The 74 unit Clay Park Tower at 1890 Clay has been on the market for around a month (asking $39,950,000). And it’s a plugged-in tipster that provides some insight into what the Lembi brothers had been offering tenants in their building to move out:
[CitiApartments bought the building two to three years ago] and did extensive renovations to the exterior and vacant units, which hadn’t been touched since the building was built in 1963. There was also tons of deferred maintenance – roof, plumbing, you name it. (The previous owners just used it like a cash cow until it was dry.) Citi then offered “incentives” to buyers to move out, which ranged from $7K-$75K+. They offered us [around $50K] late last year but we stupidly didn’t take it (mostly due to the taxes, because it would be taxed like income). Admittedly, I was holding out for [around $100K] because we have a large floor plan and I thought we could get more.
If people took the buyouts, Citi then would gut the unit, and rent it furnished as short term housing. Looks pretty from far away (hardwood, granite, stainless steel), but as to be expected the workmanship is really shoddy. I don’t really living in the building now because I feel like I’m in a hotel – new people coming and going all the time. Maybe after summer is over it will slow down.
The comment about workmanship is obviously opinion, the figures on buyouts are fact.
∙ Listing: Clay Park Towers (1890 Clay Street) – $39,950,000 [LoopNet]
Interesting take on the building. When I look at the SOMA listings on Craigslist, I see absurd prices ($3000+/month) for 1 bedrooms and I wonder if these type of short term renters are the target clientele. I didn’t realize that CitiApartments went after this market.
After your fourth building you upgrade to a hotel in Monopoly.
This is the same business plan Trinity Property employees to much success.
Get all the long term tenants out, and furnish all the rent controlled buildings so you have a built in turnover rate and you get to keep the rent controlled units at market rate all the time.
Go into the hotel business without having to pay a hotel room tax?
I do not know if these corporate furnished apartments are taxed the same way as hotel rooms, I am specualting. Any CPA out there know?
Kathleen, I believe that as long as you lease for at least 31 days, you are not a “hotel” and not subject to either city hotel taxes or the strict laws against converting apartments to hotels.
Yet another means by which the rent control laws permit one to profit by doing an end-run and are actually counterproductive by reducing the long-term rental stock.
Wait… are there any differences in law between renting furnished and unfurnished? Can you sign people to specified lease terms (i.e. not to exceed one year) if its furnished?
Can we get an expert here to explain to us NewBuyers what the differences, both legal and implied, between renting furnished vs. unfurnished would be?
Seems like you’d be a fool to not get some cheap craigslist furniture and rent it furnished.
Wow, someone turned down $50k so that they could continue to live in an unrenovated 1963 apartment-hovel surrounded by transients?
Talk about irrational effects of rent control…
I’m not aware of any distinction in the rent control or hotel conversion laws between renting a place out furnished vs. unfurnished (doesn’t mean there isn’t something out there — I’ve just never seen it and two of my neighbors had a squabble at the Planning Dept over this so I have looked into it a very little bit). It’s just that if you are going for the short-term corporate rental, it would have to be furnished or nobody would rent it.
Lembis bought this for $28.6M in June 06 – back in the days (or years) that they were buying everything. Loopnet listing indicates a cap rate of 3.5% – and I would think that would be based on recent income and revenue that reflects the current higher-yield operation. It would seem that one would need a really bullish outlook on SF rents or a really cheap source of credit (or both) to justify a $40M purchase price.
And then you can’t even get the rent-controlled tenants to leave for $50 – 100K. I guess I can understand the tenant turning down $50K to walk away from a month-to-month lease. If you are paying $1K (or less) per month for an apartment with a replacement value of $2K (or more), maybe you turn down the $50K if you are planning to stay for many years. But $50K – that’s a 1/3 of a house in many areas. It’s a down payment on a nice place in Novato. Note that the tenant likely has a high enough income that he is worried about the tax impact of the buyout. Isn’t it great that Prop 98 failed so that high income tenants are still under the protective wings of the Rent Board and Ted Gullikson.
It will be interesting to see what this goes for (and when).
Wow, someone turned down $50k so that they could continue to live in an unrenovated 1963 apartment-hovel surrounded by transients?
Talk about irrational effects of rent control…
Jimmy — don’t forget, according to the tipster it would have been taxed like income … so maybe you would wind up with 50% less after taxes, which isn’t such a good deal after all once you take into consideration the costs of moving, finding a comparable place to live, etc.
as most of the comments above suggest, this is perfect illustration of all that is wrong with rent control
Were missing the real point here. Citi selling a building?! I thought all the did was buy. The building must feature a lot of rent controlled units for them to have to get rid of a building!
There is nothing wrong with rent control. It’s the law.
The Lembis knew the building was rent-controlled when they bought it, didn’t they?
But why is there always some speculator around who thinks he can suck more money out of a property? (Paging Mr. Macklowe!)
Just because rent control is the law doesn’t make it effective or rational. It’s a ridiculous series of laws passed by crackpots that has the opposite impact its supporters intend.
I can testify how harmful the rent control law is in SF to both tenants and landlords, from a landlord perspective – since I am one with 2 units, a TIC in Pac Height, a condo in Russian Hill.
With the condo, everytime the tenant has a repair request, I get it done asap. For example, he called and asked for a second lock on the door for his peace of mind, I get it done over the weekend.
With the TIC, I tried to ignore those requests as much as possible as long as I am not breaking the law. Hoping that they move out sooner or later, such that I can get a market rate of about $3500, it is now at $2800.
I don’t think I am a bad person at all, but feel that I have to be “marginal” with my TIC tenant so that they are motived to move on some day. They are actually good people, and I feel bad that I have to be mean to them. But I have to.
I have been shopping with Safeway for the past 10 years, how come I can lock in my price with them?????????????????
I pass this building every day in my car when I turn right on Clay from Franklin and I have never even noticed it. Talk about not making a statement through bland architecture!
11223- You’re starting to sound like the oil companies, have you been reading their same business sense books?
I think 11223 is exactly right and why most of the rent controlled housing in this city blows. What incentive does any landlord have to do anything above the bare minimum, it doesn’t pay. That’s what the SF regressives don’t understand–landlording is a business. By making it impossible to runit profitably you end up with slums.
Under San Francisco rent control, landlords get rent increases every year. What’s the problem?
As for the landlord who complained above about having to be “mean” for the prospect of getting another $700 a month, I would remind him that nobody forced you to buy the properties!
What’s the matter–$2800 a month isn’t enough? Maybe you paid too much.
Most people in this city portrait landlord as greedy and heartless, and I don’t think that is me, honestly.
I came from a poor family. At 25, Harvard invited me to apply to their MBA program, and I did not knowing that there was no way that I could afford it.
Now a mother of 3 at the age of 36, and with a annual income of $170K, I told myself in my heart that I would support my kids into any school that they can get in.
So, I became a landlord, apart from being a heavy investor in 401K. But those downpayment$$ came from not going out to any restaurant, staying at Comfort Inn etc.
At the same time, my tenats are living a much better life than I do. So, why should I subsidize them? They have a combined income of $250K too.
what incentive does a landlord have to do anything if they can still get high rents when it comes to renting out to a new tenant at market rates? Some won’t even deliver a clean unit. I’ve seen some pretty slumy place still commanding high (market) rents.
I understand that many of Boston’s “rent control wrecks” got fixed up after the lifting of rent control in that city. And no, they didn’t end up with little old ladies being tossed into the streets.
I can’t help but wonder how much of the shabby appearance of so many buildings in SF is the direct product of rent control.
i think you just rent it out at a much higher price than unfurnished while providing benefits normally associated with hotel living. people on temporary assignments are willing to pay a premium for this kind of convenience since they don’t know the area, won’t be living there that long, don’t want to deal with getting furniture, etc, but don’t want to pay hotel rates.
