From Foreclosure To Foreclosures At 333 Grant Avenue

interesting. does anyone know a creative way for a non BMR-qualifying capitalist pig to profit from this by partnering with someone who does qualify?
are these legally condos or TIC’s? i.e. is a buyer taking on any risk of the other owners beyond the obvious HOA stuff?
high HOA $$ with no parking but interesting location.

resp wrote:
> Does anyone know a creative way for a non
> BMR-qualifying capitalist pig to profit
> from this by partnering with someone who
> does qualify?
Living in SF a $140K condo (with $648/month HOA) may sound cheap, but with the BMR restrictions I don’t see any real upside (and a lot of downside if you had to do the deal with a partner/renter)…
P.S. We were in Ohama last month and I saw in the paper that the home Warren Buffett grew up in is on the market for $120K. A friend that moved back there for a job bought a home (that would sell for about $1.3mm in Burlingame or Menlo Park) not far from Buffett’s current home for $220K (with just about the same cost per month to own as a $140K condo that had a $600 monthly HOA) …

The BMR program in general is a failure.
“#405 was purchased for $234,000 in November 2004 with $263,218 in loans to which a note for $25,000 was added in 2008.”
The initial loan was 112.5% of the purchase price. How does that work and make sense?! And with the lender’s ability to resell the collateral in a default situation when the Mayor’s Office of Housing controls the buyer pool? Who underwrote that one?
This is a perfect example of why some people shouldn’t own, some banks shouldn’t lend, and the Mayor’s Office of Housing should not control who can be a buyer.

I own a BMR property. My financial stability has greatly improved since the purchase. Five years ago I had no credit history and was lucky to have a few bucks in a savings account. Now I have access to inexpensive credit (I have zero revolving debt, but the credit is nice to have) and several months worth of expenses in a savings account thanks to the tax benefits. These are the real benefits of the program; not the money you might make when you sell the property.
With that said, the BMR process is convoluted, and there are some drawbacks to owning a BMR property (e.g. restricted sale price, inability to transfer the property to heirs, etc). But the program is hardly a failure. It hasn’t failed for me. I pay my bills on time, and I’d bet the vast majority of BMR owners in this city pay their mortgage and HOA dues on time as well. This particular default was clearly the result of an irresponsible buyer and lender; nothing more.

@NU
What the article you reference failed to note is that special assessments can be a fact of any common interest development. If other owners fail to hold up their obligations, new laws are passed, or a winning majority of owners want changes to their level of services or the building, all owners are affected. It wasn’t the other owners who screwed the BMR owner, it was the BMR owner who was screwed by the BMR system.
The BMR system only addresses acquisition, it does nothing to address operational issues. If I were a condo developer in SF, I would always pay the in lieu fee instead of including BMR units. The two don’t mix well because the operational needs of an association are contra the economics of a BMR owner.
Let’s say the elevator goes out in this building. It is up to the HOA to repair it. What if this bill runs $60k (which it certainly can under some cases)? If you have 30 units in the building, that’s $2k each. That would certainly hurt some owners more than others. Need a new roof? Tack on more. A visitor trips in the common area and breaks a leg, better hope the HOA’s insurance is good, otherwise the owners are out of pocket if the victim sues. The BMR system just sets it up for class warfare within a building when significant operational issues arise.
Inclusionary housing works much better in apartments than it does in condos. This is because the operational issues are much easier to spread and address by the building owner – who typically has deeper pockets.

dakota,
I am not sure you couldn’t have achieved the same thing (savings and credit building) with a rental and responsible bill paying.
What home ownership does though is make a person more responsible and therefore more aware of his financial situation, more involved in his surroundings. You always want at least 1 year of mortgage payment stashed away. You want to pay all your bills on time because an incident could have an impact on your mortgage. You want your neighborhood to be as attractive as possible, because it’s the environment of your main asset.
I don’t mean it’s the way for everyone. Many people do fine without the burden of a mortgage. But it’s a structure that puts some in the path to responsibility.

