Need Feedback on Single Family Home Rental Performance in Bay Area

[Danny N.]

Hi everyone

I have an investment property in the Bay area (South San Francisco specifically) which I'm currently renting out to long-term tenants. It is a 3 bed/1 bath single family home and has a sizable backyard. 

Currently it is not cash flowing, and after mortgage/taxes/insurance/maintenance, it is probably losing ~$1,300 per month (eww). Looking at Redfin's data, it is appreciating over time (probably more than $15,600/year), but probably not as fast as other highly desirable neighborhoods in the Bay.

I previously lived in this home before I moved and converted it into a rental property. I have till mid-late 2025 to sell without capital gains tax (< $500,000 couple).

I'm trying to figure out how to improve the performance of this property and have some thoughts about it, but would love to get feedback from other REIs.

Option 1

Add a ~800 sqft ADU in the backyard which I think costs ~$250/sqft (total $200,000) and I think could rent ~$2,000/month. That's ~12% Cash on Cash return which seems pretty good/decent.

My concerns are by doing this, it would reduce my rent price on the main house (most likely since they'd be sharing with other tenants on the property) and also I'm unclear whether adding an ADU would negatively affect the value of the property.

Option 2

Consider converting the property into a short/medium-term rental, specifically to travel nurses. The property is very close to 2 hospitals: Seton & Kaiser. I have always heard there's a shortage of nurses and high demand for them, so thought this could be interesting. However, I have no experience in this and would not know how much rent is projected for this setup.

Option 3

Sell and redeploy capital somewhere better.

Appreciate any feedback on this situation. Thanks in advance.