I’m not a fan of rent control but I’d feel a lot more sympathy to landlords if they weren’t covered by Prop. 13. I rented a flat in Inner Sunset from 2001-2004 for $1800/mo. 3 other flats in the building. It was(is)a rundown dump but even today the building could be sold for around a million. The owners had owned it since the 60’s. Value for property tax purposes: $69,000. One month of my rent paid the property taxes for the year with $$$ left over.
And no, they didn’t end up with little old ladies being tossed into the streets.
Actually, it did. Most of the poor were forced out of Boston after rent control was repealed. Whether this is a good or bad thing depends on your ideology, I suppose. But stop pretending it didn’t happen that way.
To me, the question is not “how much is enough”. The question is more why can’t we charge the rent the “free market” way when everything else is determined by the free market??
Like I said before, the fact that I have been shopping with Safeway for 10 years does not entitle me to any price cap, so why should rent??
And if I ended up being better off than my tenants, that is because they probably go out to dinner every day when I cock every night after dinner such that my 3 kids can have dinner at 7 the next day, and that they don’t have to wait for me to come back home at 7. In short, it is because how we live our lives, not because I am more greedy, I guess.
“As for the landlord who complained above about having to be “mean” for the prospect of getting another $700 a month, I would remind him that nobody forced you to buy the properties!”
Correct, but someone is forcing her to rent the property at prescribed rates.
NJM:
“…But stop pretending it didn’t happen that way…”
Nonsense. There was no wave of mass evictions in Boston following the repeal of rent control and to claim anything to the contrary is simply untrue. The reality is that provisions were made for to prevent low-income tenants from wholesale evictions. Unsurprisingly, relatively few of the tenants previously receiving rent control protection were truly low-income in the first place requiring any protection.
No, you are not “subsidizing” your tenant. The only way you would be “subsidizing” your tenant is if there were no rent-control law, and you decided to accept less than market-rate rent anyway.
Besides, weren’t you happy to learn that your tenant makes more than you do when you first rented the place?
I’ve heard from more than one person that the Lembis are in a bit of a tough spot now. They over-paid for their properties based on aggressive assumptions of how many people they could buy out and how much they could raise their rents and now they are cash strapped. They over-leveraged their purchases (with some sources saying an average of 92% LTV when 70% is more typical for an apartment) so that the cash flow doesn’t cover the debt. Now the investment market has slowed considerably and it is much more difficult to get financing on such large properties with insufficient cash flow, so it’s going to be tough to sell these properties. This story has yet to play out, so we’ll see what happens.
“…equally true is the fact that more working-class families, faced with soaring rents, are moving two or three area codes beyond the 617 exchange, and that homelessness and overcrowding are cresting.”
“If there has been any disappointment, Mr. Shanahan conceded, it is that virtually all the new construction has been of high-end luxury apartments. And that shortcoming lies at the core of the tenants’ arguments that rent decontrol has been deleterious.
There is no shortage of statistics and studies buttressing these arguments. For something local, look at ”The Greater Boston Housing Report Card 2002” prepared by the Center for Urban and Regional Policy at Northeastern University and two other organizations. Or at federal census figures for Cambridge, which reported a 30 percent increase from 1990 to 2000 in the number of households that spend more than 30 percent of their incomes on rent.”
”I think the repeal of rent control in Boston has been a disaster,” said Peter Dreier, Boston’s housing director from 1984 to 1992, who is now a professor of urban policy at Occidental College. ”The victims of the repeal of rent control are usually invisible to people who make public policy and run for office, because they’ve been pushed out or they’re hiding because they’re doubled up.”
http://query.nytimes.com/gst/fullpage.html?res=9C04E3D61438F936A25755C0A9659C8B63
Whenever dicussion on this site get going on San Francisco rent control the same points pro and con are made. Without adding to the debate, I find it funny how everyone posting must be in something like the top 1 percentile for houshold income factored for the entire world. A landlord who makes $170K is “forced to be mean” to their tenant who makes $250K.
Anonymous,
I actually agree with you to say that without rent-control, rents might be lower since there would be a lot more landlords.
If City decides that Safeway can only charge me $2 for beef, they may pull out of SF, and I might end up paying Lucky $10 since they are the only grocery store in town.
Still, if market decides that $2800 is all I can charge, I have got nothing to say. I am not comfortable with the fact that City allows a 2% annual increase when CD is at 4%.
I am a firm believer of free makret place.
Nice selective quotes, NVJ. From the same article you might as well have posted the following:
“…One landlord, Joe Maffe, said that under rent control, he had had so little leverage with a tenant in a two-bedroom apartment in a prime location (Beacon Street near the Boston Common) that the man was able to avoid paying the $302-a-month rent for 12 years. ”Twelve years!” Mr. Maffe exclaimed, adding that he had ultimately paid the tenant $6,000 to move out. Now, the rent on that apartment has climbed to $4,800 a month, allowing Mr. Maffe to make vital capital improvements for the first time in two decades.
”Rent control,” he said, ”was a failed social experiment.”
In addition, permits for multifamily buildings in Boston increased. From 1998 to 2001, 2,569 permits were granted compared with 420 from 1991 to 1994…”
Nothing that you’ve posted has rebutted my initial premise: that Boston rent control repeal resulted in reinvestment in run-down buildings that that mass evictions simply did not occur. One can argue whether or not the sum total effects of rent control repeal were beneficial – I think they were – but please don’t make claims that are simply untrue.
Yes, you’re a firm believer in the free market only after you’ve paid a discounted price for something subject to rent control laws. Did it ever occur to you that the same property, with a free-market rent, would have cost you substantially more to purchase? (I don’t think so!)
If you’re complaining about having to be a landlord, just sell the property. That’s the free-market solution, isn’t it? And you believe in the free market, don’t you?
I think Citi Apartments has learned to work within the rent control laws. They don’t strong arm tenants anymore like they did 3 years ago. To offer buy outs is fair and you can take it or leave it. But, like the guy at Clay St said, keep in mind the taxes and how much more your rent will be when you move… all the money could be gone in 1-2 years! As for the Lembi’s selling buildings, they haven’t really sold many. I think only 4 out of the 18 they want to sell. They paid too much and the lending market for big buildings is tough just like it is for houses…
Of course there were positive and negative effects when rent control was eliminated in Boston, but thousands were displaced. Maybe this doesn’t qualify as “mass” to you, but it seems like it to me. Over three thousand qualified for an extension of rent control because they were low income. What happened to them after their extension ran out?
Average rents went up, even in non-rent controlled apartments, which is the exact opposite of what you are trying to claim.
Don’t get me wrong, I think rent control has some serious problems: mostly because the majority of those who benefit are people like 11223’s tenants. But repealing rent control in Boston displaced lots of people.
I have no problem with people arguing against rent control (I personally don’t see it as a good thing at a macro level), but I do think it’s ridiculous for any property owner who bought after it was put into effect to complain. Rent control was the law when you bought. It should have been part of any income/profit/business analysis that you did prior to buying. To complain that you’re “losing money” is ridiculous. It’s one of the rules of the game. If you don’t like the rules, you can attempt to change them, but you still have to play by them while they’re here – and you should have known that prior to buying.
Anonymous,
That is probably true as well. I paid $625K for 2/2 with parking in Pac Height, and then $700K for a 2/1 w/o parking in RH on short sale. One is TIC, the other one a condo.
But, from another angle, who is really getting benenits from the rental contorl? At least from my case, it is the tenants who are making $250K a year. Not the poor, the eldly……
Why should we have a lawyer to protect someone that is making that type of money????
@ 11223
Says someone protected under Prop-13… Are you ready to pay property taxes on market rate?
I believe building is about 45% original tenents, versus 55% operated by CitiSuites. CitiSuites operates the furnished, corporate housing-type units. Could be 40% – 60%…
We also turned down the money. After considering all the options, the payout would not have been such a good deal for us.
