Multifamily Investors Flock To Bay Area Despite Challenges Looming

Well, there goes that theory about multifamily investing in the Bay Area…

Rents peaked in 2016. Interest rates are going up. Cap rates have peaked. Hard to see why prices will go up for multi family in the BA.


There may be some signs of trouble ahead despite the strong market dynamics. Vacancies are rising and rents have begun to peak, which is making multifamily assets more vulnerable to diminishing returns, Cushman & Wakefield reports. California voters also will have the opportunity to repeal limits on rent control, which would create much uncertainty across multiple markets.

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Proposition 10 could stifle investor interest in the high-demand Bay Area. The proposition would repeal the Costa-Hawkins Rental Housing Act, which limits rent control to properties built in 1995 or earlier. “A repeal of the act would enable municipalities to adopt more restrictive rent control measures in their cities, which in turn may negatively impact investment activity in multifamily properties,” Saglimbeni said in a statement. Investors will have to do much more due diligence as well. “Property owners will approach investments much more cautiously, ensuring that the deals pencil with these new measures in place,” Levin said.

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With CD rate pushing into the 3’s why would anyone buy with a 4 cap rate? Who are these people?


They are betting on appreciation just like you.

Pension fund should buy all the multi family rentals. Limit pension payout to rent income. Let the union continue to support rent control. Omg

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Agree. I think the best time to buy was up to 2016, and you could still find some deals through fall of 2017. Hard to find anything that makes sense this year unless you are betting on appreciation (as you mentioned below) or some kind of tax thing

3-5% :slight_smile: depends on how much you are depositing (lending? ) in banks for safekeeping.

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Sounds like a great time to buy :slight_smile:

Multifams have had a better price per sq ft rate than SFRs so much more affordable for people looking for an entry home–we were there until my husband got a promotion. Rent control just means you need a 30 yr fixed mortgage.

Multifam also gives flexibility to move your parents or inlaws closer to you, and the ability to downsize when needed (move to the smaller unit).

[Downside for us was limited size and limited expandability. 1800 sq ft owner’s units are rare, anything larger is like hunting for the Loch Ness Monster. ]

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Technically speaking with CDs you have to pay ordinary income tax rates, whereas with rental income you have (a) Trump’s tax breaks for passthroughs and (b) depreciation working for you.

That, and, as previously mentioned, long term appreciation.

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So instead of min 4% cap rate, 3%? 2%? 1%?

In a rising rate environment you need higher cap rate to attract buyers. So I think BA MFH cap rate has hit rock bottom and thus likely to expand in the future. That would put pressure on value.

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Which one is more likely? Rent increase or house price decrease?

Rent will rise but at a slower pace than past few years. Rising interests rate is the dominant factor.