8-unit, multifamily investment property in San Leandro. Any thoughts on this one?

[harry185]

https://www.redfin.com/CA/San-Leandro/14863-Bancroft-Ave-94578/home/967781

[pandeyathotmail]

I wrote this summary for another thread for a purchase of a Single Family Home for rental. Not sure how much will it change for Multi-Family. Actually, I will be interested in know if anyone has an idea of how to analyze a multi-unit property for investment purposes.

@pandeyathotmail

If you are buying to rent, you should be looking at numbers very carefully. Make sure you have enough margin. If possible, buy at profit, which is kind of hard, if you want to sell at profit someday. What I am trying to say do not just buy at loss in a hope that you will make a profit someday. It is called speculation.

As a guideline, when analyzing a property, keep these yearly cost estimates in mind.

1 month rent for Property Management
1 month rent for a vacancy factor
1 month rent for maintenance
Property Tax and Insurance (by county rate)

The above can be called rental OPEX.

Your property should come out favorable on this equation.

This is true for any rental:
+ Rents collected
- rental OPEX
- rental mortgage (P+I)
= net rental income or loss

The cash left after paying OPEX should be 1.25 times the payments to amortize loan (aka DSCR).

I do not know if any realistic rental property search will satisfy all of the above condition assuming you want to keep down payment low.

After you have made sure the numbers work in your favor, look for nice neighborhood. Good neighborhood will attract quality tenants. Quality tenants will keep your home in good condition and pay rents on time.

Cross posting from my post in other thread

[BA_lurker]

There’s a reason it’s so cheap. Rents are way below market. So the condition of the property is probably pretty bad. With rent control in place now, you are going to have trouble getting people out to update and get to market. don’t touch it unless you have a strategy for emptying out the place and cleaning it up.

[caiguycaiguy]

So the rent is about $90k currently?

[pandeyathotmail]

3.66 % cap rate looks low?

[hanera]

Any Austin rentals have higher rate.

[caiguycaiguy]

@hanera

Any Austin rentals have higher rate.

Isn’t that a given…

What’s the average for bay?

[pandeyathotmail]

@caiguycaiguy

@hanera

Any Austin rentals have higher rate.

Isn’t that a given…

What’s the average for bay?

It does seem to agree with the equation I generally throw out when talking about SFBA realestate:

Long Term ROE (assuming 0 loan) 10 % = 3-4 % rents + 6-8 % appreciation

[caiguycaiguy]

@pandeyathotmail

@caiguycaiguy

@hanera

Any Austin rentals have higher rate.

Isn’t that a given…

What’s the average for bay?

It does seem to agree with the equation I generally throw out when talking about SFBA realestate:

Long Term ROE (assuming 0 loan) 10 % = 3-4 % rents + 6-8 % appreciation

Not enough for the investors here.

[manch]

@pandeyathotmail

It does seem to agree with the equation I generally throw out when talking about SFBA realestate:

Long Term ROE (assuming 0 loan) 10 % = 3-4 % rents + 6-8 % appreciation

If your theory doesn’t agree with reality, I’d take the side of reality any time.

[pandeyathotmail]

@manch

@pandeyathotmail

It does seem to agree with the equation I generally throw out when talking about SFBA realestate:

Long Term ROE (assuming 0 loan) 10 % = 3-4 % rents + 6-8 % appreciation

If your theory doesn’t agree with reality, I’d take the side of reality any time.

And if it does agree with reality, will you still take the side of reality?

Long term California home prices double every 10 years. That gives us rate of appreciation of about 7%. And the income from rent comes about 3-4 %. Do the math yourself.

[manch]

@pandeyathotmail

Long term California home prices double every 10 years.

Don’t think so. Do the math yourself.

S&P/Case-Shiller CA-San Francisco Home Price Index

[caiguycaiguy]

@manch

@pandeyathotmail

Long term California home prices double every 10 years.

Don’t think so. Do the math yourself.

https://fred.stlouisfed.org/graph/fredgraph.png?g=lJuv

S&P/Case-Shiller CA-San Francisco Home Price Index (SFXRSA) | FRED | St. Louis Fed

What am I looking at? I’m not good at math.

Can’t even count my rent money sometimes…

[manch]

Case Shiller index for SF. It tracks resale value of houses so that’s the gold standard for appreciation. Usual disclaimers apply: it includes some part of East Bay like Oakland and Hayward, so it’s not exactly the same as SV.

The series includes 33 years, so you take the very last one, divide it with the very first one, and take the 33rd root. You’d get 1.054. So Bay Area RE appreciates at a rate of 5.4% over the last 33 years.

[caiguycaiguy]

@manch

Case Shiller index for SF. It tracks resale value of houses so that’s the gold standard for appreciation. Usual disclaimers apply: it includes some part of East Bay like Oakland and Hayward, so it’s not exactly the same as SV.

The series includes 33 years, so you take the very last one, divide it with the very first one, and take the 33rd root. You’d get 1.054. So Bay Area RE appreciates at a rate of 5.4% over the last 33 years.

Thank you!

@manch

The series includes 33 years, so you take the very last one, divide it with the very first one, and take the 33rd root. You’d get 1.054.

It’s a damn disgrace. I can’t do simple math sometimes.
Luckily, I don’t have to be good at everything to live a decent life.

[manch]

S&P index returns about 11% long term, if you reinvest all the dividend. It has a lot more volatility than real estate, so common sense tells you it can’t also have a lower return than RE.

If you include a cap rate of 3%, Bay Area RE returns about 8% a year. Let’s call it 7% to budget for some margin of error. That’s actually very decent return for a “safe” asset. You can also use a lot of leverage in RE and still can sleep like a baby at night. Not true for stocks.

[hanera]

@manch

Not true for stocks.

Huh? I slept well since 1997 investment. Far better than previously.

[caiguycaiguy]

@hanera

@manch

Not true for stocks.

Huh? I slept well since 1997 investment. Far better than previously.

We are speaking in generalizations.

Regular people are not like you.

[manch]

@caiguycaiguy

Regular people are not like you.

Fixed it for you.

[caiguycaiguy]

$1.8m for this pos… way too much capital everywhere