Home Buying in San Francisco>Question Details

Heidi White, Home Buyer in San Francisco, CA

Which would command a higher price in San Francisco Marina District?

Asked by Heidi White, San Francisco, CA Mon Jan 6, 2014

A single family home (2400 sq ft) or a mulit-unit builiding consisting of 2 units (1,900 sq ft 2bed/2bath and 600 sq ft legal studio)?

Help the community by answering this question:

Answers

11
In your question you don't mention "non-conforming" unit, rather "legal" studio.
0 votes Thank Flag Link Mon Jan 6, 2014
The premise is that if the unit is subject to rent control -- any property, including a SFR is affected IF it is rented before you buy -- it affects the value. This is true if the rents are artificially low as a result, and maybe not so affected if rented at true market rents. For instance, I was approached by an out of state homeowner (who inherited the house), and he wanted to sell it without understanding the effects of the rent ordinance. After a year of dealing with the issue of that 18-year rental arrangement, which was extremely under valued, he found out he would have to buy the tenant out if he wanted to make repairs to sell the house, an added expense that could cost him as much as $40,000! It isn't that one is affected adversely, it is that the adverse effects are a by-product of the existing rent versus what you may want to get for the unit afterwards. Another pertinent question is -- DO YOU WANT TO BE A LANDLORD? (suggestion, watch PACIFIC HEIGHTS, LOL).
Flag Mon Jan 6, 2014
Sorry again for the confusion. Yes i did mean "legal". I guess my question boils down to is a single family home vs. a legall 2 unit duplex worth more given same sq ft, location, condition, etc....? The article I posted purports that a legal 2 unit duplex is worth less than a single family since the legal 2 unit duplex would be both subject to rent control vs a single family home which is not.
Flag Mon Jan 6, 2014
Sorry for the need for clarifcation. The article though states a new law which may allow single family home owners to illegazlize their "illegal mother-in-law units" (assuming they are subsequently conform to code). However,the drawback would be to actually lower the property value since the single family home would be converted to a multi-family which is subject to rent control. Any thoughts?
0 votes Thank Flag Link Mon Jan 6, 2014
Grandfathered in-laws is not a new proposal, it is one that has been around in the City since the 80's for the same reason -- revenues to the City for permits & re-assessed tax base. That aside, and the rent ordinance notwithstanding, my original response stands. If you buy a single family dwelling and rent it, you will still have the same issue(s) to contend with. A more precise evaluation is whether or not you want to live in a City known for these issues or buy elsewhere where they are non-existent. Part of the allure is the uniqueness, and with it come these sundry issues. Shouldn't affect your future appreciation, as such.
Flag Mon Jan 6, 2014
An investment in real estate in San Francisco, particularly in the area you've mentioned, on the short run will be a pricey proposition, one that might not bring you a windfall any time soon. However, real estate had never been a short term proposition up until that time of an unbridled boom, where appreciation skyrocketed to as much as 20 percent PER MONTH!
Typically appreciation is estimated, conservatively, at about 4 -10% per year, a safe number to estimate your short term potential. Given that San Francisco has an inherent appeal – internationally, anything you decide to buy will have that uniqueness about it, rendering it a one-of-a-kind proposition that will tend to increase more than the rest.
The article you refer to talks about a common phenomenon in the City, where long-term homeowners improve their basements or garages with added, “bonus” mother-in-law units, and these without the required permit process the City wants. As such, the article doesn’t address the facts of your contemplations – a single family residence with a “bonus” apartment is not the same as a single family residence AND a true “Duplex” (or two residential units – legitimate from inception), the latter, if it is proper, will cost you considerably more than a house!
For the sake of consideration, and all things being equal, you’ll pay more for a duplex, at a similar appreciation, you’ll get more.
0 votes Thank Flag Link Mon Jan 6, 2014
Long-term financial modeling would give you a better picture of what would be a better long-term investment. The difference between a single residence and multi-unit carries different tax treatment.

With a multi-unit, for example, the income from the rental unit may be first subject to a residential depreciation deduction essentially limiting what gain is taxed. This can have a large impact over time. In addition, with multi-unit, when it comes time to sell you may leverage a 1031 exchange which will defer capital gains on the entire gain subject to limitations.

On the other hand, a single residence offer tax benefits such as the mortgage interest and property tax deductions during occupancy and ownership. The greater benefit comes upon sale where if certain conditions are met $250,000 of any gain is untaxed if single and $500,000 if married.

Your objectives and goals will ultimately dictate the better long-term investment. I'd welcome a confidential, no-obligation conversation should you like to discuss further.
0 votes Thank Flag Link Mon Jan 6, 2014
Heidi:

This is not a simple question at all as the Marina is a big area and there are a lot of variables such as exact location, views, condition of units, outdoor space access, are there tenants in either or is it to be delivered vacant, is the building rent controlled, etc.

In general it sounds like you are looking for an investment property if you want to know which will command the higher price. When it comes to investment properties most investors make a decision based off the Net income coming in from the property and the expenses going out from the property and how much they will have to spend for the property.

