The post-Labor Day parade of previously withdrawn listings has begun. And in a blast from the past, 4545 25th Street has just been listed for $2,595,000.
Purchased for $2,725,000 in November 2007, the Noe Valley home was listed for $2,895,000 in September 2008 before being relisted, reduced to $2,625,000, and then withdrawn from the market in 2009.
It’s currently tenant occupied at $7,800 per month. We’ll let you do the math(s).
∙ Listing: 4545 25th Street (4/4.5) – $2,595,000 [MLS]
∙ An Elegant Noe Valley Apple Still On The Tree: 4545 25th Street [SocketSite]
blah… and more slate steps
What, only 333x monthly rent? Sounds like a great deal for the prospective buyer! Especially considering that the majority of the interest on the mortgage will not be tax deductible. Buy now or be priced out forever!
It looks like the old thread for this house was the original Satchel to LMRiM conversion thread?
noearch predicted a $2.3M sale in Nov 2008, and it’d be interesting to see if that ends up being correct. I agree with noearch that the deck looks way too cheap to be on this house.
Does anyone know why the owners wanted to move so quickly? Maybe they moved back to LA? They made a ton on their prior two houses there, including $700K in the heart of the boom, although I have no idea if they were apples.
I might in fact raise my estimated sale price now to about $2.4m…
Yea, the slate steps are just plain wrong.Better choice would have been one piece honed granite steps with a bull nose edge..then do a very classic tile mosaic pattern at the landing; more in character with the house.
Kitchen looks dated.
Yes, the deck is a cheapy. Esp the exposed concrete post bases and exposed steel fasteners. There are ways to do a substantial deck and hide all the connections. If the deck surface is designed as a diaphragm you don’t need the diagonal bracing, and it must be attached to the house framing with seismic connections.
“Does anyone know why the owners wanted to move so quickly?”
Ummm…maybe because they realized they paid $2.7 million for something that generates less than $100K in annual income? Either that or they took a really clutch job with Umbrella Corporation and are moving to Racoon City.
Either way, at least it’s easy to predict where this sells. The pundits on here have weighed in many times that prime SF like Noe never really fell more than 10%, which means this place dropped to about $2.5 million at the trough. And since prices in SF are up like 15% from the trough already, it’s now worth $2.8 million again. Presto!
What a great opportunity to identify the excess of the rent vs buy.
At 8% that they likely had to pay in 2007, plus 1.2% property tax, after tax deductions, just the interest and property tax ran them $18,800!!! Now knock off another $6K per month for loss in value. Add another 2K for the realtor fees and financing. So owners were paying a premium of around $27K per month to be able to paint the walls. Brilliant!
Even at 5% interest, for $2.3M, after tax costs just for interest and property taxes will run a $3400 premium per month. Now add the cost of maintenance and insurance and at least $70K per year loss of value, then add an extra $$1500 per month for realtor fees and this place will cost the new owner $11,000 per month above the cost of renting it. Genius!!!
Not hard to see where this market is headed.
I don’t like this place at all, though I have a tough time putting my finger on why. I guess there is nothing that excites me about it and I expect a house priced at $2.5M in Noe to have a wow factor. It is up the hill but apparently has no view. I don’t like the generic kitchen remodel. The front of the house is proportioned funny, especially the way the garage is tacked on. The bedrooms are tiny: I can’t figure out where all the square footage is. Perhaps noearch could weigh in on what he thinks is going on here.
I actually like the photographer, he did interesting things with light in the pictures, but I think the houses proportions are wrong somehow.
If I get a chance this weekend, I will try and cycle by on Sunday and take a look and report back.
The volume of new listings is indeed quite interesting. More so, imho, is the number of reductions — 35 by my count just yesterday.
And there is no indication sales will pick up any time soon:
http://www.rereport.com/sf/index.html
Lots of pent up supply. Not much demand, pent up or otherwise.
What happened to “it’s not an apple until it sells”? The thread is calling this an apple, I don’t put up places that are listing higher than they last sold because of the hounding I get about that.
It’s an apple because it is the same house (no renovations between sales). And yes, we’ll know more when it sells. (and the editor will be sure to conclude the thread when it does, I’m sure). Nothing out of line that I can see.
333x monthly rent….
Yes, maybe SF (and CA) has a crazy multiplier of rent. But what would people think is a realistic (for SF) in the longterm multiplier?
300x?
200x?
150x? (this would never happen with the money in the Bay Area, right?)
I have a feeling that the multiplier people on this thread would hope for will never be realized.
Or let me ask two q’s instead of one:
What SHOULD the multiplier be?
What will it be at the bottom of the market?
I have a feeling that the multiplier people on this thread would hope for will never be realized.
