Is it possible to house hack in the Bay Area?

Question

Hello,

I have been looking at the recently sold 2-4 unit income properties in the Bay Area and it seems like the price is prohibitive to being able to house hack. My goal on January 30th 2020 is to be able to buy a four unit property in the Oakland area with an FHA loan so that I will be able to live in one of the units and have the monthly expenses and debt service covered by the rent from the other three units. From other investor's experience, is this possible?

Christina Mao · Answer

I own SFR properties in Castro Valley, San Leandro, and Hayward and house hack them to cover my numbers.  I acquired them through conventional financing with standard 20-25% down for investment properties.  I look for properties that I can easily house hack by being able to convert the existing spaces (spare family/living room and garage) to an ADU and then rental it out.  Now that we have the new California ADU law in place for 2020, getting permit for it will be so much easier.  I am also blessed being able to have a trusted and reliable contractor on my side to help me with this process.  As a divorced single mom earning $80K a year working a 9-5 job and investing in real east using my method I have managed to purchase 5 new properties within the last five years.  So yes, not only is house hacking possible it works great!

Chris Mason · Answer

This will be a "what you need to read" post, not a "what you want to read" post.

There are exceptions, of course, but for the last couple years, people trying to "house hack" a 2-4 unit property in Oakland with <25% down have mostly been getting beat out by established REI putting 25% down. Folks that have successfully made it work are mostly doing so by compromising on something at this point. The three most common compromises:

-> Instead of going up against my (& others) established REI putting 25% down, look at SFRs where you will not be up against them. Basically, look at big giant SFRs, way bigger than what you need, and turn your imagination to the "on" position (as an owner occupant, you are allowed to do things that a non-occupant landlord cannot do, automatically excluding them from being your competition on these). Check out this 7 bed 3 bath that we closed fairly recently. 100 years ago, they built 'em big and built 'em to last.

-> Sacrifice on location. Vallejo, Sacramento, Richmond, Stockton, etc. 2 of those 4 cities have direct ferry commute connections to San Francisco (which increases rent over time) but haven't yet experienced completely crazy core Bay Area appreciation (so you get a lower purchase price), hint hint.

-> Don't house hack. That $150k nest egg can be both 5% down on a SFR primary and 25% down on a 2-4 unit within a few hours drive. A lot of the legacy biggerpockets.com content was written with a midwest bias.... in the midwest, you can't just drive 2 hours and find reasonably well located triplexes at half the cost of a decent SFR near where you work, so that wasn't an option for the folks authoring that content, meaning it wasn't included. In the SF Bay Area, you certainly can.

Brian Garlington · Answer

It is.....I'm doing it right now with a VA LOan in East OAkland on a duplex.

Now keep in mind not everyone would be willing to live in East Oakland to do this and my neighborhood is definitely rough around the edges but it works for me. Some people may say I want a fourplex in a C or B neighborhood for under $690,000!   You will NOT find that in the Bay Area. But if you do it for say 2 or 3 years on a duplex or triplex and then refi out of it, you can then get into a better area while living for free or close to it.

Brian Garlington · Answer

@Christina Mao     Sounds like you are making it happen! Nice work and your creativity is inspirational.

Christina Mao · Answer

Hi David,

I did an attached garage conversion of one of my Castro Valley rentals under 400 sq ft permit came under $5K .

David Frandsen · Answer

@Christina Mao I am interested in the ADU strategy to house hack. I'm sure every city is different but do you know what the permitting costs for your area to permit a new ADU or convert a garage?

Ernesto Hernandez · Answer

The short answer is Yes and it depends on multiple factors. Sometimes you have to value add, ADU, or maybe even Airbnb.

I'd reach out to David Greene and get on his distro list. Very recently he posted a 3 unit in Oakland with $7300 in revenue.

Brian Garlington · Answer

@Anthony Barbato

What the tenant pays covers the mortgage. It does not cover insurance and taxes, but it certainly costs less than what I would pay to rent an apartment.

Josh Anderson · Answer

Have you found anything? I've been trying to do something similar. My wife and I live in a 2bd/2ba apartment right now and I think that's about the standard we need to enjoy our life. I think it's possible to house hack the Bay but you have to get creative. I can't find any of these mystical tri/quadplexes for anywhere close to my price range. But I did find a 3-story in Sunol with 4bd/3ba and the bottom story was a 1bd/1ba in-law. Math penciled out to cover ~90% of debt and utilities IF we lived in the bottom, put a single-wide in front of the house to rent along with the top 2 stories of the main house, but we didn't do it because we want more than a 1/1. But that would be awesome for a single person (or closer couple haha).

Anthony Barbato · Answer

Very cool Brian! That is exactly what I am interested in doing! I'm curious what made you go after that deal, did the tenant's rent cover the mortgage and the monthly expenses?

Is it possible to house hack in the Bay Area?

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