The San Francisco 2-4 Unit Building Market

A substantial portion of Q1 statistics reflect new listings and accepted offers occurring during the mid-winter market doldrums (Thanksgiving to mid-January). In November and December 2018, the stock market plunged drastically from its all-time high in September, and interest rates hit their highest point in years: These factors negatively affected buyer demand. Then both turned in dramatically positive directions in early 2019. So, Q1 statistics reflect economic conditions in both Q4 2018 (very negative) and Q1 2019 (very positive). It is also the quarter with the lowest sales volume.

The spring selling season – whose data starts to show up in March, but is mostly reflected in Q2 data – is the most active of the year. As always, there are many economic factors at play impacting the Bay Area housing market, some of which are discussed below.

Median Sales Prices

Median sales prices for SF 2-unit buildings have generally plateaued over the past 4 quarters.

With relatively minor fluctuations, the median sales price for SF 3-unit buildings has been relatively stable for 5 quarters. (There are not enough sales of 4-unit buildings to measure median prices on a quarterly basis.)

Listings & Sales

The number of active listings on the market in March 2019 was down about 10% from March 2018, but about the same as in March 2017. Listing activity usually increases through May-June.

The number of sales in Q1 2019 was down about 33% from Q1 2018, but, as of early April, there were 59 listings delineated as being in contract in MLS – which suggests that Q2 will see a significantly higher sales volume.

Average Days on Market

Average days on market in Q1 2019 were the highest since summer 2017, but are not particularly high by historical norms. Days on market usually drop in Q2 as the market heats up in spring.

2018 District Values & Sales

These recaps of 2018 sales will be updated in our July report.

Rent Rate Trends & Household Incomes

SF rent rates have declined somewhat from peaks in late 2015, but remain the highest in the nation. With the median list rent for a 1-bedroom apartment at about $3500, and a median SF tenant-household income at $76,400, housing affordability remains a huge social, economic and political issue.

Selected Economic Factors

The large increase in new apartment units coming on market in recent years has been a very significant factor in rent rates. 2018 saw a plunge in construction.

A gigantic factor underlying Bay Area housing markets has been the staggering increase in employed residents since 2010. Outward-bound migration trends of residents and businesses – often citing housing costs as one major motivator – have been an increasing concern in recent years, but for the time being, employment numbers have continued to grow.

A wild ride in stock prices, particularly in high-tech: Prices soared to new peaks in summer-early autumn 2018, plunged drastically in Q4 2018, and then saw the biggest Q1 jump in 20 years. Huge amounts of wealth appearing, disappearing and reappearing – another major influence on consumer and investor confidence.

A new surge of large, high-tech unicorn IPOs – mostly of firms headquartered in SF – has just started to roll out. IPOs have historically created vast quantities of new wealth in the Bay Area, though the magnitude of effect of this new wave on specific market segments is yet unknown.

There has been a stunning decline in mortgage interest rates from mid-November 2018 through the end of March – excellent news for buyers.

Market Share by Broker

The merger of Paragon, Pacific Union, Alain Pinel and Hill & Co. into Compass has created the brokerage which dominates the market for multi-unit residential properties in San Francisco.

464-470 Funston Avenue & 472-478 Funston Avenue

This was one of the most beautiful properties I’ve seen in awhile and felt it would be a great investment as well as opportunity to move into the building with friends when older in a shared-housing situation. The two 4-unit buildings were marketed separately but the successful purchaser bought both properties. The units were either one or two bedrooms with a living room and a formal dining room and all very spacious with classic Edwardian features.

More Details


Financing a rental property of 1-to-4 units is very different from financing a property with 5 or more units.  Conventional loans on rentals of 1-4 units have standard guidelines set by Fannie Mae and/or Freddie Mac, while loans on properties of 5 or more units typically are portfolio loans and every lender has their own guidelines.

With conventional financing for rentals of 1-4 units, qualifying for the loan takes into account a borrower’s income, assets, credit, and the potential rent (market rent, not current rent)on the building. Down payments can be as low as 25% for 2-4 unit properties.The maximum loan amount for a conventional loan on a rental property depends on the number of rental units: 1 unit max = $625,500; 2 unit max = $800,775; 3 unit max = $967,950; 4 unit max = $1,202,925.

Loans on properties of 5 or more units (“multi-family properties”) are substantially different from conventional loans because lenders want the net income (rents less ALL building expenses) for the building to cover the cost of the mortgage.  A borrower’s other income, assets, and credit are looked at by multi-family property lenders, but they are not the key factors in qualifying for financing.

To calculate net income from a building, the lender generally uses current rents (not market rents, although market rents will be used for empty units), less recurring building expenses (utilities, building management, insurance, etc.) and the property taxes after they have been reassessed based on the new purchase price.  Sellers of multi-family properties need to provide detailed rent rolls and net operating statements to potential buyers so that lenders can determine the financing possible on the building.