People have discounted multipliers between 2002 and 2007 saying this was a “new paradigm”. “New paradigm” statements are one of the basis for a bubble. Overall in the US, this new paradigm proved just what it was: a delusion. For SF, multipliers hold their own somehow thanks to a wealthy minority that keeps prices sticky both on the selling and buying side. Prop 13 helps a lot (old time owners that can wait) as does rent control (overinflated rents for the unlucky newcomers). Google-types money is still a factor, and that’s a good thing. After all, fiat money going into a black hole is just the right thing to do in these deflationary times. Better that than my hard earned money.
But what if you were right? That gravity was a law of the past in SF. Let’s call NASA and tell them the good news! Revive the shuttle space program! No launching rockets required!
Sparky,
The answer to your question is that this home was listed higher and didn’t sell, they dropped the price, not by much, and so it would be very unlikely to sell for much over asking.
So an assumption (that asking is probably a price ceiling) can be made and the owners will lose a ton of money even if it sells at the ceiling.
Contrast that with a post by you or others that touts a high listing price as a sign of market strength. That high listing price is meaningless as an indicator of market strength. It can mean the seller is underwater at a price lower than that and so they try to sell for that price or let it go back to the bank. Such an “apple” doesn’t prove the point for which it is provided because the market could be much lower.
But this one does prove the point for which it is being provided. It proves that prices have fallen. It proves the owner is about to lose a lot of money. This one proves many things, even before it sells. Not only because of the price, but also because of the history.
I think you’re confusing things sparky-b. A house is an apple when it’s unrenovated. What you’re talking about is that a price isn’t a market price until it sells.
@suspicious: “What SHOULD the multiplier be?”
I own rental property, but not in SF (because I didn’t buy 20 years ago and I’m not insane). They typical multiplier I’ve heard is 15x annual rent, which works out to 180x monthly rent. Below 180x, it makes sense to buy. Above 180x, keep driving. My current rentals run around 130x the purchase price.
As for SF, the investment market is insanely overpriced. It’s strange, especially when you consider all the crazy renter laws (which, as a renter in SF, I can appreciate). I would need a significant discount in price (well below 180x) before I ever considered being an SF landlord.
Simply put, those who purchased decades ago (when prices were more sane) can make money. Anyone who purchased recently is losing money, probably hoping to recover their losses with capital gains when the property sells.
Now that appreciation isn’t looking like a good long term strategy, the investment market is probably going to tank. Just look at what happened to Lembi.
“I have a feeling that the multiplier people on this thread would hope for will never be realized.”
Yes, it is entirely possible that very few SF houses will have a decent multiplier in the near future. There are a variety of reasons for this, such as Prop 13 or rent control or any number of other things.
But good rental property investors will look for a good GRM, and crappy rental property investors won’t. As Q mentioned, it’s much more likely for a speculative (and bad) rental property investor to ignore the numbers and assume there will be appreciation sufficient to overcome losses and transaction costs and sufficient to justify the risk. They are wrong.
I wonder if an initiative repealing both Prop 13 and rent control (if one could be constructed) at the same time would pass.
“Still Not An Official Apple Until It Sells, But A Suggestion (Or Two)” That’s a thread title on Feb. 2, 2009
“It’s Not Officially An Apple Until It’s Sold, But We’ve Seen This Movie…” another thread title
“Yup, it’s not a comp until it sells. Just amused at how comps are only comps when they say what the bulls want.” by diemos
sfrenegade,
I’m not confusing anything I know the difference. It’s just that, using tipsters logic above, you can argue only in the negative on a place that isn’t sold. So, why have a place that hasn’t sold yet on here as an apple.
Maybe there is a place that, for example, is on the market, hasn’t been worked on since it was last purchased, was built by the same people (say it was the spec. house before this one), is in a similar location, and is for sale for much MORE money than it last sold for. That is not an apple for the sake of comparison, but this is. That is why they should be covered after they are sold, IMO.
I don’t really understand the argument. Are you saying there should be less coverage on SS in general? I would disagree.
When the editor says this place is an apple, he is flagging this place as eligible for making simple comparisons of appreciation. I don’t see anything wrong with that.
If you have an apple trending in the reverse direction, please share.
The big advantage of showing apples before they sell is the listings are still up and running.
I am sure listing agents like that too. That’s free publicity after all.
Yes, maybe SF (and CA) has a crazy multiplier of rent. But what would people think is a realistic (for SF) in the longterm multiplier?
For owner occupied, if you have a high tolerance for risk, you might justify up to 250x for a SFH if you’re planning to occupy it for over 10 years and it’s a nice neighborhood. If it’s a lousy neighborhood that you expect to become nice, then you could justify more, but at that point you’re engaging in speculation.
