Author Topic: Keep or sell rental property in San Francisco  (Read 22819 times)

waltworks

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Re: Keep or sell rental property in San Francisco
« Reply #50 on: May 28, 2014, 06:07:08 PM »
If I tell you not to play the lottery, and you win, does that make my advice bad? Or does it mean you should put all that money back into lottery tickets?

-W

Fair enough, I think we just fundamentally disagree about how to evaluate an investment, then.

-W

Yes, and that's fine.  One other thing occurs to me though... Would anybody advising the OP to sell have liked the numbers to begin with?  A $1.1 million purchase price that could command a monthly rent of maybe $5,000 at the time?  I highly doubt it.  That would put the rent at less than 0.5% of purchase price.  And yet that purchase led to a $1 million equity gain.

Poorman

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Re: Keep or sell rental property in San Francisco
« Reply #51 on: May 28, 2014, 06:31:35 PM »
So buying real estate is playing the lottery?  Talk about a strawman.  The issue is that most real estate investing advice completely ignores income and rent growth when valuing a property, which leads to sub-optimal decision making.  Focusing only on current yield is a mistake when evaluating a property.  You also need to ask what the yield is going to be in 5 years, 10 years, 20 years, and beyond.

arebelspy

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Re: Keep or sell rental property in San Francisco
« Reply #52 on: May 28, 2014, 07:01:32 PM »

I also find it funny that you say people shouldn't talk about what they aren't qualified to talk about, then you do so, such as ith this "fact":
whereas in Vegas rents are actually falling due to the influx of landlords.

Which is flat out false.

This site lists rental rate history and shows a rent decline for 1 and 2 bedroom units since 2009.  For all size units, it shows a slight increase or flat depending on the exact months you compare.  That is still a loss when adjusting for inflation.

http://www.rentjungle.com/average-rent-in-las-vegas-rent-trends/

The Las Vegas Review-Journal also highlights rent decines in their headlines.

http://www.reviewjournal.com/business/housing/rental-housing-prices-down-82-percent-las-vegas

I'm sure you know better than these sources of hard data for your individual rentals, but realistically, the average investor in Vegas is facing stagnant to declining rents.  Yuck.

You said they are "falling"  Not that they fell.  They fell, and have been rising since 2011.  Both of your links confirm that.  It is more accurate to say that Vegas rents are rising.  They aren't at all time highs, but neither are prices.  Still, prices have risen a lot since 2011 as well, and one wouldn't claim that prices are "falling" just because you can look at a time from the peak and say they're not at an all time high, so they must be falling.

So buying real estate is playing the lottery?  Talk about a strawman.  The issue is that most real estate investing advice completely ignores income and rent growth when valuing a property, which leads to sub-optimal decision making.  Focusing only on current yield is a mistake when evaluating a property.  You also need to ask what the yield is going to be in 5 years, 10 years, 20 years, and beyond.

Yes, but you have to REALLY know the market and have a decent crystal ball also.
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Mr Mark

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Re: Keep or sell rental property in San Francisco
« Reply #53 on: May 29, 2014, 10:12:04 AM »
Try looking at how you could hedge the investment.

ie refinance and take 80% mortgage. So you get $1.6million in cash and a loan that you have to pay, say 5%. 80k a year. Even 100% of lease money only gets you 60k. Plus taxes, maintenance,  insurance,  ...

offsetting that perhaps a 7% cagr on the 1.6 million. 110k a year. Enough to just cover principal repayments and expenses perhaps.

if the stock market takes off, you're good. If the house market tanks, mail back the keys and you still have the 1.6 mill. If house market doubles again, all that equity gain is yours. If the loan is at a fixed rate, you get awesome inflation insurance free. If the market tanks and the housing market too, you still end up with close to a million, whereas with the house you could loose pretty much all equity in a bust.

if I wasn't commited to the area for perhaps family reasons, personally in your situation I'd sell in heartbeat. Unless you have a vast portfolio, you have a huge concentration of your equity in a highly illiquid single market and single asset class. You made a fantastic investment that paid off. Don't double down, take profit, rebalance and reallocate.

