Growing a RE portfolio without displacing low(er) income folks?

[DG A.]

Hi Folks, 

I'm wondering if anyone else out there has pondered this. 

In Oakland, if an owner moves into a property, and that property is 3 units or fewer, then after 2 years of the owner living in one of the units, the property is no longer subject to rent control and all rents can be adjusted to market rate. I am going to be exempt from rent control pretty soon here, so I'm going to be able to raise the rents in my duplex to market rate. Market rate is nearly double what the tenant is paying now, and I suspect the tenant will choose to leave when that happens. 

If I want to invest in real estate, the only strategy I've identified that works for me with my level of income is to buy fully tenant occupied duplexes or triplexes at a small discount, then move into one of the units, live there for 2 years and increase the rents to market rate. Then repeat this process. The only problem is I don't want to leave a trail of displaced families in my wake, as I go on buying more units over time. 

Question: Is there a way that I could transition my existing tenants into a subsidized rent program? For a hypothetical example, let's say my tenants are paying $750/month for a 1 bedroom, and the market rate is $1500/month. Is there any way a program like section 8 could come in, transition my existing tenants to their program and cover the gap between what they pay now and what market rate is? 

I actually like my tenants, they're chill people, they don't bother me and they even pitch in doing yard work. They're great. I just don't want to pay more of my own money towards the mortgage to subsidize their living there. 

[DG A.]

Robert,  I can appreciate your perspective on how tax dollars are spent. Me personally,  I'm ok taking on a slightly higher tax burden to allow an older couple to stay in their home. Agree to disagree on that I suppose. 

From an ROI perspective Oakland property has and will continue to appreciate at a rate that is much higher than out of state RE. There's an under supply of housing here, and nimby politics prevent development of housing at a rate that fixes the under supply. Definitely artificial, but unlikely to change soon.

The idea is this:  I might make $1,000/ month buying out of state in cash flow,  but I can deploy the same capital to make $3,000/ month in appreciation here in Oakland over the long term 10 - 20 year time horizon. 

I think the are other markets that appreciate at similar rates,  if not better (Denver and Seattle come to mind), but I can't use low down payment, low interest,  owner occupied financing there, I've gotta put down 20% in those markets. 

That strategy of buying here in Oakland,  owner occupying, waiting for 2 years and repeating will actually get me to $120,000/ year in cash flow (all expenses accounted for) in about 15 or 16 years. 

I wouldn't break any speed record to financial independence,  but I'd definitely get there.