We just got a doorman! Compliments of CitiApartments! Kinda weird actually…
And of course, rent control rocks!
Whatever one’s views on rent control, it certainly creates lots of opportunities to make quick cash. It may be that the Lembis are hurting from this deal and need to dump it, but it could be just the opposite. Paid $28M for it two years ago — a price no doubt discounted by the inability to raise rents due to rent control. Paid maybe a million to strong-arm or negotiate a number of rent-controlled tenants to leave and now operating their units as corporate rentals (rent-controlled, but at high monthly rents with lots of turnover). Any idea how much they put into it — sounds like a few million at most from the description of the cheap renovations? And now they turn around and sell it asking for $11.4M more than they paid in a declining market after just two years.
I have no idea what the financing, insurance, tax, etc. implications of such a deal are. But if they get anything close to asking, I imagine they will make out very well — primarily by exploiting the inefficiencies created by rent control. People with the stomach to use the Ellis Act, OMI, etc. can really do well in a short period of time by doing the same thing.
“I have no problem with people arguing against rent control (I personally don’t see it as a good thing at a macro level), but I do think it’s ridiculous for any property owner who bought after it was put into effect to complain. Rent control was the law when you bought. It should have been part of any income/profit/business analysis that you did prior to buying. To complain that you’re “losing money” is ridiculous. It’s one of the rules of the game. If you don’t like the rules, you can attempt to change them, but you still have to play by them while they’re here – and you should have known that prior to buying.”
I am doing exactly what you are saying here – obey the law, but complain. So, what is your point??
The current listing shows gross annual revenue of $2.9M. This works out to about $3,300 per unit per month – or over $3,500 per unit per month assuming a 95% occupancy rate. They have jacked up the revenues pretty hard with their tactics and the CitiSuite operation – the previous listing showed gross revenue of just $1.6M. But the $40M price tag gives you an initial cap rate of 3.5%. Where’s the upside?
Aaaww, shucks, my heart bleeds … really. Seems all the lil’ ol’ ladies who got thrown out into the Boston streets have since managed to get by/live elsewhere. I guess the lil’ ol’ ladies of San Francisco know of no other place to live in all of the 51 states and the thousands of cities among them except here, in precious San Francisco. Landlords are businesspeople, not non-profit organizations. Last time I checked, they pay their taxes just like everyone else.
Rent control is for left wing losers who want to mooch off other people.
People who think rent control is a good thing are totally ignorant when it comes to the field of economics and the distortion of incentives it creates.
Every economist agrees that rent control is an unmittigated failure – just like a lot of these left wing losers.
Rent control is the same as welfare from a micro-economic point of view.
FSBO, Thanks for those numbers. Interesting. So they’ve been able to nearly double the revenue stream by taking on the rent control “problem” more aggressively than the prior owners. I agree that price doesn’t seem to leave much upside for a prospective buyer. But it looks like the sellers can drop the price a fair amount and still make what appears to be a significant gain.
I personally found it very discouraging getting my first apartment in the City as a low paid biotech worker and realizing that my neighbor made twice as much as me and paid half the rent. I hope these policies aren’t effectively keeping out the next generation of young people (as I suspect they are)
Since then I am used to about half of the people in the buildings I have lived being well off while having very low rents. The other half seem to be needy. Many of the older gay men seem to simply buy vacation homes with their extra income.
Another anecdote:My uncle turned his adjoining flat into a temporary rental/corporate rental to avoid this issue. I suspect this avoidance isn’t uncommon
On the other hand I had elderly relatives that had few alternatives die in rent controlled places and they absolutely would have ended up in government nursing homes.
tough issue but rent control seems to me on total to harm more people than it helps.
Trip – I think the short-term furnished pricing of CitiSuites has contributed to the revenue increase too. It has increased the cap rate on their original purchase price of $28.6M (plus say a couple $M for the upgrades and buyouts) to probably about 4.5 – 5%. But I guess that is not enough to satisfy their creditors. (What, you can’t borrow for risky assets at less than 5%?)
Even at say $30M, who’s buying these days at a 4% cap rate?
I personally found it very discouraging getting my first apartment in the City as a low paid biotech worker and realizing that my neighbor made twice as much as me and paid half the rent. I hope these policies aren’t effectively keeping out the next generation of young people (as I suspect they are)
Since then I am used to about half of the people in the buildings I have lived being well off while having very low rents. The other half seem to be needy. Many of the older gay men seem to simply buy vacation homes with their extra income.
Another anecdote:My uncle turned his adjoining flat into a temporary rental/corporate rental to avoid this issue. I suspect this avoidance isn’t uncommon
On the other hand I had elderly relatives that had few alternatives die in rent controlled places and they absolutely would have ended up in government nursing homes.
tough issue but rent control seems to me on total to harm more people than it helps.
Rent control is for left wing losers who want to mooch off other people.
A bit over the top I would say. After all 64% of all people here are renters and a majority is rent-controlled. That’s a lot of left wing losers, I guess…
I am an out-of-town landlord (though I have sold off most my places not long ago). But I am living rent controlled because I understood a few things in the past 2 years I have spent in this city:
1 – Prop 13 goes against new buyers. And the little old ladies who pay 500/year in property taxes have little incentive to sell as they know they’ll never be able to come back.
2 – Limits on condo conversion and other similar laws restrict the pool of places for sale
3 – SF is an economically vibrant place in a booming region. This is good for jobs but bad for home buying. Too much money chasing too few places = very high prices
4 – Even accounting for the high rent, home prices are still well over 200 months of rent
5 – The laws that created this mess are not going to change anytime soon (renters vote for their perceived interest).
The only thing that can rebalance this monster is falling prices. Don’t hold your breath on that, it will take time if it ever happens at all.
In the mean time, you can either jump in and pay 4K+/month (all costs factored in) for a place that rents for 2K with no guarantee of appreciation. In short, be the sacrificial lamb.
Or you can be rent controlled and profit from the system that prevents you from achieving home-ownership.
Of course, if you bought long ago, you’re fine mortgage-wise, but the renter situation has gotta suck.
FSBO:
How do you compute the initial cap rate?
$2.9M gross annual revenue/$40M purchase price=7.25%
Long term renters AND owners in San Francisco both live in a different economic reality from recent arrivals. The former via rent control based on an initial rent (much) lower than today’s and the latter by virtue of the low prices of yesterday coupled with Prop 13, tax advantages, and the ability to extract cash from a long term asset by re-finiancing.
A lot of the shrill voices want to take the advantages away from one side overnight without something balancing on the other side.
If we accept for a moment that rent control is bad enough that it should be eliminated, we would need to structure the elimination of rent control so that it is not all win, win, win for current property investors and lose, lose , lose for current renters. REality Check – In a city with a vast majority of renters, usually educated and of a liberal political viewpoint, that is a given.
flaneur – Cap rate = net operating income (before debt service) / purchase price. Net operating income = revenues less operating costs, property taxes, insurance – but before debt service, depreciation and income taxes (kinda like EBITDA). In this case, I didn’t compute it – it was provided in the listings.
I am doing exactly what you are saying here – obey the law, but complain. So, what is your point??
You structured your argument to say that you were “losing” this money, when under the laws that existed when you bought the place you were NOT entitled to this money in the first place. It’s no different from me saying that I’m losing money because I have to pay social security – who knows what things would be like if SS didn’t exist? Would I simply gain that money in my paycheck? Doubtful. Likewise, the entire system that we have here has been changed by rent control – eliminating it wouldn’t just give you an extra $700 a month – it would change the entire city, possibly netting you less money.
I agree that rent control makes things “unfair” (in the same way that prop 13 does), but it’s much more complicated than simply limiting the amount that you can charge.
