Investment condo for rental in SOMA or Pacific Heights

Asked by Anne_2009, San Francisco, CA Mon Dec 21, 2009

Hi,

I am looking to buy an investment property around $500K-$600K in San Francisco and rent it out. I have been looking mostly in SOMA. What are your thoughts about it and which areas and buildings would you recommend? From my search so far I like Metropolitan the most in SOMA. I am not that impressed with Beacon however prices have dropped so much that it might be a good buy now as well.
I have seen on unit in Pacific Heights which I like too. here are the listings. Would appreciate any comments and suggestions from agents or anyone else.
Metropolitan:
http://sfarmls.rapmls.com/scripts/mgrqispi.dll?APPNAME=Sanfr…
Pac heights:
http://sfarmls.rapmls.com/scripts/mgrqispi.dll?APPNAME=Sanfr…

Thank you,
Anne

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Answers

15
Paul Hwang, Agent, San francisco, CA
Tue Jan 5, 2010
Definitely SoMa / South Beach.

I looked for 2 years before buying my first home in San Francisco, and it was at Museum Parc. Let me tell you from personal experience that this is a fabulous location to explore the city from on foot. It is so close to great food (i.e. One of the best burgers in the city: Moes), culture (MOMA), entertainment (Metreon), shopping (Bloomingdales) and adventure (Ferry Building to Angel Island, Sansome steps to Coit Tower, XYZ and the W Hotel, Pac Bell Park, etc.))

I have represented a lot of buyers / sellers (40+ Infintiy, 20+ One Rincon Hill, Metropolitan, Watermark, etc.) in SoMa / South Beach and hope I will have the opporutnity to show you what SoMa has to offer. If you give me 2 hours of your time I will give you back a personal tour of SoMa and the reasons I love SoMa.

There are also excellent REOs coming up too (at least 3 in the Met).


Paul Hwang
Your SoMa / South Beach Super Broker
Skybox Realty
415.216.8746
Web Reference:  http://www.paulhwang.com
0 votes
Mack McCoy, Agent, Seattle, WA
Mon Dec 28, 2009
Cheryl, that's a good point; I am only curious as to what a typical rent:price ratio might be. For example, if Anne buys a $500K condo, what could she expect it to rent for?
0 votes
Cheryl Bower, Agent, San Francisco, CA
Mon Dec 28, 2009
Hi Anne,

As you are aware, SOMA and Pac Heights are completely different neighborhoods. Making a decision on location will really depend on your goals including whether or not you intend to one day live at the property. That being said, you can’t go wrong with Pac Heights, one of S.F.’s premier neighborhoods. This summer, a client of mine purchased a beautiful 1-br condo in Pacific Heights which has amazing views of S.F. Bay and the Marin Headlands from the roof deck-it would probably rent for ~$2300-2500/mo.

As has been mentioned, hire a Realtor who has experience in the rental market. He/she can help you in the process as well as estimate rents for properties of interest.

What I’ve found in my 10+ years of owning rental units is that 1-bedroom units offer some moderate turnover as a result of a tenant/s outgrowing the space &/or relocating for work. I wouldn’t rule out a property that might fall under rent control since depending on the property, amenities and location there will likely be turnover at which time one can raise the rent to market rates. There is that balancing act of having market rents but also not too much turnover.

Are you planning on self-managing the property or hiring a property management company? There can be pros/cons with either approach.

If you are open to going pet friendly you will be able to set your rental apart from the competition (allowing dogs at my rentals is one way I’ve been able to keep my units rented during 2 soft rental market cycles). There will be pet policy details in the CCR’s for condos.

Here is a link to a post from 2008 with more rental tips/insights:

http://www.sfbungalow.com/2008/08/08/san-francisco-rental-market/

Mack, I'd recommend using comparable sales to help determine value of a single unit not GRM. It's very common with S.F. rental property to be in the red the first few years unless one is coming in with a large down payment. S.F. has high entry costs and if dealing with a multi-unit rent controlled property very likely some units will not be at market rates; determining the cap rate would be helpful for a multi-unit property.

