Real estate is an important asset to strengthen a person’s financial position and achieve their retirement goals. We are going to be living longer so to be prepared for the latter years and be able to enjoy your future plans, purchasing multi-unit buildings in San Francisco is a viable strategy. These buildings offer many options: long-term hold for passive income, owner-occupancy and tenancy-in-common developments. In this series of editorials, I will share examples of 3-6 unit buildings that are currently on the market in San Francisco by describing the income and expenses, potential upsides, financing and tenant profile.

The first example is 1565-71 Grove Street in the NOPA neighborhood. This 4-unit 1906 Edwardian had two buildings, two flats each side with a common stairway which added to the charm. The units were large with at least two bedrooms and were in original condition. All the units were occupied with long-term tenants and had a brick foundation. Why would someone pay all-cash for this sort of property with a cap rate of almost 4% and a GRM of 23? Perhaps the new owners needed to move their money out of a 1031 Exchange quickly or the new owners were developers who want to convert to tenancy-in-common units whereby each one could sell for a substantial price. Another way to use the property is to do an owner move-in eviction because the units had the potential to be beautiful once renovated and the location is popular. Maybe a second unit could be evicted to move in a parent, sibling or child.

These are all ideas for how to use a building like this one. As part of your investment team, hire a San Francisco real estate attorney who knows the intricacies of this city’s rent control laws and discuss all the possibilities with your attorney for each property that you are interested in.

I will provide more information on cap rate and GRM in my next editorial.