San Francisco duplex at $825,000 and $4,079 rent — does the yield survive expenses?

[anika_vale]

One approach says to judge the property before considering the loan; the other says financing is too important to leave until later. I’m trying to do both for a San Francisco 1-bed duplex priced at $825,000, with projected rent of $4,079 a month.

Annual rent divided by price produces roughly 5.9%, but that is only the headline figure. Empty periods, management, ongoing upkeep and an allowance for an expensive failure leave much less, and debt costs could finish off the remaining cash flow. Which San Francisco ownership expense is easiest to understate—especially property tax or insurance—and what evidence should I request before deciding whether the net return is adequate?

 

[anika_vale]

To clarify, I’m not treating 5.9% as the return—it is only annual rent divided by purchase price. I’m trying to compare the unlevered property economics first, then apply financing. I’d also rather overstate a bad year than rely on every month being occupied and repair-free.

 

[CommonWire]

Start with property tax and an actual insurance quote, not broad percentages copied from another market. Then separate operating expenses from the mortgage: net operating yield tells you about the property, while cash flow after debt tells you whether the financing works. At this gross yield, small omissions matter.

 

[sketchesAndRoof]

Is the $4,079 expected rent for the whole duplex or for the 1-bed portion, and is either part currently occupied? That changes almost everything. I’d also want to know who pays utilities and whether the management estimate includes leasing and turnover work rather than only monthly collection.

 

[bea.fable]

If the turnover assumption is wrong, an otherwise acceptable year can become a loss very quickly. The issue is not merely a vacant month: cleaning, remedial work, leasing fees and missed rent may all arrive together.

I would therefore model turnover as its own scenario instead of spreading a small vacancy percentage evenly across several years. Ask the seller for the tenancy and expense history, and check whether the management quote covers reletting work as well as monthly collection.

 

[small_quill]

Build three versions: ordinary year, turnover year and major-repair year. For each, show rent collected, management, insurance, property tax, utilities paid by the owner, maintenance and reserves. Then add financing under several borrowing-cost assumptions. The useful number is the rent or purchase price at which cash flow reaches zero—not just the optimistic yield.

 

[EsmeAsh]

There is also a local-risk question that a spreadsheet cannot settle by itself: the existing tenancy and what flexibility the owner actually has when occupancy changes. San Francisco rules and the property’s exact circumstances can affect turnover plans, so confirm those with appropriate local advisers rather than assuming vacant-unit economics. Has the seller provided current expense and tenancy information?

 

[EsmeAsh]

I agree with separating the local due diligence from the return target. Before deciding what net yield is “enough,” get the property-specific tax, insurance and utility figures, clarify what the $4,079 covers, and test debt service against the bad-year cases mmoreau described. If a single turnover or repair makes the down payment subsidize operations, the 5.9% headline is not offering much room for error.