Best wishes,


Cheryl Bower, Realtor , GRI, ABR
Cell 415.999.3450
Zephyr Real Estate
Cheryl@cbower.com

http://twitter.com/SFBungalow

http://www.cbower.com

DRE#: 01505551
Web Reference:  http://www.sfbungalow.com/
0 votes
Mack McCoy, Agent, Seattle, WA
Wed Dec 23, 2009
So, what's a rough GRM for one of these babies? Every time I'm down there, grabbing breakfast on Polk St, I have fantasies about buying something, renting it out, and coming there to retire. Which isn't going to happen, but I am still curious!
0 votes
Jin Chen, Agent, San Francisco, CA
Wed Dec 23, 2009
It really depends on whether you are buying to move in or to rent out. If you are moving in, you need to concentrate on the floor plan and the facility the complex can offers. However, if you are investing, you would have to consider the HOA due which the tenant won't pay and it is not tax deductible. I think both of the units are fine for the asking price. SOMA has more inventory now, you might be able to pick up a good deal. Remember, Condo market is still a buyer's market. Pacific Heights is always a great choice if the price is right. Remember the golden rule for real estate: location, location, location.

If you need my help, please contact me at 415-505-3891 or email me at jinchen@sbcglobal.net. Have a wonderful holiday.
0 votes
Michael Novia, , San Francisco, CA
Tue Dec 22, 2009
Hi Anne.

It sounds like you are more concerned about the landlord issues as opposed to choosing the neighborhood. At the very least you may want to speak with a leasing agent about current market rents and what issues landlords are having these days locating tenants. I can introduce you to our Sotheby's leasing agent if you decide to do that - may be a good place to start. A good friend of mine who owns 6 buildings in the city - Hayes Valley & North Beach mentioned that his units are renting out but are take longer and that his rents are down from last year. Also, if you have not been on it yet the tenants union website provides a wealth of information and could be a good resource for you (see link below).

My initial thought was that you were more concerned about the building type as opposed to the neighborhood. As I'm sure you are well aware SoMa consists of three neighborhoods - South Beach, South of Market and Mission Bay and could not be more different from Pacific Heights. Truly apples and oranges. Pacific Heights is an amazing neighborhood but prices have come down there as well as every where else. Last year the median price for a 1 bed condo was $750k and this year it is $610k. In South Beach the median dropped from $629k to $554k. One note to remember about SoMa is that most of the sales in the new developments do not get recorded. For instance the Infinity was the fastest selling new development in the country this year - selling over 300 units - their lowest price is now $1.160 mil. There is very little new inventory in the pipeline - I believe that One Hawthorne is the only new development that will open it's doors next year. While you obviously need to be careful what unit you eventually purchase, your homes value in SoMa over the long term will appreciate right along with the rest of the city.
0 votes
Lance King, Agent, San Francisco, CA
Tue Dec 22, 2009
Anne,

The others' comments on limits are right, but there are also some other issues if you want to recover possession of a property while tenant occupied. San Francisco is complicated so you may want to contact a real estate attorney who specializes in landlord-tenant law to get a full understanding of the pictures (happy to recommend if you want). Also, there is some current movement to try and get properties built after 1979 to fall under rent control as well. I do not know the ramifications of what happens if that passes with regards to tenants in place, or it would only apply to subsequent tenants.
0 votes
Michael Fane…, , Pacific Heights, San Francisco, CA
Tue Dec 22, 2009
Pacific Heights over SOMA hands down...for all of the reasons that my colleagues mentioned AND as a fuction of re-sale...the continued glut of supply in South Beach/SOMA will keep the area "soft" for many years to come.

Mike Fanelli
Pacific Union
415.447.6254
Web Reference:  http://www.SFluxuryhhome.com
0 votes
Michael Robe…, Agent, Rancho Santa Fe, CA
Mon Dec 21, 2009
Anne,

Correct, when you have an existing tenant you are limited on your increase each year however when the tenent moves out then you are free to raise it to market rents. You should avoid properties that have existing tenants that are protected or below market rate which will effect the resale price.

Happy Holidays.

Michael W Robertson
McGuire Real Estate
415-296-2197
0 votes
Anne_2009, Home Buyer, San Francisco, CA
Mon Dec 21, 2009
Thank you everyone for your helpful comments. The point about pacific heights unit being rent control is definitely something to consider. I have looked at renter board website http://www.sfrb.org/ and my understanding is rent control limits rent increase over a year for existing tenants however new tenants rent will not be set based on old tenant. Is this true?
Can you please let me know if rent control is something that should stop me from buying there or not.

