Where to invest in Bay Area new construction?

Question

What are good locations in the Bay Area if you want to invest in new construction rental properties? The focus would be on appreciation, low maintenance, low vacancy. The cheapest areas I've seen just browsing around seem to be in Sacramento, but not sure if that's the best choice or not since it's rather far. Was also looking at Dublin, Livermore, San Ramon, Concord, Walnut Creek....does anyone have suggestions or advice? Open to pretty much anywhere in the Bay Area.

Wes Blackwell · Answer

@Natalie Hahn

I think you've kinda missed the boat for the Bay Area to be honest... people are moving OUT of the Bay Area into the Central Valley (Stockton) and Sacramento.

Sacramento is #7 in the nation for Rent Growth in the country:

https://www.bizjournals.com/sacramento/news/2019/01/10/sacramento-is-7th-on-list-of-top-rent-growth.html

Makes sense, as everyone coming from the Bay Area is used to paying WAY more for housing, so everything in the central valley looks like a screaming deal.

Overall, my 2 cents is to get in front of the growth (like how is Phoenix is projected to almost DOUBLE it's population in the next 30 years)... WHY? People are sick of the high prices in California.

https://qz.com/1599150/californias-population-could-start-shrinking-very-soon/

"Where are people going? Mostly cheaper states nearby, like Arizona, Nevada, and Oregon, as well as Texas, according to an analysis from the Sacramento Bee. As housing in California continues to skyrocket in expense, it increasingly makes sense to leave. According to the real estate company Zillow, the average house in California has risen from about $300,000 in 2012, to about $550,000 in 2019. Those numbers have scared many a family out of the state."

Cheaper... nearby... like Sacramento, Stockton, and Phoenix.

Maybe if you had some kind of value ad play... but buying brand new and hoping values and rents go up in the Bay Area seems like a bad strategy to me. Pure speculation.

Chris Mason · Answer

I'd be highly skeptical of new construction. Builders use various appraisal & other manipulation means to inflate values. What happens to that new car the day you drive it off the lot? It tanks in value 25%. What happens as soon as the last house in the development is sold and the appraisal manipulation stops...?

Wes Blackwell · Answer

@Adam Engle-Sorrell

Here's some posts I've written in the past that will show you just about everything you need to know about Sacramento:

https://www.biggerpockets.com/forums/621/topics/396725-millennial-migration-to-sacramento-2017---here-comes-the-rush

https://www.biggerpockets.com/forums/621/topics/664159-sacramento-2019-state-of-the-city-address

https://www.biggerpockets.com/forums/621/topics/586279-investing-in-sacramento-or-stockton-which-one-is-better

https://www.biggerpockets.com/forums/621/topics/590913-rent-growth-in-sacramento-is-triple-the-national-average

If you have any further questions, don't hesitate to reach out. Here to help! :-)

Matthew Ryan · Answer

@Natalie Hahn - That's a difficult question to answer. The main reason is rent growth has exploded in the three major urban cores Oakland, San Jose and San Francisco since 2010; averaging 6.25% YoY according to RealPage.  It's easy to say that these are supply constrained environments and that rent growth will continue to take-off but the truth is, so many are already paying 30+% of AMI on rent. So whose to say this trend continues in the future?  I think the markets you're looking at will continue to see rent growth but one would need to look deeper into supply delivery of new units vs. deman (job growth) plus rent prices relative to AMI (area median income). If rents are still affordable in these areas and supply isn't outstripping demand, I'd say you have  good case for investment in new construction product or even value add deals. But again, really based on what your return expections and needs are.

Adam E. · Answer

@Wes Blackwell

Awesome! Thank you, I'll get started :)

Adam E. · Answer

@Wes Blackwell

Wow! I had just asked about Sacramento because I had been told it was a bad idea to invest there when I got a keyword notification and saw your post. Great info, I'll have to look into it more.

Thanks!

Adam Bush · Answer

@Natalie Hahn What is your budget? I have been living in the bay area for 4 years now and a lot of the areas you mentioned are quite expensive. Out of the ones you listed I would say your best bet would be Concord. It is still growing in my opinion and a lot of new businesses and construction are being built there. Sacramento and Stockton are definitely places you want to look at but overall the California market is very expensive. I would also look at Martinez, Benecia, Vallejo and Pittsburg. Benecia and Vallejo are right next to each other but Benecia is a lot nicer and safer. Vallejo is not necessarily a war zone but it is definitely where the lower income Californians reside, in my opinion, however it is very close to Napa. (Keep in mind in San Francisco if you make under 100k thats considered low income lol).  Also Pittsburg is not the nicest area but definitely has many live-able areas where someone would still feel pretty comfortable. There may be other areas to check out but they will be much further out such as, brentwood, oakley, clearlake. I do no think you would have any trouble finding tenants in any of these areas. I am not an experienced investor, just a beginner looking to get my first property within the next year. I am interested in multi family properties for cash flow, so my strategy is not the best for this market which is why I have been looking to other states. Feel free to reach out, I know a couple real estate agents who probably will be of more help than me in which I may be able to connect you with.

Natalie Hahn · Answer

Any place which will have good growth in rent prices in the future. Do you have some recommendations?

Matthew Ryan · Answer

@Natalie Hahn - What type of returns are you chasing? That's going to dictate which market is right for you...

Where to invest in Bay Area new construction?

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