Any Contra Costa Investors Out There? Need Your Advice!

[Albert L.]

Context: 

-Wife and I are looking to buy a SFH home in Pleasant Hill or surrounding area. Preferably 3/2 or something more

-We plan on being in the Bay for a minimum 5 years, potentially more but want to hedge against future risk and come into buying with an investors mindset. Ideally IF we were to move in the future, we'd be able to rent our home out and at the very least breakeven. If we can somehow cash flow (which I know is pretty unrealistic in the Bay) that would be great but not a hard and fast requirement. 

-I hope to find a lot that's big enough to build an ADU, already has an ADU or as in the midst of completing one. The goal of this again is to add extra buffer and have another rental stream in case some unforeseen circumstance comes up (rents drop significantly, remote becomes a permanent thing, etc)

Questions to those who own property in Pleasant Hill or surrounding areas: 

-How realistic is to breakeven with mortgage+other expenses with what we'd be able to get with rent? What kind of tenant pool could I be expecting here in the future? Students from Mt. Diablo? My initial numbers tell me this isn't possible. Assuming it's a 3/2, so it be one 1BR/1BA and two 1BR and a shared BA. Assuming the shared BA is like $850/month each and the private bath is $1000 that leaves me around $2,700 which would be well short of the monthly expenses (probably be ~$4,000-$4,500/month). 

-General thoughts and opinions about the appreciation of this specific county for near future. I completely recognize that everything shared is pretty much speculative but would love hear thoughts regardless!

-Any other questions my wife and I should consider seriously before going down this route?

Thanks everyone! 

[Maxwell Manatt]

Hey @Albert L.

I am a Realtor and our team has done 4+ transactions in the Concord/Pleasant Hill/Walnut Creek area so far this year. 

Two questions:

How are you and your wife planning to finance the purchase? (Conventional 20%, FHA, VA, All cash etc).

Are you and your wife willing to purchase a property that has moderate to significant repairs/upgrades needed?

-It is a good area but my crystal ball is very broken for any short time frame. I could see property values down or up 15% within the next 12 months. 5-10 yrs I remain bullish on All of the Bay area counties due to fundamental lack of supply.

-To break even or come close in that area is possible if you can buy at a 15-25% discount of top market value with conservative leverage. That is possible if you and your wife have a least a 20-30% down payment with extra cash for repair/renovation.

Higher leverage could work.. but of course the numbers would be tighter and it would be harder to get a transaction closed on a deal that needs work in the first place. Also repairs would likely need to be done over time and you would need some luck in the values and rents appreciating in the next 5 years

One of our clients recently purchase a home for 490k in a good area of Concord 3+2 typical rancher, after renovation we are closing escrow on the resale today for 680k.

So as a Retail buyer lets say you could buy that property for 510-520k (not all cash, more contingencies, no "inside tips") and put in the work (70-90k in renovation) to make it worth 650-680k. That renovated property would rent for around $3000 per month an your payment (assuming 400k borrowed) would be about $25-2600. You would be just barely breaking even with reserves for maintenance and any future property management.

ADU could definitely be icing on the cake. But would impact the rent of the main home. Someone who is willing to pay top market rent will likely not want an occupied ADU in the backyard. Additional income from the ADU would likely offset the difference.

Would love to discuss further if you have any other questions :-)

Cheers