Analyzing a deal in Oakland, Bay Area [ Cash flow +ive)

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Analyzing a deal in Oakland, Bay Area [ Cash flow +ive)

Haseeb Awan
Investor · Ottawa, Ontario · Member since 2016 · 225 posts · 46 votes

Hello Folks,

I used to live in Los Altos and it's almost impossible to find a property in the area which is cash flow +ive, but oakland seems to be a decent area in terms of investment in entire bay area. I was looking at a property below.

https://www.zillow.com/homes/for_sale/Oakland-CA-9...

It's showing a foreclosure estimate of 407k. It comes with 6 bed. This can probably be rented for 8k if rented by the room. Mortgage on this house will be around $2000, if I paid 20% down with 4% interest. This seems to be excellent cashflow property. Just wondering if I am missing anything here. Obviously I am assuming that the property is being sold for 407k. This is just an example so may be I can learn from other people who are in buy and hold in the area,

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Account Closed
Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
9y

you're right in that cash flow is much easier to find in East Oakland versus the South Bay. But most of the assumptions on your hypothesis is incorrect:

- no way this property sells for $400K. If they are 3 bedroom units (duplex), then at least $450-500K. 

- if it's occupied, it's difficult to get tenants out unless they aren't paying or you pay them to leave (no guarantees there)

- you won't be able to get a loan for 20% down. 25% yes

- rates aren't at 4% anymore. More like 4.5-5% 

- renting by the bed is very management intensive and would be difficult from you living so far away. Expect to pay at least 10% in management fees. 

Is it occupied? The biggest X-factor is the current tenants, how much they pay, and whether they are willing to leave. If you can't get them to leave, you might have a negative cash flow situation. 

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  • Account Closed
    Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
    9y

    you're right in that cash flow is much easier to find in East Oakland versus the South Bay. But most of the assumptions on your hypothesis is incorrect:

    - no way this property sells for $400K. If they are 3 bedroom units (duplex), then at least $450-500K. 

    - if it's occupied, it's difficult to get tenants out unless they aren't paying or you pay them to leave (no guarantees there)

    - you won't be able to get a loan for 20% down. 25% yes

    - rates aren't at 4% anymore. More like 4.5-5% 

    - renting by the bed is very management intensive and would be difficult from you living so far away. Expect to pay at least 10% in management fees. 

    Is it occupied? The biggest X-factor is the current tenants, how much they pay, and whether they are willing to leave. If you can't get them to leave, you might have a negative cash flow situation. 

    3Reply
  • Jim BlackburnBusiness Member
    Lender · Florida Based (48 states Puerto Rico) · Member since 2017 · 321 posts · 121 votes
    9y
    Haseeb Awan rent by the bed??? You mean like a hotel.... in Oakland?! I can't imagine you getting 6 strangers to rent a bedroom and share the two bathrooms between each other... this sounds like a college dorm. Is there a college nearby?
    954-993-1625
    Stairway Mortgage, a Division of NEXA Mortgage LLC597 Reviews
    WebsiteView Page
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  • Barry B.
    Oakland, CA · Member since 2016 · 51 posts · 26 votes
    9y

    Most of these properties that get listed as "pre-foreclosure" never actually go to foreclosure. The owner has been served just one notice, it is a long process and in the Bay Area rarely things actually get to foreclosure. In the small chance the owner let it get to that stage, the bank will foreclose and buy it, then list it at market rates via their own agent. In the very small chance they it does get auctioned at foreclosure the starting bid is the foreclosure estimate, usually what the bank is owed.

    These properties are a good target for people who are active enough to find the owner and offer to "rescue" them, offer to payoff their debt, pay them something to buy it out, that is the numbers make sense. I believe there are pros around who do this full-time. Almost all the decent properties on tax delinquent sales get "withdrawn" before the auction.

    2Reply
  • Michael Lucero
    Rental Property Investor · Pasadena, CA · Member since 2016 · 164 posts · 149 votes
    9y

    There is no way this thing sells for 407k. The road to actually closing on this property is far off, may not go to auction and if it does, will go for more. 6 beds is like a hotel, very management intensive and who would want to live in this style of housing other than students. If you find 6 random people, I would think the quality of tenant would diminish.

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  • Haseeb Awan
    OP
    Investor · Ottawa, Ontario · Member since 2016 · 225 posts · 46 votes
    9y
    Originally posted by @Account Closed:

    you're right in that cash flow is much easier to find in East Oakland versus the South Bay. But most of the assumptions on your hypothesis is incorrect:

    - no way this property sells for $400K. If they are 3 bedroom units (duplex), then at least $450-500K. 

    - if it's occupied, it's difficult to get tenants out unless they aren't paying or you pay them to leave (no guarantees there)

    - you won't be able to get a loan for 20% down. 25% yes

    - rates aren't at 4% anymore. More like 4.5-5% 

    - renting by the bed is very management intensive and would be difficult from you living so far away. Expect to pay at least 10% in management fees. 

    Is it occupied? The biggest X-factor is the current tenants, how much they pay, and whether they are willing to leave. If you can't get them to leave, you might have a negative cash flow situation. 

     Thanks for the detailed answer. Even for 450-500k, this looks a good prospects.

    - I agree but assuming that its an REO so would be available vacant

    - Why wont I be able to get a loan for 20% down ? 

    - This should be able to sustain 5% as well.

    - Sorry I meant bedroom. I can keep one main lease but 6 bed should go for good rental.

    - My biggest assumption is that it's vacant so I can put tenants in at market rent. This was just an example but do you have REI in Oakland area ?

