Triplex Bay Area

[Preet Bains]

Have been looking at a triplex in Oakland, CA, the details are:

- One 3 bd 2 ba with 2 car parking and deck. Entire 2nd floor. Currently rents for $2,400.

- Two 2 bd 1 ba with 3 parking spots between them. One unit rents for $1.4k and the other unit comes vacant.

I toured the property and it was a great property on the surface. All the units you could rent today with no to little work. If you had extra funds, you could definitely throw $15-35k into some updates based on your needs and wants.

So why this property is attractive to me is the income potential. As an owner occupant in Oakland I can give notice to the existing tenant (this would be difficult or impossible if you were just an investor) in the 3 bd unit and rent that to myself for market which is $4k (I pay $3.6k for a 3 bd 2 ba condo down the street with 2 parking spots in Oakland currently with my brother and this place is much larger and overall better location wise. $4k is conservative to be honest, place could probably go for $4.3k-4.5k.). That is $19.2k in additional potential income right off the bat! Another benefit of being an owner occupant is the building is no longer subject to rent control. The 2 bd unit which is renting for $1.4k could easily be rented for $2.6k (I lived in a 2 bd 1 ba unit down the street last year and paid $2.4k, when I left he rented it for $2.6k. These units are slightly superior based on square footage and parking.). This is another potential $14.4k! Combined income increase of $33.6k per year by taking advantage of owning a small income property!! 

I talked to the agent and got in contact with the mortgage folks. Long story short, we (my brother and I who both work w2 jobs in the Bay Area) can qualify for a low down payment mortgage through various banks in the area without doing the whole FHA route. It's a competitive market I understand but there are now some properties sitting on the market with price reductions. The mortgage payment for the property at 3.5% down, purchase price of $1.3M, would be $6.7k with PMI. Monthly income of $9.4k. Currently working on gathering other expenses but about $3k in wiggle room, seems like this could cash flow in the Bay Area.

Enough from me. What do you guys think? Happy to share additional info

[Account Closed]

Originally posted by @Preet Bains:

Have been looking at a triplex in Oakland, CA, the details are:

- One 3 bd 2 ba with 2 car parking and deck. Entire 2nd floor. Currently rents for $2,400.

- Two 2 bd 1 ba with 3 parking spots between them. One unit rents for $1.4k and the other unit comes vacant.

I toured the property and it was a great property on the surface. All the units you could rent today with no to little work. If you had extra funds, you could definitely throw $15-35k into some updates based on your needs and wants.

So why this property is attractive to me is the income potential. As an owner occupant in Oakland I can give notice to the existing tenant (this would be difficult or impossible if you were just an investor) in the 3 bd unit and rent that to myself for market which is $4k (I pay $3.6k for a 3 bd 2 ba condo down the street with 2 parking spots in Oakland currently with my brother and this place is much larger and overall better location wise. $4k is conservative to be honest, place could probably go for $4.3k-4.5k.). That is $19.2k in additional potential income right off the bat! Another benefit of being an owner occupant is the building is no longer subject to rent control. The 2 bd unit which is renting for $1.4k could easily be rented for $2.6k (I lived in a 2 bd 1 ba unit down the street last year and paid $2.4k, when I left he rented it for $2.6k. These units are slightly superior based on square footage and parking.). This is another potential $14.4k! Combined income increase of $33.6k per year by taking advantage of owning a small income property!! 

I talked to the agent and got in contact with the mortgage folks. Long story short, we (my brother and I who both work w2 jobs in the Bay Area) can qualify for a low down payment mortgage through various banks in the area without doing the whole FHA route. It's a competitive market I understand but there are now some properties sitting on the market with price reductions. The mortgage payment for the property at 3.5% down, purchase price of $1.3M, would be $6.7k with PMI. Monthly income of $9.4k. Currently working on gathering other expenses but about $3k in wiggle room, seems like this could cash flow in the Bay Area.

Enough from me. What do you guys think? Happy to share additional info

3 thoughts:

1) That payment looks awfully low. I don't think your mortgage person is including Property taxes and Insurance. I put this into a mortgage calculator, and I see a PITI with PMI at around $8,700. Don't forget to include maintenance, capex, and utlities (unless the water is separately metered). You are looking to be closer to $9,500/month including all of these fees.

2) 3.5% down payment is an FHA loan. Your post said you aren't going the FHA route, but the down payment is 3.5%. I'd be certain to clarify this with your mortgage broker.

3) Your monthly income of $9.4K is based on renting all 3 units right? With FHA, you are required to live there for the first year. Also, to do an owner move in eviction, you'll need to be there for 1 year AND there is a local ordinance on the ballot next week raising this to 2 years.

Be sure to consider these 3 points before moving forward