At the request of Supervisor Campos and based on “a random sample of 15 properties” as outlined above, San Francisco’s Budget and Legislative Analyst has just completed an analysis “on the level of profit landlords have made when they sell a building after evicting tenants using the Ellis Act over the last ten years.”
FliBased on the data collected by the Budget and Legislative Analyst, the average level of profit owners earned selling their properties after Ellis Act evictions was $1,545,949 or 116 percent. Inflation-adjusted profits ranged from -$278 to $4,785,522 for the properties reviewed. The median period between sales for these properties was 3.4 years.
The fatal flaw(s) in the analysis with respect to calculating the average profit:
This return rate does not account for any owner expenditures for improvements made to the properties.
And in addition, “the calculations of profit are not adjusted for the impact of elapsed time between the original purchase of the property and post-eviction sale.”
∙ Analysis of Profits of Ellis Act Eviction Property Sales [sfbos.org]
Where does one even begin?
Haha, the 8/8/2000 purchase yielded a 26% “return” in 4/4/2013, just under 13 years. Profiteers!
may as well begin with a facepalm, and make mine a double
Another very key flaw
Most of the properties were purchased at the bottom of the current RE cycle….I’ll bet if I re-did this study and picked buildings purchased in 06 and 07 but sold in 10 and 11 we would see a lot more red
I always thought if you want to lower the cost of housing (or any product) the best thing to do is increase regulation, increase costs, decrease the incentive for people to invest and in the process decrease the supply!
Wait. Someone bought property in 1995 and then sold it for a profit in 2012? That is just plain unpossible! Ellis evictions must be some sort of magical windfall profit generator.
————–
One way to make these numbers more useful would be to do a similar analysis to non-Ellis properties. It would still be hard to conclude much but at least there would be a “control set” to compare against.
Wait, this is a random sample of Ellis’s and 1/3 of them are SFH’s?
I assume that you’d only Ellis a SFH due to a pre Costa-Hawkins tenancy?
A third of Ellis’s being used by people to basically get their house back is interesting and probably not going to play off as “profiteering”.
And 8/15, just over 1/2 of these are 1 or 2 unit.
This really paints Ellis use as more Mom and Pop getting their property back, than “greedy real estate profiteering”
Is the “Budget and Legislative Analyst” meant to be a professional or just a political hack? I’ll take a stab at listing some of the problems. It
1. Compares inflation-adjusted sales prices to purchase prices that are not (apparently) adjusted for inflation;
2. Does not annualize the returns;
3. Does not take costs into account (remodeling, eviction, foregone rent, financing, taxes);
4. Calculates an implied sales price for units that have not been sold without adjusting for the comparative square footage of the sold and unsold units;
5. Does not compare to “profits” in buildings that did not have Ellis Act evictions;
It would be very interesting to identify some of these properties and attempt to reproduce the analysis professionally.
Real Estate Speculators:
Come to San Francisco to realize up to 444% profit!
anon2, in keeping with the seriousness of the BOS study, it would be accurate to say that the median is a 2 unit building.
The lack of explicit improvement expenditures is hardly a fatal flaw since any expenditures that were made were taken into account by everyone who made an offer on a given property.
Harvey Rose, the Supe’s Budget Analyst is of course not a budget analyst at all. He is an accountant. Somebody shows him the beans and he counts them. He has no idea what analysis is, as this “study” shows. And since he is hired by the Supes, he tells them what they want to hear.
I would guess that a more reasonable data set would make “the point” just as well, if not better and not invite justifiable charges of, well, stupidity.
This would be funny, except its done by the same budget analyst who reviews the nearly $9,000,000,000,000 with a “B” budget washing through San Francisco like a tidal wave this year.
Does San Francisco government have any intelligent effective people? ANY?
I am shocked to see a report like this from coming from the Budget and Legislative Analyst. It is very fishy for them to a drop a number of “average profit” without annualize the gain. Furthermore, the sampling is absolutely NOT random. Looking at my annualized gain chart, most properties are purchased from 2008 to 2012. The eviction likely to happen in the last 2 years. As your can see from the second Ellis Act bar chart this corresponds to a highly selected subset in the lower right hand corner. Why do they ignore the vast majority of house evicted in the 2000s and but focus on the 15 property most of them flipped in the last few years?
https://dl.dropboxusercontent.com/u/12840293/2014/chart_policy_analysis_report.png
https://dl.dropboxusercontent.com/u/12840293/2014/chart_ellis_act.png
On page 5, the report says “The sample of 15 properties used for this report is not meant to be representative of San Francisco properties as a whole”. It certain isn’t. The top performer is an one unit house which go from $732,566 to $2,964,508 in 2 years with 120% annual gain. One can only imagine this is the result of some substantial upgrade. To what purpose is it to average it with other sales and then stick a Ellis Act label on it. This is really a fake analysis use to make a political statement.
