The Economics of a Rincon Hill Condo and Reality CheckSeptember 25, 2015
Purchased for $700,000 in 2012, or roughly $1,150 per square foot, the one-bedroom One Rincon Hill condo #4404 was listed as a rental for $3,800 in mid-2014 and actually rented for $3,750 per month, which included valet parking along with the unobstructed views.
With monthly HOA dues of $724 (circa 2012) and taxes of $9,331 per year, we’ll call it a rough CAP rate, or return on the asset, of 3.9 percent. Of course that’s not accounting for any vacancy or other operating expenses, such as insurance.
With the lease recently renewed for another year without a bump in the rent, which itself is worth noting, the condo is now back on the market for $935,000 and “ready for investors” at $1,545 per square foot. And with the HOA dues having increased to $786.50, the effective CAP rate at asking would be around 2.5 percent.
The unit had been listed, prior to the lease being renewed, for $949,000 earlier this year.
Comments from Plugged-In Readers
Not a bad deal if you are an investor from China or Russia or Dubai, and looking someplace to invest your cash from the authorities in your home country.
Not a great cap rate. GNMA mutual funds are paying 2.2% or so right now.
Interesting that the rent was not raised.
The cap rate assumes all cash? So basically this is for the “big boy” investors. And frankly whether from Dubai or China they could turn 900K into 4/5 homes (and more condos than that) in any number of US markets that are not below their historic affordability rate as is SF. And get several times that cap rate.
That is one ugly, or rather bland, looking interior. Shocking people actually pay that much to live there. it looks the same as any old condo or apt in any old building pretty much anywhere in the bay. ahhhh but it is in a pretty tower next to the bridge…if this unit is only on like the 10th fl or less…wow because then even your views arent that good
If you look at the listing, you’ll see it’s quite high up. I would assume the 44th floor, given the unit number.
@ Oakland Lover
Economics versus aesthetics.
Its a given the housing one gets in SF, Silicon Valley, the Peninsula, Marin and parts of the East Bay is a lot less than what gets it most other places in the US.
Anyone who has been to Portland knows what I am talking about. Your jaw drops at what 400K can get you there. Seattle too. Though pricey it is just 75% of what one pays in the Bay Area.
And Seattle and Portland are arguably the 2 most beautiful West Coast cities.
Leaving aesthetics beside, this RH condo makes little economic sense as an investment IMO.
SF prices seem to have peaked/affordability below what is has been. Likely not a lot of upside growth over the next number of years. IMO.
Demand for rental units will be high in coming 5, 6, 7 years as the bubble w/in the millennial generation (23/24/25 years olds) won’t form households and buy for that period of time. Generally speaking.
Those who rent as opposed to own has surged. Ownership at the lowest point in decades.
Population is growing and mostly from immigration and those folks not likely to buy homes for years.
Being a landlord can be lucrative over the next 5/6/7 years if one purchases in the right market. IMO SF is not that market.
Positive cash flow is critical and can be garnered in many places in the US. Way above 2.9% net.
Come 5/6/7 years look for a new housing boom as the millennial bubble group starts forming households.
Win/win. Great cap rate for a number of years leading to a likely surge in home prices at that point.
Western facing 600sf for $3750. Only in SF. Commentary aside, the normal rent to price multiple cutoff for buy vs rent is 200, they say. The asking price is over 400 times the effective rent. That’s an exhorbitant ratio on the exorbitant rent; neither the rent nor the price is sustainable. You do be better off buying 30 year treasury at 3%.
In my experience the GRM for SF condos is well over 200x.
What a difference in 5 years: in 2010 you could purchase a similar condo for less than 400K in the Beacon which would rent today for 40K/year. That’s how much? 120 buy vs rent?
Cap rate is fine as long as positive so you don’t have cash flow issues. Total return on equity is still very positive – assume 20% down on $700k, that’s $140k equity with $200k appreciation that’s a solid return.
As they say in investing: “buy low sell high”. This is not “buying low” since this psf price point is roughly double what it was 5 years ago.
UPDATE: The listing for 425 1st Street #4404 has been withdrawn from the MLS without a reported sale.
UPDATE: 425 1st Street #4404 has just been relisted for $925,000 with an official “1” day on the market according to industry stats.
UPDATE: The listing for 425 1st Street #4404 has once been withdrawn from the MLS without a reported sale.
UPDATE: Having been re-listed for $990,000 last month, the asking price for 425 1st Street #4404 has just been dropped to $899,000 while the HOA dues are up to $825 per month.
UPDATE: The Economics of a Rincon Hill Condo and Reality Check Redux
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