I think rent control is ridiculous. I think prop 13 is ridiculous. They should both be done away with, all they do is distort prices, but we all know that. I also turned down a few citi buyout offers, because it just didn’t make sense financially, though it did sound impressive. After taxes, i’d basically get enough to cover more expensive market rate rent for maybe a year and a half. And then i’d be stuck paying a higher market rent indefinitely. Am I an evil person for taking advantage of an idiotic law because it benefits me financially? Or am I just being rational?
I agree that the Lembis are probably having some financial problems, not getting the buyout offer calls anymore, i think their source of financing has dried up.
And to 11223 – sorry, i know it sucks for you; but you knew the deal when you decided to become a landlord. Nobody put a gun to your head and made you do it.
maybe a change in topic….
Does anyone plugged-in (ss editor, fluj, other brokers, etc) have more information on the large # of multi unit buildings, such as the subject one, in districts 6,7,8 listed by Marcus & Millchap, specifically by broker James Devincenti and his cohorts? Isn’t it painfully obvious that one big seller (CitiApartments/Lembis?) is either in a world of financial hurt or pretty bearish about the market? Is anyone tracking the data on these buildings – both sold and unsold? Can anyone undress the emperor for us with more info? Marcus and Millchap can’t possibly believe they can “quietly” sell these one-by-one under the radar screen.
The Lembis are very very smart. The buyers of their buildings are comparing the cost versus the price for a new building. Acquire a nicely renovated building completely upgraded with decent market rents, it is a safer bet than building a new 13- 60 unit building. Much cheaper cost per unit.
That is how the Lembis are making a profit on selling large buildings to investors.
Very very smart.
I’m a tenant in one of the buildings for sale you mentioned resp and no, it’s not owned by the Lembis. I don’t think the owner is in dire straits, but I think they’ve recognized that owning rental property is terribly unprofitable unless you can condo or convert to TICs.
*I’m a regular poster, but changed my name for this post.
@anonymous: you are really quite thick. Rent control laws force landlords to rent apartments at a lower rate than the free market would allow; the yearly increases are paltry. As are result, landlords with rent-controlled apartments have little incentive to invest in them. People who pay way below market rates just because they have lived somewhere for are getting a huge subsidy from their landlord (what else do call paying $1,000 for soemthing that is worth $2,500). Sure, rent control is the law but it is tautological to argue (as you do) that because it is the law it is right. SF would be much better without rent control.
OK, I agree that the Lembis are very very smart. Does that mean that if you buy one of their buildings you are very very dumb? (Probably.) It has been fairly well publicized that they have been selling (or attempting to sell) a few buildings (what, like 20 or so) – but they own like 7,000 total units in the city. I believe that from 2004 – mid-2007 they were the buyer for virtually every 12+ unit building that sold. And they were blowing other bidders out of the water and paying prices that yielded cap rates in the 2-3% range. (But I guess that was very very smart.) But they are evidently under some pressure to do at least a few sales – but it doesn’t look like they are doing much discounting. What is the saying, if you owe the bank $X million, you have a problem – but if you owe the bank $100X million, the bank has a problem. Their position as the city’s largest landlord is probably not in jeopardy.
As for the cost to buy this building versus new construction, this property is priced at $540K per unit (mix of studios, 1BR & 2BR). I just don’t see the upside at this price. And resp, they use a couple other brokers – not just M&M.
It’s just not true that landlords knew the rules when they purchased property. San Francisco rent control has had significant scope creep since it was first introduced. The allowable yearly increase in rent has decreased and new categories of covered units have been added. Originally four unit, owner occupied buildings were exempt. No longer. Now there are even situations in which single family dwellings are subject to rent control. Evictions have become increasingly difficult and costly. The rules keep changing and they have changed in only one direction, tighter and tighter control. If the built-after-June-1979 exception wasn’t mandated by state law, that would have disappeared by now too.
I’m no economist. I don’t know if rent control is good or bad for San Francisco. I do know that people who rent in rent controlled buildings seem to like the fact that they know their rent can only go up a smidgen each year. And that they are hard to evict. Anyone would. These are great benefits, ones that usually only come with home ownership and a fixed or paid off mortgage.
Since a majority of San Franciscans live in rent controlled dwellings and receive these benefits it’s hard to see how the city will ever be without rent control unless it is through some wholesale change in California law. That is the realpolitik of San Francisco rent control.
There is another way I could imagine that rent control could go at a local level, and that is if the winners in any repeal of rent control could reimburse the losers. But the amount of money would be large ($50k per tenant?) and the fact that many who oppose rent control seem to see it as some kind of moral issue rather than an economic transaction would tend to make a rational exchange difficult.
@TRIP
“Yet another means by which the rent control laws permit one to profit……”
ABSURD
Once again, the landlord is not subsidizing tenants under rent control. It’s the law. Only a voluntary rent discount by the landlord would be a true subsidy. When you buy something on sale at Macy’s, you don’t say that Macy’s is subisdizing you, do you?
When you get a tax break for depreciation every year from the IRS–now that’s what a real subsidy is. Imagine–getting depreciation deductions on an asset that’s appreciating in value! And still you whine.
Remember: when you buy a rent-controlled building you’re buying rent-controlled units.
And I’m tired of hearing property owners disingenuously argue that rent control spoils their incentive to make improvements to their buildings. In my opinion, a rent-controlled property owner wants only one thing: vacant apartments, via evictions if necessary.
After all, rent increases isn’t where the big money is. Rather, it’s selling the a rent-controlled building for a much higher price after many of its units are vacant.
Speaking of whining, I’m tired of people who whine because they never figured out how to buy real estate in SF.
You can reform rent control when you reform Prop 13.
I will gladly pay market rate rent when landlords pay market rate taxes on the value of the property and homes aren’t passed down through families or held forever by corporate entities to avoid resets and keeping inventory artificially low and prices artificially high.
For all the bitching and moaning about rent control the same or similar points can be made about Prop 13 but I don’t see landlords beating a path to Sacramento demanding a reform.
Anyone who knows: I hear the “2/3 are renters” figure often (is that correct?), but what percentage of these SF renters have rent-control?
Did not read the all the comments, so apologies if it’s been mentioned.
You know, I must be the luckiest renter in SF, since every place I’ve rented (4 and counting) has been well cared for by the owners.
I am going to guess that most people against rent control are landlord, and most people voting for it are renter. (I am a landlord, and I am against it – full disclosure)
Intuitively, rent control hurts landlord and benefits the renters. There are, however, many subtle ways when it helps landlords: high rent levels, miminal competition from other landlords, high RE price, so and so forth.
What hurt me the most, as a landlord of a TIC unit, is the interest rate.
The biggest loser in this game are the landlords who are not careful when selecting tenants. I look beyond just income……..
There is currently a 2/1 unit in North Beach in a 13 unit building that is for sale for $299K – with a protected tenant. To me, that is when rent control gets to be really unfair. But I am very careful in selecting my tenants. With my condo, yes, anyone who can afford it is all welcome.
You said that your rent-controlled tenant made an income of $250,000. Assuming you are always paid rent, that sounds to me like a very good tenant to have.
But you sounded dissatisfied, because the so-called benefit of rent control ($700 a month by your estimate) went to a high earner, rather than the poor or the elderly.
But would you really rent to a poor or elderly person? Chances are they’re not making $250,000 a year!
There is currently a 2/1 unit in North Beach in a 13 unit building that is for sale for $299K – with a protected tenant. To me, that is when rent control gets to be really unfair.
There is currently a 2/1 unit in North Beach in a 13 unit building that is for sale for $299K – with a protected tenant. To me, that is when rent control gets to be really unfair.
It seems to me that that the owner should have cleared out the building using the Ellis Act. Quite frankly, I think that the “Ellis Act stigma” attached to buildings with greater than 6 units (ineligible for the condo conversion lottery) will disappear in the coming year if the current TIC price-to-rent ratios hold (and banks don’t go crazy lowering their standards for fractionalized loans and the condo market doesn’t vaporize and…) The market will always find a way around the Board of Supervisors.