YMMV

If everything stays relatively normal and flat, you would have better with selling and putting it all in index.

Poorman

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Re: Keep or sell rental property in San Francisco
« Reply #54 on: May 29, 2014, 12:55:03 PM »
You said they are "falling"  Not that they fell.  They fell, and have been rising since 2011.  Both of your links confirm that.  It is more accurate to say that Vegas rents are rising.  They aren't at all time highs, but neither are prices.  Still, prices have risen a lot since 2011 as well, and one wouldn't claim that prices are "falling" just because you can look at a time from the peak and say they're not at an all time high, so they must be falling.

The data does not back you up on this.  The best you could make a case for is that rents have shown a year-over-year increase since August 2013 or on a month-over-month basis since May 2013 (although mostly flat in the past 6 months).  Since we are having a discussion about a property purchased "at the bottom" it's appropriate to analyze rents over that entire timeframe, not over an arbitrary timeline that makes Las Vegas look better.  The fact remains that investment properties purchased in Vegas "at the bottom" have shown declining rents since that time.  The numbers lately look more promising like they will finally keep pace with inflation, but that's still nothing to write home about.  The maintenance costs, tax costs, and insurance costs have all risen with inflation, which means margins are getting squeezed due to lack of rental pricing power.

duanemark

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Re: Keep or sell rental property in San Francisco
« Reply #55 on: May 29, 2014, 03:42:49 PM »
@ duanemark:  As you may recall one of the most noteworthy events where San Francisco properties significantly depreciated occurred after the October 17, 1989 Loma Prieta 6.9 magnitude earthquake.   Yes there were some pocket neighborhoods like Pacific Heights, Presidio Heights, Jordan Park, Laurel Heights, Lone Mountain, Sea Cliff, West Portal, Telegraph Hill and Nob Hill that historically did not decline in price even when the properties suffer structural damage.  However, those are some of the most highly affluent neighborhoods.

Conversely as you may know San Francisco renters pose numerous headaches due to potential litigation and the highly bias pro-renter jury pool.  I've known families that had to rebuild their income properties and later rented it out only to experience considerable grief due to renters.


I truly appreciate the comments from a fellow San Francisco resident!  I did not live in San Francisco after the Loma Prieta earthquake.  Your information is very helpful.  I do think an earthquake is my biggest risk.  However, my property is located in a highly affluent neighborhood - probably one of the most affluent neighborhoods in San Francisco.  My property is probably one of the "cheapest" SFHs in the neighborhood.  Therefore, I am not too concerned about a huge decline in value.  But again, I acknowledge an earthquake is my biggest issue.  I'm willing to take that risk.

As for potential litigation from a renter - I am not afraid of litigation because, I happen to be a litigator!  Though laws are certainly pro-tenant (almost ridiculously so), I understand them.  Also, my tenant pool is pretty affluent - I think (perhaps wrongfully so) that they are less litigous because they are not as "desperate" as other tenants in SF.  My tenants could simply move out and find another place because they have the financial security to do so.  Also, we have an umbrella policy.  Therefore, I'm not too concerned about liability.  Litigation does not scare me - I do it every day!

Poorman - thank you so much for your very thoughtful commentary!  I, too, have valued my ROI based on the $220K we plunked down for purchase.  I really appreciate your analysis - I happen to agree with you on all fronts.  I especially appreciate your thought that if I sold now, I'd be losing 10% just to eliminate the risk of a 10% downturn.  I never thought of it that way, but it makes sense to me.

My final thought is this - I understand the idea that based on the total value of the property, I'm not getting a lot of cash flow.  However, even if I were to pull my equity into, say, an index fund, I would not be "cashing out" on any of the increase in yearly value - I would simply reinvest in the fund.  Thus, I'd be in the same situation as if I kept my equity in my house.  I hope that makes sense.  Perhaps unlike most on this board, I'm not interested in retiring by the time I turn 40.  Thus, I'm not really interested in using the cash flow for my own expenditures.

