How to pay $350/month rent in San Francisco

[unsolicitedadvice]

One question that has been asked frequently on this forum is "how do you live frugally in the San Francisco Bay Area?"

There has been much moaning over how to keep expenses down in SF. Otherwise reasonable folks have pulled their hair out, rendered their clothes, and screamed that it is impossible.

I'm going to tell you about my method for living cheap in San Francisco. You'll need about $15k of capital and good credit for this to work.

First some background: Real estate, and especially rental prices across much of San Francisco are much higher than in the rest of the country. This is a topic of much discussion across the city and a variety of reasons have been given for this phenomenon. One key reason is that the planning & permitting process is long, expensive and political. As a result, SF has built nearly no housing over the past decade. Heck, in the last election, we had two ballot measures on whether or not to put up a single apartment building. (The building was not built.)

The median price for an apartment in SF is ~$3200. The median home price is ~900k. (4/2014)

1) Rents are high. Landlords are winning. If you can't beat 'em, join 'em

The average price for a home in SF is nearly a million dollars, but you can get one for around half of that if you live in a less trendy neighborhood.

* Warning: this method will not work if you are afraid of brown people

Head to the southeast sector of SF and you can find a 3-bedroom single-family house for $400-500k. Because the area is underserved, there are special loans (private, not government subsidized) available that will give you excellent interest rates with 3-5% down and no PMI. No closing costs.

Example with rough numbers:
House: $450k
Down payment & misc fees: $16k
Interest rate: 4.0%
Mortgage payment: $2100/mo
Taxes & insrurance: $550/mo

Now that you are a landlord, you get to benefit from San Francisco's absurdly high rents. The average rent for a bedroom in a house in SF is ~$1200. Since you are in a less trendy neighborhood, lets suppose that you get $900, and that you rent out two bedrooms.

Monthly payments: $2650
Income from roommates: -1800
Tax deduction ~= taxes on income from roommates - cancel out (roughly true during first few years)
Portion of monthly payment going to principal: -$700
Maintenance: $200

Your net "rent" (your actual cost of living there): $350/month

Ta da! You're living cheap in SF. You may not live in the Mission, but you're still close enough to the party that you don't need a car, etc. Enjoy.


Wow, I didn't realize that people wouldn't believe me. Attached is a list of current listings and recent sales that dropped into my mailbox last week.

[Gen Y Finance Journey]

I just did a Zillow search and found exactly 4 homes for sale in SF with at least 3 bedrooms for under $500k. One of them has a low starting bid for an auction and will end up selling for over $500k, and two of the others are priced below their estimated values, so multiple offers will likely drive those homes above $500k as well. That leaves one home.

Where are you finding 3 bedroom homes for that price?

[tipster350]

Have you done this?

As has already been pointed out, there aren't any homes at your stated price point.

Then there is the matter of upkeep, repairs, and tenant turnover costs.

Not a realistic scenario at all.

[arebelspy]

Details aside, the OP's basic plan is sound - rent out bedrooms in your home.

It's not something for everyone (I don't think I'd want to do it, I'd rather have my own place and rent out other places), but it is a good way to offset some rental costs.

[tipster350]

Well, the OP didn't come in here stating he/she has a great idea - rent out bedrooms in your home to save money on your mortgage payments. The OP came in here claiming it was possible to pay $350 in rent in San Francisco by following his proposed scenario. It is not.

[arebelspy]

Okay, that's true.  But maybe the rent will be $400-450 instead of 350, because you'll have a higher purchase price and have to pay an extra $50-100 in mortgage payments every month.  Or maybe you'll get extra rent to offset that.

In any case, the idea is sound, even if the specifics aren't correct.

[unsolicitedadvice]

Yes, I have done it. That is why I know the numbers so well.

Most of the homes in this price range are in Bayview/Hunters Point and Visitacion Valley.

They come in two flavors: homes priced below 500k that will likely sell around 450k-500k and homes priced over 500k that have been on the market for more than 60 days.

Zillow/Trulia/etc are useless. Their data on homes for sale is always incomplete and usually out of date. If you want to buy a home (in SF), you have to find a buyer's agent who will give you access to the MLS. Many of the homes for sale will be sold before they appear on Trulia.

