In San Francisco real estate, it’s hard to find investment property that will cash-flow positive or break-even. But with the decrease in property prices, low interest rates, and the increase in rental rates, it has now become possible.
I have searched the San Francisco real estate for the best deals, and all of the properties I’m currently recommending are San Francisco condominiums that are in the ‘short sale’ process. A ‘short sale’ is a property sale where the proceeds fall short of the balance owed on the property. It typically occurs when an owner cannot make the mortgage payments on their property, but the lender decides that selling the property at a moderate loss is better than foreclosing, which involves hefty fees for the bank.
The investment strategy for such properties will depend on your needs. San Francisco real estate has very significant upside potential and is being sold at levels well below value and in some cases close to prices that occurred in 2000. There are few new San Francisco condo construction projects scheduled to be built in the near future, so inventories should continue to decline and remain at close to absorption rate for several years. With the condo inventory decreasing, price increases should follow.
I like San Francisco condos as an investment for several other reasons:
- San Francisco condos are not subject to the same rent control laws that San Francisco multi-unit buildings are encumbered with, so rents can be kept at market rate.
- San Francisco condos are usually easier to maintain as they have an HOA to maintain the grounds, exterior and other common structural elements and mechanical systems.
- San Francisco condos are easier to rent as most tenants would rather live in a condo as opposed to an apartment.
- San Francisco condos are easier to resale: a multi-unit building can be hard to finance and the market is limited.
- San Francisco condos in good locations appeal to a wide variety of renters and buyers.
- Historically, the condo market in San Francisco real estate has been unusually robust, and with limited land for new development there is no reason to believe this trend won’t continue.
170 Pacific, #49 Click here for detailed information
This unit is a short sale and subject to a bankruptcy court approval. There is an offer pending of $930,000 but before the court will approve the sale it will seek higher offers. For the purposes of this financial analysis I have used a sales price of $950,000.
The unit is located in the North Waterfront area close to Levi Plaza and the future America’s Cup Village. The complex is very upscale, and it is very unusual to have a distress sale in this area.
I reviewed current rental offerings and estimate the rent to be $5,600/month. In 2000 there were two sales of similar size units ranging from $892,000 to $990,000. Based on current sales the value of this unit is approximately $1,050,000. I feel this is a very low risk investment based on the location and the complex.
2077 Jackson St, #304 Click here for detailed information
This unit is in Pacific Heights in a good location and is priced at $449,000. The complex has 19 units and was built in 1959. This unit has been updated and has parking. The estimated rent for this unit is $2300 to $2700.
This is a short sale and has been on the market since June 2010. It sold in August of ‘99 for $362,000, September of 2007 for $669,000 and other similar units sold in 2000 for an average of $468,000.
2295 Vallejo St, #103 Click here for detailed information
This is another Pacific Heights unit on a very nice location on Vallejo at Fillmore. The estimated rent is $2,900/month. The unit is a short sale and is on the market for $575,000. The short sale has been approved at the price. The unit sold in January 2006 for $641,000 and March 2007 for $725,000. Other similar units sold in 2000 for $467,000 to $515,000.
The unit has been remodeled with hardwood floors, a fireplace, views of the water and Golden Gate Bridge. The complex has a sauna and a gym. There are 43 units in the building and the HOA dues are $429/month. I think this represents a great deal with very good upside potential.
236 States Street Click here for detailed information
This is a small condo in a two unit complex. This unit is two bedroom one bath, with nice views from all windows and high-end upgrades. It was on the market for 90 days at $749,000 in October of 2008 (possibly the worst time to sell a property). It has since been re-listed at $558,000. Similar units sold in 2000 around the $520,000 price level.
With HOA dues of $200 and estimated monthly rent of $2,800 to 3,200 it is a good investment in a premium location.
601 Van Ness, #221 and #65 Click here for detailed information
These units are located in Opera Plaza on Van Ness at Golden Gate. The building offers a gym, pool and shops on the ground level. Parking is available for an additional fee. Perception of the building is neutral. I don’t know anyone who has strong feelings about it, good or bad. It was built in the early 80’s and was successful at its launch and continues to perform well for both sales and rentals. The rental rate for a one bedroom is currently $2,495, and two bedroom units are renting for $3,000. The prices for these units have decreased significantly due to the new construction projects in the Civic Center area and downtown. The building’s amenities make it a popular rental location. Unit #221 is a one bedroom unit listed for $288,000 and #65 is a two bedroom, two bath, townhouse style unit.
1 Daniel Burnham Court, #504 Click here for detailed information
Daniel Burnham Court is located at Van Ness and Post across from the new location for CPMC. The area should benefit from the addition of CPMC. This unit is a 745 sq. ft. one bedroom, one bath unit with parking. The building has top notch amenities: a health club, pool, spa, sauna, roof garden and doorman as well as limited guest parking. This unit sold in 1997 for $180,000, 1998 for $250,000, and 2005 for $535,000. Similar units were selling for an average of $430,000. I think the future rental potential for this unit is very good. Currently the estimated rent is $2,500.
425 1st Street, Units #1308 and 1305
These units are located at One Rincon – the tower that is beside the 101 Freeway and looms over the City. The developer has almost finished selling the units, but plans for the second tower are still on hold. Rentals in the building go quickly and are in demand. There are all the amenities that one expects in a high rise: doormen, valet, gym and pool.
Unit 1308 is a 765 sq.ft. one bedroom unit with perfect Bay Bridge views. This unit sold in February 2008 for $729,000. I feel that $595,000 is still too high a price given that an identical unit on the 46th floor sold in December 2010 for $680,000. This unit would rent for between $2,900 and 3,200.