Again, I really appreciate this board!  I am always interested in discussing real estate investments, and this board provides a wonderful vehicle to do so.

sobezen

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Re: Keep or sell rental property in San Francisco
« Reply #56 on: June 17, 2014, 06:44:24 PM »
You are most welcome duanemark!  It is a noble intention indeed to plan beyond one generation, I commend your bold foresight.  Also I am glad to hear you are a skilled litigator and fully accept the risks of being a landlord in our beloved City.  I find some San Francisco property owners underestimate how the real estate laws are often as you noted, ridiculously pro-tenant.  Keep us posted on how things develop.  Thanks!  Cheers!

Liz498

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Re: Keep or sell rental property in San Francisco
« Reply #57 on: June 19, 2014, 09:13:22 AM »
If you're not interested in cashing out, whether you're investing in property or funds, then I would go with holding onto the house, at least in the next 5 - 10 years. If it was in most other locations, I'd be all for selling it, but the SF property market is so strong that price appreciation in the short term is going to rival a lot of funds.

clifp

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Re: Keep or sell rental property in San Francisco
« Reply #58 on: June 21, 2014, 09:01:39 PM »
Fair enough, I think we just fundamentally disagree about how to evaluate an investment, then.

-W

Yes, and that's fine.  One other thing occurs to me though... Would anybody advising the OP to sell have liked the numbers to begin with?  A $1.1 million purchase price that could command a monthly rent of maybe $5,000 at the time?  I highly doubt it.  That would put the rent at less than 0.5% of purchase price.  And yet that purchase led to a $1 million equity gain.

It ain't a gain until he has sold it..  Just ask all those other California (Phoenix, Vegas, and Florida)  sellers with million dollar gains on their properties 2006 and 2007.

Poorman

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Re: Keep or sell rental property in San Francisco
« Reply #59 on: July 01, 2014, 03:12:01 PM »
It ain't a gain until he has sold it..  Just ask all those other California (Phoenix, Vegas, and Florida)  sellers with million dollar gains on their properties 2006 and 2007.

Yeah, so?  That's true of any investment.  A large gain by itself is not reason enough to sell.  The underlying fundamentals are what matters when deciding to sell (at least they should be if you really are an investor).  Applying the 1% rule to San Francisco anytime over the past 40 years would have meant avoiding it as an investment, and yet those that bought have come out way ahead of those that follow the 1% rule.  Why is that?

DarinC

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Re: Keep or sell rental property in San Francisco
« Reply #60 on: July 05, 2014, 11:21:04 PM »
Thanks for your posts.  I am quite torn about the situation.

Part of me wonders if SF is the new Manhattan...I have seen brownstones sold for $1MM 20-30 years ago now worth 8 figures.  Could SF be next?

I know - pigs get slaughtered.  I shouldn't be too greedy. 

I think I would more inclined to regret selling now in the off chance there is huge appreciation in the next ten years than regret not selling if the property value remains stagnant.  I am not inclined to believe the market will go down in this particular area of SF - even during the 2009 bust, property values in my neighborhood remained the same.  In fact, it was the only neighborhood in all of SF not to dip down.

Thank you for your posts - I realize we are in a lucky situation, and I am just being greedy.
In general, the west coast has appreciated a lot, and the bay area is just another example of that. Most places around here are going for twice what their indexed (year 2000) values are.

http://research.stlouisfed.org/fred2/release?rid=199

It could be another Manhattan (do you have any examples?), but CA is also tricky because of prop 13. There are quite a few people who have held on to homes (and base values) over 30+ years and pay next to nothing in taxes, which allows much better cash flows on rentals that others have trouble matching, especially when the economy sours.

I'm not sure how sustainable this is in the long run, but a lot of people are apparently willing to pay a premium to live in coastal CA communities (SD, LA/OC, and the bay area).

sobezen

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Re: Keep or sell rental property in San Francisco
« Reply #61 on: July 07, 2014, 07:31:24 PM »
There are quite a few people who have held on to homes (and base values) over 30+ years and pay next to nothing in taxes, which allows much better cash flows on rentals that others have trouble matching, especially when the economy sours.

