CFAH

4114 20th Street
From one plugged-in reader with respect to 4114 20th Street:

We moved up here from Laguna Beach last September and are still trying to figure out this market. We are one of the 3 who made an offer on 4114 20th St. We offered $1.2 [million], but someone offered more and all cash.

And another:

I had a friend that wrote an offer at 1.2 on 4114 20th too. Obviously they didn’t get it either.

Once again, 4114 20th Street was purchased for $1,513,000 in October of 2007 but was being offered as a short sale for $1,150,000 last week.
And while another reader had heard fourteen offers, let us know if you have any insight into what might have simply been the winning third.
UPDATE: A bit of refinement from the first of said readers:

Our agent was told there were a “couple of other offers” that were for all cash and over our $1.2. Maybe there were lots of offers that were lower, too.

Like eleven (or so).
Apples To Apples (And Seeking A Short Sale) For 4114 20th Street [SocketSite]
A Four Year Hold For A Renovated 819 Haight: A Winner’s Return [SocketSite]

Comments from Plugged-In Readers

  1. Posted by anonm

    Looks like the reader was fortunate enough to experience the “loser’s blessing” rather than the “winner’s curse!”

  2. Posted by SFpiddler

    well, somebody has some cash out there. hearing there were multiple offers on 1002 Clayton (after being reduced) and 42 Mars over the last month. both in the $1.2mm range.

  3. Posted by San FronziScheme

    Yes there is cash out there. Plenty of old bubble money is still burning many people’s pockets.
    The issue is: is RE the best use for this money?
    I hear the Deflation Gods are very happy at these all cash purchases. It’s a great way to destroy fiat cash created by all this now-defunct debt. It’s helping rebalance the books, imho.

  4. Posted by Chad

    The issue is: is RE the best use for this money?
    If it’s not, then what do you think is the best use for this money ? Don’t keep chiming “Stock Market” and pull up those omnipresent Stocks Vs RE charts.
    In RE, you don’t lose your $$$$ over-night, like in Stocks, ex When Lehman went down, if you had 500K invested in it, next day, you just got poorer by 500K. That kind of risk is not there in RE…. i.e. values don’t plummet overnight, they drop gradually (even if it is days or months). So you still have the ability to cut your losses at 10, 20 or even 30% not at 100% !

  5. Posted by asiagoSF

    Chad, you are forgetting about leverage in RE. Losses of MORE than 100% are typical for purchases over the last 2 years.

  6. Posted by LMRiM

    So, in just over two years or so we’ve gone from “SF real estate is a can’t miss, great investment” to “it’s the least worst alternative”. Sounds like progress to me.

  7. Posted by San FronziScheme

    Chad,
    If only I knew…
    First, RE is not an investment. For people who consider it as one, I’ll say it’s a speculative instrument with a huge carrying cost. Plus as opposed to stocks, you can lose more than your seed money in RE.
    For now I am all in safety. I took out whatever little exposure I had to stocks a few weeks ago. CD-equivalent mostly. 60% EU, 40% USD. I’m pretty happy about these choices.
    Most of what I have is bubble money gotten at the top in this great RE bubble of ours. Valuations of my places vs. rent didn’t make sense anymore. Better sell to cash-rich suckers backed by short-sighted banks! Most of the cash was boomer money given to help starter kids buy their first place. The Deflation Gods are now doing their magic as prices now plummet.
    I am refraining from going back into RE also because of the same fundamentals, but I know other people like me with sitting windfall money (RE, stock options) who can’t resist a 20% discount, even though by “owning” they’ll still pay twice what a similar rental would go for.
    Maybe they’re right. But I think we still have a bubble to deflate in SF.

  8. Posted by Buy High, Sell Low

    I’m with SanFronziScheme here (mostly). I own mostly paid off ocean view property in Santa Cruz but I want to move to SF in the long run. So I’m just accumulating cash for now, stuffing it into CDs, and waiting for what I think will be a long, wide bottom once the shadow inventory is dumped onto the market and I’ll likely convert the current place into a rental at that time…
    I’m always open to hearing about other potential strategies though. I always want to know what I’m doing wrong…

  9. Posted by SFPiddler

    although I am negative on real estate and particularly on Commercial, and SF and NY resi, and am hoping for more of a pullback too….the data I am seeing shows 47 SFR’s that sold in SF for over $1mm over the last 30 days. The total amount of purchase in this category was $117mm, so even if you assume a low # of 20% down, that is about $25mm in cash laid out. So, no matter if it is techies selling their newly appreciated stock or Trust fund babies, somebody is very happy about the 20% discounts. i’m just hoping they get full soon.

  10. Posted by SocketSite

    UPDATE: A bit of refinement from the first of said readers:

    Our agent was told there were a “couple of other offers” that were for all cash and over our $1.2. Maybe there were lots of offers that were lower, too.