For investment property, if you have a high tolerance for risk, you might justify up to 180x for a SFH if you’re planning to hold it for over 10 years and it’s a nice neighborhood. The multiplier is much lower because you no longer get the owner-occupied tax breaks.
This property falls between investment and owner occupied because it exceeds the $1 million mortgage limit for the tax deduction by a large amount. So in a healthy economy it might make sense at a multiple in the low 200s. I wouldn’t want to pay that much for it in this economy though.
Paying more on an owner-occupied than a rental? Why is that? I don’t quite follow the logic that wants to make residential buyers overpay. Historically you wanted to buy your property to save on the money you wasted on rent. Today, with this demented logic of “if it’s for me, I am ready to pay extra”, this market is upside down.
I understand the need for security, diversifying your assets, having something tangible. But you’re more often better off renting in a nice place (squeeze the landlord for your high standards) while being a landlord of a less nice place (squeeze the tenants with lower standards). You’ll win from both sides.
Also, landlords can depreciate a lot from their rental income. Probably more than owner occupants.
These 180, 250 ratios are laughable, even it’s usually what we see in real life. No wonder we have this crisis. Even without it everyone’s overstretched with these numbers.
150, 120 or less are what long term landlords have practiced. Ask the mega landlords of SF how they built their empires. Of course you don’t get that anymore. Ask the Lembis what happens when you buy at 250+X rent in a rent controlled city.
@lol: “Paying more on an owner-occupied than a rental? Why is that?”
I’ll leave aside the psychology and stick with numbers. Yes, I can depreciate the value of my rental property. However, my income is too large to take the depreciation as a deduction on my income. So, there is no effect on my year-to-year taxes. That depreciation can bank up and lower my capital basis when I sell the property, but, if values decrease, I may not get all that I bargained for. Also, you’re talking about a deduction on capital gains that will be taxed at 15%.
However, if I occupied the property, I would be able to deduct my mortgage interest year-to-year (up to the limit). That’s deductions against whatever your tax bracket is, which is likely significantly over 15% if the majority of your income comes from a job. That’s money in my pocket each year, rather than banking it up for potential future deductions on a smaller tax bracket.
So, there is some economic incentive that favors paying more for owner occupied over investment.
If I were (I won’t) to buy investment/income property in a rent controlled place, I would simply use the current protected tenants’ rents as the basis of the multiplier. But the multiplier for rents should be the same whether or not the rent is stabilized. You are simply multiplying a smaller number. I think investors run into trouble when the assume the rent is going up because they can kick out long term tenants. This is as much (if not more) a risk than using an artificially high multiplier.
@suspicious
A lower rent is just one consideration when dealing with rent control. Another is the cost of eviction. Where I own rentals, I can terminate leases with 30 days notice, for whatever reason. If I need to evict, it will cost me around $500 for filings and attorneys’ fees and take about 30 days. Add another $100 if the sheriff has to go to the property.
In SF, the landlord’s ability to evict without cause is often restricted. Evictions can cost upwards of 5 figures and last months, sometimes with the tenant not paying rent. If your tenant is disabled, you’re talking a lot more.
It’s eviction controls, not stable rent, that prevent me from owning rentals in SF.
“It’s eviction controls, not stable rent, that prevent me from owning rentals in SF.”
This is a huge problem in SF. Having to evict a tenant can wipe out more than a year’s profits. It’s one thing to adjust profit expectations to account for less than 100% occupancy, but it’s another to put all of SF’s tenant protections into the budget and still come out with a reasonable number, even if GRMs made sense.
Don’t get confused between investing in real estate and consuming real estate. The home we live in is really consumption. I consume lots of things for various reasons (comfort, tastes good, fun, goes fast, prestige, etc.) that have nothing to do with the metrics I use to value my investments. I choose to drive an expensive car and I know it really is not a good investment, but the value I receive is worth the cost. Most SFRs are purchased under the this same “consumption set of rules” IMO. In general and historically, investing in SFRs as income properties is a tough biz. Also, SFRs are really not commodities where you can find like-for-like alternatives when renting. Most of the SFRs I have personally lived in never have, or likely will, be available as a rental. All that said, I don’t invest in apartments with a cap rate
SS does not like less than signs.
…with a cap rate less than 8 percent. In addition, under the current rules, I would never buy a rental property in SF. Most of my rental investments are in the greater Puget Sound region.
“The home we live in is really consumption.”
This is a better view of housing than abigrrrl’s view of housing as an investment in the “Purchase Mortgage Volume” thread.
It’s actually quite doable to find multi unit (+5) buildings in SF that are selling for 150.
SFHs, especially nice ones are strictly a consumption luxury around here. The entire existing rental stock of these consists of either owners that temporarily vacated or those hoping for rebound.