I'm not sure how sustainable this is in the long run, but a lot of people are apparently willing to pay a premium to live in coastal CA communities (SD, LA/OC, and the bay area).

Excellent points!  A lot of people are willing to pay a premium to live in Northern California and especially in the world famous San Francisco.  Many have not noticed the housing trend since the 1980s, but when other parts of the nation are slumping, the Bay Area recovers quicker and this is particularly in San Francisco.  Today, demand is not isolated to just domestic buyers anymore, we are now faced with cash flush international buyers.  I fully believe even when a correction occurs, San Francisco will recover sooner than most cities.

duanemark

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Re: Keep or sell rental property in San Francisco
« Reply #62 on: July 08, 2014, 01:27:58 PM »
Just an update - since I originally posted this, my "zestimate" has gone up another $200K.  Now it's worth $2.25.  Not sure how accurate we consider zillow, not sure how sustainable this market is, but just wanted to provide an update.

Mr Mark

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Re: Keep or sell rental property in San Francisco
« Reply #63 on: July 08, 2014, 08:49:06 PM »
Press it cowboy!

what could go wrong?

DarinC

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Re: Keep or sell rental property in San Francisco
« Reply #64 on: July 08, 2014, 10:27:56 PM »
Just an update - since I originally posted this, my "zestimate" has gone up another $200K.  Now it's worth $2.25.  Not sure how accurate we consider zillow, not sure how sustainable this market is, but just wanted to provide an update.
The zestimate can be wierd. Look at the average price per square foot sold for a better idea of what you could get.

electriceagle

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Re: Keep or sell rental property in San Francisco
« Reply #65 on: July 10, 2014, 05:27:32 AM »
Just an update - since I originally posted this, my "zestimate" has gone up another $200K.  Now it's worth $2.25.  Not sure how accurate we consider zillow, not sure how sustainable this market is, but just wanted to provide an update.
The zestimate can be wierd. Look at the average price per square foot sold for a better idea of what you could get.

Depending on your location, price per square foot may be dominated by small condos. A 2100 square foot single family house does not go for the same price as 6 350 square foot studio condos.

Its absolutely crucial that you have exceptionally well screened tenants in SF as you soon won't be able to limit the number of people living in an apartment: http://www.socketsite.com/archives/2014/06/lease-prohibit-adding-roommates-perhaps-long.html

johnhenry

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Re: Keep or sell rental property in San Francisco
« Reply #66 on: July 10, 2014, 07:34:13 AM »
Just an update - since I originally posted this, my "zestimate" has gone up another $200K.  Now it's worth $2.25.  Not sure how accurate we consider zillow, not sure how sustainable this market is, but just wanted to provide an update.
The zestimate can be wierd. Look at the average price per square foot sold for a better idea of what you could get.

Agreed.  Not trying to be a party pooper or claim that this place isn't what you think it's worth.  But I have found Zillow, Trulia, etc to be completely unreliable at least for estimating sales/rent prices in small midwestern cities.  It's obvious some non-subjective algorithms are at play, and I'm sure it's somewhat more accurate for bigger cities and cookie-cutter neighborhoods.... but still.... I wouldn't adjust my net worth by $200K because Zillow said so.


cchrissyy

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Re: Keep or sell rental property in San Francisco
« Reply #67 on: July 11, 2014, 01:43:37 AM »
I'd lock in the gain. the house has done really well for you so far, but if you own another house in the city that you live in, then wow, your personal finances are very heavily tied up in the future of Sf real estate.  Cash out of the rental and diversify to other kinds of assets or real estate in other places.

I wouldn't trust zillow much either. I'm in Berkeley and refinanced last year, was also considering selling at that time. The credit union appraisal for refi and the realtor's appraisal for selling came in at the same figure - which was not very close to zillow.

RapmasterD

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Re: Keep or sell rental property in San Francisco
« Reply #68 on: July 14, 2014, 05:46:01 PM »
A) I'd dump it.

