Since writing the original version of this article, we’ve helped around 25 families use this strategy to get into a home in an increasingly challenging market. Our passion has led us to creating an free, in-person class so we can reach more people. Information on the next session can be found here: http://househackingoakland.eventbrite.com
I live in North Oakland, one of the hottest neighborhoods in the Bay Area. Homes here are routinely listed near a million dollars and sold for over a million.
I’m not one of those people who bought my home 25 years ago for $50,000. I bought my house less than 2 years ago, put down less than 20%, and am now paying about $1,100 a month to live in a 4-bedroom, 2-bathroom home.
That’s right, $1,100. In North Oakland.
Once you pick your jaw up off the floor, and I’ll explain how it’s possible, and how you can do it too.
My passion for real estate and real estate investing began when I realized that I could leverage real estate as a tool to build wealth, rather than building my wealth first and then dumping it all into a down payment and being chained to monthly mortgage payments for 30 years.
It all started with letting go of what I’d been told all my life about saving up to buy that single family dream home.
Single Family Homes Are Not An Investment
If you know me, you know I’m not one for bold statements. However, in this case, I agree with real estate mogul Grant Cardone, who argues that a home is not an investment because “it doesn’t pay you each month – you have to pay it.” This mindset shift is key to getting started in real estate investing in Oakland.
Forget all you’ve been taught about buying a home. Traditional wisdom says that you should work hard, save up for your down payment, and put down as much as you can on a single family home so you can make your monthly payments as low as possible.
Seems to make sense, right?
While this is certainly still the path to home ownership for many, it’s not the only way. And it’s certainly not the best path for real estate investing in Oakland.
Sure, your home will mostly likely increase in value over the long run. But it’ll do so in the same way a savings account will, albeit at a potentially higher rate. And, you will still need to put money in each month (via your mortgage payments) in order to build equity to reap those eventual returns.
If you really want to leverage real estate as an investment, ditch the traditional wisdom.
The easiest way to do that is to stop looking for single family homes and instead to go after multi-family properties – duplexes, triplexes, and homes with in-law units.
Why? The biggest difference between a single family home and a multi-family property is this:
YOU pay for a single family home.
A multi-family property pays YOU.
With multi-family properties, you get to live in one of the units while renting out the other(s).
This is called house hacking.
This means that your tenants, who will pay rent every month, will be providing you with rental income that will help you pay your mortgage.
In many cases, especially in competitive rental markets like Oakland, that rental income will cover a significant portion of your monthly payments, making it CHEAPER to buy and live in a multi-family property.
That’s right, you could actually SAVE money by buying a larger house. 😱
But wait. It gets even better.
Over the long run, as rents increase and your mortgage payments stay the same (or even go down if you refinance at a lower interest rate), your rental income will cover more and more of your monthly payments.
And if you were to move out without selling, you could rent out your unit and potentially have your multi-family property become cashflow positive, two words that sounds VERY nice together, don’t you think? This means that the house not only pays itself off, but it also pays you every month. Boom.
The Case For Investing In Multi-Family Properties
The great thing about getting started in real estate investing in Oakland through multi-family properties and house hacking is that you get a place to live, AND you get an investment property that pays you a monthly rental income.
The secret to building wealth, as any billionaire these days will tell you, is to maximize your streams of passive income. How does that famous quote go again – something about not working for your money but making your money work for you?
That is, you want to find as many ways as possible to get paid without actively doing anything. One way people do this is by writing a book. But that sounds really hard. And who has time for that, anyway?
A multi-family property is one of the best and easiest ways to build passive income.
Real estate is pretty unique in that it provides a low barrier to entry for very expensive assets that pay large dividends (via rents). You can borrow up to 96.5% (and sometimes more) of the property’s value, then leverage that investment to build wealth.
That means, for a $500,000 property, you can borrow up to $482,500 (give or take). That means that you could theoretically put down $17,500 and own a $500,000 home. (I actually did this myself when purchasing my first multi-family property!)