I’m planning on posting these numbers on other threads, since I figure it will get lost so late in the thread here. . .
Anyways, all this talk about SUPER RICH tenants sucking the life out of the poor landlord makes no sense. We get a few simple numbers from the Bay Area Census:
http://www.bayareacensus.ca.gov/counties/SanFranciscoCounty.htm
Median Household Income: $65,497
Median Household Size: 2.24
These numbers don’t jive with the idea that there are huge numbers of renters out there with incomes in excess of $200k, living off the lifeblood of the long suffering landlord.
I don’t have numbers to back this, however I suspect that most landlords in SF have owned their buildings for 10 years or more. They keep the places in good shape and are making a nice income. When reading here, the landlords that I see complain the most are those who bought during the boom. Those landlords’ pain is not enough for me to suddenly decide that rent control needs to go away.
Sorry, I don’t think Lembi/Citi is quite as wise as many people here. The portion of the commercial investment market that gets crushed in a downturn are those who are over-leveraged and can’t afford their mortgage/tax/insurance/maintenance costs during periods of slower demand. While rental demand is still strong, rental demand is not increasing nearly as fast as it needs to in order to make these properties remotely pencil out. Add the tough resale environment and completely changed financing environment into the picture and they are in a dicey spot. And my sources indicate they have significantly more than four of their properties on the market.
So far, the rent-control impact on me was the $700 a month. I am not happy about the fact that I can not charge the market rate, when everything else in my life is at market. But, but, without rent-control, I am pretty sure that rent will drop, and that $700 could very well disappear.
In short, it has not really hurt me, at least not as much as the TIC interest rates.
But the example I gave above – the 2/1 in North Beach, that is what got me angry, period. That is down right robbery – protected by law.
I don’t persoanlly know the tenant, so I don’t know if they are making $200K or $200 a year, but judging by all these lawyer letters they sent to the landlord to dispute about the open house, they can’t be that poor!!!!!!!!!!!!!!!!!!
Did anyone have more info on what the rules are around apartment buildings being used as Hotels?
in my building they absolutely rent out as a hotel, there are transients coming and going at all days and all hours. I see strangers in my building on a daily basis lugging their luggage (ahem) in and out, clearly not long term tenants.
I am concerned that it makes the community less safe; also these short term folks have no incentive to keep the common areas clean, neat and quiet.
I have never considered the impact on the long term rental stock, but those who raised it made total sense.
In the interests of anonymity, I’ve chose a different screen name, but I’m regular visitor to this site. The apartment building is formerly known as St. Francis Place, now owned by Archstone smith.
I can’t even begin to describe how poor these landlords are, but that’s another thread.
But the example I gave above – the 2/1 in North Beach, that is what got me angry, period. That is down right robbery – protected by law.
Can someone please tell me what I a missing. Ellis Act. Remove tenant (pay any “fees” required by law). Sell at market rate.
About the only thing (I can can see, at least) stopping this would be banks refusing to finance a fractional loan on a building that has been Ellised. Anybody know if TIC lenders have this restriction?
The Lembi’s issues are well documented in several trade publications. They have approximately 20 buildings being marketed. They own nearly 300 buildings, so the remaining portfolio is significant.
AS far as sympathy for landlords owning rent controlled buildings, I think it is a mixed bag. Anyone who purchased a rental in the last 5-7 years was well aware of the rules (or should have been). Long term owners, especially those who owned prior to 79 have a right to complain.
11223: I wouldn’t worry too much about your tenants. If they are young with high income, chances are that they will only stay a couple of years. This is a very transient city. In the future, I would continue to target a young renter. In the long run, rent control will help to keep your rents high when you turn the unit. If you have some equity in the unit, look to 1031 when the tenants vacate into a condo.
Being a landlord is a long term game that involves a lot of work. I personally do not have the stomach for it, and sold off two out of state units in 2004.
When I first moved to SF, I was a renter for four years, and lived in two rent controlled buildings. In both instances, the landlord was very good about making all neccessary repairs in a timely manner (i.e. non-cosmetic). I toured several places, and it was very obvious from looking at the buildings which landlords were interested in keeping up their buildings. I avoided all instances were deffered maintenance was prevalent.
It seems like rent control can easily be updated and made fairer by having the rent increase limitation attach to the renter and not the unit. You could do this by having an expiration date on rent control of say 3 years per unit from date of lease, and after 3 years the tennant must demonstrate income below a certain level to continue to qualify for rent control. You could have the tennant have to requalify every 3 years. This way FiDi lawyers and bankers can be made to pony up market rate rent at least every few years.
I don’t have numbers to back this, however I suspect that most landlords in SF do not keep their places in good shape and are squeezing every penny when it comes to maintenance because it just doesn’t pay to have a nice place when you have people getting way below market rates due rent control. It’s better to be a jerk to get long term tenants to move so you can get your rent back up to market.
Oh, and only rent to people who won’t say forever.
r at August,
Thanks for your comments. yes, I am doing exactly that, picking young renter that are about to get married, or about to have kids……Can you elaborate a little bit on “1030 into a condo”? I am not sure if I followed you there.
At the same time, things like the 2/1 in North Beach do get me very angry. If the tenants have $$$ to hire all these lawyers, why can’t they move on with their life? In case anyone is curious,
Nestled between Coit Tower, North Beach & Russian Hill, we offer this 10% undivided Tenants In Common interest in 1847-1857 Stockton Street, a 13-unit bldg on fabulous Telegraph Hill! Designed in the beautiful Edwardian architecture, this investment property is located in one of San Francisco’s most sought after neighborhoods. Walking distance to North Beach, The SF Bay, Russian Hill & Coit Tower. Very walkable neighborhood! This property is being sold subject to tenants’ rights. All cash sale.
——————————————————————————–
There are 13 owners, and I guess that is why the landlord can’t Ellis. but I am no expert here
I apolgize. The 1030 was a typo. I should have said 1031. This is a common tax planning mechanism that allows you to deffer taxes by trading sales proceeds from one property into another within a given time frame.
The Non Hill example is unfortunate for the seller. My guess is that the lawyer is working for free through one of the tenant advocacy groups.
I apolgize. The 1030 was a typo. I should have said 1031. This is a common tax planning mechanism that allows you to deffer taxes by trading sales proceeds from one property into another within a given time frame.
The Nob Hill example is unfortunate for the seller. My guess is that the lawyer is working for free through one of the tenant advocacy groups.
With the Stockton unit, the tenant is the owner in essense, at least for the next 30 yrs until they die. Who/what gave them the right to stay at another person’s property at a predetermined $$$ for an unlimited amount of time?? Simply because they have lived there for 10 yrs?
I have shopped at Safeway for 10 yrs, can I demand a fixed price on everything on their shelves??
I know it is not right to discriminate tenants on their age, I know I shouldn’t play deaf to my tenants’ request for minor repairs, but I don’t want to end up with a tenant like Stockton either.
r at August,
Just out of curiosity, what make you move in your 4 years as a tenant, did it ever occur to you that if you stick with your place for 10 yrs, you could live them for forever for little $$$?
If an rental building was bougth 20 years ago, the rents charged would have covered the expense at the time. If not, that was a weak investment. The market has changed and market rates are higher, but the fixed costs have not; mortgage if applicable and taxes are roughly the same. So the argument about subsidized rents is not a real argument, it is lost opportunity cost at best, but that is only applicable if the unit were empty. Landlords that became landlords in the world of rent controls really did not do their homework or the math to see if it would be a cash-positive scenario. 11223 sounds like you were not aware of all of the issues around rental property in SF. Did your agent not tell you anything about the rental market? The protected tenents and the long time tenents are not to really the problem, they were part of the game. Crying foul and getting angry with peoople because they rent is not going to change the situation that has been in existence for a while. And while there are ways to maximize the benefits of being a renter, discrimation based on age is against the law, but also kind of heartless. We all get old.
