All Forum Posts by: Elvin Luccon

Hi All,

I am new investor based in Bay Area CA, looking to invest in small multi-family (Duplex/Triplex). What I am noticing in the Bay Area is most small multi-family is really old construction around 70-80 years old. Do you think its worth investing in these older properties in the Bay Area from resale stand-point? Do people invest in them with particular strategies in mind (development project down the line)? 

Other question - From a rental income stand-point, its not going to cover the mortgage payment entirely since the prices are so high. Is counting on appreciation the only strategy in a market like this, or are there points of view?

Thanks in advance for taking the time to respond.

Best,

Kushal

Correct me if I'm wrong but real estate success in our current environment comes from one or more of 1) leverage 2) Rezoning 3) House Hacking. Therefore, 50% down does not really fit the narrative as you can just put that into the S&P 500 at a historically 9.75% interest rate compounded over 15 years and come out ahead. Comparing that to a house/multi at break even with maintenance, renovations, closing, selling costs, taxes, recapture plus what your time is worth, and you're going to lose. I did the math already against my own home bought in cash 15 years ago and even at 50% down, I still lost to the S&P 500. I'd rather have 4 condos than a 4 plex because they are usually in higher income neighborhoods as I can control where I buy condos.

I'd also rather buy a SFH of the same price as a 4 plex as the appreciation and rent can be just as good while dealing with a single roof, single kitchen, single family, single property management company etc vs 4 of everything.

One thing nobody mentioned is an old 4 plex already 30-50 years old in 30 years might not be worth any more than the land it sits on as houses need to be rebuilt. That could put you into another 30 year second mortgage into retirement.

The only exception here that I see and never hear anyone talk about is the ADU laws and zone splitting large lots. So you can buy a SFH, split, and create two duplexes or a multi with ADUs and condo them out. So rezoning and building in other words. Potential attached ADU for house hacking or the S&P 500/401k matching. But buying a 4 plex at market value? Maybe prices will keep going up and up and you like landording but Meh!

All just IMO.

@Elvin Luccon I'm a Californian (for now) and an OOS investor so I know the challenges of buying here with price. But there's are a host of other California (and Washington and Oregon) issues to consider: 1) Rent control. If rents are under water already, you will not be able to raise them to market rent in many cities. I believe LA is one of them that limits rent increases to 10% every year, so you will never catch up to market rent. Look into the laws. 2) eviction  - it is very hard and takes a LONG time to evict a non-paying tenant, and even then you may have to pay them a significant amount to leave. Before you make a decision, understand the laws and who they favor.

I found this deal from a cold email.