New to Real Estate and wanting to buy a Duplex in/near SF

4 Replies

I'm totally new to real estate. Ideally, I'd like to buy a 2-4 unit building, live in one unit and rent the remaining units, and have my monthly payment be pretty close to or below a market value for rent. I've started doing research in the past few weeks, and I'm finding that it seems near impossible to generate cash flow buy purchasing property in San Francisco. Is that typical in expensive real estate markets like SF? Or am I thinking about this the wrong way? A local real estate agent is sending me listings every couple days, but the rental income on these properties isn't close to 1% of the home value. Other things I'd like to learn about are how you structure deals when you get help financing. Right now I can't afford a down payment and I might get help from Bank of Parents, so I'm wondering how have you guys split property in the past? Based on percent of down payment?

Other things about me: I'm from Detroit area originally, but I've been in the Bay for 4 years, 2 of those in SF and the other 2 in San Jose. So I moved from one of the cheapest cities to one of the most expensive. I work for a small consulting firm in SF doing financial due diligence for mergers and acquisitions mainly related to private equity deals. I've got a bachelors and masters in accounting from Michigan State (go green!) and a CPA. Very open to thoughts on good meetups in the area or best practices on using BiggerPockets. I love the Podcasts, btw! I've listened to 3 or 4, and #48 with Darren Sager is my favorite so far.


Best,

Daniel

Cash flowing properties are nearly impossible to come by in SF. Look a bit outside the city or even in Sac. In CA, its still possible to find 1% properties. Also, in SF, I would be super impressed if you found a 2-4 unit property that made your all in payment less than $2,000. You may be able to find a total fixer upper, but it may be difficult to secure financing on it. You could always use hard money to get into it and get it rehabbed, then refi with conventional financing once you have it stabilized. Good luck!


@Daniel Savage    You will not find 1% rule in the Bay Area unless you buy a Triplex in an "F" Neighborhood or a Fourplex in a "D" Neighborhood.

All is not lost though my man. You CAN buy a duplex in a D Neighborhood in Oakland and although it won't be 1% Rule, it will cover your property taxes, mortgage and Insurance....IF you have both units rented out. Find a duplex that is maybe a 2/1 on one side and a 1/1 on the other. Live in the 1/1 and rent out the 2/1 for a year. In the meantime, reach back out to your contacts in Detroit. I have not bought there....yet....but I have bought in Cleveland and the markets have SOME similarities. You can buy a Duplex in a C neighborhood in Detroit for probably 50K or 60K and rent it out for $1,000 to $1,200/mo. 

@Daniel Savage , yes, your research is correct. Cash flowing properties in expensive markets such as SF are not common, epic really. Most cash flowing markets are in the Mid West. Many costal cities are just too expensive no matter what unless you do a BRR type deal. The South-East US is an exception. 

This is where the Cap Rate's real value comes into play; it can be helpful but it isn't as useful as things like IRR or CoC returns for evaluating properties. The Cap Rate can tell you about a property's relative value to other properties in the area and can also tell you about the market as a whole. In general, lower cap rates are about value preservation, higher rates are about wealth creation.

Take a look at this tool I found: https://mapping.cbre.com/maps/caprate/app/ Click around and select Multifamily and type. What do you notice about costal cities and inland cities? How about the cap rates with different types of Tiers? Is there a market where cap rates don't change no matter what class of property?

I noticed you mentioned you're from Detroit. You have a unique advantage that most of us don't. You know that city. I certainly don't! :) Detroit has a lot of potential for investment but it's dicey. That home-court advantage you have is huge and you should absolutely put it to work for you.

If you're dead-set on California, one possibility you can look into is finding duplexes to rehab. They're pretty rare and many cities in the Bay area have rules about re-settling tenants during and after renovation.

Would you consider properties outside the Bay Area but within a couple hours drive?

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