Housing stock is limited and we are not building enough new housing to meet the demand. Even if rent control were eliminated, we would still have high rents. The demand is too high. The issue is shortage of supply and that is primarily due to NIMBY’s and all of the other special interests. Stop blaming people that occupy residences for the problem. One group will replace the other, except that under no rent control, they will be richer. Which I guess is why landlords want the change. Also, many market rates apartments are not even cleaned for the new tenant, so I don’t buy the incentive to maintain as being all due to rent control. 12 years ago I rented a house and was selected from around 50 other potential renters. They delivered it empty, but the grease of the ages was all over the kitchen, and the rest was a mess, all for $3,000 a month. I was just happy to get it. Just like there is anecdotal evidence against rent control, there is the opposite too.
Re 11223: “With the Stockton unit, the tenant is the owner in essense, at least for the next 30 yrs until they die. Who/what gave them the right to stay at another person’s property at a predetermined $$$ for an unlimited amount of time?? Simply because they have lived there for 10 yrs?”
The law did.
Who gives you as a landlord the right to a 2% limit on the amount of property tax increase you pay each year? The law does.
Who gives your tenant a right to a habitable rental unit (thus making your conscious strategy of disinvestment in your TIC property a potential housing code violation)? The law does.
You really need both to read more and learn more about the asset class in which you are investing.
11223:
Circumstances in my life changed considerably. I got married, got promoted a couple of times, and wanted to own propperty in order to build equity. We’ll see if the later works out long term. It never occured to me to live in a rent controled unit forever, and try to invest all of my excess funds in an attempt to mimic the equity built through long term homeownership.
I could probably rent a unit identical to the one I live in now for about $4,000. My out of pocket expenses, adjusted for the tax benefit of owning are about $3,850.
The interesting thing about the whole rent v buy analysis, is that I never would have considered renting a place for $4,000 / mo. If I hadn’t decided to buy, I probably would have stayed in my rent cotrolled place for a few more years. It was a 2/1 in Anza Vista that we paid $1,850 per month for. When we vacted, the landlord redid the kitchen and bath, and rented the place back out for $2,300 per month.
I love the place I live in now, but would never have considered renting a comprable unit. As for equity built by ownership, I am keeping my fingers crossed. Some of the the guys on this board who espouse the “rent arbitrage” theory could make an argument that I would be better off never having bought. I hope they are wrong…
r,
thanks for sharing your story. I never rented in the city, so I can never imagine a tenant’s thought process when he/she trys to stay and become a protected tenant. I have always worked and lived in the south bay.
The fact that I bought two units in SF and none in south bay, in itself, is a strong statement that I belive that rent control law is more benefitial to landlords. Othewise, I would have bought in south bay here.
In south bay, our house is worth $1.2M today, but we would be lucky to rent it out for $2800. In SF, we paid $625K and $700K respectively (each now worth about $800K), and rented for $2800 and $3300. So, the math is not hard to figure out, is it???
In the end, it is a endless debate over whether rent control, I guess depends who you are, how you look at it, and whether you are looking only at $$$, or emtional cost as well………..
One thing that is obvious to me is that this rent control is creating a lot of unnesessary issues to tenants and landlord alike, turning otherwise good people into mean, ill-spirited individuals. To me, that is one big side effort that the lawyer maker does not bake into their decision making.
I can understand why landlords want to do away with rent control. But I don’t understand why renters want to do away with Prop 13. I understand that Prop 13 was originally presented as a measure that would lower rents – or at least keep them from increasing – by keeping one of a landlord’s costs from rising. And I understand that, to the contrary, after it passed, San Francisco rents soared.
But really there is no relationship. Rents are determined by supply and demand, not by costs – as many landlords with a negative cash flow can tell you.
I think renters would like to see prop 13 removed because it would lower the price of houses. That’s the real reason even recent purchasers of homes (who pay “fully-costed” or “market” taxes)want to preserve Prop 13.
Most smart renters would also like to see rent controls removed because they understand that the removal of controls would lead to significantly lower rents, immediately as regards the marginal “market rate” units, and more slowly as regards “average” rents as more supply comes on line or is utilized more efficiently. Of course, those smart renters who are also in rent controlled units might not want to see the controls removed: when interests collide with values, interests win every time 🙂
11223 sounds like a very smart landlord to me. Most people don’t seem to understand that in many cases rent control is a landlord’s best friend. In addition to inflating the value of the marginal available unit, the artificial price control ensures steady demand, as the market is never allowed to “clear”. Thus, the landlord can forecast cash flows with much more certainty.
As a renter who’s neither bitter not priced out, I’m against both rent control and prop 13. Have never lived in a rent-controlled apartment, but I’ve seen many, and they tend to be squalid and reek of deferred maintenance. No thanks – I’ll just pay the going rate for a place with a toilet that actually flushes.
But to elaborate on Satchel’s point, many of us just hate economic distortions or forced redistributions of wealth. Prop 13 and rent control are both examples which, despite good intentions, have created terrible externalities. Law of unintended consequences in full effect here.
Salarywoman is right that, in theory, prop 13 should be beneficial to renters since it keeps owners’ taxes low, so they can rent their place out for less and still clear costs. The reality is that, when combined with rent control and other tenant protection laws, leasing becomes unattractive altogether. So long-time owners move and leave their places empty rather than renting them out. They don’t want to deal with the hassles. So you get a city full of vacant 2nd homes, rental stock is reduced, and rents go even higher. I won’t even mention the unfair burden on new buyers. Marking taxes to market would create an incentive for many of these absentee owners to rent their places out (or sell).
Solution: redraft rent control to apply to people’s incomes, not specific units. Then phase out prop 13 for everything besides primary residences of those below a certain income level.
I never rented in the city, so I can never imagine a tenant’s thought process when he/she trys to stay and become a protected tenant.
What in the world do you mean by this? No one can “try to stay and become a protected tenant”, at least not really. Protected tenants (and someone correct me if I’m wrong) are:
1. Elderly tenants (over 62) who have been in an apartment for 10 years or more
2. Disabled tenants who have been in an apartment for a 10 years or more
3. Disabled and catastrophically ill tenants who have been in an apartment for 5 years or more
Are there really that many people that are currently in the market for an apartment looking at this kind of thing? I think more than likely the “protected tenants” out there were people that never figured they would end up in that situation. I think you’d be very hard-pressed to find some 55 year olds that can afford a current-market rate apartment thinking, “Hell, in ten years they can’t kick me out! Yippee!” If they have enough money for that, they’re moving somewhere else to buy something.
ecnonomic distortions? Do you mean things like lobbyists, bankers, greedy CEO’s, tax accountants, stock-brokers, insider trading, subsidies for oil companies and farmers, unions, governments, regulations, the federal reserve, futures trading…
The point is that there is no such thing as a truly efficient market. This really is a economics 101 topic. In the real world there are stakeholders, and that does not mean just landlords, but the entire community that feeds off the economic system and they all balance the distribution based on laws, such as rent control and prop 13. In case no one remembers why prop. 13 came into effect, it’s because the gov’t. couldnt get enough money from the people and were taxing homeowners to death, ironically, even with so much real estate growth they still can’t. Picking on prop 13 and rent control is just an easy academic excercise and a quite old one at that. All of the effects are hypothetical, and really just academic. No one can guarantee the outcome if it is repealled. Pointing it to a contributor of the current housing situation is fine, but it is not the main culprit or the panacea for fixing the so called inefficiences.
With regard to Prop 13 why do we pay property taxes in the first place? Why not an increased income tax or a sales tax.
To be fair, a tax needs to be levied on one’s ability to pay that tax. That is where prop taxes became terribly unfair because your personal home is not an income generating asset so your ability to pay the tax decreases every reassessment.
