Hi all. I'm a long-time lurker and the real estate books got me onto this forum.
i'm doing a 20% convention loan on a owner-occupied triplex in hayward(a suburb in san francisco bay area), the cap rate is about 0.04 including the costs to fix the house up front. i'm also including $300/month(please let me know if i am underestimating this) in addition for all the units for repairs etc.
This is not an area with quick gentrification, nearest BART is 1.5 miles away. So i doubt this will appreciate too much.
Is 4% cap rate in hayward or suburb of bay area worth the hassle of maintaining 2 units worth of tenants?
Anybody interested, this is the house:
Hi Arthur. I'm a multifamily investor (& resident ) in Hayward.
Hayward has seen some pretty good appreciation over the past 5 years. It has recovered from the 2008 slump and then some.
That upper Grove St. area is pretty nice. Grove St is a bit of a secondary route to get from Hayward to Castro Valley. It's uphill from nasty things that happen down on the flats. I don't remember seeing any serious multifamily up there. That's a good thing, because it only takes one bad landlord of a big MF to make a bad neighborhood.
All this being said, 4% is pretty low, and I would not expect you to make any money, cash-flow-wise. So the question is - how much upside is there in the rents? Which leads to another question: Is it inside the City of Hayward? If so, you might be limited by Hayward Rent Control. Which limits you to 5% a year. IF you are subject. You may not be subject to rent control if you have less than 5 units in Hayward. Go look up the ordinance; it's on line. It contains other annoyances, such as Just Cause Eviction, and Interest on Security Deposits.
On Grove Way, you might be outside Hayward. Go look up the exact city boundaries. Don't take the escrow company's word for it; they do make mistakes. If it's outside the City, there is no rent control. Well, I've heard that there is a rudimentary control in unincorporated Alameda County, but you need to check it out for yourself. Somebody told me there was a $100/year limitation.
Over the past 5 years, asking rents in Hayward have risen to the point that I am guaranteed a 5% increase for most of my apartments for the next decade.
Thank you Jerome. You are indeed a local as what you said is spot on. This place is half in hayward, half in castro valley, I believe both are unincorporated and not rent-control? When i got the 4% cap rate analysis, i factored in the market rent, not much potential left without spending serious cash...
Now the only potential left is appreciation, i saw almost 10% increase in hayward in the past 5 years, but the question is will it keep going up a the same rate?
This post says its not super hot anymore, 4% predicted increase in the next year: https://www.zillow.com/hayward-ca/home-values/
Now my rate of return is only 8% a year with the hassle of maintaining multiple tenants and units
Updated over 3 years ago
8% a year as in 4% cap rate + 4% predicted appreciation
According to that Zillow article, Hayward appreciated over 12% this year. And the average asking price per square foot is within spitting distance of Sa n Francisco. Which, honestly, surprises me.
Gentrification on the Peninsula is driving population to Hayward, which is right at the end of the San Mateo bridge.
I grew up in the City, and moved down the Peninsula because there was no employment in my chosen field ( Electronics ). Lived in San Mateo for 30 years, then sold my house to a Facebook manager.
The Peninsula is under assault by SF to the north, and Silicon Valley from the south. I'm told that even EPA is gentrifying. Ordinary people with ordinary jobs are being forced across the Bay, and ever further out.
I recently scored a 13-unit building in Tracy; I expect it to be a real cash cow, as soon as I catch up with all the former owner's deferred maintenance. The former owner was renting 1-br apts there at $675. I now ask $950 with impunity.
See http://www.city-data.com/city/Hayward-California.h... to find out if your prospective purchase is in Hayward. It either is, or it isn't. I suspect that it isn't, but I haven't looked that carefully. If it's in Castro Valley, be advised that CV is not a city of any sort; it's just a "Census Defined Place", and a part of the Alameda County unincorporated areas.
If it isn't in Hayward, make sure the escrow company doesn't charge you the City of Hayward transfer tax. If they do, you can get it back from Hayward, but why have that hassle?
Another thing to consider - which school district is the place in? Castro Valley schools have a good rep around here. Good schools get you good tenants. But I suspect - even if it's not inside the City of Hayward - it is under Hayward Unified School District. I told that those portions of CV that are south of the 580 freeway belong to HUSD.