San Rafael – Sales for 2-4 unit buildings far out paced the volume of larger apartment building sales in the last five quarters of 2023-2024. Better financing conditions and a larger inventory offering turned many 1031 exchange investors and entry level buyers to this property category after the record rise in interest rates over the past two years.
Two-four unit financing falls under the residential umbrella for lenders and offers more flexibility in rates and allows the borrower’s income to be included in the underwriting for the property purchase.
For example, last year I sold a 4 unit building in Mill Valley in need of up-dating to an investor who was able to put just 25% down to obtain the property. He planned to renovate two units and raise rents from $1980 per month to $3500 after the work was completed.
The majority of Southern Marin 2-4 units sales were from $1,350,000 for a small Sausalito duplex to over $2,300,000 for a totally renovated building with Bay views in the same city. In Mill Valley, duplex prices started at $1,185,000 and jumped to $1,875,000 for a fourplex with spacious units and views over looking the hills.
Central Marin duplexes sold to entry level first time buyers for $995,000 in Fairfax and San Rafael and started as low as $785,000 in Novato with the highest closing on a Novato fourplex at $1,850,000.
Many of the buyers in this category intend to occupy one of the units in the building to cut their housing costs, with the remain-ing rents in the property offering some mortgage relief. This trend has been going on for at least the last four years as home prices and mortgage rates keep rising.
If you have put off bringing your property to market you should not have a fear of selling. Demand is strong and properties are selling quickly with an average days on market of just 41 days.
Options for Replacing Income When You Sell or Exchange
- Seller Financing-if you have no mortgage debt, consider offering seller financing for 3-10 years at just below the prevailing in-terest rate.
- Explore completing a 1013 Exchange to defer tax on your gain and purchase a non management intensive property such as a NNN leased property. Examples: Burger King, Jack in the Box, Walgreens or other national corporations. These properties have tenants on long term leases that are responsible for rent, taxes and repairs to the property during the duration of the lease. You just receive a monthly check in the mail or direct deposit.
- Explore a DST investment that allows a 1031 exchange buyer to invest in larger, managed properties (office buildings, large apartment complexes, student housing) as one of many partners in the property. The return is a fixed amount set by the contract with the DST operator.
- Invest in a large property with partners to complete a 1031 Exchange with the general partner agreeing to manage the property and disburse profits during the ownership period.
For more information contact me at 415-302-7730 or email me at katherine@khiggins.com.
Editor’s Letter
Summer 2024 Marin Apartment Market
With the continuing high demand for 2-4 units in Marin, this year might be a good time for you to consider selling your property. If you would like a no cost evaluation of your property, feel free to call me at 415-302-7730 or email me at katherine@khiggins.com.
Some items to get your building ready to sell-
- Select an experienced apartment broker to assist you in all aspects of the sale, from getting your property ready for market to filling out all the needed paperwork to list your property. The listing agreement will be the first document you sign, but your agent will also have you fill out a disclosure to let the buyers know about the history of the property, ongoing problems and areas where you have fixed any deferred maintenance.
- Be aware that all municipalities require two reports prior to the close of escrow. You will need to order a sewer lateral video report (your agent will make recommendations on which companies are good) and a city resale inspection report, mandated by each city in Marin.
- Prepare the exterior of the building by sprucing up landscaping, painting where needed and repairing any fences, patios or decks or parking decks.
- Even though your rental property may be 100% occupied, you should let your tenants know that you are planning on listing and selling. Your tenants will need to allow the listing agent to show apartments with notice and give access to property inspectors when needed to expedite the sale.
- If you have a vacancy coming up you might want to defer re renting during the sales period. It is very convenient to show vacant units and doesn’t require the need to disturb tenants during the sales process.
Marin County Apartment Market Trends, 2-4 Units, 2023-2024
Both investors and owner occupants purchased 2-4 unit buildings in the past five quarters, accounting for the majority of apartment transactions in Marin County.
Prices ranged from $795,000 in Novato to a high of $2,300,000 in Sausalito for duplexes bought by owner occupants. Most of the four unit buildings were secured by investors looking for opportunities to add value to the property and raise rents to increase income.
More favorable financing for 2-4 unit purchases accounted for the trend towards 2-4 units for investors looking for higher leverage and lower downpayments. Current financing for 5 or more units requires nearly 50% down with the current interest rate levels and most buyers will not put that much down.
As in past years, the majority of sellers are retiring landlords or their heirs seeking to simplify their lives and eliminate property management.
Marin County 2-4 Units Closed Sales Last 5 Quarters
Recently Sold