There was a real problem with people getting priced out of their homes. And, no, dont just say ‘Well they can sell and go to N Dakota’. Thats nonsensical.
I will retire in the next 10 years. I own a home and I will be on a fixed income as will a few million other retirees in this state. Tax me on my ability to pay taxes not on some increase in my house where I have no increase in income.
Now if it’s not a personal residence, then it is an income generating asset so then tax it any way you want. Then business people will make the proper assessment as to whether it is passes the CAPM test.
The website for 1847 Stockton is somewhat confusing. In addition to 11223’s description it includes the line: This sale includes partial rental income from 2 rental units. Does this mean a tenant-occupied 2/1 plus a share(10%?) from two other rental units?
Satchel said: 11223 sounds like a very smart landlord to me.
$625k TIC renting for $2800? This would barely meet the buy vs. rent calculations you did for NewBuyer (owner occupied), let alone any sane metric for rental property (GRM 18.6). Out of town TIC specuVestors is not a good sign… at least in my book.
11223 said: What hurt me the most, as a landlord of a TIC unit, is the interest rate. Does your fractional loan even allow renting, or is the unit supposed to be owner occupied. And while I’m at it, what about the condo loan? Did you check the box “this is my primary residence” (like Ed Jew on his Arizona home loan application). My apologies for casting aspersions, but we’re in the middle of a bubble here.
to your question EBguy, Yes, I applied for the TIC loan as an investment property, and the lender is Standford Credit Union. I had to put 40% down.
mac,
There are plenty of ways to pull income out of equity in a house these days, so I simply don’t buy the “I’m living in a house worth 1.7 million dollars, but I’m on a fixed income and can’t afford to ay property taxes”. That’s a BS statement. If you’re willing to sell it for what you bought it for (plus a small increase for each eyar) and give all of the extra proceeds to the state then, I would be ok with it. But if you’re willing to take the money that you gain from the increase in equity – guess what? You should be willing to pay more in taxes during that time, since the increase in housing costs drives the price of everything else up (including labor and land costs) How is the state supposed to pay for increases that increase near the same rate as the cost of housing, yet you don’t have to pay any increase in taxes?
Good catch EBGuy! I didn’t focus on the numbers that’s for sure. Purchase price of 225x for a condo-type unit for an investor doesn’t make a great deal of sense to me. Too much risk of price and/or rent declines at that ratio. I was just remarking on the fact that he seemed to recognize that rent control had ensured the high rents.
About prop 13 and distortions, I definitely dislike it because of the economic distortion. But then again, I am not above exploiting it. I have encountered exactly the rent/buy ratio in my new place in Tiburon (3/2, 2-car garage, outstanding water view) that 11223 is finding with his south bay home. A $1.1-1.3M home that rents for around $2800. So, I pay roughly 1/3rd to 1/2 at most the cost to rent as to buy. The added benefit to me is that all the recent purchasers (some of whom are killing themselves to afford the houses on our street – we’ve met them and talked with them) will be subsidizing my kids’ educations. Thanks Prop 13!
@ viewlover – I’m shocked to hear that you were paying $3K to rent a house (wasn’t it in Sunset or Richmond?) in 1996. I rented an almost 3,000 square foot 4/4 ocean view house on the border of St. Francis in 2002 for $3100! And I didn’t have to compete with anyone for it. What could a house in Sunset or Richmond have cost back then? Maybe $450-650K? I would have bought it if I liked it for a medium term home f the price were less than 150-200x rent (depending on desirability).
11223 said:
Yes, I applied for the TIC loan as an investment property, and the lender is Standford Credit Union.
Thanks for replying.
Okay, my head just exploded. And your TIC partners allowed this? This is a mortgage, right? Did you buy an interest in a property with just a few units (condo conversion eligible) that the landlord owned outright? Something does not compute… at least to me.
back to EBGuy,
I am not sure what is confusing you here, I bought one unit in a 5 unit building, whereas the Andy Skirin agreement DOES allow renting. There is a lender, Standford Credit Union, that is willing to fund my purchase. Everything is under the sun. What is not computing in your head??
If anyone wants foresight into the future of Citi Apartments, just do some research on Continental Savings. That was another Lembi company.
“How is the state supposed to pay for increases that increase near the same rate as the cost of housing, yet you don’t have to pay any increase in taxes?”
huh?
THe cost of housing is not the issue. Thats a bs canard. The rising cost of the land is the issue.
If u wanna tax the increase the value in the property then tax it as a capital gain after it is sold.
And no there are NOT a lot of ways to tap equity in a house aside from borrowing money on it. Thats an idiotic thing to ask someone to do.
the reason I was able to get it over everyone else is that it was a 3 bedroom house for just one person.
Satchel, was it still standing?
no offense but that’s low. Rents were pretty high before for nice houses.
There is a lender, Standford Credit Union, that is willing to fund my purchase. What is not computing in your head?
Usually there are two ways of funding a TIC purchase: a group loan, or a fractional TIC loan (in which the same bank originates all the loans). Also, the seller can carry back a first or second lien. I guess there is nothing preventing your credit union from funding you separately if they’re willing to take on the risk (which is low, given your downpayment). Banks usually want to hold the only mortgage on the building, so if the SHTF, they can resell the entire building. Good luck with the rent control.
@ viewlover,
“no offense but that’s low. Rents were pretty high before for nice houses.”
No offense taken, and yes it was definitely standing. In fact it was a BEAUTIFUL place – not in perfect shape, but nice. Granite countertops/granite floors/Subzero built-in frig, double wall oven, bathrooms were in nice – but not renovated – shape. All wood floors, with inlay, coffered ceinings in formal dining room and livingroom. It would have sold for $1.2-1.35M in mid 2002 when I rented it for $3100. It would probably get $1.35-1.45M today, so I think I made the right choice (it did zoom up to around $1.5-1.65M in 2005-06, though, based on what neighbors sold for).
I believe you that rents were high in the late 90s. The owner of our house back there moved out and went to Hillsborough in 1997/98, and rented the house to a tech exec for $4K/mo in 1998 – 2002. But by mid-2002, rents were down substantially. In 1998, the house would have sold for about $800K. In other words, 200x monthly rent. It was a large unobstructed ocean view house, and so it had instrinsic value as a long term abode, so I would have bought it at those ratios had I been here in 1998.
It went up on craigslist a week or two ago, after being repainted, floors redone, a little extra work. Asking rent 2008: $4K – the same as in 1997/98.
I just don’t buy that rents on SFHs in most parts of the Bay Area have gone up significantly (maybe in Noe and a few parts of the north side of the city, etc.). What we found when we were looking in Marin was that nice places were asking $3.5-4.5K per month, and we were able to knock off 15-25% iff the asking prices. The key in my experience is to only target the long term owners. The owner of the house we rent now (which would sell at $1.1M-1.3M today) pays less than $1500 per year in tax. Back in St. Francis, the tax was like $3K. Prop 13 is a massive distortion. If true demand was that great, it would not be possible to rent places like this for $2800/mo.
We actually gave friends in West Portal who are now looking for a place to rent in Tiburon, so their kids can go to the school system up here without having to pay the “full freight” that recent buyers have to. They are going to rent their West Portal house (it’s a nice one). They want to hold onto it for their kids for when they start their professional career (they are 5 years old now). As they put it, “we’re only paying like $4K in taxes, and those can’t really go up, so we’ll never sell it”. When the kids get out of college in 15 years, the taxes on that place will be $5,400.
EBGUY,
Sorry, I still don’t see what you are trying to say here. Fractional loans are very common these days, and I personally know of 2-3 banks that does investment purchase on TIC. So, what is making you think that I would have to lie to get my loan (by suggesting that I told them this was going to be my primary residence)?
What you have is old info.
By the way, Standford is not MY credit union. The loan went thru a TIC loan agent, I never heard about Standford Credit Union before.
