Is this a good deal for cash flow? SF Bay Area

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Is this a good deal for cash flow? SF Bay Area

Sam Mueller
Member since 2018 · 16 posts · 9 votes

For context , I'm a first time home buyer, and I plan on living on one of the detached units, but this calc is for when I move out in a year or so and rent out all units. I still plan on managing the property myself.

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*This link comes directly from our calculators, based on information input by the member who posted.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Dennis M.:

Eh I wouldn’t . Not close to the 1% rule . Your cashflow seems optimistic 

1% rule is rare on the west coast..  have to play the hands that are dealt you.

what mitigates it on the west coast is the property could go up 200 to 300k in 5 years. thats were the money is made.

or maybe not.. but to me west coast rentals and rust belt rentals and what constitutes a deal are just apples and oranges. 

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  • Jon Crosby
    Investor · Roseville, CA · Member since 2016 · 893 posts · 1k+ votes
    7y

    Hi @Sam Mueller, I'm going to say it's probably not a 'home run' based on DSCR (debt service coverage ratio). Looks around 1.1 and most lenders would require 1.15 at a bare minimum. I'm a little more conservative though so take from that what you will. :)

    Best of luck!

    1Reply
  • Sam Mueller
    OP
    Member since 2018 · 16 posts · 9 votes
    7y

    @Jon Crosby That's sound advice. Ps. I'm going to have to try Clik2Flip sometime.

    1Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    Eh I wouldn’t . Not close to the 1% rule . Your cashflow seems optimistic 

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y

    That rent to price ratio is stronger than I get in the DC area. That doesnt make it good or bad though.

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  • Sam Mueller
    OP
    Member since 2018 · 16 posts · 9 votes
    7y

    @Dennis M. The 1% rule is extremely hard to achieve in my area without fully flipping a property. You're right though, cash flow might seem optomistic , but I'm taking into account the the high rents in Silicon Valley. Although, property taxes and other expenses are high as well which counter balance the high rents.

    1Reply
  • Marcin Zajac
    Real Estate Agent · San Jose, CA · Member since 2017 · 17 posts · 10 votes
    7y

    For SF Bay Area the numbers look good. I think you may be missing expenses for garbage and utilities. If water is not metered separately , this may drive your expenses much higher. 

    Also, double check taxes ... in San Jose they are approx. 1.5% in some other areas of Bay Area may be lower ... I think you assume 1.2%

    Good luck!

    2Reply
  • Kell Caro
    Rental Property Investor · Oakland, CA · Member since 2018 · 19 posts · 27 votes
    7y

    @Sam Mueller Just out of curiosity, what financing are you using on multi w 8% down?

    1Reply
  • Sam Mueller
    OP
    Member since 2018 · 16 posts · 9 votes
    7y

    @Kell Caro Was planning FHA since you need at least %15 down for conventional. Any advice?

    0Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    7y

    $6400 rent a month?  The numbers do not gyrate even for a duplex.

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  • Sam Mueller
    OP
    Member since 2018 · 16 posts · 9 votes
    7y

    @Sam Shueh Not a duplex technically. I'd have three rentable units. Also, the place has been fully renovated and is in pristine condition. $3200 + $1400 + $1800. Did some research on Zillow and CL for market rates for rents.

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  • Brian Larson
    Investor · San Jose, CA · Member since 2018 · 313 posts · 230 votes
    7y

    @Sam Mueller - Is this a hypothetical scenario? Or do you have a property identified? If so, which market? The Bay Area is a big place and specifying might help you get some better advice from the local BP community.

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  • Sam Mueller
    OP
    Member since 2018 · 16 posts · 9 votes
    7y

    Hi @Brian Larson it's an actual scenario. The property is in a city in one of the nicer and quieter areas in Alameda county(not Oakland or Berkley).

    1Reply
  • Joseph A.
    New Rochelle, NY · Member since 2018 · 235 posts · 151 votes
    7y

    I wouldn't do it, cash flow isn't enough for me for the property to have 3 units, but you may have a different strategy than I do.

    1Reply
  • Frank Wong
    Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes
    7y
    Originally posted by @Sam Mueller:

    @Sam Shueh Not a duplex technically. I'd have three rentable units. Also, the place has been fully renovated and is in pristine condition. $3200 + $1400 + $1800. Did some research on Zillow and CL for market rates for rents.

     Hi Sam,

    At the purchase and these rents of $6400 and in the area you suggested.  It's a good deal.  1% without value add is very hard in the Bay Area. 

    2Reply
  • Eduardo Bernal
    Flipper/Rehabber · bay area CA · Member since 2017 · 30 posts · 9 votes
    7y

    This is a great discussion for me to run into because I am also looking to FHA loan 3-4 unit in the the bay area(like asap) Meeting with lenders this week.. please recommend me if you have any good ones reguarding FHA.. ...double check rent control i would say to be sure you can ask for those rents and maybe how much more you can raise them since its just been renovated..