If you are an investor definitely get the 2 unit building. If you buy a house to live in then you are paying money in property taxes, maintenance, etc. without receiving any income and are cash flow negative. While if you buy the multi-unit you get rental income to offset your costs and will usually be cash flow positive. Now if you are looking to rent out the house or the two unit and not live in either than the decision is more complicated. Also investment property typically allows you more write offs against the property for tax purposes.

Best of luck. Feel free to contact me if you have any questions or want specific advice.

Greg

GB and Associates
Cell (415) 640-4341
Fax (415) 946-3467
gregorybryan@gbandas.com
DRE#01797646
Web Reference: http://www.gbandas.com
0 votes Thank Flag Link Mon Jan 6, 2014
Thank u very much for your responses. To clarify, I am looking to buy a house or 2 unit building in a desirable part of SF. Was wondering what would be a better long term investment - multi or single. From what I just read per the article below, it seems like single has more value given same location, sq footage, condition etc.. due to the rent stabilization ordinance. Any comments or comps would be appreciated.

http://www.sfexaminer.com/sanfrancisco/property-owners-warn-…
0 votes Thank Flag Link Mon Jan 6, 2014
It has alot to do with the area as well. Do you have a real estate agent? They should be able to give you a report on price appreciation based on area for SF

Alex Greer
Loan Officer
NMLS #1056079
http://www.TheMortgageOutlet.com

408-352-5147
AGreer@TheMortgageOutlet.com
Flag Thu Jan 9, 2014
Great questions Heidi! I like that you are an investigative buyer. Which means you are clearly thinning out this decision and going to make an informed investment. A good long term return can be determined by different factors and are different for each investor/owner. Are you looking only at the appreciation of property value, or are you considering the potential of renting out the property for future income potential. Both can be considered a "good" long term investment depending on what you have planned. Are you going to be living at the property as well? There are many factors involved in an investment, this is why I typically have a buyer strategy meeting to go through these questions to get a better understanding of the ultimate goal and advise accordingly.

If you a ready to do so, you may email me at langford@climbsf.com or reach me on my cel at 415.336.8191
Flag Mon Jan 6, 2014
This question isn't as simple as it may seem. There are many different factors that contribute to the value of a home. Of course location is key, but condition of the property is important as well. An updated single-family home might fetch more than a 2-unit at times and of course can be reversed with an updated 2-unit property. Another factor is occupancy of the 2-unit building and what value that holds to the investor. Is this an investment for rental income or to reside in the unit?

Below is a look at market performance for both types of properties over the past 6 months.

Single-Famiyl Home (2,400-2,600 square feet)
Average Sales Price: $2,356,356

2-Units (1,900+ square feet)
Average Sales Price: $2,525,000

Hopefully this give you some idea of the current market for both types of properties. I typically have a buyers strategy meeting to determine the actual goal you are trying to achieve. Having this conversation allows a professional like myself to give you better advice as to what might be the better route to take.

You can reach me via email langford@climbsf.com or phone 415.336.8191

Cheers!
George
Senior Sales Associate | Top Producer
Climb Real Estate Group
0 votes Thank Flag Link Mon Jan 6, 2014
Plenty of variables including condition and parking - do you have specific properties in mind? $900-1,000/sqft is a rough estimate.
Web Reference: http://Www.chezsf.com
0 votes Thank Flag Link Mon Jan 6, 2014
Heidi,

Location is going to be the most important consideration here, and condition of the two properties. Assuming they're both in the same condition and the same location, I would say the multi-unit because there are a lot of people out there looking to owner occupy one unit and rent out the other to take advantage of the great rental market here in the city. Investor buyers will also be looking for rental income rather than their next home as well so it will appeal to a broader audience. Do you have a building you're considering converting and selling? I'd love to hear a little more about why you ask and take a look at the property to give you a much better sense of value (feel free to contact me directly). Please let me know if there is anything else I can help you with as it would be my pleasure!

All the best and good luck with your home,

Aaron Bellings
Realtor, Vanguard Properties
Aaron@vanguardsf.com
BRE #01915431
(415) 601-3000
0 votes Thank Flag Link Mon Jan 6, 2014
Heidi:

There are many factors to consider when posing this question. For one, condition and location of the two properties are of utmost importance. Second, when talking about a multi-unit building, will/are there going to be existing tenants in it already? If so, what are their lease terms and can you ultimately have current market rent in place? Finally, do both properties offer parking?

Please feel free to contact me with any further questions regarding this scenario.

Good luck!

Gabriel
0 votes Thank Flag Link Mon Jan 6, 2014
Multi unit building. Do you have a real estate agent to help you with the search? Have you been pre-approved for a loan?

Alex Greer
Loan Officer
NMLS #1056079
http://www.TheMortgageOutlet.com

408-352-5147
AGreer@TheMortgageOutlet.com
0 votes Thank Flag Link Mon Jan 6, 2014
Search Advice
Ask our community a question
Email me when…

Learn more

Copyright © 2016 Trulia, Inc. All rights reserved.   |  
Have a question? Visit our Help Center to find the answer