[spoonman]

That's an interesting trick, but the key here is to be willing to live with roommates.  You can use the same trick to live rent free in other states, or even rent free and have a little more left over for other expenses.  I know of at least one person over in the ERE forums who can cover almost all of his expenses with this arrangement (I believe he was doing this in Oklahoma).

After many years of living with roommates in college, I am certainly not going back to that arrangement.  But if the going gets tough, it's good to know you can room with other people and save big.

[Mortgage Free Mike]

In this housing market, who gets away with putting $16,000 down on a $450,000 property? Doesn't happen.

[Daleth]

Have you done this?

As has already been pointed out, there aren't any homes at your stated price point.

I found plenty of them, actually. Look on realtor.com, not Zillow or Trulia--those sites are garbage for current listings. I sent links to six or seven 3BR+ places currently on the market--all of them in the city--to a friend of mine who lives in SF.

Then there is the matter of upkeep, repairs, and tenant turnover costs.

Not a realistic scenario at all.

That will come as a surprise to my relative who lived practically for free in a nice part of Oakland for a number of years, all of them in the pre-2007 boom (so house prices were sky-high). Upkeep, repairs, tenant turnover, yada yada--barring a tenant-related catastrophe, none of that is even going to come close to the cost of a mortgage on a single-family San Francisco home.

[clarkfan1979]

I agree with all the comments. The method is sound, the numbers are correct and the title is misleading.

[Gen Y Finance Journey]

Have you done this?

As has already been pointed out, there aren't any homes at your stated price point.

I found plenty of them, actually. Look on realtor.com, not Zillow or Trulia--those sites are garbage for current listings. I sent links to six or seven 3BR+ places currently on the market--all of them in the city--to a friend of mine who lives in SF.

I'm not arguing against the principle of the thing, so maybe I'm just being too complainypants, but I just looked on realtor.com as well and found a whopping 7 properties fitting the description set out by the OP. That's better than the Zillow results for sure, but hardly enough to say that there are "plenty" of these opportunities out there.

[dragoncar]

Have you done this?

As has already been pointed out, there aren't any homes at your stated price point.

I found plenty of them, actually. Look on realtor.com, not Zillow or Trulia--those sites are garbage for current listings. I sent links to six or seven 3BR+ places currently on the market--all of them in the city--to a friend of mine who lives in SF.

I'm not arguing against the principle of the thing, so maybe I'm just being too complainypants, but I just looked on realtor.com as well and found a whopping 7 properties fitting the description set out by the OP. That's better than the Zillow results for sure, but hardly enough to say that there are "plenty" of these opportunities out there.

Knowing the SF market right now, those will sell all-cash for twice their list price.  Show me some arms-length sold transactions in the last month and we'll talk.

edit: I'm not saying it's not doable, but you've got to get a great deal and beware the strict tenant protection laws (or not mind getting shot... I'm not being hyperbolic here some areas are really bad still).  I agree Oakland is far more doable.

[unsolicitedadvice]

In this housing market, who gets away with putting $16,000 down on a $450,000 property? Doesn't happen.

Not true.

Sometimes its called a "neighborhood stabilization program," other times it is an economic opportunity mortgage. The catch is that you have to either be median-low income ($121k in SF) or buy in a "designated census tract."

These loans also have no PMI.

To Spoonman: Yes, you have to be OK with living with roommates. Practically everyone in SF who is too young to have purchased a house in the 70s/80s does anyway. Might as well love it.

To those looking at Zillow/Realtor.com: you need a real realtor to provide direct access to the MLS. The public websites simply are not up to date.

Every month, some company that is trying to convince people to sell their houses sends me a list of recent sales in Bayview/Hunters Point. Some properties do go for 700-900k, but many are still in the $450k-500k range.

[Paul der Krake]

This is what my last landlord/roommate did, except it was in a house in Durham, NC, with a value of under $120k, also in a slightly questionable neighborhood.

Effectively her rent was negative dollars, but she barely came out ahead in the long term even though that the rent from her three roommates more than covered the mortgage payments. It worked well for her as she was still in school, but it was still a very thin margin of error considering her very thin income. One roommate skipping rent would have had her in big trouble.

[Bikeguy]

I like the idea and did this 20 years ago in Indianapolis.  Nothing like paying about $100 a month for the master bedroom and getting both garage spots, while letting roommates pay down your principle.

