735 Geary consists of twenty-one (21) units that have been renovated and turned Tenancy in Common (TIC). They’re offering 10-yr fixed fractional financing at 5.87% with 10% down. And while currently in the Tenderloin according to the MLS, according to a listing this block will soon be Downtown (“MLS will rezone this neighborhood to 8A downtown”).
And yes, parking is leased ($250 per month) and a block away (855 Geary).
∙ 735 Geary [735geary.com]
∙ Listing: 735 Geary #102 (1/1) 676 sqft – $315,000 (TIC) [MLS]
∙ Listing: 735 Geary #503 (1/1) 817 sqft – $475,000 (TIC) [MLS]
∙ San Francisco Real Estate Districts: Maps And Neighborhoods [SocketSite]
∙ A Rose By Any Other Name (But Not Necessarily A Neighborhood) [SocketSite]
Wow! I was wondering what was happening with this building. It has been empty for a while, and they have been doing a lot of work on it (I am on O’Farrell and can see the back of this building). This is actually pretty exciting, as long as they have the financing straightened out. We need more ownership in the TL!
Let’s do a bit of math here:
The Junior 1/1 clocks in at 315K. With 10% financing on 280K you’re paying ~3.1K/month in mortgage.
Add property taxes, HOAs, parking, tax credits. You’re probably at 3500/month to live in the TL.
Then again, that’s a 10-Y financing, which means you’re building 1750/month in equity right off the bat and it’s getting better every month. This brings your real costs down to ~1750/month and it decreases by $8/month (amortization). Not really enough to be a pure rental investment, but I am sure this will attract people who want to live there 5 years and rent it out until it’s paid off. After 5 years you have already 120K debt paid off.
Not bad for the 20-something who wants to start somewhere AND can qualify. I can see myself doing that were I a few years younger.
target buyer works downtown and doesn’t want to spend on the leased parking? i used to live a block away and walk to work downtown. unless you want to climb hills you need to walk down Geary which isn’t a real pleasant experience at off-hours.
lr – what would be typical rent in the ‘hood for unit #102 – first floor, fronting Geary, “junior” 1B, no parking?
With 90% financing at 5.87% and 30% tax rate buyer pays $971 mortgage + $300 prop tax + $355 HOA = $1626.
i’ll refrain from a tirade on the current state of multi-unit TICs.
All i’ze can say is, this developer has balls…or is a victim of very unfortunate timing. 21 small perma-tic’s in the loin, man I’m glad I don’t have those kinda troubles. And I’m a relative ‘bull’ on SF RE (compared to many here). If these folks don’t have deep pockets, and ellised the bldg to boot (can’t rent), they’re double-donged on this project big time. Ouch.
@San FronziScheme – I am not in the loop as far as rents, but I can easily see that building with those units brining in at least $1500/month. Seems high for the TL, but 3 of the trendiest places in the TL are 1/2 block away (Osha, Rye, and the Ambassador). City Apartments has a lot of stock in the TL and they rent studios on O’Farrell St. for $1000 or more.
The only crazy people around this part of Geary are at the bus stop across the street.
lr,
As I said, these units are not so much about the rental potential as much as “rental replacement”.
You’d buy there to get a cheap enough entry point into the market. If you are lucky you’ll get appreciation and at these levels they can pretty much offset most of your overpayment over rental.
Say this market gains 10% in 5 years (not unrealistic), that’s 31K spread over 60 months or $500/month, bringing your net costs to ~1200/month. Of course if prices keep coming down you’ll be out of luck and the math won’t work anymore.
The big issue there is what is the potential market there. $3500/month would be for couples in their 20s or a single making 150K/Y. Not everyone in this town would like to live in the TL for that price.
San Fronzi – your math is wrong
resp,
How so? Please comment where it could be flawed:
Mortgage would be ~3100/month amortized
Pure interest payment would be ~1450
Plus HOA, parking and stuff, you’ll be shelling ~3500/month in total cash payments, including $1750 in Principal payment.
To pay $3500/month and if you do not want to pay more than 40% of your net, you will need $150K/year (~105K net = 8.5/month and 40% of that is 3400). I am not sure the banker would want to go higher than that but then again, they are not really a reference there.
Anything I missed?
I seriously had to laugh at
in the MLS.
resp, I think I know where the difference is.
I assume the buyer takes the 10Y financing (advertised in the listing). You probably assume he does 30Y, right?
yes the loan advertised on West American (never heard of them btw) is a 30yr fixed for 10.
[Editor’s Note: We’ll take the blame for that one as we inadvertently dropped the “fixed” from our paragraph above (since corrected).]
resp,
Yes, you are correct. 30Y w/10Y fixed. Someone tell them to put all the relevant info on the MLS.
http://westamerican.com/products.aspx
What was I thinking: a 10Y mortgage! Now how crazy would that be? Why would bankers offer a product where you could actually build equity with your payments?
