Have been looking at a triplex in Oakland, CA, the details are:

- One 3 bd 2 ba with 2 car parking and deck. Entire 2nd floor. Currently rents for $2,400.

- Two 2 bd 1 ba with 3 parking spots between them. One unit rents for $1.4k and the other unit comes vacant.

I toured the property and it was a great property on the surface. All the units you could rent today with no to little work. If you had extra funds, you could definitely throw $15-35k into some updates based on your needs and wants.

So why this property is attractive to me is the income potential. As an owner occupant in Oakland I can give notice to the existing tenant (this would be difficult or impossible if you were just an investor) in the 3 bd unit and rent that to myself for market which is $4k (I pay $3.6k for a 3 bd 2 ba condo down the street with 2 parking spots in Oakland currently with my brother and this place is much larger and overall better location wise. $4k is conservative to be honest, place could probably go for $4.3k-4.5k.). That is $19.2k in additional potential income right off the bat! Another benefit of being an owner occupant is the building is no longer subject to rent control. The 2 bd unit which is renting for $1.4k could easily be rented for $2.6k (I lived in a 2 bd 1 ba unit down the street last year and paid $2.4k, when I left he rented it for $2.6k. These units are slightly superior based on square footage and parking.). This is another potential $14.4k! Combined income increase of $33.6k per year by taking advantage of owning a small income property!! 

I talked to the agent and got in contact with the mortgage folks. Long story short, we (my brother and I who both work w2 jobs in the Bay Area) can qualify for a low down payment mortgage through various banks in the area without doing the whole FHA route. It's a competitive market I understand but there are now some properties sitting on the market with price reductions. The mortgage payment for the property at 3.5% down, purchase price of $1.3M, would be $6.7k with PMI. Monthly income of $9.4k. Currently working on gathering other expenses but about $3k in wiggle room, seems like this could cash flow in the Bay Area.

Enough from me. What do you guys think? Happy to share additional info

If it don't pan out hit me up. Also make sure nobody is over 60or disabled.

Originally posted by @Preet Bains :

Have been looking at a triplex in Oakland, CA, the details are:

- One 3 bd 2 ba with 2 car parking and deck. Entire 2nd floor. Currently rents for $2,400.

- Two 2 bd 1 ba with 3 parking spots between them. One unit rents for $1.4k and the other unit comes vacant.

I toured the property and it was a great property on the surface. All the units you could rent today with no to little work. If you had extra funds, you could definitely throw $15-35k into some updates based on your needs and wants.

So why this property is attractive to me is the income potential. As an owner occupant in Oakland I can give notice to the existing tenant (this would be difficult or impossible if you were just an investor) in the 3 bd unit and rent that to myself for market which is $4k (I pay $3.6k for a 3 bd 2 ba condo down the street with 2 parking spots in Oakland currently with my brother and this place is much larger and overall better location wise. $4k is conservative to be honest, place could probably go for $4.3k-4.5k.). That is $19.2k in additional potential income right off the bat! Another benefit of being an owner occupant is the building is no longer subject to rent control. The 2 bd unit which is renting for $1.4k could easily be rented for $2.6k (I lived in a 2 bd 1 ba unit down the street last year and paid $2.4k, when I left he rented it for $2.6k. These units are slightly superior based on square footage and parking.). This is another potential $14.4k! Combined income increase of $33.6k per year by taking advantage of owning a small income property!! 

I talked to the agent and got in contact with the mortgage folks. Long story short, we (my brother and I who both work w2 jobs in the Bay Area) can qualify for a low down payment mortgage through various banks in the area without doing the whole FHA route. It's a competitive market I understand but there are now some properties sitting on the market with price reductions. The mortgage payment for the property at 3.5% down, purchase price of $1.3M, would be $6.7k with PMI. Monthly income of $9.4k. Currently working on gathering other expenses but about $3k in wiggle room, seems like this could cash flow in the Bay Area.

