Sf Bay Area Bad for Investing?

Question

Why is SF Bay area bad for investing and not landlord friendly? What are some of the regulations that make this not very appealing to small landlords for single family housing?

Scott Trench · Answer

I’ve met a few long term investors and residents in San Francisco. Their biggest problems are things like:

“my net worth is $10M and $8.5M of it is in my three properties I purchased 25 years ago. I feel overly exposed to real estate in SFO.”

People love to dump on San Francisco, and it clearly has its problems. But long term investors seem to have laughed all the way to the bank there.

I wonder how the next 30 years will treat these investors. I wouldn’t count it out. The same problems and policies that contribute to the things that make the headlines in SFO also may contribute to huge barriers to entry for new construction, inflating rents and asset values long term. The policies that are so “landlord unfriendly” in the near term often backfire on those they are intended to protect. When a vacancy comes up in a good apartment on SFO, operators often have literally hundreds of extremely well qualified applicants at incredible rates.

Amit M. · Answer

It’s great for legacy investors. Much more challenging for newbies.

Bjorn Ahlblad · Answer

I invested in the Bay Area from mid 1980's to 2015. It was a very different world then compared to today. You can succeed even now if you have enough money so you are in control of when to sell, and your tenants are screened more than well.  If you are ever forced to sell, or you end up with toxic tenants you might be finished. Other than that you could make some serious returns. All the best!

Alfath Ahmed · Answer

Hey Jerry, I personally invest in the Columbus market and have been doing it for the past couple years. I own several properties here in Columbus and it has been very nice considering Ohio is a landlord friendly state.

I also work with a ton of out-of-state investors who love investing here in the Columbus market. Most of my clientele are based in the west coast in California and Seattle. They have been investing in Columbus for the strong appreciation and cash flow.

Ko Kashiwagi · Answer

Hi Jerry,

SF has some of the strongest rent control laws in the country, limiting how much you can increase rent and they also have a strict guideline for eviction. I'd look into tenant laws for more specifics.

That said, there are many investors who are successfully executing deals in the Bay.

Bjorn Ahlblad · Answer

I moved to the US in the mid 1980's. In Silicon Valley REI was high and mortgage rates were 11-14%. It is what it is and if you don't have cash, you borrow. At least with REI what you do with the money is what counts, mortgage rate is just part of the transaction.

At the time-mid 80's-tenant's rights were no different in Ca than elsewhere and screening with no internet was a whole other story. Anyway we kept our properties through the ups and downs and eventually sold them at crazy gains when we moved to 2 hours south west of Seattle where we now live off the rentals we bought with our Ca money. Without REI I might be a cashier at Walmart!

Mike Paolucci · Answer

@Jerry Callow I'm originally from San Francisco and from what I've been seeing, it's only getting worse for landlords in CA. Check out this link for the upcoming California November ballot --> "Justice for Renters Act"

Essentially, they're trying to implement rent control state wide. That, plus numbers just not making sense unless you put an insane amount of money as a down payment / buy in all cash, and other anti-landlord legislation made me look to a state like Ohio starting in 2021 and ultimately moving to Columbus to focus on building a portfolio and I've been very happy with my ROI both in cashflow and appreciation over the past few years.

Happy to share some of my experiences with you about OOS investing.

Otto Bevis · Answer

The differential currently here between market rent and purchase price has increased significantly since covid.  My theory is it's much easier, emotionally, to walk away from a rental than it is to sell your home (home owners are more likely in for the long haul). I use to estimate you need 50 percent equity to break even, now I would expect significantly more.  Add in the rent control/eviction state laws and prop 19 and it has become less attractive to be a small landlord.

I recently read that 1 in 4 homes are being purchased by investors.  I have a hunch that they are buying properties to flip such as SFHs to buy, hold and sell once rates come down.  In other words they are not buying to rent out.

My guess going forwards is SFH prices will increase as rates come down.  Mid to high end condos will remain stagnant.  Rents will gradually increase as some landlords exit the market with high end condos seeing less rent increases due to excess supply from new construction.

If I were to enter investing in bay area real estate now I would be looking at low priced SFHs, hold and sell once rates drop.  Renting them in the meantime could be financially counterproductive. In other words SFH appreciation is where you will make gains.

Patrick Drury · Answer

@Jerry CallowIn short, a lot of rent control and a lot of laws that make it difficult to evict tenants. A lot of people in California have been looking at investing out of state in more landlord-friendly markets where they don't have rent control and it's easier to evict non-paying tenants.

Sf Bay Area Bad for Investing?

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