March 18, 2009
From Coming Soon To On The Market To Up For Rent: 1391 Clayton
On the market last October asking $2,795,000 and then relisted in January for $100,000 less, 1391 Clayton has hit Craigslist as a rental asking $7,500 per month. We’ll let you run your own numbers, but be sure to show your work if you do.
∙ Listing: 1391 Clayton (4/4.5) - $2,695,000 [MLS]
∙ $7500 / 4br - New Modern View Home [Craigslist]
∙ From Coming Soon To On The Market And A Peek Inside: 1391 Clayton [SocketSite]
∙ To Rent Or To Buy, That Is The Question (That Only You Can Answer) [SocketSite]
First Published: March 18, 2009 9:00 AM
Comments from "Plugged In" Readers
Isn't the rental stock supposed to be less nice than the owner occupied dwellings?
"We’ll let you run your own numbers"
Ok, 7500 (if they can really get that which they can't) x 200 (long term GRM for SF) = 1.5M
Posted by: diemos at March 18, 2009 9:13 AM
The builder is thinking...
Posted by: Eoral at March 18, 2009 9:13 AM
$7500/mo is not as stupid a first move wishing rent as the $15K/mo that the developer of the similarly-priced 313 Duncan was looking for (originally asking $15K/mo., now asking $11K/mo.).
In my limited experience, HR departments are generally the "tenants" for high-priced rentals like this - corporates picking up the tab for their "coveted" execs. I suspect that that market is dying these days.
This is going to be a long cycle IMO. If the developer is trying to minimize the bleeding on a sustainable basis, he should look for stable tenants who might conceivably stay for 5+ years, in which case $5K/mo (maybe a bit more) is probably more appropriate to the area and the prospective time horizon. The selling price on this place isn't going to go up anytime soon, and if the developer can't "take the hit" now by cutting the price, they need to think in terms of multiple years as a rental.
BTW, it looks like a reasonably nice place, even if it has some quirks identified in the earlier threads. IMO it's appropriate to think of 150-200x monthly attainable rent as a stab at baseline fair value, as diemos implies.
Posted by: LMRiM at March 18, 2009 9:38 AM
What I don't understand is why you'd pay that much to rent with so much supply around to buy.
You could rent a much cheaper place and simply lowball many nice properties. That really is a wishing rent sadly.
Posted by: jessep at March 18, 2009 10:08 AM
I'd take 313 Duncan at $5k/month in a second.
Posted by: eddy at March 18, 2009 10:39 AM
20% down, 6% mortgage and 4% for yearly appreciation/rent increases and if you live in it for less than 24 years renting at $7500/mo makes more sense than buying it for $2.65M! Yikes.
Posted by: Yikes at March 18, 2009 11:12 AM
Yikes! is right, lol.
I took a quick look at the current numbers on some extremely favorable assumptions (to the potential buyer).
Put down $808.5K (30% of $2.695M purchase price).
Finance $1.887M @ 6.5% 30Y fixed (and you're not going to get a rate that low on that size loan, that's for sure). Only $1M of mortgage debt is deductible (I'm ignoring a HELOC 2nd structure, because I'm guessing the additional $100K deductibility would not be worth the interest penalty in the structure).
Property taxes are $31.5K.
Tax deductions (after phaseouts, and the loss of the state tax deduction for Federal purposes that is represented by the savings from the mortgage deductions at the CA level) are not going to be worth more than 35% MAX on the deductible portion of property tax and mortgage interest.
Net after tax carrying costs are going to be at least $12K per month, and that is of course before maintenance and insurance, and is also completely overlooking any opportunity cost on the $808.5K that has been placed in the first loss position as a downpayment.
So to buy is at least $12K per month with $800K at risk (and a transaction cost of more than $150K to get the place sold if you want to move in a few years) versus $7500/mo rent, with no risk and $0 to get out of it when you decide the street is too busy to live on.
Posted by: LMRiM at March 18, 2009 11:35 AM
So, one could buy that dump on Anderson in Bernal Heights. Or one could pay the same as the Bernal mortgage/taxes plus a couple thousand a month from the $150k down payment (and loss) you would avoid and rent this quite awesome (if overpriced) place. The rent vs. own calculus sure is a more obvious no-brainer when you eliminate the fantasy of sky's-the-limit perpetual appreciation.
Posted by: Trip at March 18, 2009 12:02 PM
As Yikes pointed out, it's going to take 24 years to break even. If someone were to decide to rent, are there any protections that his champagne sipping butt and all of his oil paintings and Danish furniture are going to be on the street one day when the owner decides it isn't worth continuing to make the payments?
Posted by: traumatic at March 18, 2009 3:17 PM
$7,500/mo for almost 3,000 ft² in a well finished place does not seem too bad an ask. not many houses this size and shape come up for rent...
Posted by: Geo at March 18, 2009 4:30 PM
According to Buy or Rent calculator at NY Times, it's better to rent than to buy even if you are going to stay at this place over 30 years. End of the story.
Posted by: juju at March 18, 2009 11:03 PM
1391 Clayton is back on the market and once again asking $2,695,000.
Posted by: SocketSite at September 17, 2010 11:29 AM