  11. Posted by NoeNut

    This place was clearly underpriced from the get-go. My guess is it went for $1.3 or more. The lowball listing price was just to get foot traffic in the door- the strategy seems to have worked!

  12. Posted by LMRiM

    I’ll take the under on $1.3M, but I bet it’11 wind up pretty close.

  13. Posted by 45yo hipster

    SFS- I thought you were looking into heavily discounted cities such as Vallejo, san Rafael, and Florida? There are props out there that casflow well with 20% down. Some SFH brought with cash in working class nabes are also out there. U not interested? Sure, if you’re stuck on the myth that well have a ‘lost decade’ a la japan, keep your dough in CD’s. But thst sceario is highly unlikely, IMO. Barring that, this is a good time to look for strong cashflow deals, provided you’re into the location and managing it.
    Me, I prefer riding out in SF, as it’s very easy for me to manage props

  14. Posted by anonn

    How large is this property? Did someone build up and down both? Anybody view it? The sq feet defaults to 1400.

  15. Posted by curmudgeon

    How large? dunno. At some point there was a rear addition to the top floor for the master bath, and perhaps a small one for the kitchen. A small br/ba in the basement (unconnected to the house) was built within the existing envelope, I think).
    1400 actually doesn’t sound too far off. The entire house, with mbr and downstairs br/br can’t be much more than 1500/1600 sq feet, and there’s not a lot of headroom under the eaves upstairs.

  16. Posted by San FronziScheme

    Hipster,
    I am not closing the out-of-state or EB option yet. I tend to be a contrarian (it served me pretty well in the last dip and the following top) and things are still a bit too giddy for my taste. When people are jumpy like it’s 2005, that’s a big warning sign. Always buy when nobody else wants. Always look at fundamentals (rent vs own). Don’t rent out to deadbeats and for that matter don’t buy in Deadbeatville in the first place.
    Of course like you I’d prefer local. I’ve done long distance landlording and that was OK for a while. You use the distance as a buffer which is fine when you have a full time job. But there are times when you need to be close by.
    About inflation vs deflation:
    The “lost decade” was not a myth to the Japanese. It happened after a huge RE/debt bubble where trillions were vaporized. Banks were zombified surviving off free money and licked their wounds for many years before going back to truly lending. Japan created many many “bridges to nowhere” very similar to the sometimes idiotic “shovel ready” projects that are not addressing the major infrastructure issues of the country. Too many similarities, not enough differences.

  17. Posted by curmudgeon

    Actually, picture 26 on the mls shows you everything that was done. To clarify above…a master bath on the top floor, a kitchen/bath bump on the first floor, and br bump on the ground floor. Others could guestimate better than me, but to me it looks less than 300 square feet total. Wouldn’t that be in the permit history?

  18. Posted by Jeremy R

    “If (the RE market ) is not, then what do you think is the best use for this money ? Don’t keep chiming “Stock Market” and pull up those omnipresent Stocks Vs RE charts.”
    There are many ways to invest and they all have their place. In 2006, only idiots were dumb enough to buy the 500k beater homes in stockton (which are now worth 150k). In 2001, only fools were dumb enough to buy Nasdaq stocks at 4000. When any asset becomes too out of whack, it is time to move to other investments.
    In general, Real Estate is less speculative and more stable than Stocks, but that has drastically changed in the last decade.

  19. Posted by anonn

    Yeah it usually is in the permit application on the building/planning website curmudgeon. (Tho I agree with your guesstimate judging by the photo.) I’ve personally had a lot of difficulty with city websites being down lately so I don’t even bother unless I’ve got some marching orders. So 1700 feet? And we’re thinking 1.3M? Not quite 800 a foot.

  20. Posted by San FronziScheme

    In general, Real Estate is less speculative and more stable than Stocks, but that has drastically changed in the last decade.
    So true. 10 years ago I was busy buying cheap rental properties and was planning to keep them as rentals for retirement. Well, things turned out better than expected as suckers bought me out.
    Today people are buying RE for the appreciation potential. What’s the rationale for buying a studio for 400K that would rent for 1200? These 1200 will be gone even before you have started to pay off principal!
    No cash flow. No profit. Pure speculation.
    The only vision there is leverage on a potentially appreciating asset. Everyone’s still looking for the Mother Of All Windfalls and that’s a big sell signal.

  21. Posted by diemos

    “In general, Real Estate is less speculative and more stable than Stocks, but that has drastically changed in the last decade.”
    I don’t think that it has changed, rather we’ve gone through a once in a long generation spasm of loose credit. I expect that we will go back to treating houses as a place to live and the 30yr fully amortizing mortgage as a forced savings plan and method of pre-paying housing costs.
    Currently though, there are still too many people out there who view this as a minor correction and buying opportunity before we return to “normal” 20%/year appreciation.

