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Guestuser, Home Buyer in San Francisco County,...

what is a good rate of return on a 4 unit residential building in San Francisco?

Asked by Guestuser, San Francisco County, CA Mon Feb 6, 2012

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The Return on Investment (ROI) is based on several components. The CAP Rate and the Gross Rent Multiplier (GRM), are calculated by working with three variables: Gross Scheduled Income (GSI), Net Operating Income (NOI) and Value of the building (What the market rate of the building is - or what a buyer is willing to pay for the 4-plex).

Once you've calculated CAP and GRM, you can figure out what you're actual annual cash flow (or ROI) will be. If you'd like to see a chart that breaks all this down, email or call me and I'll send it to you.
Good luck.
0 votes Thank Flag Link Thu Feb 9, 2012
Short answer to your question: In SF, a "good" rate of return would be 8-9%. Typical is closer to 5-6%. An excellent rate would be 10%, but you're unlikely to find many or any that actually sell for that price. They would likely be overbid and your rate of return would fall back below 10%.
0 votes Thank Flag Link Tue Feb 7, 2012
Hi-

What you are asking is relative to your specific situation both in terms of investment goals, tax situation, etc. The ultimate answer, would be to get a return as high as possible. This is often challenging given that San Francisco has rent control which limits the rental increases a landlord can give a tenant if that specific property is under rent control.

Ideally this would be a discussion between your tax accountant and your agent to find out what would work best for you.

Thanks-

Rich Bennett, Realtor in SF since 2002
415-305-4911

http://www.76-78Prosper.com http://www.115-117States.com

Zephyr Real Estate
DRE#01358540
0 votes Thank Flag Link Tue Feb 7, 2012
Rate of return? You mean if you invest a total of $2,000,000 and your cash-flow before taxes is $2,000 a month then your rate of return is 1.2% for the first year? That's about what it would work out to be if you paid all cash for a half way decent property. Investors don't buy in San Francisco for cash-flow, they invest and hope with all they got that the property will appreciate in value. Investing in San Francisco is for those with very deep pockets. Have you ever owned rental property before? I'm available if you would like to talk.
0 votes Thank Flag Link Mon Feb 6, 2012
5% minimum but that assumes you're holding it traditionally. If you are an owner occupier your agent should help calculate appropriate value. See my website for helpful resources.
0 votes Thank Flag Link Mon Feb 6, 2012
If you have a specific 4-unit building in mind, make sure to look at the actual rents (gross), whether there is rent control in place, vacancy rates, and compare that with what the asking price for the building is as well as with other similar properties that have recently sold as well as those that are currently on the market. Then plug all that into your personal investment formula, including the type of financing you are using. Let the agent you are working with assist you with this analysis.

Feel free to call me at 415-200-7202.
0 votes Thank Flag Link Mon Feb 6, 2012
It depends on many factors and how you structure your financing however, a good rule of thumb is to look for a minimum 5% to 6% gross return (total annual revenue divided by the offer price).

If you need detailed analysis, feel free to give me call.

Best,


Oggi Kashi - 415.690.3792 direct
Broker Associate, Paragon Real Estate Group CA DRE 01844627
All data from sources deemed reliable but subject to errors and omissions, and not warranted.
Web Reference: http://www.oggikashi.com
0 votes Thank Flag Link Mon Feb 6, 2012
There are several select properties in San Francisco that can be 10% or above, for the savy investor.


Please check out my website at http://www.sfpropertysearch.com to search for these properties, or feel free to contact me and I can send you a list of current great investment opportunities in the city.

Good luck,

Isaac
0 votes Thank Flag Link Mon Feb 6, 2012
Good is a very relative term. As you probably know the market price for investment property is based on the income generated by the buillding so when you see offer prices they are set by multiplying rents by a number to get the price in line with what comparable properties have recently seld for.
For instance if a property's rents totaled $10,000 per month ($120,000/year) and it is listed for $1.6M the gross rent multiplier (GRM) is 13.33. The GRM is a basic comparison tool that is used in marketing investment property because as you, the investor looks at properties you will pass on anything that has too high a GRM. Obviously you won't want to pay twenty times rent if the market says 15 is the areas market factor.
As you work through scenarios with your agent you will delve into more formulas that will show the gross operating income and the Capitalization rate. But for the answer to this question you'd need to just look at the actual gross rents (not the pro-forma) rents in various neighborhoods to see what the market has established as value for those properties.
0 votes Thank Flag Link Mon Feb 6, 2012
Jed Lane; Fog…, Real Estate Pro in San Francisco, CA
MVP'08
Contact
Hi-There's no easy answer to that question. There are a fair number of four - unit properties on the market at any given time but due to rent control and the inconsistencies of a real estate market that developed over more than 100 years, there's no one answer. San Francisco offers buyers of smaller multi-family properties a strong rental market with the resulting reliable source of income. Capitol appreciation and return are often diminished in direct relation to that. That said, there are opportunities for picking up good properties at a great price with the right agent assisting you in the process. Give me a call or send me an email for a more detailed answer. Thanks and good luck.

Matt Ciganek
Barbagelata Real Estate
415-240-9901
mattc@realestatesf.com
0 votes Thank Flag Link Mon Feb 6, 2012
A good number by SF standards is around 3-5%. If you want to hit 8-15%, you'll need to find something out of the city.
0 votes Thank Flag Link Mon Feb 6, 2012
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