@ VancouverJones – srsly? So if you buy a property for $1,000,000, and put $800,000 into it, and then I buy it from you for $1,800,000… you won’t mind the government charging you captial gains on the $800,000 “profit” you received (since, after all, I’m paying you $800,000 more than you paid)?
What’s that you say, “[explitive] no, I didn’t make any money, I just broke even”? Uh, exactly. The chart needs to take into account all owner expenditures (improvements, taxes, extortion (er, I mean eviction payments), etc.
Definitely need some non-Ellis Act points of comparison, too.
thats great revenue from taxes. they should use that to fix the roads for cars
“Does San Francisco government have any intelligent effective people?”
No, the only people who work for govt are the ones who can’t make it in private industry. filled with mediocrity and no creativity
Can we find out the name of this “Budget and Legislative Analyst”? Cause this bogus analysis is so inaccurate and wrong, it borders on fraud.
This person needs to be “outed” and sup [Campos]
should be given hell for even suggesting that this is reasonable data. This is total fraud and manipulation.
A lot of the missing expenses are easy to estimated:
Realtor commission: 6%
Remodeling and rehab costs: Permits at DBI
Ellis act moving costs to tenants: Rent board
Is no one using their brains?
Two of these had an annual ROR greater than 100%:
1) a 12-unit building bought for less than $1.1 million in mid 2010
2) a single unit bought in late 2010 resold at 4x less than 2 years later
“What the” you don’t know what you’re talking about. Permit fees ARE NOT accurate representations of actual building costs. What about holding expenses? How do you know the exact cost per unit for Ellis? What about the legal expense? How do we know he sales represented here are accurate (they averaged a lot, w/o knowledge of unit size, etc., so is inaccurate.). Without actual figures from the developer this is all a bunch of BS.
Jake- don’t get excited looking at “returns” from crap sources. Thanks.
Rent control and renter protetion work the same way as fire protection in Yosemite. You “protect” the forest from the fire until the big one comes.
And all this protection did was add more fuel for a bigger deadlier fire.
Grow up Campos, the more restraints are created, the bigger the opportunity, the faster the gentrification, the deeper the desctruction.
An attorney raised the points brought up in this article during the public comment portion of the hearing. The supervisors chose to ignore him and pander to the activists.
Communism lives in SF!
Hitman- oh, you mean to tell us that these numbers were actually presented at a hearing?!? I thought it was more of an initial template, or something. Where you at the hearing/saw a broadcast of it? And the numbers were criticized and the BOS and/or presenter didn’t even respond to the critics? If so, that is outrageous. I’d actually like to see that hearing.
And you could have sat on your ass and bought Amazon or Google stock and made just how much of a profit. My buddy backed up the truck and loaded up on Google at 100 bucks a share.
You nimbies noobes and hippies hate to see people make a profit. Every one should live barefoot and dirty like you people.
poor.ass-
I was at the hearing and these numbers were indeed presented by a Mr. Rousseau. He admitted that the numbers did not include any construction costs. A landlord advocate brought up the fact that the numbers were useless at the hearing. None of the supervisors seemed to care since it was not in their interest. Prior to public comment, the supervisors each commented and they were already decided. However, they did question some tenant advocates when it seemed to suit their arguments.
You can watch the hearing online at the sfbos website.
The supervisors are not intent on solving the housing problem. They only care to satisfy the mob and get re-elected.
Rent control is a social housing system paid by the few for the benefit of the many. This is counter to any social system ever created in any civilized society.
No wonder the BOS has to fabricate facts to defend it, brushing aside any objection.
Stalin would be so proud.
I once sat down with Jane Kim regarding property rights. There was no common ground to be found. She is a blatant communist. She told me that nobody should be allowed to make any profit on real estate (at least in SF).
The report itself make all kind of disclaimer that it is not representative and neglect to all the other measure that matters. It make me so angry the government would cook this up to serve political purpose. Here is what it says:
“15 properties used for this report is not meant to be representative of San Francisco properties as a whole,”
(I agree it is not representative)
“nor is the data meant to compare Ellis Act properties to all other property transactions in San Francisco.”
(It choose to ignore a meaningful benchmark.)
“Rather, this report aims to show the value of 15 randomly selected properties that underwent Ellis Act evictions in the San Francisco housing market.”
(This a lie. The data is absolutely not randomly selected.)
“The sample of properties is small and, as a result, the data presented could be prone to distortions of outlying data.”
(Definitely. As you can see some appreciation are way out of line of general real estate market)
“These calculations of dollar value profit are not the same as measuring rate of return for property owners.”
(I call it funny number. See the right way to make calculation in the next line.)
“That would be calculated based on the difference between the initial investment, or purchase price, compared to the resale value, considering the amount of time between sales and other cost factors such as expenditures on improvements between sales.”
(The analyst knows what a valid analysis entails, but choose not to do it.)
