Multi Family in Bay Area

SFH prices are surging due to FOMO and need for more space due to WFH. MFH prices are now lagging significantly as well as Condo prices. When things are back to normal, SFH, MFH and Condos should go back to their natural equilibrium meaning either SFH prices will decline or MFH/Condos will appreciate significantly. From investment perspective Condos may not be a good choice due to HOA and no land but MFH seems like a great opportunity. There are still great deals with good cash flow, way better than SFH. For example a 3M SFH often generates 6-8K in rent while a 3M MFH can easily generate 16K in rent. There are opportunities to get even 3x rent with MFH. In terms of appreciation both have maintained relative price ratio equilibrium historically within a zip code so I expect net percentage appreciation would be the same, although MFH is expected to be higher in short term due to the recent skew in favor of SFH.

Given all this I really wonder why people are buying SFH as second home for investment/cash flow/appreciation and not MFH. Plus MFH are cash flow positive from day 1 meaning far lower risk in the event any RE bubble burst. It seems like pure FOMO or stupidity to me that so many are buying SFH and not MFH for investment purposes.

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MFHs have complicated issues that SFHs don’t have.

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Hosing in general and MFH in particular are subject to some wiered leftist ideas. Like people have right to live rent free. (housing justice?)

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At the Bay Area price points (I.e., $2-3M and up), buyers are looking for a certain amount of “luxury” feel. SFH are less dense - hence the curb appeal is better. In the nice parts of RBA, SFH neighborhoods have a tranquil feel with tree lined streets, nice looking front yards, and not too many cars parked on the street. Buyers like that.
Go a few blocks out to a MFH neighborhood. It appears congested. Very few trees, cars are parked on the street bumper-to-bumper, and there are always 2-3 moving trucks since tenants are moving in and out. This look and feel depresses MFH values.

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Agree that the MFH prices are always discounted over SFH. No one is arguing that. There has always been SFH to MFH premium percentage which has been more or less fixed historically. All I am saying is that percentage has gone up too far recently due to Covid. So when things get back to normal MFH has much higher upside.
Also MFH higher cashflow is a win in the long run because percentage appreciation for both MFH and SFH remains the same over long term.

This is fair point. But these can be mitigated by a good property management firm. Even after PM fees, MFH cash flow turns out much better than SFH and because both appreciate at the same rate long term, MFH is clearly a winner in long term.

Thats true. However if leftists have their way they will also go after SFH and neighborhoods. In Los Altos, they are already pushing to relax the housing density restrictions. In MV too. I just hope leftists will not get their way and make US communist.

@dizzyinvestor , if you are very keen on MFH, but want the SFH premium, you can have your cake and eat it too.

Buy a small SFH in a nice neighborhood - eg., 1200 sq ft 3/2 starter home on 6500 sq ft lot. The new CA law allows you to build up to 2 ADUs in each property. Each will cost about $250k to build. So, for $500k extra, you will have converted your SFH in a nice neighborhood to a triplex, which you can rent out at a premium compared to MFH neighborhood.


If you want to buy MFH at a good discount you should buy before the eviction moratorium ends. Many landlords may get tired of the whole landlording business and looking for a quick exit.

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Friends don’t let friends buy MFH here in the bay area, especially as vacancy decontrol gets more and more popular.

ADU is a trap. Once more stringent rent control come into other parts the bay area, an ADU allows the municipality to classify what was formerly a SFH into MFH.

Guess what - now Costa Hawkins doesn’t apply. Major screwage.

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ADU is good to build for extended family use or as separate home office. But I would not suggest renting it out for income, if the owner is also living on the premises - the hassle of a potentially hostile tenant that cannot be evicted living in one’s backyard is just not worth the income


Eviction moratorium is ending next month. There are folks who say that MFH will weaken after foreclosure moratorium ends.

TBH the effects of rent control or vacancy decontrol are overstated. Based on my experience less than 1% of units are severely below market rent due to these in south bay area. Tenant churn is fairly high and rent control here is not that severe yet. I heard Berkeley and Oakland have much more strict ordinances and so is SF.
I do not know about situation in those places but I would safely assume that the percentage of severely below market rental units there is still no more than 2-3%. So net rental income loss due to rent ordinances are actually very minimal for someone who owns many units.

It helps to get direct experience in Berkeley, Oakland, and San Francisco. Then one starts to understand how the threat of vacancy decontrol is not just the first order impact, but the second and third order impacts and the kinds of decision making that surround one’s options as limited by vacancy decontrol.

It is impossible to explain without living through it.

Fantastic advice. As well, this advice is in direct contrast to all those ads we see pushing home owners to build ADU. I wonder who is behind those advertisements? :face_with_monocle:

Berkeley has allowed ADUs for long time and the city is home of largest tent park (those blue tents illegally squatting in public land) in the Region. So much for the ADUs.

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Well, my advice is specific to owner-occupants. Don’t build an ADU and rent it to a stranger, because the owner occupant could end up with a hostile tenant in their own backyard. Bad situation…

But if one owns a SFH as an investment property, then it may be a good idea to add an ADU and rent both units out for increased cash flow. Costs about $250k to build an ADU - at 3% interest and accounting for prop tax increase, will cost about $9000 per year in interest and tax = $750 a month. The ADU can be rented out for at least 2x higher - $1500 per month or more. That could be an investment with good ROI

I think SFH is not (or should not) be a rental investment in the first place because it is not meant to be bought and rented out, it is meant for families to own and live. This is the root problem. For rentals, there is something called MFH and Apartments and Condos. These also have much better instruments for cash flow compared to SFH specially if purchased in high volume. Using SFH for rental and doing hacks like ADUs etc. is like buying a wrong tool for the job and doing hacks. Just buy the right instrument for the job.

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I know of many families who have bought a starter SFH, lived in it for 5-10 years, and then moved on a bigger house because their family outgrew the small starter home or they moved to a different city/country for job or personal reasons. Many of them opted to retain the starter SFH because it is a fantastic asset especially in RBA, and now rent it out. So, while they did not buy the SFH as an investment property, it becomes one over the course of time.