    1Reply
  • Haseeb Awan
    OP
    Investor · Ottawa, Ontario · Member since 2016 · 225 posts · 46 votes
    9y

    @Jim Blackburn - I meant have one lease but due to # of rooms, rent can be estimated accordingly. I've seen many hacker houses in Bay area with bunk beds. Not sure about college, but many tech workers are now inclined towards Oakland due to SF expenses.

    @Barry B.

    Certainly finding short sale, non performing loans are a challange but I do get listings from time to time where the bank was able to possess the property. I am not sure about Market rate of this, but seems it should be able to approach 1% rule. How has been your experience in Oakland market, ?

    @Michael Lucero

    Agree but I think even if you put it under one lease, rents are fairly high in the area.

    0Reply
  • Alex Capozzolo
    Investor · San Diego, CA · Member since 2016 · 351 posts · 141 votes
    9y

    @Haseeb Awan I agree with most of what is stated above. The current tenant situation can be a make/break is some cases. Oakland is very tenant friendly, and a cash for keys situation can leave you $5-$10K in the hole sometimes ! Also, as stated above, Oakland properties are skyrocketing in price. In April 2017, residential 1-4 unit properties and condos in Oakland sold for an average of $120K over asking price! (this was pulled from the MLS, and does not account for off market deals). If you can get a deal off market, there's a much better chance for cash flow

    0Reply
  • Haseeb Awan
    OP
    Investor · Ottawa, Ontario · Member since 2016 · 225 posts · 46 votes
    9y

    @Alex Capozzolo How is Berkley situation. I like that area as well

    0Reply
  • Jeff Wallenius
    Specialist · Indianapolis, IN · Member since 2014 · 670 posts · 352 votes
    9y
    Haseeb Awan what is drawing you to the California markets? I'm just curious. The West Coast is difficult, but can be done, to cash flow due to high prices and also tenant friendly laws. I'm actually moving my investments out of the West Coast and focusing in Oklahoma City and Indianapolis primarily.
    0Reply
  • Alex Capozzolo
    Investor · San Diego, CA · Member since 2016 · 351 posts · 141 votes
    9y

    @Haseeb Awan Berkeley is a great place to live, but is an expensive market to enter compared to the rest of the East Bay. 

    Average Asking Price for all SFH and Condos SOLD in Berkeley in April: $1.04 Million

    Average Sold Price for all SFH and Condos SOLD in Berkeley in April: $1.24 Million

    ^pulled from MLS so not accounting for off market deals.

    You won't see as much vacancy in Berkeley with UC being nearby. And the Average Days on Market for a home here was 14 days in April. Houses here go quick, and for a ton of $. Rent is monitored and controlled by the Berkeley Rent Board. Similar to Oakland, the ball is often in the tenants' court. If you need to perform a proper eviction, Good Cause is required. Many local tenants lock in rent controlled rent and are happy to camp out for years to protect that (you can see a difference of ~$1000/mo if a tenant locked in a rent in let's say 2010 vs the actual market rental rates that the particular unit would go for). 

    0Reply
  • Haseeb Awan
    OP
    Investor · Ottawa, Ontario · Member since 2016 · 225 posts · 46 votes
    9y
    Originally posted by @Jeff Wallenius:

    Haseeb Awan what is drawing you to the California markets? I'm just curious. The West Coast is difficult, but can be done, to cash flow due to high prices and also tenant friendly laws. I'm actually moving my investments out of the West Coast and focusing in Oklahoma City and Indianapolis primarily.

    I've rentals in both US/Canada and have other investments too. I am thinking of moving to SF for some time to build a tech startup since I've a network in the area. If I am in Bay area, why not do REI on the side too. My startup is related to lending space, so it will be very interested to make use of capital

    0Reply
  • Haseeb Awan
    OP
    Investor · Ottawa, Ontario · Member since 2016 · 225 posts · 46 votes
    9y
    Originally posted by @Alex Capozzolo:

    @Haseeb Awan Berkeley is a great place to live, but is an expensive market to enter compared to the rest of the East Bay. 

    Average Asking Price for all SFH and Condos SOLD in Berkeley in April: $1.04 Million

    Average Sold Price for all SFH and Condos SOLD in Berkeley in April: $1.24 Million

    ^pulled from MLS so not accounting for off market deals.

    You won't see as much vacancy in Berkeley with UC being nearby. And the Average Days on Market for a home here was 14 days in April. Houses here go quick, and for a ton of $. Rent is monitored and controlled by the Berkeley Rent Board. Similar to Oakland, the ball is often in the tenants' court. If you need to perform a proper eviction, Good Cause is required. Many local tenants lock in rent controlled rent and are happy to camp out for years to protect that (you can see a difference of ~$1000/mo if a tenant locked in a rent in let's say 2010 vs the actual market rental rates that the particular unit would go for). 

    Waoo.I feel terrible for landlord who is making $1000 from 1 Million property. I want to be tenant in this situation :)

    1Reply
  • Ron Harris
    Investor · Oklahoma City, OK · Member since 2010 · 279 posts · 90 votes
    9y
    Originally posted by @Haseeb Awan:

    Here in Oklahoma. A 50K house will rent between 600-800 a month. Cost of living here is low as well.

    0Reply
  • Haseeb Awan
    OP
    Investor · Ottawa, Ontario · Member since 2016 · 225 posts · 46 votes
    9y
    Originally posted by @Ron Harris:
    Originally posted by @Haseeb Awan:

    Here in Oklahoma. A 50K house will rent between 600-800 a month. Cost of living here is low as well.

    I've properties in Detroit, Ohio and Chicago area and they have similar comps as well. I however now wants to hedge with higher end rentals

    0Reply
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