Would like to buying Small complex in SF Bay Area

Question

Hi, I am a newbie here. After I have been researching and reading a few books on RE investment, I have refined my strategy would be house hacking fourplexes with FHA loan. However, looking at the price in the San Francisco Bay Area, the number not even close to acceptable (it is way too far from a Home Run number).

If investing in a distant area with the right number, then house hacking would not be an option. Any advice will be highly appreciated!

Using FHA Loan will require the Mortage Insurance, in the long-run that means more expensive than the Conventional Loan?

Thanks a lot!

Kent Chu · Answer

@Tammy Ly you can still find fourplexes in Oakland that'll give you great househacking cash flows if you're okay with that neighborhood around 700k-800k.

Frank Wong · Answer

When looking at a quadplex in the Bay Area and wanting to do an FHA purchase and house hack.  One big question you have to ask yourself. Do you want to live in the neighborhood that these 4units are located?  Answer that question first before you waste your time on something you may not be OK with.

House hack a 4 unit owner occupy was a great an idea like 3-4yrs ago but now everyone and their mamas want one. I see no value based on the price and the cost of construction.  Construction costs in the Bay have sky rocketed this is going to kill any upside in the deal.  If you were to do the rehab yourself, it may work but you gotta find the perfect deal and with FHA financing I give it a 1% chance.

Anthony Barbato · Answer

@Tammy Ly

Concord and Walnut Creek do not have rent control and there are several multifamily properties available in the area. The cap rate gets better as you go farther from SF because prices are driven by appreciation in Oakland, however the farther you go out towards Stockton area, the higher the rent rates are compared to the price of the property. For he reason, you can find cash flow properties in Martinez, Concord, Walnut Creek and Vallejo that have a higher cap rate on average that what you would find in Oakland.

Anthony Barbato · Answer

@Tammy Ly

The PMI does add more to the monthly payment, but if the property will cash flow with you occupying a unit and the additional PMI, the property will perform even better once you refinance into a conventional loan once you reach the 22% mark in equity in the property. Once you have paid down the loan balance so that you have 22% equity in the property, you can refinance to a conventional loan, which will reduce the monthly payment because of no PMI so therefore your cash flow will be even better!

Anthony Barbato · Answer

@Tammy Ly

Great question Tammy! You can use the FHA loan on a fourplex up to $1.4m in Alameda and Contra Costa County. The debt to income requirement is more flexible with FHA than it is with a conventional loan, 55% compared to only 43%, respectively. When looking at deals, it’s useful to have an excel sheet that will show your anticipated DTI and cash flow on the property. Talk with a loan officer that specializes in FHA and they will be able to provide a wealth of assistance when making a decision on financing. BiggerPockets has a download that you can use to plug in the revenue and expense in order to estimate your cash flow too.

Tammy Ly · Answer

@Kent Chu Thank you. Oakland area is qutie rough. I am looking at Contra Costa area.

Tammy Ly · Answer

@Frank Wong, You are absolutely right. I like to live in one unit of the fourplex. This way  I can manage the property myself (with some help from PM, because I graduated from Business Administration) so that I can learn the trade inside out. However, when I was doing the research, I see this is impossible in the current market and in the SF Bay Area. So, I think I would have to either:

Accept negative cash flow house hack in Bay area

Or, go a little bit distant to acuqire the one with the acceptable number with a conventional loan (I am not comfort out of state yet).

Tammy Ly · Answer

I mean positive cash flow

Tammy Ly · Answer

@Anthony Barbato Thanks so much for your insight. Currently, I live in Concord. I have looked into the Concord, Martinex, Pleasant Hill (Walnut Creek, Danville are too high), even Antioch, these areas are hardly generate possive cash flow. The purchasing price around here doesn't make sense to the 1% or 2% rules.

Would like to buying Small complex in SF Bay Area

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