Bay Area 4-plex analysis

10 Replies

Hello Oakland Investors,

I am interested in buying a fourplex as my first investment property here in the Bay Area. When analyzing deals that have recently sold in the area, the property at 719 35th St in Oakland stood out because it had an extremely high cash on cash return, even with debt service for an FHA 3.5% down loan, as well as conservative expense estimates. It seems like it was an unbelievable deal, and yet the sellers still took an offer that was $50k under the original asking price.

 I want to ask the investor community in town what they think about the deal, if it looks possible, or if there is anything that I haven't considered when looking at the numbers.

Here is a link to the sold MLS listing for the property:

Here is my Bigger Pockets spreadsheet plugging in the rent amounts from the current tenants, and taking for granted that I will be occupying the 4th unit:

This is not legal 4 unit.  You will have issue getting insurance if rent out as 4 units - insurance will only cover it as duplex.  You could be criminally liable if there is a fire and building is used as unlawful 4 unit rental (similar to Ghost Ship fire). 

Thanks for the prompt response. Do you think it would be possible to rent the property as a short term rental like an Airbnb despite not being permitted? I’ve seen other posts where people will use the unpermitted building as a short term rental.

@Anthony Barbato

You can do whatever you want with a property you own - that is, until it gets red-tagged and/or you get into a "ghost ship" disaster like mentioned above. 

Whatever you buy, the numbers need to pencil with only the permitted units - that way if you ever do lose the un-permitted units due to city red tags, fire, or anything else you are not underwater (insurance will not cover un-permitted units and in some cases your insurance provider could deny a claim on a permitted unit if the damage was caused by a un-permitted unit you allowed) . In this market and specifically in the Bay Area it can be tempting to fudge the numbers (and yes, including rent from un-permitted units is fudging the numbers) and force a deal to work, but this is just a recipe for disaster and not the way to conduct business. 

Just my opinion. 

I’ve been in the Oakland rental market for years and would never buy rental property there again unless I got it for a steal!  The strict rent control laws, rising taxes, and commi  government treat landlords like villains!

Originally posted by @Amit M. :

@Saj Shah what do you think of this bad boy?

Maybe he could legalize one or both units?

The City of Oakland is very tough to work with. They’ll likely want you to rip it all out and start from scratch. I wouldn’t bother. Above posting said it’s a risk due to insurance not covering, etc. Also consider being liable to having to pay a tenant all back rent as you’re not legally entitled to collect rent on illegal units - short term or regular tenancies. 

Legalizing illegal units in SF makes more sense as the land value is so high there is a ton of upside in paying to legalize. In Oakland you’d pay replacement cost and not create much equity. 

Account Closed

He mentioned going the FHA route so I'm assuming he plans on living in one of the units.

If he lived in the unpermitted duplex couldn't he mitigate the legal risk while renting the permitted units?