BMR Housing San Francisco vs Sacramento Rental

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BMR Housing San Francisco vs Sacramento Rental

Robert Jensen
Investor · Bay Area, CA · Member since 2019 · 41 posts · 5 votes

I have been putting offers on houses in Sacramento. I have been living in San Francisco most of my life as a renter (24yrs). I just won the lottery for a BMR 1 bedroom in Hayes Valley for $250k.

Ultimately, I would like to stay in San Francisco and invest in rental properties or flips (I used to work for a contractor so can do most, if not all, work myself with a hired hand). However, this BMR apartment is seemingly too good to turn down. There are stipulations though regarding being able to rent the place. However, there are certain circumstances where I may be able to rent at BMR, though have to ask permission. BMR is a bit restrictive, though would solve my issue of wanting to keep San Francisco as my primary residence.

Other option is turn down the BMR housing and continue with Sacramento, with hopes of flipping, etc to eventually buy a $800k Market rate place in San Francisco.

I am in my 40s and, ultimately, would like to start passive income. 

So back to my question. Is it crazy to turn down this BMR condo? It does appreciate based on AMI, which could wind up beating appreciation on real estate. Its hard to get data on AMI though but it seems salaries keep climbing in SF with the addition of more towers and cost of living for the employees. however, Sacramento real estate seems very hot right now. Eventually I would like to get in the game and this BMR could set me back 3-5 years. 

I'm completely 50/50 at the moment given my goals. Any input? Thanks

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  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    7y

    @Robert Jensen you’re asking the right questions. But I think you need to try and get a lot more info from past BMR owners on how/if they benefited long term from BMR units. My hunch would be no, outside of having “their own place” with low mortgage payments. 

    Does the city share in the appreciation? AMI seems much lower than market rate appreciation, but you’d have to look at reliable stats. Also, does the city split the appreciation with the owner? Personally I’d be leery. It’s  clear that the city does not intend this to be a windfall for owners at all. And I’m not even sure if they can’t change the rules mid game. 

    Try to get first hand info from former owners. Will the city dept handling this also give you related info?

    Post here again what you find out. Good luck!

    0Reply
  • Robert Jensen
    OP
    Investor · Bay Area, CA · Member since 2019 · 41 posts · 5 votes
    7y

    My main concern now, outside of investment, is renting it out. I would in know way want to rent it out at market rate and make a profit but if something were to come up I feel I should be allowed to rent it out at below market rate. They do allow you rent it out under certain circumstances, though its limited and you need permission. 

    So lets say I was going to work out of state for a few years and the AMI tanks. I could wind up with a forced loss since I would be unable to hold. This scares me the most. 

    If only they would treat these more like ownership and just make sure it is kept at BMR whether rented or sold. Even if I was going to live with a girlfriend for a while and wanted to save money, why not let it be rented at BMR? These stipulations are a bit out there and it appears they are very strict on BMR 'home owners' regardless of whether or not the home owner is being ethical. I'm leaning towards a Sacramento conventional purchase, though the market could go down in the next year --if only there was a crystal ball. 

    Here is the BMR manual if anyone is interested:

    https://sfmohcd.org/sites/default/files/Documents/MOH/Inclusionary%20Manuals/Inclusionary%20Affordable%20Housing%20Program%20Manual%20-%202018%20Draft.pdf

    0Reply
  • Robert Jensen
    OP
    Investor · Bay Area, CA · Member since 2019 · 41 posts · 5 votes
    7y

    Below are the AMI numbers with percentages from prior year. So if you bought in 2014 and sold now you would have made 24%. Sacramento real estate went up 64% from 2014 to 2019. 

    One thing to keep in mind is rent saved. the BMR is about 30% less so if you add this to the increase when selling the BMR from 2014 it comes out to about 60% profit. 

    So in a 5 year time frame they would both be about equal IF you factor in rent saved. There seems to be a correlation lag between SF AMI and the Sacramento Real Estate Market, given the drop in AMI in 2013 and 2014

    YEAR    AMI      % from prior year

    2019   86,200    4%

    2018   82,900    2.7%

    2017   80,700    7%

    2016   75,400    5.6%

    2015   71,350    5%

    2014   67,950    -4%

    2013   70,850    -1.7%

    2012   72,100    1.4%

    2011   71,100    NA

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  • Robert Jensen
    OP
    Investor · Bay Area, CA · Member since 2019 · 41 posts · 5 votes
    7y

    I am partially through the BMR process and have decided its not for me. It is a great deal. 270k for a 1 bedroom but the restrictions are too tight and the process is too grueling. 

    They are now demanding I have legal contracts  (non-occupancy forms) signed by everyone who has given me rent this year while also submitting a copy of each persons DL. They are giving me two days to do this. One of them is a girl I barely know who is half my age and I need to find here and have her sign a form saying she's not moving in with me. Its just awkward, wrong, and could come off as creepy. 