Any comments is greatly appreciated.

Anne
0 votes
Rob Regan, Agent, San Francisco, CA
Mon Dec 21, 2009
The one at 2040 Franklin looks like a great deal to me.... I've seen it several times. I haven't seen the one at 333 1st St, but there appears to be nothing special about it vs. all of the other 1BR's in the area. Meanwhile, the 2040 Franklin unit has a large deck off the living room, visible from the LR's floor to ceiling windows, and the LR and deck has partial Bay views - that's pretty unique. In addition it has tons of closet space plus parking and storage... so to Jed's point, I'd buy unique over not unique... and my guess is the extra rent you'd get for Franklin over 1st would make up for the $100,000 difference.

Michael is right - the laundry is common, but it's on the same floor as the unit, as is a trash chute. He's also right that it is pre-1979 so do your homework on the rent ordinance and rent it right. But I personally would still favor a north end of town condo with unique features over something where there's enormous price pressure on both rent and sale prices due to the huge supply of newly built copy cat condos.
0 votes
Lance King, Agent, San Francisco, CA
Mon Dec 21, 2009
Anne,

While prices are down on the high-rise/amenity buildings, I do not recommend them as an investment strategy. The HOA fees are high compared to smaller unit buildings, and you can put the extra money into more unit. Additionally, the exit plan can be difficult as you will likely be competing against similar units in your building when you go to sell, let alone on the open market.

One of the things that has been a constant throughout this more difficult market is that when you have a unit that has something special about it it is more likely to sell (assuming offer price is accurate). If a buyer can go look at 20 or 50 more units just like yours, why would they buy yours, espcially in an uncertain economy? There have been a number of units in smaller buildings that make sense from an investment point of view, and I would be happy to discuss these with you off line.

Best Regards,

Lance King/Managing Broker
415.722.5549
lance@fixedrateproperties.com
0 votes
Michael Novia, , San Francisco, CA
Mon Dec 21, 2009
Up to $600k in SoMa as of today you may want to consider....200 Brannan, The Watermark or 246 2nd Street.

The Beacon - Last time I checked, which was about a month ago a lot of banks had stopped lending in there. You either need all cash or a large down payment.

The Met - Prices have come down a lot here too. This unit is a short sale and was purchased for $660k in 2007.

Jackson Tower - Looks like this one has been reduced from $729k. Laundry is common.

By about the second week in January we'll see inventory levels pick back up and you will have more to choose from. My suggestion would be to buy in a newer state of the art building. Everything from the soundproofing to newer appliances will make your life easier as a landlord, not to mention that buildings constructed after June 13, 1979 are exempt from the rent ordinance. Please let me know if you need further assistance. It looks like I am going to work right through the holiday, so I am available to meet this week and next.
Web Reference:  http://somahomesearch.com/
0 votes
Michael Robe…, Agent, Rancho Santa Fe, CA
Mon Dec 21, 2009
Good afternoon Anne,

Both these units are very nice and both will draw different renters. The unit on Franklin will probably bring in an older renter then the one on 1st Street. Both are priced very nicely and both HOA dues are very close. Both offer parking which is a plus. The one downside to the 1st Street place is that it is older then most the other units in that area. There is a lot of new buildings that offer state of the art ammenities which nether of these units offer and that will affect your rental income.

If you would like to discuss these places or other ones in those areas please feel free to drop me a line or email.

Happy Holidays.

Michael W Robertson
McGuire Real Estate
415-296-2197
0 votes
Jed Lane, Agent, Petaluma, CA
Mon Dec 21, 2009
Your investment analysis should look at resale as well as cash flow. Purchase price in the Beacon compared to the rents make it attractive. The price dropping is due to the supply and demand issues. I have continued to counsel my cleints to buy a condo that has a unique value proposition. If it is just another run of the mill condo down a long hall it will not hold value as well as a property with some selling feature.

But really this all depends on a well thought out investment strategy that is yours. How long will you hold it, do you need cash flow, what equity stake will you have going in? All this and more needs to be thought through.
0 votes
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