Not for everyone, but neither is being financially independent.

Either pay $1200 a month or figure out a plan not to.  OP provided a plan, which is way better than complaining about paying the $1200 and doing nothing.

[unsolicitedadvice]

Wow, I didn't expect people not to believe me!

Attached is a page of current listings and recent sales in the Bayview neighborhood of San Francisco. It dropped into my mailbox last week.

[BayIslandSaver]

They also have decent houses in West and East Oakland that could make for decent rentals.

The main issues in these areas are extremely high crime (the violent kind) and dealing with sub-par tenants.
Crime is no joke...FI is pointless if you're not breathing.

[William]

I'm on the other end of the equation - I'm the one renting the room in a house.  I freaking love it!  I rent one room in a house for $275 all included.  If I were to rent just the house with no landlord living there it would cost more like $1500.  $1225 more I can push to Vanguard each month!

It's last weeks post on my blog if anyone's interested.  I'll keep doing this approach until I buy my own house.  Then I will reverse the roles.  :)  I'm happy!

[sobezen]

They also have decent houses in West and East Oakland that could make for decent rentals.

The main issues in these areas are extremely high crime (the violent kind) and dealing with sub-par tenants.
Crime is no joke...FI is pointless if you're not breathing.

Precisely!  The types of violent crime and vicious drive-by shootings happening annually in Hunter's Point is nothing to underestimate.  If you are fearless, more power to you.  Just pause and be aware, the numerous reasons why so many people deliberately avoid Hunter's Point.

The OP idea to rent out extra rooms works and reminds me of renting out in-law units.  In SF there is a major push to legalize in-law units.  This practice does not benefit the property owner and frankly, I don't see the point since the legalization is not required per se.

[dantownehall]

I'm about to start renting out a room in my (non-San-Franciscan, $150k-costing) house for $400/month.  Adding the $400 to my ~$700 payment means I'll pay it off in less than half the time it would have taken, ceteris paribus.

I think it's a great idea, even for families.  There are some families I've known who always have a college student staying with them.

[dragoncar]

They also have decent houses in West and East Oakland that could make for decent rentals.

The main issues in these areas are extremely high crime (the violent kind) and dealing with sub-par tenants.
Crime is no joke...FI is pointless if you're not breathing.

Precisely!  The types of violent crime and vicious drive-by shootings happening annually in Hunter's Point is nothing to underestimate.  If you are fearless, more power to you.  Just pause and be aware, the numerous reasons why so many people deliberately avoid Hunter's Point.

The OP idea to rent out extra rooms works and reminds me of renting out in-law units.  In SF there is a major push to legalize in-law units.  This practice does not benefit the property owner and frankly, I don't see the point since the legalization is not required per se.

Especially if the area gets better, and appreciates to the rest of SF, you will look brilliant.  But I am dubious about places like that where there is structural poverty that can't simply be gentrified away (also the Tenderloin).

[TurtleMarkets]

So your trick is to buy a super expensive home in a horrible neighborhood and live with strangers? I would pay thousands of dollars and retire a few years latter to avoid that.

[sobezen]

They also have decent houses in West and East Oakland that could make for decent rentals.

The main issues in these areas are extremely high crime (the violent kind) and dealing with sub-par tenants.
Crime is no joke...FI is pointless if you're not breathing.

Precisely!  The types of violent crime and vicious drive-by shootings happening annually in Hunter's Point is nothing to underestimate.  If you are fearless, more power to you.  Just pause and be aware, the numerous reasons why so many people deliberately avoid Hunter's Point.

The OP idea to rent out extra rooms works and reminds me of renting out in-law units.  In SF there is a major push to legalize in-law units.  This practice does not benefit the property owner and frankly, I don't see the point since the legalization is not required per se.

Especially if the area gets better, and appreciates to the rest of SF, you will look brilliant.  But I am dubious about places like that where there is structural poverty that can't simply be gentrified away (also the Tenderloin).

Hunter's Point has been unsafe for over 40 years and I don't see any signs it is improving for the residents.  I have more faith in the Tenderloin improving sooner than Hunter's.  A good example is how the Market corridor is rapidly changing since Twitter moved in and the upward construction of new condos and apartments.  Only time will tell what will happen to the current residents.