    I find they (BMR) keep getting more and more unreasonable. Before this they demanded bank account statements for my ss #. I kid you not. On my tax form my ss number was put as an account number for the tax program to take out there fee. No matter how many times I tried to explain this to BMR it did not sync in until it went through three rounds of people. They are also telling me its going to be like this for the next couple months. Every transaction I make needs an explanation. Even obvious checks to the landlord for rent. Any deposit over a few hundred dollars needs an explanation form. 

    I've been wanting to get into this program for 15 years so for me to deny this after winning the lottery is a big deal. I have no intentions on leaving SF. I currently share a 3 bedroom house and pay $1600 in rent. I am figuring I can buy in Sacramento, live there a few months and fix the place up, then sell it or possibly rent it. Move back to SF trying to keep my room in the process. Then repeat. 

    My ultimate goal is financial freedom and BMR is not going to get me there. Though it was a decent opportunity. 

    0Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    7y

    I'm surprised that between your rental income, whatever it is you do for a living that allows you to save up investment property down payments, and owning a bunch of real estate, that you are still even qualified for the program at all...

    0Reply
  • Robert Jensen
    OP
    Investor · Bay Area, CA · Member since 2019 · 41 posts · 5 votes
    7y

    I don't own any real estate, work at a non-profit, and have $25k saved up over the last 10 years. This would be my first purchase. I would also get DALP from them which would be an extra $20-$40k towards the purchase. 

    I can push and probably get qualified no problem. I am the perfect candidate for them. All the numbers work out. The process though is making it feel like there will always be someone over my shoulder. I am also leaning towards Sacramento being a better bet which also gives me freedom to rent or move somewhere else without losing the property at a potential loss. 

    Really tough the decision for me to pass on it. The grueling audit they are giving me though is making it easier. 

    0Reply
  • Robert Jensen
    OP
    Investor · Bay Area, CA · Member since 2019 · 41 posts · 5 votes
    7y

    @Chris Mason -- what made you think I had investment properties, rental income, and a lot of money? I've been reading your posts on here and have utmost respect but that was a most delusional reply. 

    0Reply
  • Wes Blackwell
    Real Estate Agent · Phoenix, AZ · Member since 2016 · 738 posts · 1k+ votes
    7y
    Originally posted by @Robert Jensen:

    > I don't own any real estate, work at a non-profit, and have $25k saved up over the last 10 years.

    > I have no intentions on leaving SF. I currently share a 3 bedroom house and pay $1600 in rent. 

    > I am figuring I can buy in Sacramento, live there a few months and fix the place up, then sell it or possibly rent it. Move back to SF trying to keep my room in the process. Then repeat. 

    > My ultimate goal is financial freedom and BMR is not going to get me there.

    So, here's where I am confused...

    You have a goal of financial freedom. 

    You don't currently own any property, but work at a job that apparently allows you to work remotely, as you mention possible buy in Sacramento and living there before moving back. 

    Living in San Francisco and working at your job has allowed you to save $2,500/year for 10 years, while essentially renting a room for $1,600/mo and not owning the property.

    You have the opportunity to move to Sacramento and put that $25,000 down on a $250,000 property. That would make for a mortgage payment less than your rent (PITI of $1,590.96 @ 4.5% interest rate).

    You could rent out the other two rooms for $500/mo (kinda like you're doing now), and drop your share of the monthly payment to only $600 or so before utilities.

    This would increase your savings per year by $12,000 per year (+480%), which would allow you spend that money paying down the current mortgage at an accelerated rate, make renovations to the property to increase it's value, and save up for your second property. In 5 years you could have 20% ($60k) to put down on an investment property worth $300k.

    Yet, you still want to live in San Francisco... despite it's financial drain on your wallet.

    Here's my advice...

    Move out of the Bay Area. It's ridiculously expensive, and that makes it at odds with your goal of financial freedom given your current income.

    At the current rate of savings, you will have another $50k saved up by the time you're 65 and able to retire (assuming you're 45 now), making for a total of $75k if you don't spend any of the savings you do have currently. Which is assuredly a whole lot less than you're going to need to live comfortably.

    But if you move and implement the plan I'm advising you to follow, every 5 years you could potentially purchase another $300k property, and own 5 of them by the time you retire. 

    I'll take that over $75k, fresh crab and ocean views any day. 

    Just my 2 cents, but giving your current situation and goals, remaining in San Fran doesn't offer nearly as many advantages as moving to Sacramento.

    0Reply
  • Robert Jensen
    OP
    Investor · Bay Area, CA · Member since 2019 · 41 posts · 5 votes
    7y

    Appreciate you taking the time to give advice. Its great advice (every 5 years) and a goal I am going to reach for. 