I would not be happy about a special assessment, just like most owners in the building. It’s all relative. My neighbors may earn 2x my salary, but their mortgage payment is 2x what I pay. Plus, they’re probably highly leveraged given the sub prime lending that was so prevalent when most of the units were sold.
I agree that a self assessment is a potential land mine. All prospective condo owners (with a budget) should review the HOA’s financials/forecasts before signing the dotted line. Thankfully for me, the HOA in my building is well managed and has a big, perhaps overfunded reserve.
In regards to equity, I’m in for the long haul so it’s not a major concern. With these properties, the “appreciation” is not allowed to exceed the percent change in area median income from the date you closed to the date you decide to sell (plus realtor fees). This formula makes a big win fall unrealistic, but it also protects you from selling at big loss.

The whole concept of “BMR” is looking sillier since “MR” has dropped so much. May as well buy “MR” and pay roughly the same as “BMR” but have a chance at sharing in any upside. See:
http://www.redfin.com/CA/San-Francisco/95-Red-Rock-Way-94131/unit-109M/home/1934913
Just sold for 25% below the January 2001 sale price (but don’t hold your breath for 1996 prices . . . , er, . . .)

of course, “MR” has dropped so much only because a bubble was/is deflating, and that fact doesn’t invalidate the whole BMR concept unless everyone is certain that having property bubbles blow up and deflate on a regular basis is going to be an ongoing feature of the local condominium market.

Dakota,
This is what I don’t get…
“In regards to equity, I’m in for the long haul so it’s not a major concern. With these properties, the “appreciation” is not allowed to exceed the percent change in area median income from the date you closed to the date you decide to sell (plus realtor fees). This formula makes a big win fall unrealistic, but it also protects you from selling at big loss. ”
If your in this for the long haul…which is a good thing for a home “owner” and not a flipper/investor. Why bother buying a BMR? And especially a condo under the BMR program?
Why not just rent? Or find a home you can afford with the help of family or friends.
Renting frees you of paying property taxes,insurance,maintenance/repairs,and if a condo the HOA dues. You put your money into savings.
If you buy a home you can afford with the help of family or friends you get to keep the appreciation….and in most cases there is appreciation over the long haul. I mean the whole point of owning is the tax breaks and hopefully appreciation over the long haul. As a single person you get a $250K break on CapGains when you sell. Get married you get $500k. All this after holding the property for 5 years.
So I submit…why bother buying under a restricted program that restricts your earnings in the long run?
If you are truly in for the long haul….owning and paying your mortgage down and building equity is key to financial security. Home prices generally run 10 year cycles were are almost at bottom…2012-2013 will most likely be the bottom. If you are protected from a “big loss” with the BMR program get out.
If I were you I would set my sites on finding a affordable home outside of the BMR program and start over. If your in for the long haul the BMR program is not for you. Either rent and save or buy and build security.

^^ I’m happy to answer a few of your questions:
Why not just rent? I wouldn’t save a dime if I was renting my unit. An identical unit a few floors above mine just rented for roughly the same amount I pay (principle+interest+taxes+HOA). If I bought at MR in the same building, it would probably take another 5+ years for me to be reach cost parity.
Though my HOA and prop taxes will increase over time, I have a low fixed rate mortgage. The cost of owning vs. renting will become more favorable. Assuming my income continues to increase, I can use the money saved by not renting to make other investments.
Why bother with the restricted program? When I purchased my property, there weren’t any MR units within my reach. Not even close. Today, there are very few MR units within my reach. And these places do not even compare to the unit I’m living in now.
As I noted before, my potential earnings are restricted to basically the rate of inflation, but I’m protected against a big loss. A lot of people who bought a MR condo in 2006/2007 probably wish they had a similar arrangement.
Generally, I am happy with my purchase but I can speak only for myself. The program is certainly not for everyone. The pros and cons are weighted differently based on each persons’ goals and financial situation.

