San Francisco or Oakland?

[Megan Collins]

Hi everyone - I'm new to BiggerPockets and am researching our first multifamily unit in San Francisco Sunset District (or Oakland if the numbers won't work in SF). My husband and I have been renting and saving and are ready to jump in head-first. The past few weeks I've been building my evaluation spreadsheet, researching rehab costs, reading about rent control, and plan to visit some banks this weekend to start the pre-approval process. I'm all about the numbers and details.  Any bay-area specific forums/blogs I should join? Anyone have realtor, lender, contractor recommendations? Thank you all! I'm excited to make this happen and am happy my friend recommended BiggerPockets.

[James Wise]

Welcome aboard @Megan Collins

[Maya Clark]

Hello Megan. Congrats on getting ready for your first multi-family purchase in the Bay.  Due to rent control in particular, have you thought about some other areas outside of Oakland/SF? My family used to own a number of multi-family properties in Oakland before my mom passed and dad aged, but the rent control continued to be an issue.  Tenants are super knowledgeable about their rights here and know how to work the system in their favor like you wouldn't believe. I've found most of my clients have started purchasing rentals outside of these areas for these same reasons. Berkeley is another rent control area.  Just something to consider.  Best wishes, let me know if I can help in any way.

Maya Clark (CA & TX RE Broker/(New)Investor)

[Ryan Landis]

@Megan Collins welcome! There are a few Bay Area BP meet ups - you should try to attend one. Also, the BP analyzer is great for helping you think about all the different expenses/revenue streams.

In terms of where you are looking, start really looking at what is currently on the market to get an idea of what might work/what rents/what price points are. Also, try and get an idea of what has sold recently to give you a framework of what people are achieving in those areas.

[Jerry Padilla]

@Megan Collins

Getting pre-qualified is the first step. 

@Ryan Landis

Great suggestion!

@Maya Clark

Some great considerations!

You can borrow for up to 10 conventional mortgages. You have the option of a 15, 20 or 30 year term.

For A Fixed Rate Purchase, Investment properties, Mortgages 1-4;

• A SFR requires a LTV of 85%
• A MFR requires a LTV of 75%
• A minimum credit score of 620

For A Fixed Rate Purchase, Investment properties, Mortgages 5-10;

• A SFR requires a LTV of 75%
• A MFR requires a LTV of 70%
• Minimum credit score of 720

Here are some answers to FAQ as well;

1. For all 1- to 4-unit investment property transactions, cash reserves equal to six (6) months PITI for the subject property are required.

Cash Reserves Required For Other Properties Owned by Investor;

• If the borrower has 1-4 mortgages, an additional two (2) months for every other SFR investment property and second home is required and additional six (6) months for every other 2-4 unit investment property and second home
• If the borrower has 5-10 mortgages, An additional six (6) months for every other investment property and second home.

2. Gift funds are not allowed on Investment property transactions.

3. Escrows for taxes and insurance are required unless otherwise approved by the underwriter.

4. Loans for investment properties are not eligible if the transaction includes non-arm’s length and/or at-interest characteristics

5. Investment property transactions cannot close in trust.

6. Maximum 2% sellers concessions is allowed!!

Maximum loan amounts for areas that are not considered high cost are; (also the max amounts for investment purchases)

1 unit - $417,000

2 unit - $533,850

3 unit - $645,300

4 unit - $801,950

[Arlen Chou]

@Megan Collins both the SF and Oakland markets are lucrative markets, if you know how to play within the rules of rent control.  Many people are fearful of RC, but the secret of RC is that it can be a great boost to landlords if you understand how to work within the system and you have a long time horizon.  RC basically artificially limits the number of of available rental units on the market.  It protects a few renters who hold on to their units for long periods of time, but it places a huge burden on people entering the rental market.  

In both of these cities, I cannot stress how important it is to know the rules of the game.  With RC in place, if you don't know the rules it will eat you alive, but if you know how it works you can make some serious long term money.

Find the niche, within the niche and you will make money.

Ask @Amit M., he knows the rules and knows his niche in SF and is killing it!  Another person who knows the strength behind a well focused RC market strategy is @Account Closed.  Minh is on fire in San Jose!

Good luck to you and your husband,

Arlen

[Megan Collins]

Thank you all for your responses!

[Justin Nero]

If you end up investing in Oakland, I highly suggest going downtown and visiting the Rent Adjustment Program office. They have people that will basically counsel you on what you can and cannot do and offer suggestions on what you can do for the best results under city law.

[J. Martin]

@Megan Collins ,

Welcome! I'm an East Bay investor, and have some property in Oakland, but maybe some others can jump in on SF.

Heed the warnings (and opportunities) of those like @Arlen Chou that voice the risks - and what you can unlock. But unless you are really repositioning a property or get a good deal in this market (tough, especially in SF, although slightly easier in Sunset..)...

I PERSONALLY DO NOT THINK IT IS A GOOD TIME TO BUY IN THE BAY AREA. I think you would get a better deal, and better returns over a 3, 5, 7 year period if you wait 2-3 years (both in price, selection/inventory, better ability to negotiate with more days on market). You asked about some reads.. The reasons why, with supporting data and charts, were recently discussed by several of us here:

https://www.biggerpockets.com/forums/311/topics/262973-unemployment-analysis-and-charts---sf-bay-area-and-us---any-better?page=1#p1723219

Megan you tell me which of these graphs is for San Francisco, and do SF real estate prices decouple from unemployment? (left axis is unemployment in red, and blue line for right axis is home price index

I also recommend Patrick Carlisle's work on San Francisco. His "30 years of SF RE" is a must read (not just plugging it because you'll see my name in there ;) He has a lot of other great analysis on the Paragon website also..

http://www.paragon-re.com/3_Recessions_2_Bubbles_and_a_Baby