December 29, 2009

"Best Price Ever" At 310 Townsend (Assuming It’s Approved)

Listed for $799,000 plus $25,000 for parking in February 2007, 310 Townsend #202 sold for $824,000 in March of that year. And now the 945 square foot one-bedroom is back on the MLS as a short sale with a list price of "$450,000" (a drop of 45 percent).

While the listing touts "best price ever," however, it is missing "bank approved price."

∙ Listing: 310 Townsend #202 (1/1) 945 sqft - $450,000 [MLS]
310 Townsend: Available And Selling

First Published: December 29, 2009 10:15 AM

Comments from "Plugged In" Readers

Best Price Ever. I guess it depends on your perspective.

Posted by: eddy at December 29, 2009 10:55 AM

This and the Watermark has crossed the line from being something to be celebrated to being just a little too scary.

What are the effects on the thousands of people who bought condos in 2006-2008 when they realize values have fallen this fast? Who knows. Whatever it is, it can't be good.

Asking price isn't selling price: I'm hoping it's not this bad.

Posted by: tipster at December 29, 2009 11:10 AM

I think this is the same agent who pulled off the Bush st sale. So maybe he can do it, maybe not. It depends upon the bank. Based upon recent experiences, if the bank is Chase I highly doubt it'll be saleable at a price beneath its appraisal.

Posted by: anonn at December 29, 2009 11:19 AM

I highly doubt it'll be saleable at a price beneath its appraisal.

Has it been appraised for more than $450k recently? Or are you assuming it would be?

Posted by: J at December 29, 2009 11:26 AM

I'm curious as to the property tax assesments on all these bubble era transactions. Do people who bought for 900K a few years back and see the same place sold now for 500K get an automatic re-calculation by the SF assesor of their taxes? The difference is something like 9K a year vs 5K.

I have friends in Sacramento and in the past year and this coming year their property tax bill is being automatically lowered - by a significant amount. They bought for 400K at the peak and were paying around 4K in property taxes. Next year it will be 2.8K. Not a true reflection of the current 200K value of the house but, nonetheless, a significant cut in property taxes for them.

Does anyone know the situation in SF on property tax re-assesments to reflect the real decline in values?

Posted by: Gil at December 29, 2009 11:26 AM

Note to listing agent: Interior photos are appreciated.

Posted by: SausalitoRes at December 29, 2009 11:47 AM

There have been a couple threads about it. In summary, the Assessor's office did some reductions pre-emptively, but many people had to ask for an informal review or go through the formal appeals process. Results varied. Personally I got a 25% reduction from the Prop 13 basis (22% reduction from purchase price) on my condo.

Posted by: Rillion at December 29, 2009 11:48 AM

Would like to see what the interior is like before saying too much, but this price seems reasonable for a condo.

Posted by: dkzody at December 29, 2009 1:58 PM

^^^

This price is very reasonable for a condo. It's basically at parity to renting if you can qualify for an FHA loan (i.e. prove you exist). If you're an investor and can put more than 5% down, you could end up with a bonafide real estate investment here instead of a white elephant (assuming market rent of ~$2,600/month). I bet it goes quickly at/around asking.

Posted by: Legacy Dude at December 29, 2009 2:11 PM

Legacy Dude wrote:

> If you're an investor and can put more than 5% down,
> you could end up with a bonafide real estate investment
> here instead of a white elephant (assuming market rent
> of ~$2,600/month).

You cannot get any kind of decent return on a $450K condo with $2.6K/month rent.

Even if you paid all cash the risk adjusted return would not be very good.

$31,200 Gross Rents at $2,600/month
$1,560 Vacancy factor at 5%
$5,040 HOA at $420/month
$5,175 Property Taxes at 1.15%
$3,100 Management Fee at 10% GSI
$750 Maintenance and Repairs to unit not covered by HOA
$500 Owner liability insurance umbrella

$15,075 return on $450K or 3% (a few months of down time or a special assessment from the HOA could kill your cash flow for the year)…

Posted by: FormerAptBroker at December 29, 2009 2:38 PM

@FormerAptBroker,

Typical. You assume the worst variables possible for each line item.

What about the $2,000 that the person gets in terms of writing-off their property tax? Or were you assuming an owner/investor who has no income tax?

Posted by: NewBuyer at December 29, 2009 2:47 PM

@ FAB - Agree with your numbers. Note I didn't say it was a GOOD investment! Just that it might actually cash flow vs. being an outright bleed like most other flips purchased during the bubble.

Not having seen it, I still think it goes quickly at this price as long as it doesn't have any idiosyncracies or major flaws.