Since the lender wants the net income on the multi-family property to cover the new mortgage payment, there is no fixed minimum down payment required: the larger the net income, the smaller the down payment required.  Accordingly, financing available on multi-family properties has to be evaluated case-by-case for each property.  In general, in the Bay Area, given current prices and rents, borrowers have to put down at least 35% (and often 40%+) in order to qualify for multi-family property loans.

Each multi-family property lender also has their own set of products with different rates and terms.  A 30 year fixed rate loan for a property of 5 or more units is rare. Instead, lenders prefer shorter terms (anywhere from 5 to 25 years).  Many multi-family property loans have payments based on a 30 year amortization, but they are due in full much sooner with a balloon payment.  Interest only payments also are available on some multi-family property loans.

Do you want to explore your financing options for a rental property? Feel free to get in touch with me at 415-730-4665 or

619 Clayton Street

My listing at 619 Clayton sold this week for $100,000 over the asking price to an investor in a relatively short amount of time. There were two other offers on this property around the same price and these other interested parties were investors as well. During the marketing period, there was a lot of interest and a majority of the buyers were investors. The other types of buyers were owner-occupiers (living in one of the units and renting out the others) but I didn’t receive offers from this type of buyer.

My client did a partial 1031 Exchange (“partial” because she lived in one of the units) and the buyer also did an exchange. In my next entry, I will describe in greater detail what this means.

View Listings Here

Well Maintained 3-Unit Victorian.

This building in Lower Pacific Heights has been on the market awhile so there could be an opportunity to purchase at a very good price. The seller has done some structural work, repainted the exterior and there’s a new sewer line. The rents are good and could be banked since the owner has not increased rents in awhile. I will add an explanation of “banked” rents in the next post. In a nutshell, there’s some upside here!

View Listings Here

Two Big Advantages of a 4-Unit Building as an Investment Property or as Your New Home

In preparation for my 4-unit building in the Haight going on the market, I asked Doug Goelz to describe two financial scenarios based on the numbers for 619 Clayton. This property will be in the MLS on Thursday, October 15.

Two Big Advantages of a 4-Unit Building as an Investment Property or as Your New Home

Whether you buy a 4-unit building as a place to live or as an investment property, you will benefit in two important ways:

  1. First, the potential rents on the property will help you qualify for financing. Even if the units are empty or rented at below market rents, the lender counts 75% of the market rent determined by the appraiser as qualifying income. If you are going to occupy the property as your home, you can choose which of the units to use for rental income. With the potential rental income from the building, your other income (for example, your salary) does not have to be as high in order to get the financing you need. For example, $9810 in potential rent on a 4-unit property will help will you qualify for almost $500,000 in financing. If you are going to live in the building, the lender won’t count rent from one of the units, but even $6010 in potential rent on a building will help you qualify for over $300,000 in financing.
  2. The second obvious big advantage of a 4-unit building as an investment property or as your new home is the cash flow each month. Depending on your down payment (at least 20% if you are going to live in the building; at least 35% if you buy it as an investment property) and loan rate, PITI (your cost of mortgage Principal and Interest, property Taxes, and Insurance) plus utilities for the building will be roughly $9,000 to $10,000 per month. So, a 4-unit building generating $6010 per month in actual rent could end up costing an owner-occupier less per month out-of-pocket than the cost of a market rate apartment in San Francisco. For the investor buyer, actual rents could offset the entire monthly expenses.

Here are some payment scenarios for potential buyers of a 4 unit building in The Haight.

If you live in the building:

Purchase price = $1,849,000
Down Payment = $369,800 (20%)
Loan Amount = $1,479,200

If you buy the building as an investment property:

Purchase price = $1,849,000
Down Payment = $647,150 (35%)
Loan Amount = $1,201,850

Monthly Expenses

Mortgage Principal and Interest = $7716
Insurance = $209
Property Taxes = $1856
Utilities = $405

Total = $10,186


Unit #1 = $1380
Unit #3= $1750
Unit #4 = $2880

Total = $6,010

Monthly Expenses

Mortgage Principal and Interest = $6452
Insurance = $209
Property Taxes = $1856
Utilities = $405

Total = $8,922


Unit #1 = $1380
Unit #2 = $3800
Unit #3= $1750
Unit #4 = $2880

Total = $9,810

Net Monthly Out-of-pocket Cost = $4176

Monthly Positive Cash Flow = $888

My New Listing in the Haight

I will be listing a 4-unit building soon and as I get more information, I will post here, on this site. For starters, there are 2-2br/1ba and 2-1br/1ba units. One of the units will be vacant at close of escrow. The vacant unit requires some work but the rest of the building is in good shape, according to the inspection report. There is a garage for two cars, a huge basement and outdoor space. Gross rents are $117,000. The asking price is $1,849,000. Call me (415.310.1339) for more information or if you would like to schedule an appointment.

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