Enough from me. What do you guys think? Happy to share additional info

3 thoughts:

1) That payment looks awfully low. I don't think your mortgage person is including Property taxes and Insurance. I put this into a mortgage calculator, and I see a PITI with PMI at around $8,700. Don't forget to include maintenance, capex, and utlities (unless the water is separately metered). You are looking to be closer to $9,500/month including all of these fees.

2) 3.5% down payment is an FHA loan. Your post said you aren't going the FHA route, but the down payment is 3.5%. I'd be certain to clarify this with your mortgage broker.

3) Your monthly income of $9.4K is based on renting all 3 units right? With FHA, you are required to live there for the first year. Also, to do an owner move in eviction, you'll need to be there for 1 year AND there is a local ordinance on the ballot next week raising this to 2 years.

Be sure to consider these 3 points before moving forward

@Preet Bains also as a side note, I am not sure you are aware that you must occupy the property for a certain amount of time before it comes off RC.  That time frame is a little up in the air right now because the City is in the process of making adjustments.  I don't use this strategy myself so I am not up to date on the exact amount of time.  But I am pretty sure it is at least 1 year from the point you move in. You might want to dive into this point so you can adjust your numbers accordingly.

Good luck to you!

-Arlen

Originally posted by @Arlen Chou :

@Preet Bains also as a side note, I am not sure you are aware that you must occupy the property for a certain amount of time before it comes off RC.  That time frame is a little up in the air right now because the City is in the process of making adjustments.  I don't use this strategy myself so I am not up to date on the exact amount of time.  But I am pretty sure it is at least 1 year from the point you move in. You might want to dive into this point so you can adjust your numbers accordingly.

Good luck to you!

-Arlen

 Yes, correct - it's currently 1 year, but next week that could change to 2 years. I'm certainly voting against it, but it should pass as there are WAY more renters than landlords here in good 'ol Oakland. 

What if you move in with one bed and not rent out for one year?
But only sleep there once a month?

Originally posted by @Taye N. :

What if you move in with one bed and not rent out for one year?
But only sleep there once a month?

 All comes down to how savvy the tenant you're evicting is. If they aren't savvy at all, you could probably get them out in under a year. Pay them $5K. $10K. Get them out.

If they are savvy, you'll need to follow protocol and will likely end up in court/rent board hearing. Sleeping there once a month might work, but it all comes down to what the tenant fights you on. 

Originally posted by @Saj Shah :

3 thoughts:

1) That payment looks awfully low. I don't think your mortgage person is including Property taxes and Insurance. I put this into a mortgage calculator, and I see a PITI with PMI at around $8,700. Don't forget to include maintenance, capex, and utlities (unless the water is separately metered). You are looking to be closer to $9,500/month including all of these fees.

2) 3.5% down payment is an FHA loan. Your post said you aren't going the FHA route, but the down payment is 3.5%. I'd be certain to clarify this with your mortgage broker.

3) Your monthly income of $9.4K is based on renting all 3 units right? With FHA, you are required to live there for the first year. Also, to do an owner move in eviction, you'll need to be there for 1 year AND there is a local ordinance on the ballot next week raising this to 2 years.

Be sure to consider these 3 points before moving forward

 @Saj Shah thank you for your feedback. Few follow up comments to your comments below.

1) I was working on gathering the other expenses but looks like you ball parked it for me. Thank you! I need to sit down and get actual expenses however and will update this page for them.

2) Thanks for the heads up. I may be confused or misspeaking but I was told and from my readings on here, my understanding is you can get a FHA loan with the lowest down payment option being 3.5% or you can get a low down payment loan from other private lenders with even a lower down payment. The FHA loan is great for people with any credit issues or to maximize getting the lowest interest rate, however, I have read in a tight market that FHA can be a deal breaker as the seller would prefer something which can close quicker. I have good personal credit (780ish) and feel confident the interest rate spread between a FHA loan and private lender wouldn't be significant enough vs. the trade off of not being able to get my offer accepted because sellers do not like FHA loans.

