Analysis of a fourplex

6 Replies

Hello,

I am planning on buying a 4plex property in the Bay Area using the 3.5% FHA loan on Jan 30th 2020. When I look for cash flowing properties, however, none of them have enough rent income to cover the debt service and expenses using the Bigger Pockets cash flow formula that I have included in the link below.

3420 Carlson Blvd:

https://maxebrdi.paragonrels.com/publink/default.aspx?GUID=3710d426-464b-44a0-925a-dd3302c8787f&Report=Yes

Link to deal analysis calculator, both FHA and conventional financing:

https://drive.google.com/file/d/1-uWNXgtOPKqt0Vx7I...

Is it possible to find a 2-4 unit property in the Bay Area that will cover debt service and expenses? If so, please include examples.

The short answer is "no", the longer answer is that it's really difficult. That property probably sold for north of $1.1MM since it's vacant, recently updated, and close to BART. Each unit has market rent of $2400/month (example unit with similar rent - https://www.trulia.com/p/ca/el-cerrito/5927-central-ave-el-cerrito-ca-94530--2189133966

Assuming the gross annual is $115k, you're looking at a purchase price of at least 10x, maybe 12x since it's vacant, move-in ready, and close to BART. Assuming a close of $1.250M, your monthly PITI with 3.5% down is going north of $8k/month. That makes your $800/month for a 1bedroom near bart - not bad!

If you need to purchase below $1MM, you'll need to set your sights on East Oakland. 

$2200 for a 1bed 1 bath 564 sq ft unit sounds like too much, its on the commercial side of San Pablo as well. You can get 2 bedroom 1 bath 800 sq ft for $2500-$2700 in northwest Berkeley.  I'd bring that # down to $2,000. Your spreadsheet assumes you can purchase the property at 798K. Thats almost impossible. I think Stephen is right on 1.25M purchase price, might even be more like 1.4M. 

So no, no way for bay area property to cash flow, its just how it is right now unless you wanna go to bad neighborhoods.

@Anthony Barbato I understand the desire to have all expenses covered by purchasing a 4plex, but you're only putting down 3.5% on arguably the hottest asset class in real estate in one of the top 2-3 most desirable real estate markets.  Even if you are slightly below break even, and have to come out of pocket some each month, you will be adding a lot of equity from loan paydown and in appreciation over the next 5 years.

Given the housing shortage in that market and the likelihood of 100% occupancy, I think you're getting a steal for bringing such a low amount to the table to then make a significant return.

You can absolutely find a Fourplex in the Bay Area that will cover debt service, insurance, taxes and insurance with an fha loan. Depends on how open minded you are about where you would need to live for that one year to satisfy the owner occupancy requirement. I know of people that have bought 


Fourplex in Baypoint and Pittsburgh 

Tripled in Antioch 

Fourplex in East Oakland 

I was also shocked when I realized that 3 of those four people did not move out when the one year was up, but they stayed for at least 2 years....each of those properties has gone up in value between 26 and 31% in the last 3 years 

You should also consider that FHA 3.5% down requires meeting the self sufficiency ratio. That is 75% of the existing rents have to cover 80% of the mortgage in 3-4 unit properties. Makes 4plexes even harder to make them work on FHA.

Also, if you own and live in a property now, you'll need to have the income to cover both properties with your income + the rents. This makes FHA 3.5% down almost impossible to use to acquire your 2nd house hack.


I've had to force appreciation on my current residence and tap the equity in my current duplex to get started shopping for property number 2.

Most banks allow HELOC funds as a down payment source.

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