The marketing website is awful. Are these the only two floor plans they have? I can’t tell from their site.
It’s hard to imagine someone paying $475K for a 1 bedroom in the TL with no parking or any amenities.
If parking is not an issue, there are quite a few better located, more affordable 1bd units listed on CL.
Tenderdown? Downloin? ToBeNamedLaterLoin?
TinyLoin?
This is in the heart of TrendyLoin. Urban hipsters with a six figure income will find this to their liking.
Some of those fractional loans work like commercial loans. The amortization schedule is fixed, and at the same rate as a regular 30 year fixed. That means you pay the same as you would for 30 years for the first ten.
Then, there’s a teensey, weensey little problem…
A balloon payment in year ten! Meaning, you have to refinance. If you can’t refinance, the entire balance is due and payable.
Now, you might not think you are going to live there for ten years. Maybe you’ll live there for only 7. But the next buyer is looking at a balloon payment in year 3. If fractionals fall out of favor, no fractional for your buyer. If the loan amount is higher than the value, cough up more cash! If downpayments have increased, cough up more cash.
I don’t know if these loans work the same as commercial loans, but you’d be better off checking into it. Some of the fractionals work this way so that the bank can bail out of them if they start going bad and the bank wants out of the business. Because the loans can’t be sold by the banks on the open market, they usually try to keep that “out” for themselves so they aren’t stuck for 30 years.
Nothing beats a home surrounded by tranny hookers.
ummm, how about a home FILLED with tranny hoookers?
c’mon now, there’s some regular hookers over there on Larkin too right?
I mean, they’re kinda hot so they’re not trannys right?
I’m sure I’m right. Please tell me I’m right.
Let’s hope this is the beginning of a trend to gentrify the Tenderloin. Can anyone name another beta city (much less an alpha city) where a huge neighborhood so close to the center of the city has been allowed to remain derelict?
For example, the Marais in Paris, where an undesirable medieval neighborhood has become as expensive per square meter as expensive as the great 6e and 7e arrondissements. Similarly, in London, the area now known as Fitzrovia, and old Clerkenwell have both become gentrified in just 20 years.
Of course, as this is SF, Daly or some other perspicacious politician will want to know where the addicts and prostitutes will live if we allow gentrification of their turf.
They can call it downtown, union square west, nob hill valley, etc., but you walk out your front door and see drug dealers, hookers and liquor stores… you know you’re in the tenderloin.
Just like when the airlines renamed stewardesses into flight attendants… the title changed, but their sole purpose in life to mix me an in flight drink did not change at all.
See the posts about TBT. We’re building them a One Billion Dollar bus station to hang around. This should definitely improve the whole tranny hooker situation.
Does anyone actually believe in, let alone use, the alpha and beta city terminology? It’s a bit like the scientology of the social science world…
Anywho, I’d be delighted to see more ownership in the ‘loin, but these prices are simply delusional. You can get a 1/1 in that neighborhood for about 1500, so why would someone buy at twice the price? Just doesn’t make sense to me.
I wish them well, but it all seems a bit overly optimistic.
“Can anyone name another beta city (much less an alpha city) where a huge neighborhood so close to the center of the city has been allowed to remain derelict?”
I don’t know whether LA is an alpha or beta city, but LA’s skid row is awfully close to downtown. I find Skid Row more depressing (and dangerous) than the Tenderloin.
FWIW, I plugged the numbers ($1500 rent, $315k purchase price, and mortgage rates) into the New York Times buy vs. rent calculator and got a break even of around 12 years (I also tweaked the tax rate up to 35% for ‘real SF’ types). Be aware that there is a fair amount of voodoo (read variables) that go into the calculations, so it is easy to swing the breakeven one way or the other (by say, tweaking percent rent increases or home appreciation). Still, it does give one a good idea of how much to value “mobility”.
Agree with Conifer that it is amazing that prime land like the Tenderloin was left virtually untouched by development during the largest real estate boom in our time. It is stunning that gentrification forces were unable to gain a greater foothold. Unfortunately this party of town is most likely going to regress from where it is today over the next several years during the downturn.
“Then, there’s a teensey, weensey little problem…
A balloon payment in year ten!
I don’t know if these loans work the same as commercial loans, but you’d be better off checking into it.”
***
When I was looking at places I checked out a TIC that had fractional loans and this was the case, a ballon payment in year 10.
