[Calc Review] Oakland, CA investors help me analyze this deal

3 Replies

Hi Amaju, here are some thoughts:

-Oakland is quite a big area, and from an investor's perspective, some sections (Skyline, Piedmont, *maybe* Lake Merritt) are better than others (Fruitvale, the Coliseum).  Unless you know something most people don't, or unless you know the area like the back of your hand, it may be wise to tread lightly when investing here.  Here's a breakdown of local crime stats, on a per-neighborhood basis.

One step you could take is to plug in the property address to the Alameda County Assessor's website and see if the city or county have recently levied any special assessments for things like street paving, sidewalk repair, etc.  That same website should also be able to tell you whether your property tax estimate of 7% is accurate as a whole.

-You're budgeting 6% for property management fees in a location that is, again, quite challenging to invest in successfully.  Property management is not the place to focus your cost-cutting efforts- quite the opposite, in fact.  Often the most profitable choice is to pay a premium for a PM who goes the extra mile, acts as a buffer between you and the many headaches that can arise, runs interference between you and problem tenants, and generally brings you solutions instead of problems.  I've heard many more experienced investors on the BP podcast say that a high-quality PM is like a diamond in the rough, and is the most important component of their deal team.

If you really want to be safe, find a trustworthy local property manager *before* you buy a property, and involve them in the deal from the beginning.  Ask them whether each property you analyze would be something they'd want to manage.  They'll give you information that few other investors possess.

-Your CapEx and Repairs budgets sum up to 10%. A lot of the properties in this area are quite old, and many have deferred maintenance issues. It wouldn't hurt to double each of these line items. Then if you're wrong, you can be pleasantly surprised.

-I see that your repair cost budget is not insignificant ($60k), but as a percentage of the purchase price (6%) it's not as high as it could be.  I have a coworker who bought a house just north of Oakland, and they had to have the property physically raised onto stilts so that a foundation expert could replace the old brick foundation with one that is more seismically sound. This repair cost them tens of thousands of dollars to do.  Since your property is a rental, this may be a mandatory improvement that you'll have to make.  Oakland has a 70% pass-through law (which means you can pass along 70% of the retrofit cost to the tenant, amortized over a 5-year period).  But you're still eating that leftover 30%.  Here is a website containing info on which properties are most likely to be in need of retrofitting.

-Where are you getting a 4.7% interest rate on a non-owner-occupied mortgage?  Not doubting your numbers, but I'd love to know who your lender is.

-Your income breakdown is just labeled "A", "B", "C", and "D".  Without more meaningful labels, it's hard to know whether they're accurate.  Is this a four-unit multi-family with equally-sized units, each paying the same rent?  If so, are these already rented out at the same price of $2,300 per unit, or are these pro-forma numbers?  How many bedrooms and bathrooms per-unit?

Without more info from your end, it's hard to judge the accuracy of your numbers.  If you'd rather not share the address, then providing at least a zip code and a property description (# of bedrooms/bathrooms, square footage, age of the house, etc.) would help us gauge things like neighborhood desirability and rent expectations more accurately.  Hopefully the above info is helpful.

Thank you for your response, Richie.

I have put together some responses to your questions: 

The property is in the Hoover Foster area-- it is overlooking the freeway. 

This property has been fully renovated in the interior and exterior hence the lower percentage in the repair and maintenance costs. It was converted from a duplex to fourplex and the foundation was fixed pretty recently. 

In regard to size, 2 units are little above 1K sq ft and the other 2 are slight above 800 sq ft. 

I made some estimates on the rent as all units are currently vacant. Based on my current research, I think the rent would be coming in at $2K instead of $2,300.

I am still currently shopping and figuring out the financing situation. 

Thank you for your help on this. 

Sounds good @Amaju E. . One of the best tools in my deal toolbelt is Rentometer.com. Plug in an address, a target rent amount, and a # of bedrooms, and it'll tell you whether your rent is above or below the median rent for that neighborhood. It may be able to help you estimate your income levels. Good luck.