Rent Controlled 4-plex in Berkeley

7 Replies

Hello, I've got a pre-market deal in Berkeley that I'm trying to crunch the numbers on to give the real estate agent an offer. It's a four plex that has 3 unit's rented out getting about $1400 rent per unit. My friend is in one of the units and is planning to give me his unit if I buy the property, so I'd have 2 unit's and probably live in one and rent the other out. (all are 1br units, market rate about 2k/each)

I talked to the real estate agent and he said he's trying to get between 900k-1.2M, which I think is absurd given the rent controlled units and that the building isn't in the best shape. I know the landlord and I think he might give me a good deal. I'm trying to figure what is a reasonable offer price for him. See my spreadsheet below. I'm wondering if $769k is too low or reasonable.

Any Advice is appreciated

Thanks

I have sold all my rentals in the bay area as price is way too high.  At current prices, everything on the market is negative cash flow, no matter how much deal you get from current owner.  I would not do a negative cash flow deal, especially for rent controlled units.

For same $800k, you can get much better returns if invest somewhere outside of CA.

@Daniel Lorence you are absolutely right about this is not a good investment property if you are only going by the numbers. Per @Edward Liu suggestion, you would get much better cash flow properties elsewhere.

Having that said, consider the following:

  1. You are competing against people who are buying a place to live like yourself. It is not purely an investment for this population. Considering most SFR are selling for more than $1m, it is reasonable to have a price target of $1.2m because the cross-over from SFR buyers.
  2. Appreciation in a core rental market is positive in the long run.This is factored into the valuation of the property.

@Daniel Lorence If you know the guy then talk to him... I’m sure he understands the dynamics that are going into his place, you can get a good feel for what he’s going to go for. A lot in the deal can be handled before anything is put down in writing 

Outside of that, when the SFR on the same block is going for $800k I tend to think you're sitting good getting the 4plex for the same price...

Hi Daniel,

The problem with basing a Berkeley 4plex off of rents is the rent control.   You may want $769k but the market will tell you otherwise.  Without knowing the location and seeing it I would say the agent is correct $900-1.2m sounds about right.   Going to be very hard to find a 4unit under $800k that is not a complete dump.  $1,400 rent does not sound that bad.  I have seen units rented out for $700-900 a month.  I know what a killer for landlords.

Daniel, for a 4 plex in Berkeley, the lowest I've seen is 720K, ad this place was at $900/unit/month. And this property is in a very industrial and busy street with low quality tenants. Property looks run down as well. 

https://www.redfin.com/CA/Berkeley/2425-CA-123-94702/home/1565977

@daniel lorence    Did you end up doing the deal?   Cashflow in the Bay Area is not very good usually....unless....you find a vacant property, preferably multifamily and put your own tenants in it. 

That's what I did with a duplex in Oakland and a Condo in Concord. As others have suggested, if you are going for cashflow there are other markets than the Bay Area....look at the midwest.