Of course from a logical perspective it shouldn’t be that big of an issue. If the market is going up then there will be other banks that will offer fractional loans and you should be able to refi as you would likely have enough equity (due to the rising market). While on the other hand if the market is declining and no one is doing fractionals because of declining property values, it does present a bit of a problem for the bank. If they demand you make the balloon payment and you can’t, then they may not really want to foreclose and would be better off keeping you paying on the loan. But it was still a concern and was one of the factors that made me not buy a TIC.
you can rent a 1 bdroom in the tenderloin for $1200/mo. Not sure why anyone would want to buy in this area though.
Also, I think the tenderloin goes all the way to Bush, but that’s just me.
Larkin and post and larkin and sutter are equally bad tranny hooker homeless drug addict havens
Because we all know the RE prices always go up, never down, right? That’s the problem with an assumption like “well, in Year 10, I’ll just refinance” or that “rents are going to keep climbing, so its better to buy”.
Funny thing that, sometimes what goes up, comes crashing down. And in the case of Bay Area RE market, expect it to keep heading downwards well into 2010. The bottom-end of the market has been sustained via foreclosure sales, but those are once & dones. When buying an REO from a bank, there is no tradeup buyer. Which is why there is growing softness in the middle-to-high end of the market. Add onto that, the CRE crash, and its doldrums for a while.
And yes, why would someone earning $150K buy a shoebox in the TL? Here’s my math – take that $3500/month and spend half that for a very nice 1BR somewhere in a pre-1970s building. That gets you a rent-controlled apartment. Live there for 10 years. Every year your rent goes up only around 2%. Take the $1750 a month you are saving NOT owning that TIC and invest it. That’s $210,000, not including whatever your compounded returns are. Compare that to the $3500 you are shelling out a month, of which a small part is paying down principal. (On a 10yr note that is amortized for 30 yrs, you aren’t paying much off in principal, at Year 10, you’ll have ~20% of the principal paid off – its called a balloon for a reason)
So, at end of 10 years, on that $280K note, you’d gotten what, $56K in equity due to principal paydown, combined with say $62,000 in appreciation (20% over 10 yrs). That’s $118K. Plus whatever tax savings from the interest deduction. Flip side is factoring in HOA increases (which WILL happen) plus whatever repairs you have to make to the unit over the 10 years (which as a renter you wouldn’t have to). I think I’ll take “What is renting in the ‘Loin over owning in the “Loin”, Alex, for $210K+.
In a rent-controlled market, the calculus changes.
The building is not ellis acted. Seller owns the building outright and is selling units as they are vacated or tenant buy out. I believe the lenders are associated or are the bank mentioned and thus the great rate. Better than Sterling bank rates who do most TIC financing. Large and nice one bedroom places that are pretty unique and have lots of character. Kind of NYC feeling. Tasteful remodel, etc. Basically all the same except facing front or back and whatever floor. Nice big windows. But I agree a little on the pricey side for Lower nob tenderloin heights, outer downtown, whatever. It is urban SF. Cool but with its issues. I think prices will be down a bit soon. Over last weekend they said they were getting action on some of them and had some contracts so who knows. Cool units but no parking and perma TIC. Not sure what happens in 10 years with financing. Better as a cash pied e terre however you spell it. An interesting trend for sure.
James Pettigrew and Sean, The Organic Mechanixs, have been gardening in the the rear of this builiding and the one next door for years.
It was one of those amazing, funky, urban garden spaces you find in a hollywood movie. The OM told me they they had to split their garden in two (it was one large garden that spaned the rear of two adjoining buildings) with a fence. So it might only be demi-amazing now, still worth the look. Deeding that garden would have made the ground floor rear units worth some serious coin.
^ anon- good point about the all cash pied a terre buyer. When the economy returns that could be a great exit strategy for an apartment bldg owner, as it makes the fractional loan irrelevant. Also, if the banks are willing to accept a mix of legacy tenants and new owners, that allows sell off on a one by one basis. It’s just that now is a dicey time to be exploring this strategy (but with RE, once the ball is in motion it can be tough to reverse course…)
If I was going to be an all cash pied-a-terre buyer, then I would be looking in a different neighborhood. This is for the pied-a-merdre market.
That’s frackin’ funny Robert, I’m gonna have to steal it. (and pretend it’s mine)
Or, pied a la hipster market.
I have friends who are still renting in this building. It has a beautiful garden in the back that they created.
The sale of 735 Geary #303 closed escrow on 8/21/09 with a reported contract price of $425,000 ($14,000 under asking and $520 per square foot).
The sale of 735 Geary #102 closed escrow on 10/07/09 with a reported contract price of $310,000 ($5,000 under asking and $443 per square foot).
WARNING: These units get listed as condos, which they are not! Do not buy a TIC in this building. The owner is a crook. The building has had a lot of cosmetic touch ups, the walls and floors are paper thin. Not worth the price. The hotel next door is a haven for tranny prostitutes and drug users and dealers. Also, not all units are for sale, more than half are rentals. Do yourself a favor, look elsewhere.