“For purposes of this report, the Budget and Legislative Analyst defined profit as the difference in purchase and resale prices of a single property by the same owner.”
(This definition is clearly invalid and violate accounting principle by ignoring cost. This is not this number to be used on tax return for instance.)
“The Budget and Legislative Analyst inflated the property sales price data to reflect inflation through 2013. The resulting values are in 2013 dollars.”
(Does it literally mean it only adjust the sales price by inflation and leaving all other number such as purchase price unchanged. Looks like fraud to me.)
Imagine a public company come up with a profit number base on these calculation. This should land them in jail.
Because of the sheer number of tenants in San Francisco, this law can be expected to pass. Will it be invalidated by the courts? If so, on what basis?
It’s obvious this disinformation is targeted at defending rent control.
Tenant advocates claim people NEED rent control. But where their logic fails is in confusing NEED and WANT.
Why would anyone NEED rent control?
Tenants WANT rent control and voted to get and keep it, which is fine as long as they respect state and federal laws. They WANT to afford to stay in an expensive city. They do not NEED it per se, except if leaving SF is a life-threatening condition.
Plus if you NEED cheap rent, then there’s government-funded social housing and the government will determine if you really NEED it based on your means.
But if you say people NEED rent control, then you can confiscate property to fulfill this need. Vilifying landlords is one essential step in that direction.
Yup, closet commies are running the circus.
It’s all political theater.
Comrade Compos is slurpping for votes as he prostrates himself before the people vying for their votes. Comrade Chui is doing the same. Both are looking to enter Ammaino’s termed out assembly seat. No pun intended…
One has to wonder which can pull their cheeks further apart in public in their race to hoodwink the voters into believing they really represent their interest.
When in reality they are just are seeking continued employment while sucking at the public teet.
Nothing new to see here folks…..just move along now…..
Wai Yip:
I think the law will be found to usurp state law, which controls on the Ellis. I also believe, taken with the other aspects of rent control and particularly EVICTION CONTROL, the whole system is ripe for a challenge based on violation of due process and equal protection. It may also violate the California constitution.
If you are a landlord – Ellis now! If we all get together and Ellis, the system can be broken and breaking the system is the only way to fix it.
I’m no lawyer, but it seems this law would be a new regulation that would compel an owner (by requiring huge payments) to continue to rent their property, in direct conflict with state law.
Ellis Act: “No public entity, as defined in Section 811.2, shall, by statute, ordinance, or regulation, or by administrative action implementing any statute, ordinance or regulation, compel the owner of any residential real property to offer, or to continue to offer, accommodations in the property for rent or lease”
@Hitman, I do have a rental. But I’m just a small fry to bother with lawyer. Nor have I considered to get rid of the tenant who’s fairly responsible. But if the place is going to open up again, I will surely reconsider what to do with it given I’m much less depend on it to pay for the mortgage. At the minimum I will try to price it 30% above the market rate and care less if it remain vacant. Or maybe TIC it if it is still legal.
To calculate the subsidy, the city will determine the true market rent of the property and then compare that amount to what the city government has been forcing the owner to receive. This could be a basis for a legal challenge of rent control under the Takings Clause.
Here is the annualized returns. These more clearly show the actual actual profit, except they don’t account for improvements:
70.1%
17.5%
22.0%
42.3%
117.1%
10.2%
42.9%
14.2%
21.6%
14.2%
47.9%
28.7%
14.4%
1.7%
0%
Average: 31.0 %
The average is still pretty healthy. The average 10 year return of the SP500 is 9.2%.
I believe that the “profit” the city realized from these transactions was omitted. Transfer taxes alone were likely over $300k and the increase in property tax was over $200k.
In addition, the units sold ranged from $340k to $2,965k with an average of $797k. These transactions have created an ownership opportunity for 69 households.
Elias, take a look at the chart I have posted yesterday
https://dl.dropboxusercontent.com/u/12840293/2014/chart_policy_analysis_report.png
I believe it is more appropriate to average the “profit” weighted by the number of years. This give me 19% instead of 31%. Even this is pointless once I looked at the distribution of the chart. This is a completed bias data set mostly picking houses purchased after the crash and then flipped in a few years when the market has rallied. I simply give up making any conclusion from the data because it is complete bogus. I’m hoping someone from Trulia can run a real anaylsis to inform people rather than this rubblish propaganda.
Another factor to take into consideration: some of these buildings were purchased wholesale and sold retail. Get the cash to purchase 10,000 shirts at $20/piece, then sell them for $30/piece. This has made the commerce wheels go round for centuries.
SAM-
I completely agree. In fact, at the meeting, another staff member went through the calculation for the relocation payment. Implicit in his argument was an admission that the rent control increase schedule was not in any way connected with fair market. I hope somebody keeps a copy of this as evidence for a challenge because it smelled of great hypocrisy.