Hi , I am looking at Duplex in Bay area . Idea is to live in one and rent out the other. So this will be our primary home for next 3-4 year. I have currently found a property that is $1.5M . The Rent on the second unit is $2625 ( The main unit can be rented for $3350 as it is a bigger unit , but we need more space). The Property tax is 1.27% . We are looking at 30 year fixed loan at rate of 2.875% and 7-1 arm is 2.25%. We want to live in this property for only 3-4 years and then move out. We will be doing the property management ourselves and the property seems to have 5% vacancy loss. The property is in a decent neighbourhood (Willowglen) with less crime rate. The schools are not that great .
Would this be a good deal ?
Also how easy is it to sell the Duplex in Bay area ?
It is increasingly difficult to find a property in the Bay Area where the rent will cover your expenses. Unless you were able to invest between 2010-2014, you will be banking on continued home appreciation to make any investment worthwhile. Taking that property and the data by itself, I would want to see at least 6-7% appreciation for the next 5 years to feel comfortable moving forward. Do I think this is possible? Absolutely. San Jose gained 12% YoY and I believe there is the right combination of factors (interest rates, livability, industry) to sustain continued growth.
That said, you need to as look at the comparable sales. Is this property listed at market value or is $1.5M above the comps in the neighborhood. Knowing the San Jose market, it seems in the ball park but if you want to message the address I can take a closer look.
You'll also need to keep in mind your other options. Purchasing a cheaper home for just your family, continue renting etc. Feel free to message me, happy to share my experience investing in the Bay Area
Shopitha, for many years l owned and lived in a duplex in a VHCOL area in Southern California. How strict is the rent control in your area? How much flexibility do you have to change lease terms, adjust rent and terminate rental agreement if desired?
@Shopitha Kumar your investing capital will take you a lot further if you invest in cash flowing markets out of state. If you have your heart set on owning the home you live in, and you can be paying less per month as compared to paying rent (by offsetting a portion of your mortgage from your tenant’s rent), it may make sense to you. But consider the opportunity cost of using all that capital for a down payment, not to mention all the repairs and maintenance that will be your responsibility.
@Shopitha Kumar - See the example calculations below. Assuming you rent out the smaller unit, you have 4k/month out of pocket.
The good thing is, now that you are a landlord there are several tax benefits that you can leverage to lower your net tax (Happy to discuss offline). In Willow Glen or for that matter anywhere in the bay area, you will pay at least $3-3.5k in rent for 3 bedroom place, if you consider appreciation and tax savings opportunities, all in all it will be more than worth it for you.
We are brokers here local in San Jose, larger SF Bay Area. Happy to help with anything additional you may need.
|Estimated payment||$6,602 /mo|
Property Tax - $1,588
Principle 2200 - Interest $2700
|LOAN TERM||30 years|
|TAXES & INSURANCE INCLUDED?||Yes|
|PROPERTY TAX||1.3 %/yr|
@Rick Trivedi : In general how easy is it to sell back Duplex ?
It is very easy to sell a properly priced duplex in the Bay Area right now. Generally speaking the more "working class, blue collar" of an area a duplex/triplex is in, the more cashflow it should be able to generate with properly screened tenants. I prefer Section 8. If your goal is to live "for free" you will not be able to do that on a duplex in an A,B, C or D area anywhere here in the Bay Area. As another poster has stated....out of state in the midwest and the south is where you achieve that with a duplex.
Your goal should be to offset your housing expenses and to start building equity in that expensive of a market of the Bay Area.
@Shopitha Kumar Not sure you should sell it to be honest. 3-4 years down the line, you would have more equity and you could rent the full duplex out and you have a good chance of cash flowing as well as appreciating property.
If you do wanted to sell it however, you could easily sell it with similar calculations to others. I am sure there will be lot more buyers with similar situation as yours at the time.
@Shopitha Kumar The Bay Area is a very diverse RE market. I lived in Los Gatos for over 30 years and had rental property in San Mateo even longer. Willowglen is a solid area and you should be OK for appreciation but cash flow has been a challenge for many years. 4-5 year hold is impossible to predict how you will make out but that's life! Whatever you decide if you are going to be a LL pay attention to all the steps in the process; the government is not your friend especially in California! All the best!