February 10, 2011
Restored Richard Neutra Flat Returns As A Rather Targeted Rental
Withdrawn from the market a year ago when asking $3,950,000 for the restored Richard Neutra duplex at 2056-2058 Jefferson, it’s a plugged-in reader that catches the upper unit now listed for lease on Craigslist asking $8,500 a month.
Yes, the rental includes access to that swanky 800 square foot roof deck "with panoramic views of the Golden Gate Bridge and the Bay" (but no longer the Palace of Fine Arts).
We'll also note the reference of proximity to the St. Francis Yacht Club and an option to lease the flat fully furnished (although we might suggest modernizing the bedroom decor).
First Published: February 10, 2011 3:00 PM
Comments from "Plugged In" Readers
* drool *
This is the first time I wish I owned a yacht.
Posted by: Kurt Brown at February 10, 2011 3:27 PM
Had been for rent for at least 6 months I'd say.
Posted by: eddy at February 10, 2011 5:57 PM
Doesn't rent at that price? Let's pull our little rent-vs-own calculators, shall we?
Say this is worth 7K/month. This would bring the fair price of this place at around 1.4M, which doesn't make sense. What doesn't make sense neither is renting out this place. It's too large for that purpose and you'll never cover your costs. Even after owning outright the place you'll collect 2 or 3Ks. If you have 2-3M in capital, there are easier ways to make a couple of 1000s/month lie 5-Y CDs.
2006 it is not. At that time you could make bad decisions and get away with it, 2008 would come to rescue you. Gravity is there and albatrosses don't fly that well anymore.
Posted by: lol at February 10, 2011 11:03 PM
You bring up an always valid point of rent vs buy in this case, what assumptions are you using to get the 1.4m to equal 7k/ month?
At 4% alternative return, I calculate a 1.8mm rental equivalent.
Assume 1% annual appreciation
1.5 percent annual rent increase / inflation
4% return on your savings ( the 20 year median return for the S&P according to the NYTimes)
35% tax rate
21k annual prop taxes
1k annual insurance
1.5k annual maint
5% mortgage rate
3% closing costs
5% selling costs
5 year hold ( i calculate an even higher purchase equivalent for longer hold periods)
Posted by: Been There at February 11, 2011 9:41 AM
If you are willing to invest into rental properties, you cannot seriously hope to keep your shirt at more than a 200 price/rent ratio. A barely acceptable ratio is 150. A good deal is closer to 100. If you find less than 100, make sure you're not in gangland. But 250? I'd love to be your renter, because he's getting a lot of bang for his bucks.
Rent increases and property valuations are not a given. You ave to maintain the place. You have downtime (like waiting for 6 months to get a renter). Shave around 1/3 for anything unforeseen.
In theory your numbers could make sense, but as someone who has done rental investments I can tell you that even a 150 ratio will not make you rich except for the possibility of appreciation. This is what the game is all about for most: appreciation on a leveraged investment.
Posted by: lol at February 11, 2011 10:24 AM
Too many variables in your formula for me.
I prefer to keep it simple. $102,500 annual rent (which they couldn't get) on a $3.95M property (which they couldn't get)is a 2.58% return before expenses!
On this property, I'd like a little more margin of safety, and obviously, so would the rest of the market
Posted by: Snowball at February 11, 2011 11:40 AM
I now see what you were referring to. You are looking at the potential as an income property.
I am looking at the analysis of renting a place from a landlord for 7k or buying it for myself a 1.4 mm.
To be sure that i understand your general rule of thumb, what would be the right price to pay for an income property that would cash flow about 1500 a month before taxes and
Maintenance ? 1.5x the annual rent? Thanks n Been there
Posted by: Been there at February 11, 2011 12:20 PM
There's no right price per se. It's always too expensive when you're investing into rentals. I always say Free is always the right price ;)
There are acceptable prices and multipliers, but you have to consider several variables that will affect your math:
- Fixed costs (HOAs). Luxury towers with 1500/month in HOAs for a potential rent of 4500, no way.
- Condition of the place. how much will you spend in the next 20 years to keep it in good shape. Does it need to be adapted to be rented?
- Adequacy of the place to the local rental market. Are your potential renters attracted to your property? A place in a car-centric area must provide parking otherwise it's going to sit.
- Buy-to-live market. It's a killer in SF. Many are purchasing a place for themselves and are ready to pay a premium. If you are bidding up against others, it's probably a sign it's too expensive. You want a place that has a flaw for a regular homeowner family but not big enough to prevent renting. TICs, for instance, are lower in cost and the structure of the deal makes it rather unattractive for Johneses types, though renting out a TIC can be a pain. A family place without parking, as long as public transit is close-by, would work too. Plus, if there's such a flaw, you'll have less chances of having a long term tenant.
In short, low upkeep cost, low purchase cost, attractive enough to get a decent rent, but not too attractive to be snatched by live-in owners. There's no mystery. If you find such a place, try and get it for less than 15X annual rent.
Posted by: lol at February 11, 2011 3:19 PM