I purchased this unit a few years back, when people still have a lot of fear/uncertainty about TIC. In the last couple of years, TIC price got a nice pump, I think
A few other 100% true stories about Prop 13 distortions from my personal experience.
I have a friend up here in Marin. High-7 figure/very low 8 figure net worth sort of guy. He rents a $1.5M (approx, but probably only $1.3M now!) house here from elderly owners who now live in Oregon. They’re saving the asset for their grandchildren. They bought it new in the mid 1950s and pay about $1500 in tax. (My friend is one of those “rational economic” actors you read about in the text books, and refuses to buy anything at greater than fair value.)
We both have a friend who rents a “mini” estate in Ross (includes pool and mini-“poolhouse” even!) for $3500/mo. It would sell for $2.5-3.0M.
Another friend of mine just rented (three weeks ago) a 5-bedroom Los Gatos place for $3500/mo. The house (upscale tract house) would sell for $1.6-1.8M he estimates. Again, very long term owner. There couldn’t have been too much demand to rent it, because my friend negotiated the colors that he wanted the interior painted, and he got them to accelerate the installation of central air conditioning (the owners had been planning to do this anyway at some point, though).
There are a number of renters of SFHs we have already met in Tiburon. One young family owns a loft in SF – “we’d never sell because taxes are low” – and rent a place up here for $3K per month. “We like the free schools and SF schools are terrible.”
Two doors down a professional couple with two small children moved in. They are from out of town and so are “overpaying” IMO = $3.4K per month.
We met some other people (garage sale) who are renting their modest 3/1 in tiburon for $2K/mo.
We looked at a pretty nice place in Kentfield (4/3) two months ago and would have rented it but the owner wouldn’t come down from $4K asking to $3K (our estimate of a good deal – fair value is probably $3.4K). The vacating tenant was skipping out on the lease as soon as their kid graduated. They own a place in Sausalito, but “taxes are so low, we can afford to rent it to singles from SF” (school system in Sausalito is not good).
The Kentfield house didn’t rent from what we could tell. We were in the neighborhood (it’s a nice neighborhood) 2 weeks ago, and went to a garage sale on the street. We got to talking with the people. They “came for the schools” and were now thinking of leaving. Rent: $2,300/mo (this was a reasonably nice 4/2 in a VERY nice neighborhood of $1.2-$2M homes).
Given this massive amount of distortion, I don’t think anyone can conclude very much about true demand based on rental prices. Similarly, true supply cannot be inferred because of the large numbers of properties that are evidently being held “off market” because the owners judge the cost of holding as riskless (“prices always go up out here and taxes are low”). This inability to infer true demand and supply always happens in a price controlled, distorted market. People buying homes today are making the implicit bet that the distortions will continue and will noto verwhelm the system. I don’t like to make bets like that.
I also know 14 “people” who are paying $700 a month for million dollar homes in LA. For reals.
The more I read about these stories where people rent million $ homes for $3K, the better I felt about my decision to buy in SF.
$625K purchase is now renting $2800,
$700K purchase is now renting $3300.
Thanks to rent control, I guess.
What I find interesting is that a studio in the tenderloin can go for $1,000 and a mansion in a nice location for $3,500. Not alot of variance comparing the properties.
Given the properties Satchel describes and the rents above, I can see why people rent more than buy.
@ viewlover,
I suspect there is a “breakpoint” above which demand for rental housing becomes very elastic. Most people who can afford to pay upwards of $3-4K per month have already bought houses after the credit orgy we’ve just had.
Or, potential tenants are in a “transitional” period (waiting for their own house to be renovated; or recent arrival and wants to get a feel for the nighborhoods before buying) and so do not present the best profile to someone who is looking for a long term tenant. This reduces potential demand by restricting the pool of desirable renters (from the point of view of the owner).
Therefore, it seems to me that it is difficult to find desirable tenants above that breakpoint rate. As I’ve said before, if you are a traditionally married couple and are caucasian, you have an ENORMOUS advantage with these long term owners who are most likely to be in a position to offer the “value” rents.
Perhaps the potential renter profile explains the relative rental price strength in the “younger” neighborhoods with more apartment-like stock versus the SFH market. I also firmly believe that rent control exerts upward pressure on these apartment-like transitional units while prop 13 exerts downward pressure on the non-regulated SFH market.
These are of course not the only forces at work, but I believe they acount for a good deal of the disparity in relative rental pricing versus equally wealthy areas with nicer housing stock (e.g., nice suburbs of NYC) where it is simply not possible to obtain the rental deals that I have found here on SFHs. (My brother for instance rents the SFH he owns in Mamaroneck, NY – very roughly equivalent to something like Burlingame or Mill Valley here – for upwards of $5.5K per month while it would sell for no more than $750K.)
The rational response to eliminate some of this distortion in the SFH market would be to at least limit Prop 13 to owner-occupied residences, and only allow 1 exemption per family/owner. Of course, this would lead to all methods of “cheating”, such as putting homes in trusts, “splitting” ownership among married couples, transferring ownership to children for families owning multiple residences, etc. In any event, there is no move to do any of this type of restriction, because property owners understand that any weakening of prop 13 would lead to downward pressure on prices. Prop 13 is sold as keeping the elderly in their homes, but of course that’s a diversion from the true goal.
BTW, the liberal goo goos fairly recently sold a similar “save our elderly” in their homes in my brother’s town in the NYC suburbs. People over 55 only pay something like 60-70% of the property taxes that would otherwise be due. So, what young owners are doing is recording “life estates” on the deeds in favor of their elderly parents and relatives, retaining the residual fee ownership, and thereby enjoying the subsidy provided by the do gooders. This is often very easy to do since the elderly parents are likely to live in NYC in rent controlled apartments (most of the suburbs were “seeded” in the 1970s and 80s by people who in may cases held on to their rent controlled apartments). Smart people are always one step ahead of government regulation….
11223 said: Sorry, I still don’t see what you are trying to say here.
Not much at this point… I had always assumed (naively!) that investor/speculator activity was limited to the development side for TICs (converting/rehabbing apartments and reselling to individuals). Clearly your TIC purchase is speculative (low/no cash flow, but you’ve got some nice appreciation). You have deep pockets, haven’t committed fraud in your purchase, and will not be abandoning your properties in Ess Eff any time soon (unlike some unscrupulous actors in this game). Thanks for responding — and spurring on some very interesting talk on rent control/Prop 13.
EBGuy,
Just for the purposing of discussion (as well as killing time at work in between intensive/boring financial spreadsheets), the building that I bought into is a 5 unit building, the original owner bought the whole thing some 30+ years ago. She got really fed up with the rental laws that are getting tigher and tigher. So, she kept 1 for herself, sold two to the tenants, and sold the rest 2 to me and another investor. So, the building now has 3 owners, 2 tenants, waiting to condo convert. All these is done without ELlis or OMI.
And yes, I am bleeding $600 a month even with 40% down. But in South Bay, I would be bleeding a lot more to carry the property for future appreciation.
11223:
It may have been better if you had just said what your situation was up front. Five unit buildings need just 3 units to be owner occupied to be eligible for the lottery, so I can understand your position. Gives a whole new meaning to the term “winning the lottery”! Somewhat surprised that the owner “sold out” to investors and left money on the table (though, I guess you guys shoulder the “rent control risk”). I’ve done a TIC to condo conversion over here (primary residence) and get the concept of a property “realizing its full potential”. Be thankful you don’t have to deal with Berkeley’s new conversion law (makes SF look like a free for all): lottery plus an affordable housing fee of 12.5% of the units value. Bit of a disincentive to convert these days… there is a guy who has been flogging his TICs (3 units) on Craigslist for, I think, like six months.
Thanks for the response Satchel, it makes things a little clearer and explains why I never got a rent increase in the 7 years I rented in SF, and 100% of my deposits back. I always paid on time, being single and boring never caused any problems, and replaced fixtures and other stuff I could not stand.