Does this deal make sense for a SFH in Bayview?

Question

Hi everyone, I'm planning to pull the trigger to become a first time landlord in San Francisco and had my eyes on a SFH in Bayview neighborhood. The 2B1Ba house currently have 2 section 8 tenants paying market rate at $4500. Here are the numbers:

Asking price: $850k, seller is motivated to sell at asking price

Mortgage, tax and insurance: -$4,080.24

Utilities: -$265

Basically I have a bit more than $100 each month for deferred maintenance. I think the existing section 8 tenants would help with uncertainty in the rental market and is recession proof. Also as a first time landlord I don't have to look for new tenant. There is potential expansion to add a legal bonus room or a unit but I don't consider it now since I don't have the capital yet.

Do I miss anything? What are the risks that I didn't see? Also pls give thoughts and advice. I live in the city and want to try it here first before looking elsewhere.

Amit M. · Answer

@Hung Dao

1- I agree with Brian, 2 separate contracts for 1 home sounds super shady to me. If it was a home, with an inlaw that would be different.

2- There is little upside imo. Market inertia is not on your side for natural appreciation over the next 2-3 years. Usually sec 8 homes are run down with deferred maintenance, etc., so think PITA going forwards. Only value add is if you can add a decent ADU in the future, and that depends on the structure, and other factors, plus requires a lot of $$.

3- it’s hard to get an SFH in SF to make sense as an investor. I’d look at 2-4 units. Bayview is a good appreciation play IMO. Some locations better than others. What street/cross street is this in BV?

Brian Garlington · Answer

Help me out.........is this a 2bd/1 ba house with 2 Section 8 tenants paying a total of $4,500?

Is it two separate Section 8 tenants with two separate HAP contracts?

I generally have not heard of the Housing Authority giving two separate HAP contracts to the exact same address for a house.

Water and Sewer is what Section 8 will definnitely make you pay for....Is that your utilities?

You also are not including CAPEX.

You also aren't including Repairs....that can potentially be anywhere from 5-10% on average.

Hung Dao · Answer

@Amit M. After talking to seller agent, the tenants are section 8 veteran which allow them to rent shared unit

The house is well kept from the property manager

Is there anyway to figure what type of tenants they are after a small chat?

I will confirm with SFHA about veteran section 8

Hung Dao · Answer

Yes, from the contracts, it sounds like 2 persons instead of 2 families. They're sharing the kitchen and bathroom. We both have agents and the seller is an investment LLC. My agent said it would work though I'm looking for 2nd opinion.

What worst could happen in this case? The housing authority would cancel one of the contracts and I will have to look for another roommate?

Do you have a link to see the section 8 maximum rent allowance for 2 beds?

Brian Garlington · Answer

So you are saying this is a Single Family Home, Not a duplex....and there are two separate families that live in it on two separate HAP contracts? With One Bathroom? Water and Garbage are also included?

I may be in the minority on this but I have never heard of Section 8 providing two separate HAP Contracts for people living in the same Single Family Home..........with only one bathroom.......something is off.

Are you dealing directly with an FSBO or do each of you have your own agent?

I pray that you are working with a Realtor in San Francisco that is familiar with how that is able to work so he or she can advise you accordingly. San Francisco is defintely it's own beast when it comes to rental rules.

Hung Dao · Answer

From the disclosures, there are 2 separate HAP contracts. Utilities include PGE, water and garbage. My capex is just an estimate on the remaining life of several items, some are just replaced, it's not precise but should be conservative.

As you can see, this doesn't cashflow nor this is a good location. I think I'm buying for the potential to expand later.

Hung Dao · Answer

Would love to have blessings from Brian Garlington, Amit M and other folks on this thread. Thanks.

Does this deal make sense for a SFH in Bayview?

Does this deal make sense for a SFH in Bayview?

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