  22. Posted by Legacy Dude

    Do you really think that’s going to happen, diemos? I’m not sure it will, no matter how badly people get burned.
    For better or worse, real estate has now become an asset class for investing/flipping, just like stocks and commodities. Regardless of how bad the wipeout is, I just don’t see homes turning back into shelter again. IMO, real estate investing has been indelibly engrained into the American mentality. When the bubble is done deflating, I don’t expect a stable, linear market tracking inflation (i.e return to historical trendline). I would expect an effect similar to when the stock market was opened up for direct investment by individuals (increased liquidity and volatility, essentially). Just my guess, though.

  23. Posted by 45yo hipster

    ^ I don’t understand what you guys are talking about. There has always been investors in RE! This didn’t start in 2005. Of course, many novices came into the market in 05, and easy credit fueled wild speculation, but prior to that there have always been many how invested, be it commercial, units or even SFH’s. And these investors always made money by either cashflow or appreciation (tax savings and paying off principal ard secondary). Some props and markets ste geared mostly for cashflow (ie. TX multiunits) others for appreciation (ie. growth gowns in CA). There are many ways to skin this cat, and people should not take the last 4-5 years as indicative of all RE investing. This correction too will come to pass and smart and experienced RE investors will continue to succeed using found decision making, leveraging smartly, choosing areas and props well, and managing effectively. Guys, the sky has not fallen! Matter of fact, the more things seem to change, the more they remain the same.

  24. Posted by diemos

    “Do you really think that’s going to happen, diemos?”
    I do. But that’s not an apocalyptic vision.
    The housing stock is always decaying (durn that entropy!) so there will always be run down houses to rehab for a profit.
    People will always need a place live, so there will always be people buying to rent out.
    But the wild price swings can’t return without a return to loosy-goosy lending standards and I don’t see that happening. So, price/rent ratios will return to their long term averages because that’s the point where buying to invest makes sense as an investment.
    Just as the run-up convinced people that real estate was a can’t lose investment the run-down will leave a generation shell shocked.
    Housing, in general, will go back to tracking inflation.

  25. Posted by Legacy Dude

    I agree with you in broad terms, diemos. Let’s say that the mean return will revert to tracking inflation, but I believe the sigma will be much higher going forward, especially in coastal Cali. Above and beyond even the historical cyclicality, and driven largely by expectations based on bad math and faulty assumptions. Again, just my guess.

  26. Posted by Larry Stone

    20th Street: 8 offers, $1,295,000

  27. Posted by San FronziScheme

    Final price?
    If that’s the case, that was a winning strategy. Bidding frenzy it was, everyone afraid to be priced out like in 2007. The party is back!
    Congrats to the buyer for the bold counter-intuitive move, falling knife and all. And all with cash I hear? Nice for our rapid deflation goals. Money supply needs to be gutted and that’s a fun way to do it. The Deflation Gods will thank you.
    For the seller/bank the loss is only 218K which is close to 15% from the real top.
    Include closing/carrying costs and you’ve got yourself a 21-22% loss easy. Deflation Gods happy again.

  28. Posted by LMRiM

    Good strategy, I agree.
    If there really were 8 offers and the final price is correct, there were probably a few right around ask (maybe an underbid, too), there were at least 2 right at $1.2M that were posted by SS’ers in the thread, and presumably at least another one or two between $1.2M and the “winning” bid of $1.295M. There is a chance of course that there weren’t any other bids between $1.2M and the “winner”, in which case the opaque “auction” process that resulted from the modest underpricing to market really worked spectacularly, causing someone to pay $94,999 more than was necessary to squeeze out the next higher bid. All speculation, of course.

  29. Posted by Bing

    Call me a sore loser (we are one of the parties who offered $1.2M and didn’t get this house), but weren’t they supposed to close escrow by the 27th? What gives? How long does it take after escrow closes for it to become public record?

  30. Posted by auden

    Closing price is in at 1.290. 14 offers per the flyer in the listing office window, with Larry Stone’s estimation coming the closest. Now when is the housewarming party?

  31. Posted by Trip

    Seems like a pretty representative “apple” for this area, maybe even a little above average. Down 15% from 10/07 in very Real SF. Sounds like the taxpayers, er bank, did not have to eat too much on this one.

  32. Posted by anonn

    It sold for nearly 1100 a foot last time, a 1.399M list, itself 1000 a foot, went for 114K above asking during a peak market. Today it sold for 920 a foot. What it looks like to me is, don’t overbid if you only plan to stick around for two years. But your mileage will vary! This I know.

  33. Posted by diemos

    “don’t overbid”
    Truer words were never spoken.

  34. Posted by auden

    There is a difference between overbidding past the list price and overbidding past market value for the home. It is true that market value is subjective, but to garner 14 offers, the original list price was clearly considered low and probably below market value by bidders.

  35. Posted by anonn

    That’s true. It will vary case by case and this time around the pricepoint was intentionally low. I’d argue that was not the case the last time ’round. Most people probably considered 1000 a foot quite high and decided not to bid. However, several felt otherwise and “the winner” wound up with a 5-K SFR for more than the neighborhood had typically supported.

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