Posted by: Legacy Dude at December 29, 2009 3:18 PM

What about the $2,000 that the person gets in terms of writing-off their property tax? Or were you assuming an owner/investor who has no income tax?

Huh? I think you're confusing investment property with owner occupied properties. With investment property, the property taxes are just part of total costs, which serve to reduce the taxable income that the condo is generating. Ditto for the HOA dues, management fees, etc.

At the end of the day, as FormerAptBroker demonstrates, you are earning a 3% rate of return on a pre-tax basis (lower post-tax). The only way this will be an attractive investment is if there is healthy price appreciation (seems unlikely given that interest rates are currently at 100 year lows, but you never know).

Posted by: anonm at December 29, 2009 3:24 PM

Posted by: John at December 29, 2009 5:33 PM

NewBuyer wrote:

> @FormerAptBroker, Typical. You assume
> the worst variables possible for each
> line item.

- $31,200 Gross Rents at $2,600/month (This was not my rent)

- $1,560 Vacancy factor at 5% (This is a low number and almost any landlord will be happy with a 5% vacancy factor. Very few people who get market rents average lower than a 5% vacancy factor over the long term, of course you will reduce turnover and lower the vacancy factor if you rent the place for well below market rents)

- $5,040 HOA at $420/month (The HOA fee is the actual fee, not a variable)

- Property Taxes at 1.15% (According to the tax rolls, the current assessed value for the unit is $800,000 with a current tax bill of $9,521.66 or 1.19%, so I was a little low on the taxes using my “30 second NOI” CA plug number.

- $3,100 Management Fee at 10% GSI (good luck getting someone competent to collect the rent, lease the place, and deal with the tenants for any less)

- $750 Maintenance and Repairs to unit not covered by HOA (Probably low for a typical “investor” with only a condo or two since they probably don’t have a list of 10 different guys who do good work for $25 an hour, since a licenced plumber with a phone book ad will probably charge more than $300 for something simple like a bad garbage disposer).

- $500 Owner liability insurance umbrella (OK you can take that off since why would anyone that owns a $450K condo free and clear and probably over a million more in real estate worry about a problem like someone getting a suing them)


> What about the $2,000 that the person
> gets in terms of writing-off their
> property tax? Or were you assuming an
> owner/investor who has no income tax?

You can’t take a separate tax write off for property tax on an income property and you are actually taxed on all the profit so the “after tax” return would be lower than my number so I am hardly “assuming the worst possible values” I am just assuming the most likely variables and with any assumption some may turn out to be high while others (as I most often find out after I buy a property) will be low…

Posted by: FormerAptBroker at December 29, 2009 6:46 PM

FABulous posts, FAB. Helps us non-investor types to puzzle through the detailed variables.

Posted by: Debtpocalypse at December 29, 2009 8:23 PM

Ok - but after the loan is paid off, you make rental income, with no mortgage, for as long as you own the property. Smells better than the stock market to me. So - invest in the property, perhaps get a 15 year mortgage and then make some money from the asset.

Posted by: anon at December 29, 2009 9:27 PM

Ok - but after the loan is paid off, you make rental income, with no mortgage, for as long as you own the property. Smells better than the stock market to me. So - invest in the property, perhaps get a 15 year mortgage and then make some money from the asset.

Read FAB's analysis again. There is no mortgage to pay off - s/he's assuming an all-cash buyer.

What you are buying here is equivalent to a buying stock in a mature company with a P/E ratio of over 30-to-1. Yeah, it probably won't "lose" money in nominal terms if you hold it for long enough, but it's unlikely to be a great investment. Yes, you can't "live" in a stock, but you can't live in an investment property either.

Posted by: anonm at December 29, 2009 9:40 PM

I took a look at unit 308 in this building a couple months ago. The inside of the unit was quite nice if you're into the brick and timber (I am). Unfortunately, the unit barely gets any natural light, with the only windows facing a light well. And the unit didn't come with a deeded space.

I'd be surprised if the bank accepted asking price on this unit.

Posted by: joh at December 30, 2009 1:34 AM

$500/sq ft seems perfectly reasonable for a converted condo in that part of SOMA. It is a great location for CalTrain commuters. I have some friends who would probably be interested at this price point, I will forward it to them.

This kind of pricing is great news in the longer run for San Francisco, we need more middle income housing. It looks like condo pricing is coming down pretty quickly.

Posted by: NoeValleyJim at December 30, 2009 1:37 AM

By the way, unit 308 is only 803 sqft, and sold for $494K earlier this month. That's $615/sqft for a dark unit, with no parking.