3) I have lived and rented in Oakland for two years now. I plan to spend another 1-3 years here and would love to take advantage of owner occupant rights to start my real estate investing career. When I do move out, all rents would be at market which would be another benefit when selling because the property could be equally attractive to an investor or owner occupant as they both would have market rents to begin with.

Would love to connect and understand different expenses you incur at your properties in the Bay Area!

@Saj Shah forgot to mention you in my last response. Thanks again.

Originally posted by @Saj Shah :

Originally posted by @Taye Nguyen:

What if you move in with one bed and not rent out for one year?
But only sleep there once a month?

 All comes down to how savvy the tenant you're evicting is. If they aren't savvy at all, you could probably get them out in under a year. Pay them $5K. $10K. Get them out.

If they are savvy, you'll need to follow protocol and will likely end up in court/rent board hearing. Sleeping there once a month might work, but it all comes down to what the tenant fights you on. 

I plan to live here full time. I already pay $3.6k in rent and do not mind paying $4k in rent as I can afford that. In addition, I get all the benefits of owning real estate like tax savings, equity accumulation related to the mortgage, and cash flow (or at least break even).

I am a little scared on the valuation side however. You could say we are at or getting near the top of the market, so what happens when a slow down does occur? Will the property be valued to some extent on its new increased income? Or will it trade with the market like SFRs? I am hoping to force some equity by bumping up rents and fixing it up but not sure if there is meat left on the bone.

@Preet Bains what types of financing are these private lenders offering that has a lower than 3.5% down payment? 

Usually private lenders (or portfolio lenders) start at 7%. The interest rate spread in an FHA loan at 4% and 7% would kill this deal.

I am not aware of any lender out there offering a lower down payment than 3.5% other than VA or USDA loans, low income grants like NACA.

@Saj Shah okay I guess I'm mistaken. From what he said, he said SOME credit unions and local banks in the Bay Area are lending with only 3% down. He has not followed up yet but hopefully he is right :) either way I can definitely put up a larger downpayment 5-10%.

Do you have any recommendations? Cash only haha

I've read that is true - there are some local banks that will lend locally, with low down payments, especially recently. 

I'd be curious to know if those ended up being sucessful.

I recommend @Chris Mason

Hey @Preet Bains,

Did you end up putting in an offer? I've been looking at that same place. 2731 Harrison St right? The problem with my analysis is that you will bleed tons of cash for about 2 years, but if you can hang on for two years, you'll be okay!

I put an offer in, but it would be really interesting to compare analysis notes after it sells!

Matt

@Matt Oehrlein "but if you can hang on for two years, you'll be ok".

Imagine saying that in early 2007.

You should buy based on today. Buying based off of 2 years from now is dangerous. 

heyyyy does anyone know what specific credit unions lend with a down payment below 3.5% ? It would be great to know about non FHA options.

I'm working on figuring out how to finance my second owner occupy multifamily home. I want to buy a triplex. And it seems FHA is going to be the next best option, since I don't want to drop all that cash on a bigger down payment.

Doesn't FHA require a certain amount of cash reserves for a triplex? Does anyone know how much (how many months) of cash reserves are required to finance a triplex via FHA?

Not every lender will let you, but the FHA will let you put as little as 3.5% down on a 1 - 4 unit home you intend to occupy as your primary residence.

On a loan under the conforming loan limit of $424,100 most lenders will let you put 3% down with stellar credit.

On a loan a high balance conforming loan over $424,100 and under the loan limit of $636,500 most lenders will let you put 5% down.

On a loan of more the $636,500 you are in what is considered a jumbo mortgage loan. You will struggle to find financing at less than 15% down.

Those are on single family homes. The triplex max loan amount before it becomes a jumbo loan is $984,525 dependent on your county.

Most lenders also have a stipulation of at least 20% - 25% down on conventional loans on multi family properties.

For a low down payment your best bet is going FHA and keeping the loan under $984,525 as long as you intend to owner occupy.