Oakland ca house hacking
Member since 2020 · 1 post · 5 votes
Hi, BP My father and I just started looking for a home in Oakland we got pre-approved for a single family home at 589,000 however ive been strongly considering finding a multi family home so that the mortgage payments aren't 100% being payed by us. Any help or advice would strongly be appreciated.
Hi @Enrique Gonzalez I would say don't limit your search to strictly multi-family properties in Oakland. I'm not saying buy any single-family home. There's a niche type called "multi-generational" or "house-hackable" that are technically a single-family home since they only have one meter/address, but if the property is sectioned off, you can create a hybrid duplex. What some homeowners do is turn their downstairs into a separate unit by turning one bedroom into a kitchen-family room combo and walling off the downstairs from the upstairs for example. They do this so their parents or grandparents can live with them. The property would ideally need two separate entrances, two kitchens, and some sound proofing work since single-family homes weren't intended for this use. Last year, I was also stuck not being able to find any affordable multi-family homes in my price range in Oakland. I changed my strategy a bit to include a separate search for single-family homes that have been converted into a duplex. After a week of changing my strategy, I lucked out and found a nice multi-generational home in the Oakland Hills with a motivated seller on the mls.
I would also caution on buying multi-family in Oakland. From what I've seen, the majority of multi-family homes are in areas you won't want to live(medium to high crime). Also, multi-family purchase prices are usually much higher than single-family which matters to first time homebuyers. Another benefit of the single-family alternative is that tenants technically rent rooms in the property and are deemed 'lodgers' so the property isn't subject to rent control laws. This will help you increase rent which is one way to increase cash flow.
FYI, I recently refinanced, and am living for free after ALL expenses(mortgage,capex,utilities,vacancy...etc).
The same lender that approved you should be able to give you a larger amount to be pre-approved for when you tell them you are looking at multifamily. You're looking in a good market as well. I work with buyers all the time and I tell them that Oakland has more multifamily properties in it then the rest of Alameda County combined.
Brian,
When you say that Oakland is a good market for multi-family properties, do you mean 4 units and under or 5 and greater? I've been looking around for a du/tri/quad-plex and just can't seem to get the numbers to pencil out. The vast majority of the time they come out with negative cash flow which seems to be a non-starter to me. It seems like there should be some bump when I include myself as a tenant, but that essentially takes one of the income streams and I never seem to get much benefit from the multi-family over a single family. Are there are areas of Oakland with a higher proportion of these properties where I should be looking?
You're most likely not going to get positive cash flow and "live for free" in the Bay Area unless you buy a triplex and most likely a fourplex in an "up and coming, working class, blue collar neighborhood" in East Oakland, or Richmond. Some people are too afraid to do that. I tell them you only have to live there a year to saisfy the "owner occupancy requirements of most home loans". Then move out, place a tenant in the unit you just moved out from and keep things moving.
Occasionally, and I mean occasionally you will find a property that is vacant and that's where you should jump in quick because you can set your own rental amount. 98% of the landlords have not kept up to anything even close to market rent here in the East Bay......As an example I have seen hundreds of times where a landlord is selling their duplex, triplex, fourplex and they will have 2bd/1ba or 3 bd/1ba or even 2bd/2ba units renting out for less than $1,000/mo. I cringe every time I see this because one of my 1/1s in East Oakland is only 550 square feet and I'm getting $1,695/mo from a Section 8 tenant.
Hi @Enrique Gonzalez I would say don't limit your search to strictly multi-family properties in Oakland. I'm not saying buy any single-family home. There's a niche type called "multi-generational" or "house-hackable" that are technically a single-family home since they only have one meter/address, but if the property is sectioned off, you can create a hybrid duplex. What some homeowners do is turn their downstairs into a separate unit by turning one bedroom into a kitchen-family room combo and walling off the downstairs from the upstairs for example. They do this so their parents or grandparents can live with them. The property would ideally need two separate entrances, two kitchens, and some sound proofing work since single-family homes weren't intended for this use. Last year, I was also stuck not being able to find any affordable multi-family homes in my price range in Oakland. I changed my strategy a bit to include a separate search for single-family homes that have been converted into a duplex. After a week of changing my strategy, I lucked out and found a nice multi-generational home in the Oakland Hills with a motivated seller on the mls.
I would also caution on buying multi-family in Oakland. From what I've seen, the majority of multi-family homes are in areas you won't want to live(medium to high crime). Also, multi-family purchase prices are usually much higher than single-family which matters to first time homebuyers. Another benefit of the single-family alternative is that tenants technically rent rooms in the property and are deemed 'lodgers' so the property isn't subject to rent control laws. This will help you increase rent which is one way to increase cash flow.
FYI, I recently refinanced, and am living for free after ALL expenses(mortgage,capex,utilities,vacancy...etc).
Hello BP Oakland! Good advice @samMuller, any issues I should be aware of on a SFR with unpermitted additions to the house. Public record on a property I like is listed as a 2/1 but really has an additional 2/1 that looks to be without permits. Any suggestions or things to look for or potential issues to be aware of would be appreciated!
Not to change the subject Abel because I think that is a very good question and hopefully someone responds. But, I spoke to lender the other day and they mentioned something that I've never before. I told them that I am looking for a multi-plex up to 4 units, and they said that the rules are different for duplexes than tri- and 4-plexes. There apparently is a cash flow requirement where 75% of the rental income has to be greater than the mortgage, and the lender said that she has only seen this work out once. Have others heard of this and is it as difficult of a threshold as I was told? Or, maybe that requirement is easy to meet if you actually have a good deal on your hands. Thoughts?
Also, don't let my post overshadow Abel's question. He deserves an answer too. :)
@Jason Porto I am also currently looking for up to a 4-plex in the Oakland area. I think this is a very backwards way of looking at it, and your lender is just confusing you. The way it works is that you add your income to the rental income of the other units minus 25% for expenses to add up the total qualifying income. You should be able to present your lender your info and the expected rental income for a place, and they will give you an amount you are pre-qualified for, even if the building is just hypothetical. To give you example numbers and simplify somewhat:
Lets say the offer price is 1.2M
The down payment is 25%, or 300k.
Your income is 100k
Your qualifying income is 43% of this, so 43k/year, or 3580/month.
The expected (or actual) income is $2200/unit, for a total of 6600/month
The qualifying income from this is 6600*0.75 = 4950.
Add the two and you get 3580+4980 = 8560.
You will qualify for a loan with a Principal + Interest of 8560, or roughly 1.6M
What I've found is that 4 unit places require the 25% down, duplex 20%, and single family less.
@Nick Zigler Great points man.