Posted by: joh at December 30, 2009 1:43 AM

I actually rented this unit from the original (current?) owner in 2007 before buying a place at 74 New Montgomery ... it faces Townsend and gets plenty of natural light ... very high ceilings and huge main living space (kitchen/dining/den/living room) ... parking spot was nice too - straight shot down the garage entrance ... only down side was a low humming type sound when the trains were idling which you could hear from the bedroom or living room when TV/music was off ... but if they can get the bank to approve $450K IMO it will sell very quickly.

Posted by: SF Monty Rez at December 30, 2009 10:09 AM

Owning it free and clear might not make a ton of sense based on the analysis above, but what about mortgaged? In 15 - 30 years your 90K down is now 450K (at least). Mtge rates are super low - Thoughts?

Posted by: anon at December 30, 2009 2:06 PM

Having a mortgage at 5% is only better than cash if you can consistently earn > 5% in other investments...

A renter might also be able to save $450k over 30 years with the money they save renting instead of owning...

Posted by: J at December 30, 2009 2:37 PM

Here's a thought: over the course of 30 years you would pay $400k+ in interest and $360k in principal to own this condo "free and clear" with 90k down.

Posted by: Michael at December 30, 2009 2:57 PM

I wouldn't be paying the $400k +360K, the renters would. That's the point.

Posted by: anon at December 30, 2009 3:35 PM

anon wrote:

> Owning it free and clear might not make a
> ton of sense based on the analysis above,
> but what about mortgaged? In 15 - 30 years
> your 90K down is now 450K (at least).
> Mtge rates are super low - Thoughts?

If you own it free and clear you will have cash flow of $15,075/yr.

If you put $90K down you will lose about $1.5K a year you could be getting with the $90K in a 1yr CD.

If you are OK with mortgage fraud you might be able to get a “owner occupied” rate of 5% for a 30 year loan and only lose another $8K a year.

If you are up front with the bank and tell them it is an “investment property” loan you will be at least $10K a year of negative cash flow (and probably can't even get an "investment loan" until you can show positive cash flow).


Posted by: FormerAptBroker at December 30, 2009 4:24 PM

"If you put $90K down you will lose about $1.5K a year you could be getting with the $90K in a 1yr CD."

ok - $1.5k * 30 = $45k
45k + 90k = 135k

ok - so I invest 135k over 30 years and in the end I have an asset worth $450k (at least). I also have an indefinite cash flow of $15k from the asset going forward.

I am still lost, how is this a bunk investment?

Posted by: anon at December 30, 2009 4:39 PM

First you need to understand compound interest. Then realize that CD rates are likely to average more than 1.5% over a 30 year period and have NO risk.

You probably won't be able to rent this 1BR out for $2,600/month, unless you are not picky about tenants...

Your loan rate WILL be above 5% unless you lie and say you are going to live there for at least a year...

You will, in all likelihood have negative cash flow. You will be subsidizing the renter, not the other way around. That monthly subsidy amount could be going towards other safer, and more diverse investments...

Posted by: J at December 30, 2009 4:55 PM

"safer and more diverse investments"

Seriously? Like the stock market? Or do you choose to invest only in CDs. Really - I am curious

Posted by: anon at December 30, 2009 5:02 PM

Come on, stop clinging to ignorance. If you want to invest in real estate in general, there are REITs, which are more diverse than 1 individual property. If you just want a better yield than CDs, you can do treasuries or municipal bonds(tax free even). Those all beat a property with negative cash flow. If you want to bet on inflation: "TIP".

Obviously, you don't want to just hop into anything without a lot of research...

Posted by: J at December 30, 2009 5:56 PM

anon (who thinks that $90K invested in a CD today will be worth only $135K in 30 years) writes:

> I am still lost, how is this a bunk investment?

You really need to do a little homework before you even think about investing.

P.S. You forgot about the negative cash flow of probably close to $1K a month for the first couple years (and probably negative for at least a decade until rent increases will cover all the expenses and your fixed rate mortgage)...

Posted by: FormerAptBroker at December 30, 2009 6:15 PM

Is the brick for this building reinforced?

And wow, some people don't understand the true costs of investment properties. The person disagreeing with FAB seems a bit clueless on how much PITI + maintenance seem to cost on rental properties and doesn't seem to know very much about investing in general either.

FAB -- thanks for doing this analysis. Your counsel is appreciated.

Posted by: Anon E. Mouse at January 5, 2010 6:36 PM

FHA loan approved?

Posted by: Jeff Green at February 4, 2010 6:42 PM

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