Where In The Bay Area Should I Invest In Real Estate? (Analysis)

Living in the Bay Area for a while has shown me how fortunate I am. We have great sports teams; Warriors, Giants, Athletics, 49ers, Raiders, and more, plus we got great weather all around. If you’re a major foodie, there are so many places to get your foodie on. There is so much diversity from the rolling hills of Oakland, to the major hikes of Santa Cruz, getting bored is hard to do. But one thing residents constantly discuss in a negative light are home prices and rent.

The #1 and #2 spots of most expensive homes are taken by Bay Area locations. Both San Francisco and San Jose have the highest home prices in America. Median prices of a single-family home in these locations range from $800,000-$1,000,000 dollars. Too much money to even think of, let alone invest. But going to networking events and trying to make connections, there are still a solid amount of investors in the area.

Why is this the case? Why are investors still investing here when homes are way overpriced?

The answer is opportunity.

The Bay Area still provides value. And as investors, it’s our duty to do our due diligence and find those opportunities. They say the best opportunity to invest is in your backyard, and that’s why I wanted to write an analysis on the real estate market in the Bay Area.

This point of this article is to find an area in the Bay Area that’s that’s still worth investing in. But it can’t just be any area. There has to be a specific criteria.

The first requirement is to have a “stable” economy in the area. Making sure there are jobs in the area will ensure there is a good flow of solid tenants applying. Having jobs in the area also increases your chances of having a tenant who can make rent.

The second criteria is to make sure properties are mostly class A or class B properties. If you’re a new investor, investing in a class C property is risky. Major problems like structural damage or bad tenants are more common in these properties. So finding an area with good properties is a requirement.

The third criteria is to just have the property undervalued compared to the market.

1st Criteria

Since both San Francisco and the Silicon Valley are the most expensive, we will eliminate them from our analysis. This narrows us down to the North Bay and East Bay.

To start off, let’s start with the North Bay. This area is made up of the Napa and Sonoma wine regions. Their largest city is Santa Rosa, and their economy is at the “top of the market”. Next up, let’s look at the East Bay. An area east of San Francisco, the East Bay is made up of the counties, Alameda, and Contra Costa. Their notable cities include Berkeley, Hayward, San Leandro, Concord, and Fremont. Comparing both the East Bay’s population to the North Bay’s, the East Bay doubles the size of the North Bay with an estimate of 2.5 million people. Common sense tells me that’s a lot more potential tenants.

Due to the size of the East Bay, let’s narrow our search down within its boundaries. The Eastern Contra Costa County and Southern Alameda County have homes still under $500,000. Since Eastern Contra Costa County doesn’t have a bigger metropolitan area like Alameda County, we will narrow our search down within Alameda County. With a size of 400,000-500,000 people, Oakland is the biggest city in Alameda County.

Image of Alameda County

If you look at the map, you can clearly see Oakland is the biggest city. Their economy is “stable” because of enormous companies like Kaiser Permanente, Clorox, Pandora, and Rainin Instruments. Kaiser Permanente alone provides a lot of jobs. There are nurses, receptionists, doctors, surgeons, and more who need to live somewhere, and who else to provide that shelter besides you :). Also, Oakland has a great infrastructure around it. With public transportation, and a strong telecommunications network, Oakland has a great infrastructure to lessen everyday hassle.

Oakland also has Berkeley. People all over the world go to Berkeley for education, and the university alone will provide plenty of jobs and people looking for work. Add the fact that Oakland thrives on different cultures, and you have a diverse community. As a side note, Oakland also boasts 3 sports teams currently (1 if the Raiders move and when the Warriors move). Overall, Oakland fits the criteria of a “stable” economy. Everything from big companies, to a big population, and different cultures makes Oakland what it is.

2nd Criteria

Let’s pretend this is our first investment. If I were to make my first investment, then I would pick a home with 3 bedrooms and 2 baths. The median home price in Oakland is $700,000. Knowing this, let’s find a property with 3 bedrooms and 2 baths under $700,000.

On Trulia, I see a house with 3 bedrooms and 2 baths. Using the virtual walk through, the neighborhood looks clean and the surrounding properties are nice too.Image of 3 bedroom 2 bath house

Image of the property's neighborhood

Source: Trulia

Remember, we have to inspect the property to get a clear picture on what type of property we have. But assuming from the pictures, we can tell the surrounding homes and neighborhood look great.

According to Trulia’s crime data, this property is surrounded by safe neighborhoods. It lies just outside the bigger crime areas in Oakland, and it’s right next to the freeway. If anything, this will give more visibility to potential tenants.

As always, there are more details we have to cover, but the general outlook looks promising. The property is in a great neighborhood, and the property itself looks great from the outside.

3rd Criteria

The average per square foot in Oakland is $555. The property itself is 1,177 square feet. Multiply it together and the home should be $653,235. For $301,000, that is half the value which is great. But looking at recent listings has me concerned, because the house went from a sales price of $401,000, to $301,000.

Image of Square Feet increase in Oakland over the years

Source: Trulia

This goes to show how important looking at a property in person is. Not only do you see anything you can improve on, but you can ask the seller, or broker why the property is listed as such. This could be a case of a seller who has motivation. If this is the case, seller financing, or delayed financing are possible options.

Compared to other properties of similar sizes, this house is undervalued. The average price for a house this size is $500,000. And that’s a rough estimate. The prices can definitely be higher considering the recent price surges in the Bay Area.

Although the exterior of this property looks good, there is a good chance the interior can be fixed. Once the property is yours and you can make improvements, small fixes such as new carpets, and renovating cabinets will make a huge difference. If you’re an environmental kind of person, adding solar panels, or cost-efficient energy systems can also lower your costs in the long-run, and up the overall income of the property. It’s all about getting creative with financing and renovations.

Overall Thoughts

I really need to emphasize this point because I don’t want to mislead anybody. But…..be sure to go out and see the property for yourself. There are just some things you can’t get on the internet.

For example, if you see the property in person, you can get a feel for the property and the neighborhood itself. You can check the interior and see if there is any way you can make improvements. All these small things add up and turn you a bigger profit in the end.

As for this article, I just wanted to show investors that it’s possible to invest in the Bay Area. But it’s not limited to just the Bay. If you live in an expensive market, know that there’s always opportunity. All you have to do is look around. And if that doesn’t work, try running numbers until you do find one. It’s important to filter as many properties to your criteria so you can spend more time looking at properties that are worth it.

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