAP...Dont call me greedy...

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Syed H.
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  • NY/NJ/PA
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Syed H.
  • Developer
  • NY/NJ/PA
Replied Jun 14 2019, 22:43
Originally posted by @Diane G.:

I was looking recently at MFH in SF, most listings that are currently contingent or pending have a CAP rate of around 4.5%.....That is where one can break even after 20% down...

I remember just a year ago, CAP was 1.5% and you need 40% down to break even...

Love to hear your thoughts over this..

I am currently in contract on a small condo, trying to close escrow by July 1..... But for MFH purchase, I am waiting for 6% CAP...Dont call me greedy...

 SF isn’t a cap rate market, unless you are talking about stabilized/finished product. Better to look at an MIRR. That’s what everyone doing MF deals in SF/NY/Primary markets are doing. 

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Amit M.
  • Rental Property Investor
  • San Francisco, CA
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Amit M.
  • Rental Property Investor
  • San Francisco, CA
Replied Jun 17 2019, 22:37

If you care about cap rates, why are you buying a condo? (I’m sure it’s cap rate is waaayyy worse, right?)

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Diane G.
  • Real Estate Investor
  • Sunnyvale, CA
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Diane G.
  • Real Estate Investor
  • Sunnyvale, CA
Replied Jun 18 2019, 12:47

@Amit M. - that condo purchase is a funny story... The seller, who is OOS, bought it in 2012 and rented since...They recently decided to sell and apparently got some ill advise from some lawyer about tenant eviction in SF, and got scared... So they sold it to me for about 25% below comp.  They basically baked in all the buyout costs and legal costs... Apparently, no one told them they could just raise the rent and let the tenant leave on his own.......That is the only reason I bought... Otherwise, I wont buy in today's market....

What is CAP like in 08/09, do you know?

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Amit M.
  • Rental Property Investor
  • San Francisco, CA
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Amit M.
  • Rental Property Investor
  • San Francisco, CA
Replied Jun 19 2019, 15:57

@Diane G. No specific cap #’s, but they were better than today.  Compass (formerly paragon) tends to have good SF stats. (I’d google it.)

So what are the deets on the condo- neighborhood, size, layout, price (and the going market price)? Also, was it off market? Sound like a good deal if it was off market, and you had no competition bidding it up!

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Diane G.
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Diane G.
  • Real Estate Investor
  • Sunnyvale, CA
Replied Jun 19 2019, 16:49

@Amit M. - it is in Russian Hill on Green Street....Small condo... off market from OOS owner.... $560K... Lol... comes with a tenant whose rent is about $300 below market....

I was not even looking, it just fell on my lap sort of......

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Amit M.
  • Rental Property Investor
  • San Francisco, CA
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Amit M.
  • Rental Property Investor
  • San Francisco, CA
Replied Jun 20 2019, 11:07

Is it a 1/1? Have any parking? About how many square feet, over 500?

$300 below isn’t terrible...

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Amit M.
  • Rental Property Investor
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Amit M.
  • Rental Property Investor
  • San Francisco, CA
Replied Jun 21 2019, 06:39

@Diane G. ^^

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Diane G.
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Diane G.
  • Real Estate Investor
  • Sunnyvale, CA
Replied Jun 21 2019, 09:45

@Amit M.

550 SQ ft, currently studio, but some units in the building with smaller size have converted to 1/1, so i might consider that after the current tenant leaves...No parking////

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Amit M.
  • Rental Property Investor
  • San Francisco, CA
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Amit M.
  • Rental Property Investor
  • San Francisco, CA
Replied Jun 22 2019, 16:55

@Diane G. Sounds like you got a nice off market deal on that. Easy to rent as it’s a prime location, and if you can make it a 1/1 layout wise that’d be a good value add, I’d imagine. 500 sq ft is plenty to make a 1/1, as long as the layout and flow aren’t compromised. Congrats on finding a good deal in today’s market. 

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Diane G.
  • Real Estate Investor
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Diane G.
  • Real Estate Investor
  • Sunnyvale, CA
Replied Jun 22 2019, 18:57

@Amit M. - on your comments on "easy to rent", I would on imagine that you have noticed that SF market is now FLOODED with rental listings.... everytime I log onto zillow, I see a sea of pupple.... Lol...

I think SF is quickly becoming a oversupply  market on rentals.... 

I know you and I bud heads on this in the past, you are (or maybe were) off the view that SF can never fall.... that SF RE has only 1 direction to go.... Lol

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Amit M.
  • Rental Property Investor
  • San Francisco, CA
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Amit M.
  • Rental Property Investor
  • San Francisco, CA
Replied Jun 23 2019, 09:28

My issue with you is that you often over exaggerate. Yes the SF rental market isn’t crazy hot as 2 years ago. It’s only “flooded” by over priced units that stubborn LL’s aren’t being realistic about, because they could get very high rents for crappy units before. 

As far as the SF housing market “never falling”, that’s never what I said. Of course it has its ups and down, like any market does. But it always goes up when looking at a time horizon of several years. 

Kapish?

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Amit M.
  • Rental Property Investor
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Amit M.
  • Rental Property Investor
  • San Francisco, CA
Replied Jun 23 2019, 09:29

@Diane G. ^^

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Diane G.
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Diane G.
  • Real Estate Investor
  • Sunnyvale, CA
Replied Jul 7 2019, 22:18

@Amit M.

Closed escrow on 7/2... Came to find out the reason I got this good deal is because between the old owner, the listing agent and the PM, nobody knew that this condo is exempt from rent increase control!!!!!   None of them understood that rent control in SF has multiple layers, eviction control and rent increase control......

Can you believe that?  Lol.... the old owner is from OOS.....