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Dennis M.:

    Eh I wouldn’t . Not close to the 1% rule . Your cashflow seems optimistic 

    1% rule is rare on the west coast..  have to play the hands that are dealt you.

    what mitigates it on the west coast is the property could go up 200 to 300k in 5 years. thats were the money is made.

    or maybe not.. but to me west coast rentals and rust belt rentals and what constitutes a deal are just apples and oranges. 

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  • Isaiah Williams
    Rental Property Investor · Columbus, OH · Member since 2018 · 97 posts · 66 votes
    7y

    @Sam Mueller

    I would check out other sources for rent. Rent-o-meter.com while not 100% accurate could probably give you a fairly good general idea of what you should be charging in your area. I think 1% repair costs are being EXTREMELY conservative, but it depends of course on your area and the screening process you would put the tenants you allow into your home through. This seems like it MIGHT be a good deal, but only if nothing goes wrong. I try to be optimistic all the time, but Even I will admit that 99% of the time life hardly ever goes as planned.

    End of it all, I would pass on this one myself personally.

    1Reply
  • Kell Caro
    Rental Property Investor · Oakland, CA · Member since 2018 · 19 posts · 27 votes
    7y

    @Jay Hinrichs That’s what’s funny about BP, you always get rust belt and Midwest guys weighing in on west coast discussions when it’s totally different

    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Kell Caro:

    @Jay Hinrichs That’s what’s funny about BP, you always get rust belt and Midwest guys weighing in on west coast discussions when it’s totally different

     yes in deed  cash flow is everything appreciation is luck..  or gambling ..  I guess the GFC created that tag line.. 

    for me personally I want to buy at one price and sell at a greater price.. if i cant then why buy it.. even if its negative cash flow.

    as a land developer speculator.. we are all about negative cash flow.. its the basis of our business.. but then when we hit it right we make some nice profits that exceed anything that could be made on pure cash flow with the same dollars invested and over a given time period thats why one simply has to look at IRR to get a true picture not just cash flow

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  • Sam Mueller
    OP
    Member since 2018 · 16 posts · 9 votes
    7y

    @Jay Hinrichs Good point, I'll do the calc on the IRR for this property.

    0Reply
  • Sam Mueller
    OP
    Member since 2018 · 16 posts · 9 votes
    7y

    @Jay Hinrichs Calculated the IRR to be 14.8% annually over 5 years. Not sure if that is good in the area though

    0Reply
  • Michael Ealy
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    7y

    Agree with @Jay Hinrichs - the over-all profit is the most important thing. Cashflow is just one component of the deal. Appreciation and loan paydown are the other 2.

    @Sam Mueller, you have to double check the rents and not rely on Zillow or Rentometer. You have to ask leasing agents in the area how much similar properties rent for. Or if you have access to the MLS, you can do this yourself.

    At 14.8% annually over 5 years, it sounds like a good deal, although I prefer 20%+ per year in my own investments. My suggestion Sam is calculate how much to offer to get 25% return and see if the seller counters. And meet in the middle - at 20%. Now having said that, your market is very competitive so but if I were you, so you might not get it exactly at 20% but just make an offer.

    1Reply
  • Bryan S.
    Rental Property Investor · CA · Member since 2018 · 225 posts · 180 votes
    7y

    @Sam Mueller I would say your capex, vacancy and repairs seem really low. Unless you’re doing a gut/big renovation I would budget higher numbers for that.

    1Reply
  • Sam Mueller
    OP
    Member since 2018 · 16 posts · 9 votes
    7y

    @Bryan S. Yeah, I wasn't sure exactly. What %'s would you estimate for Capex, vacancy, and repairs for a recently renovated single family home with detached units in Alameda county. I looked up vacancy % for the city and it's 4.2% , so I plugged that in. I need a washer, dryer, and a couple fridges btw.

    0Reply
  • David Noh
    San Francisco Bay Area · Member since 2019 · 24 posts · 6 votes
    7y

    Hey @Sam Mueller,

    Like @Frank Wong said, the deal is pretty good for Bay Area standard. Hayward is usually 0.5% at market price.

    Cash Flow will probably be very small compared to Midwest but as @Jay Hinrichs said, if you are in these areas, you aren't mostly looking for cash flow but instead banking on appreciation.

    Many people say most of the appreciation in our market is already had and its bad time to buy to flip but other people beg to differ.

    If the area is good (school/crime) I would consider it myself too but personally you are going to have to assess the area/market. If you don't predict correctly, you will probably lose out on some $$ for next couple years.

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