Now, we can debate how much of a profit margin is available
Yes we can.
Rent control might change how the #s work with time. Landlord stuck with a tenant from the past 20 or 30 years cannot “rationally maximize their income”. This is why many landlords will ask outrageous rents upfront, instead of setting an attractive price at first then crank up the rent gradually with time (in the famed “frog in boiling water” fashion) like in the rest of the country.

SF is also a little different than the rest of the country, with regard to profit for landlords, because of the structure of the rental market.
In most places, the vast majority of rentals are large 20+ unit buildings, most of which are owned by folks who have some type of loan on the property.
In SF, a very large percentage of units (perhaps not the majority, but still tens of thousands of units) are small buildings owned outright by the landlord. What I’ve found is that you can get a much, MUCH better deal on renting these places because they typically rent for lower than a place should if you assume a market-price for the building and rent to cover a standard mortgage. The landlord doesn’t care that much, because the money that he’s bringing in is basically all profit to him, because papa paid off the building in 1963. He just has to shell out some dough for repainting and occasional maintenance.

^they’re not trying to underprice, they’re just unsophisticated and don’t care much about overall profit (they do care enough to not get stuck with a tenant, so you do need to be young with high income for this to work, of course). They just happen to own a four unit building that’s been in the family for 60 years.
I’ve lived in four such places over the past 12 years, and craigslist is littered with them.
Find a place that you like, then offer to pay six months rent cash (actual cash) upfront in exchange for a couple months free or something similar – it often works with these small timers.
I’m 32, single, and make good money. I move every 2-3 years largely to snag another one of these deals (a history of moving fairly often also works in your favor). My current place on Russian Hill had a list price of $3200 per month, which seemed fair (this was late last year). There were dozens of people at the open house. I took the landlord aside and offered to bring $28,000 in cash tomorrow for a full year’s rent. He could hardly say yes fast enough.

^^^ There is some truth to your last statement. Sure property taxes will follow more or less controlled rents. But maintenance is a b!tch and usually increases faster than inflation. Part of it is that good contractors in SF are expensive. Another part is that the City sets up new rules every few months. A new certificate here, a new regulation there. Soon you’re spending a 1000+ extra every year just for the privilege of owning in SF with no real added benefit.

This is what I don’t get. A.T. posts a link to a single condo that as it happened went for “25% below the January 2001 sale price”. What he didn’t say in his comment was that the condo in question was sold at a foreclosure auction.
Now, are people trying to say that because a single condo sold at a foreclosure auction, presumably to a buyer who paid all cash on on the day of sale, that this somehow represents a wholesale lowering of the price level for condos and that, therefore we can conclude that “the BMR program is no longer necessary?”
I would submit that the presence of distressed sales do represent valid market prices, but of course those prices aren’t available to the average person applying to the BMR program for several reasons, one of which is that the BMR program applicant isn’t paying all cash at a foreclosure auction. Don’t get me wrong, I’m in the market for a condo now and I’d love it if the general price levels has come down substantially, and I’m sure they have, but not necessarily to such a level as to obviate the need for the BMR program.
But has it? Just to get a general sense of whether or not this is a case of wishful thinking, I went to the SFMLS and searched for every condo in ZIP code 94131 (not the area I’m personally looking in, but let’s limit our area of concern to what A.T. brought to the discussion) with asking up to $300K, studios to two bedrooms. Guess what?
6 listings are found, and of those, 4 are BMR units available via The Mayor’s Office of Housing, including the two lowest price units. One of the remaining units, with the highest asking, is 950 Duncan St., E207 and a short sale. The other is a commercial condo currently in use as a therapist’s office. Throwing out that unit, the difference between the lowest asking priced market rate unit and the highest asking priced BMR unit is about 14%.
I’d say you need a much stronger set of data, or at least a better anecdote, to argue that potential applicants to the BMR program are “able to buy comparable MR for less than BMR” or that “the whole concept of “BMR” is looking sillier since “MR” has dropped so much”.

My bad on the history of that property. A.T., thanks for correcting me.