It’s pretty clear that most perma bears on this blog never bothered (or can afford) to invest around here, and all they quote is the usual stuff they read in the “media”.
@someone:
150x? Hmmm… Perhaps I will consider being a landlord in SF when my portfolio grows enough to not be completely lopsided by a 5 unit in SF. Which neighborhoods are at 150x?
A friend of mine purchases a four unit in Hayes Valley at exactly 150x in April. They are out there.
Q,
I am lucky (or unlucky?) enough to be allowed depreciation deductions on rentals. This dramatically lowers my rental income taxes. I’d have to compare it with owning (I rent in SF). A very low multiplier makes my rental barely cash flow positive (with no mortgage). I wonder how anyone can handle a rental with a mortgage attached to it. I understand paying off your debt over 10 years. But buying a rental and paying it off 30 years is plain stupid if appreciation (both rent and property) is not in the equation.
R + Q,
150 can be found for multi-units. Just beware of “deferred maintenance”. If you like driving, go to Merced where the ratio is under 120, even way under 100 in some cases.
Look at this puppy.
30% occupancy. Probably a bit of sweat before it pans out.
@lol,
Why do you need to go so far, “the real SF” has plenty of decent buildings around 150
Like http://sfarmls.rapmls.com/scripts/mgrqispi.dll?APPNAME=Sanfrancisco&PRGNAME=MLSPropertyDetail&ARGUMENTS=-N713957820,-N251811,-N,-A,-N25024287
or
http://sfarmls.rapmls.com/scripts/mgrqispi.dll?APPNAME=Sanfrancisco&PRGNAME=MLSPropertyDetail&ARGUMENTS=-N713957820,-N249814,-N,-A,-N25024287
I also don’t get your point about mortgage
If you buy a bldg with cap rate > 6% and can finance it with 5%-ish loan, you can probably generate losses using deprecation and have basically 7% tax free ROI on your down payment.
It’s clearly not that simple, but kibitzers and arm chair investors wouldn’t know b/c they dont even try
someone,
150 in SF doesn’t cut it. My expenses will go up with inflation, but my rents wont… In 20 years, the rents would barely cover maintenance if inflation was 4%/y but rent control squeezed it to 2%/y. Of course if you have that the best thing is to sell. That’s speculation, as I said earlier…
Also, mortgages do help thanks to leveraging. A friend of mine got tired to subsidize a frigging tenant, therefore he sold some property and paid everything else off. With places free and clear, he is keeping 25% of the rents when averaged over the holding period. Some investment… The only reason you CAN make money is appreciation, again. Remove that and you’re collecting less than a 5-Y CDs with phone calls in the middle of your workday because this or that broke down. 2.8% CDs do not whine.
Rental investment is mostly a fools game in SF. Contractors are overpaid. Architects are overpaid. Realtors are overpaid. Lawyers are overpaid. The city will squeeze you dry with over-regulation. 5 people you have to deal with at some point if you really mean business. My principle is try not to pay people who make more than I do. Pay yourself first. Always.
Better invest in a place where your bucks will last longer and where renters have the standard US rights. Sad to say, but SF-ers are spoiled brats who mistake entitlement with social justice. That’s why I am a renter here!
In short, the only reason it can work is because of the low price. And low prices are nowhere to be seen in SF. $500/sf is not low. Not even $300/sf. You might make some decent money at $250/sf and less. You know, landlord as a business. The way it’s supposed to be.
someone,
I forgot to comment on your 2 links. Both are in the $250/sf (my criteria for a decent return in SF), but both are fully occupied and grossly underpaying.
462 27th street with 6 units collects roughly 80K/year, or roughly 1100/month. With parking. That probably 50% of the market price. Rent control is doing its slow grinding magic and fixed costs must be eating up a lot of your profits.
I would buy this property at that price. Without the tenants (and an eviction).
643 Webster is in the same shape. 90K in rents or a whopping 800/month per unit. 50% again. OK for the price, without the tenants.
For both properties, the best business option is to do an Ellis eviction and sell them as TICs. Just hope you do not have a professional whiner in the lot with a Supe on his speed dial. In that case, you’re screwed like the Jasper Place guy.
lol,
you make a good argument there. probably good enough to scare off most people. which is just fine b/c most people are not suited to be ll’s in sf.
of course those of us who actually do know this biz in this town are quietly chuckling to themselves. after all, conventional wisdom like you spout is widespread.
good luck with your less than 3% cd investments.
Where are you borrowing money for a commercial (5+ unit) property at 5%? I checked recently and rates were around 7%. If I could borrow at 5%, there are a lot of places that are interesting.
BOM @ 2.55. These guys have been trying to sell this place for almost three years off and on.