B) We are in a bubble. That said, we're also locked in by the Bay and the ocean and yes, people want to move here. How much did prices tank during the worst real estate downturn most of us will ever see -- 15% in the SF area...maybe 20%?

C) If you're yielding 2% why not eliminate the landlord hassle and buy SPY. Same yield, and cap gains will be more than the average price increase in your property per year.

clarkfan1979

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Re: Keep or sell rental property in San Francisco
« Reply #69 on: July 16, 2014, 12:16:22 PM »
If you firmly believe that you have a good location that is low in supply and high in demand then you should rent it out. Why can't millionaires rent from you? Don't some people prefer to rent in the city than own in the suburbs?

Scarter

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Re: Keep or sell rental property in San Francisco
« Reply #70 on: July 26, 2014, 06:59:28 PM »
Wouldn't it be better to use the proceed from the sale to purchase an income producing real estate?  This way you you are getting cash flow and it  still has the potential to appreciate.  Just some thoughts....

SnackDog

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Re: Keep or sell rental property in San Francisco
« Reply #71 on: July 27, 2014, 04:55:11 AM »
Plenty of good advice here on your financial options, most of which you seem to ignore in favor of watching Zillow numbers rise. If you want to keep the house, keep it, but why not put the equity to work for you? I would pull out at least another million and invest it elsewhere. If you like real estate and expect appreciation, buy five more $1mm Bay area houses with it. If you like income and think rents will rise, buy 20 of the $50,000 houses mentioned so frequently here which bring $500/mo in rent each. If the stock market forecast impresses you put it in an index fund. Any of these options will do more for you than letting the equity just sit there doing nothing.

dragoncar

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Re: Keep or sell rental property in San Francisco
« Reply #72 on: July 27, 2014, 01:25:25 PM »
Plenty of good advice here on your financial options, most of which you seem to ignore in favor of watching Zillow numbers rise. If you want to keep the house, keep it, but why not put the equity to work for you? I would pull out at least another million and invest it elsewhere. If you like real estate and expect appreciation, buy five more $1mm Bay area houses with it. If you like income and think rents will rise, buy 20 of the $50,000 houses mentioned so frequently here which bring $500/mo in rent each. If the stock market forecast impresses you put it in an index fund. Any of these options will do more for you than letting the equity just sit there doing nothing.

According to Zillow, I'm going to instantly make $500k when my new home closes!  Brilliant!

theonethatgotaway

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Re: Keep or sell rental property in San Francisco
« Reply #73 on: July 30, 2014, 09:46:59 PM »
Hi,

NYC did/does exceptionally well because of its a. Wealth producers and B. Proximity to Europe.

San Fran, while not another NYC due to above, can become a slightly less, but awesomely expensive city sustained through its proximity to China, and the growth going on over there. So while the market has similarities, there are vast differences. I wouldn't bank San Fran going to NY way for the next 20 years with this property unless you really want to let the cash sit.

DarinC

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Re: Keep or sell rental property in San Francisco
« Reply #74 on: July 30, 2014, 11:26:29 PM »
A) I'd dump it.

B) We are in a bubble. That said, we're also locked in by the Bay and the ocean and yes, people want to move here. How much did prices tank during the worst real estate downturn most of us will ever see -- 15% in the SF area...maybe 20%?

~45% according to the CS index.

http://research.stlouisfed.org/fred2/series/SFXRSA

dragoncar

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Re: Keep or sell rental property in San Francisco
« Reply #75 on: July 31, 2014, 12:44:23 AM »
A) I'd dump it.

B) We are in a bubble. That said, we're also locked in by the Bay and the ocean and yes, people want to move here. How much did prices tank during the worst real estate downturn most of us will ever see -- 15% in the SF area...maybe 20%?

~45% according to the CS index.

http://research.stlouisfed.org/fred2/series/SFXRSA

I can't tell for sure, but I suspect that includes the entire combined statistical area, and the exurbs definitely got hit a lot harder than the city proper.