No other investment avenue will let you leverage such a big investment with so little down payment. Think of it as real-life Monopoly. Which, come to think of it, is a game based on actual real estate investing principles. 🤔
A Closer Look At The Numbers
At this point, you may be thinking, real estate investing in Oakland sounds great in theory, but can I actually do that? And the answer is yes. Even in the Bay Area’s highly competitive real estate market. I’ve had plenty of happy clients who have made it work for them, and I can help you get started in real estate investing in Oakland too. (Once you start, you’ll be hooked. 😁)
Of course, I should make it clear that the path to getting started in real estate investing in Oakland and buying a multi-family property is not without its challenges. For one, inventory for multi-family properties is more limited than for single family homes. (FYI, this is true in pretty much any market, not just in Oakland.) Lending can also be slightly trickier in certain cases, and, if you succeed, you’ll need to learn how to become a landlord. 🤗
But if all that sounds good to you, let’s keep going and take a closer look at some numbers for getting started in real estate investing in Oakland.
Let’s say that you’re aiming for an $800,000 property in Oakland and putting 15% down. Let’s compare what that would look like in a single family home versus a multi-family situation.
Single Family Home Breakdown
Total cost: $800,000
Down payment: 15%, which comes out to $120,000
Total loan amount: $680,000
Total units: 1
Unit has: 3 bedrooms, 1.5 bathrooms
Monthly income via rent: $0
Your monthly payment: $4,400 (give or take)
Multi-Family Property Breakdown
Total cost: $800,000
Down payment: 15%, which comes out to $120,000
Total loan amount: $680,000
Total units: 2
Unit 1: 3 bedrooms, 1 bathroom
Unit 2: 2 bedrooms, 1 bathroom
Monthly income via rent: $2,400
Your monthly payment: $4,400 – $2,400 = $2,000
That’s LESS THAN HALF the payment you’d be making on the single family home.
How This Shakes Out Over The Long Run
In the example above, you’re saving $2,400 a month, give or take. That means you could potentially be living in a similar sized unit but paying $4,400 in one case and less than half that in the other case.
Remember though, that you wouldn’t get the $2,400 free and clear every month. Being a landlord comes with its benefits, and risks. Some months you’ll need to make significant repairs. Some months the rental unit might be vacant (though this is VERY rare in competitive rental markets like Oakland and the Bay Area).
Overall, however, you’re not only saving money in the long run but also making money. As rents increase, you’ll be able to increase that initial $2,400 per month rent to $2,500, then $3,000, then beyond.
And remember that even as you raise rents, your mortgage payments will remain the same. That means that if you increased the monthly rent to $2,800 (with your monthly mortgage payments staying steady at $4,400), you’d then be paying just $1,600 a month to live in your 3-bedroom unit.
And, I didn’t even get into the tax benefits. That’s right, there are tax benefits, ladies and gentlemen.
For single family homes, you generally can’t write off any part of the home. For multi-family properties, you can write off the depreciation for the portion of the property that’s rented out. And in many cases, this can be a significant tax reduction.
Ready for some REAL examples?
The best way to start seeing the possibilities is to look at actual listings.
Start here –> Here’s a list of all the multi-family properties in Oakland that are currently on the market.
Choose one you like, ideally with at least one vacant unit you could live in, and at least one additional unit you could rent out.
Next, open up a mortgage calculator. Put in the total cost (minus any down payments you’re planning on). This will give you a ballpark monthly payment amount.
Finally, go to Craigslist and check out the rentals for that area. Find a few in the neighborhood that have the same number of bedrooms. That will give you a ballpark rental income amount.
Monthly Payment – Rental Income = Monthly Out-Of-Pocket Cost
Once you do this a few times with a few different properties, you’ll start to get a sense of the types of multi-family properties and locations that would work best for you.
Congratulations, you’ve taken the first step in getting started with real estate investing in Oakland – doing your homework.
Check out another example, with a more in-depth analysis here.
Let’s do a quick recap, because I know we covered a lot.
1. Anyone can get involved in real estate investing in Oakland.
2. The best way to get your start in real estate investing in Oakland is to consider purchasing a multi-family property.
3. With multi-family properties, you get to live in the home, earn passive income to help pay your mortgage, and lower your taxes.
Seems unreal, right? But I’m living proof that it can happen. I didn’t start out with money. I built my way up as a measly web developer (my wife Annie was a teacher at the time), and we slowly built our wealth through purchasing and renting out duplexes. And we’re still doing it!
We love playing real-life Monopoly (we’re still in the market for our eventual Boardwalk!), and we love helping others get started in real estate investing in Oakland.
If this sounds like something you might be interested in, let’s find a time to chat! I’d love to grab coffee, hear about your financial goals, and help you figure out a way to achieve those goals through real estate.