    "but work at a job that apparently allows you to work remotely" - not exactly. I can work from home 2 days a week. I would be driving 1.5hrs each way or staying at a girlfriends house for however long. I know people who have had 1.5hr commutes each way for 15 years so I think I can do it for six months or so. Also, I will be looking for a new job soon after I get the place situated. Maybe this will be in Sacramento... 

    San Francisco has been my home for most of my life. Its hard to leave but as you mention, it doesn't make much sense to stay unless I get a higher paying job here where the numbers pan out. If not, it is a money pitt and has been for a long time. Its easy to get complacent here. Its quicksand. 

    1Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    7y

    ...and if you move to Detroit you can, technically, save even more money ;)

    Short answer: Sacramento is not San Francisco 

    ————

    And btw sorry for you bad experience with the SF affordable housing. They treat people like children. You’re probably better off doing whatever you need to on your own. You’ll appreciate it in the future. 

    0Reply
  • Robert Jensen
    OP
    Investor · Bay Area, CA · Member since 2019 · 41 posts · 5 votes
    7y

    "They treat people like children" --this is really what it comes down to. Do I want to constantly have someone watching over my shoulder. They also will not even let a girlfriend move into the place. This (BMR) is not home ownership. There is more flexibility with a lease. 

    Very hard for me to give this BMR opportunity up but I feel that it would threaten my dignity. Yearly visits and if I have even a friend staying over I will a letter of explanation and possibly be forced to sell. Then there is this blog from the Director of the Tenderloin Housing Clinic, who points out another serious issue that often goes overlooked. 

    http://beyondchron.org/sfs-affordable-homeownership-nightmare/

    0Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    7y

    Amit & Robert: "treat people like children" - welcome to the socialist future . . . .  

    0Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    7y

    Another thought for you- maybe you can house hack, buy 2-4 units in D10 (excelsior, Bayview, etc.). The income from the rental units go towards helping you qualify (and pay) the mortgage. Those neighborhoods are more affordable, and the last bastion on SF starter homes. 

    0Reply
  • Ashley Mack
    Rental Property Investor · Sacramento, CA · Member since 2019 · 7 posts · 0 votes
    7y

    @Wes Blackwell what areas of Sacramento can you find a 3 bedroom home for 250? Genuinely curious.

    0Reply
  • Robert Jensen
    OP
    Investor · Bay Area, CA · Member since 2019 · 41 posts · 5 votes
    7y

    @Ashley Mack I just did a zillow search for 3 br in Sacramento at max 250k and received 143 results. Though, mostly in the ghetto areas, but they are there. 

    1Reply
  • Ashley Mack
    Rental Property Investor · Sacramento, CA · Member since 2019 · 7 posts · 0 votes
    7y

    @Robert Jensen right, I guess I was curious where a professional from SF would want to live, and could find such a house in Sac...

    Have you thought of partnering with someone here, to house hack or lease option, etc.?

    0Reply
  • Wes Blackwell
    Real Estate Agent · Phoenix, AZ · Member since 2016 · 738 posts · 1k+ votes
    7y

    @Ashley Mack @Robert Jensen

    First thing I pulled off MLS. Took me less than 5 minutes to find.

    7858 18th Ave, Sacramento, CA 95820 - $249,900

    3/1

    1048 sq ft

    "Immediately admire the tasteful detail of this gorgeous home nestled in a quiet neighborhood. Flaunting lush lawn, a fresh designer paint scheme, and chic front door. Entering, you will be delighted to find sweeping laminate flooring and aesthetic modern light fixtures to complement the designer paint scheme. The living area sets an overall mood of tranquility by inviting luminous natural light into the home, while an open concept floor plan leads you into a gorgeous updated kitchen with brand new stainless steel appliances, quartz countertops, and new cabinetry for all of your culinary needs. All of the bedrooms have plush carpeting for more comfort and the bathroom has been meticulously designed to enhance every square inch of space. Complete with a spacious private backyard perfect for gatherings or dining al fresco. Come see this hot commodity today."

    And here's the local crime last month:

    4 crimes total: Cruelty to a child, a house burglary, petty theft, and a car robbery all several blocks away. Welcome to Anywhereville, USA.

    Yes, lower priced housing tends to be in the not so nice areas, but that's not always the case. With putting in minimal effort I was able to find this property and wrote this post in less than 10 minutes.

    Ultimately, San Francisco has the potential to offer you a nicer quality of life if you can afford it. If it doesn't offer you the opportunity to reach your financial goals though, you'll need to consider making some sacrifices and trade-offs.

    Sacramento is not Detroit, and you're not going to have to live in a warzone to buy a house and save some money either. And you home you buy in Sacramento won't be a piece of crap.

    Here's where you can find the crime data for San Francisco to compare. Make sure you set the date range back to 1 month.

    https://www.crimemapping.com/map/ca/sanfrancisco

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