This is balpark estimate, but not detailed write-up…(it may have lot of IFs and BUTs).
Trying to get you all how to analyze a buy…different angle, different perspective…as if you were a buyer what do you do?.
Here is the 4-plex, that I feel attractive with current price trend. I have not looked at property, but analyzing from listing.
This is 1.3M. If I divide by 4, it comes to 325k/home. Total 4 homes rent is $6600/month, but it can be more going forward. The average is $1650 per home. Assuming 10% on expenses on rent, the cap rate works out to 5.5% which is high in bay area. Now, easy break even on cash flow.
Going forward, the rent increases are very likely as years roll on, would be a good deal at this price.
Center to Airport, Railway station (Lawrence & Santa Clara Caltrain to SFO) and Levi Stadium. This makes easier to rent.
With 25% down, 5% vacancy rate, and no CapEx budget, I couldn’t get positive cash flow out of it. 4% CAP rate and just 4.5% Cash on Cash return. Potential rent increase might change the number, I don’t know how much appreciation could be for 4 plex.
I think 4-plex in Bay Area are too over priced for the rent they can pull in. But you are right that it is a good number for Bay Area rent. I think I would prefer to look for 4-plex in Daly City area, only because I can probably pull in 2000 each unit. A friend of mine picked one up back in April for 1.15M and about 100K renovation budget.
The present day rents $1500 for two homes and $1750 for two homes are very low (2 Bed, 1 Bath) with Santa Clara Standards. With such low rent, 5% vacancy is too high.
My friends are paying $2600 & $2800 for two bed room apartments near by places. If my guess is right, these will easily get rent $2000 to $2250 range. Good for Long hold cash flow (of course home condition matters, should not be fixer !)
Above all, this is the only 4-plex listed at low price 1.299M level around 15-20 mile radius. This is one of the lowest 4-plex in Santa Clara in good location and easy to go as pending soon.
The nearest multifamily next to it is duplex that is listed at 1.299M.
Come on @Jil, my example Fremont SFH at 630k is cheaper, better condition and cash flow positive. Sure, Santa Clara is prime but I’ll take Fremont all day at that price point!!!
If you can raise the rent to around $2000 (I didn’t do research, but based on @jil it seems possible) this 4 plex could pull in 8000 / month and I don’t think Fremont will pull in 4000 / month.
No, but honestly that Fremont one is a good buy for the price and has a lot of upside. The condition is pretty good. Again, not everyone is wiling to spend over 1M on stuff. I think we need to be mindful of that.
5% vacancy is just 2 weeks / year. I always keep minimum 5% on all of my calculation since there is a chance of turnover every year and 2 weeks very possible number IMO.
5% is 18 days…But 5% is a national standard for multi family…If lower rents are too low…if higher rents are too high… But with only one sfh you are either 100% occcupied 0% occupied. …
With Ca min wage rising a dollar per year or so for the next six years it should allow landlords the ability to raise rents 5% or more…Not enough inventory and rising ability to pay…at least for class C apartments in low end areas. .
That could mean a 50% increase in income and value by 2022…
On January 1, 2017, the minimum wage will increase to $10.50 per hour.
On January 1, 2018, the minimum wage will increase to $11 per hour.
On January 1, 2019, the minimum wage will increase to $12 per hour.
On January 1, 2020, the minimum wage will increase to $13 per hour.
On January 1, 2021, the minimum wage will increase to $14 per hour.
On January 1, 2022, the minimum wage will increase to $15 per hour.
Of course a recession could upset the apple cart…Even the law allows for adjustment
The whole system is inflationary. .It will push up other salaries up the chain and drive up the costs of almost all goods and services. …
Labor Cost Percentages. Varying industry standards put labor costs between 30 to 35 percent of the restaurant’s total sales.
I bet this 35% can be used for other industries. .So if there is a 50% raise in labor rates…There will be an 18% rise in inflation by 2022…at least a 3% rise over the current 2% rate… .5% a year inflation built in the system. …Which will affect these low end workers much more than anyone else. .In the end it wont help them much but will help landlords at lot…
I am looking at $1000/m apartments that will be $1500/m by 2022 and worth at least 50% more…The increases will be less at the higher end…Those renters will end up buying…
Of course the socialists will probably try to force statewide rent control by then…
No matter how much min wage increases, these people will never be able to buy in the Bay Area. And if like you said, landlord will just keep increasing rent to eat up whatever pay rises people have, this will just fuel the anger even more.
Rent control in the entire Bay Area is a foregone conclusion in my mind. Just a matter of time. We need to watch the statewide homeowner percentage. We are not building nearly enough up and down the entire state not just Bay Area. If owner percentage falls below a threshold expect chipping away or wholesale overthrow of Prop 13.
Landlord should condo convert the apartment building and sell to owner occupants.
Also during city planning, reject the rental apartment and approve new condos.
This will be the best strategy for homeowners and landlord. Make rentals scarce to discourage new people from coming, thus make local people the only labor pool for employers.
Of course, be moderate and do not go extreme. We still need highly skilled new people, but not too much cheap labor.
Even with rent control, you can still make it work. San Jose allowed to increase rent 5% year, I think it is very acceptable number if you actually follow through it. Problem is landlords got lazy and they wanted to increase 25% in 5 year instead of doing it every year. So if you buy this 4-plex and in 3 yrs Santa Clara follow suite with rent control, I won’t sweat about it.
I don’t mind the “rent cannot rise by too much” part of rent control. What I am scared of is the “just cause” eviction part. Once you rent to someone, it’s set for life. You can’t easily take back the house. It’s a blatant violation of contracts.
