There Were 365 Tenant Buyouts in SF Last Year, One Hit $325KJanuary 31, 2020
Landlords in San Francisco negotiated and inked a total of 365 legally reported buyout agreements with tenants last year, as mapped above, down slightly from 379 in 2018.
For the second year in a row, the Mission was the San Francisco neighborhood with the most reported buyouts (53), now followed by the Tenderloin (32), Haight-Ashbury (30), Western Addition (25) and the Inner Richmond (24).
But North Beach was the neighborhood with the highest reported buyout amount, a record-setting deal that paid out $325,000 to a single tenant who was occupying a one-bedroom apartment in a two-unit building on Green Street. That’s the highest payout for a tenant ever (legally) recorded in San Francisco.
And according to our queries and calculations, the average buyout agreement in San Francisco totaled $48,006 ($31,491 per tenant) last year, versus an average of $47,638 ($33,096 per tenant) in 2018.
Comments from Plugged-In Readers
48k isn’t a lot of money anymore, and that is taxed as income…
Well, this is why SF rents are so high. If I pay someone $48K to leave, you bet I will try to recover it from the next tenant.
Only if they’re willing to pay it; and guess what: if they’re willing to pay it, it’s regardless of whatever expense you incurred.
Rents are so high because of greedy landlords, not evicted tenants. JFC
Rents are so high because there isn’t enough housing and there are lots of highly paid people vying for not enough places, that’s called ‘the market.’
Ridiculously strict zoning
Inept & corrupt building & planning dept
Politicized building permit horse trading by SF supervisors
And a small but once upon a time attractive city now defiled by crazy drunk drugged out crazy people
‘Greedy landlords…’ ???? – what a simplistic uninformed answer
There’s lots of housing in the top tiers, which is why those tiers have leveled off and are now declining. There is a catastrophic lack of affordable housing, so the lower segments will take longer to revert to the mean. The top tiers may overshoot their segment means on the way down, while the lower tiers may not even fully revert (among the reasons: the aforementioned lack of affordable supply; techies moving down to lower rents after they are laid off or their IPOs fizzle; foreign capital flight/money laundering/AirBnB; landlords sitting on vacant units rather than incur higher interest rates that lower rents would trigger on their loans; and other landlords sitting on vacant units rather than trigger buildings full of tenants demanding renegotiated lower rents …).
Markets and supply & demand can’t be modeled with simplistic, neo-classical Econ 1 stick-figure tautologies.
when a run down [places] costs $1M, its not because it’s “high-end housing”. it’s because there’s not enough supply. the only thing that’s high end is the price.
No wonder why we still have so many low rise buildings in core parts of our city rather than more dense and higher use residential on the same plots of land.
If you have a 2 story building with residential above retail stores it could cost you $500k just to get rid of the rent control tenants if you have an 8 unit building and I am sure even after the payout they have some right of return at vastly below market rates.
San Francisco is so messed up because of all of these excessive tenants rights.
With a little research you may see how vulnerable and limited tenants rights actually are in SF. Having been a tenant and an owner and now a tenant once again the only tenants with the legal standing to protect their rented home in San Francisco are elderly or disabled people that have lived in their apartments for ten years or more and people with catastrophic illness having lived in their apartments for five years or more.
Surely in a civil society we are empathetic to others more vulnerable than ourselves. We cannot simply sweep many thousands of people under the foundations the new high rise building cluttering up once beautiful iconic views.
With all the so called protections in place there are more loopholes than protections, and many more ways to raise stabilized rents than fix income elderly and disabled tenants could ever keep up with. I personally find it completely immoral for the landlords right to pass thru costs of everything including the kitchen sink so to speak on to their tenants to pay for when they also write off these expenses. It seems unconstitutional to pay for improvements with no control or review of quality, expense, oversite of contracts bidding. I could go on and on but I’ll give you a break here.
The answer is not to give tax breaks to wealthy developers offering BMR CUBICLE size apartments at 50% of a low income tenants budget. I saw one recently at 1550 Mission and walked into the apartment and had to ask “Where’s the apartment?”
If a tenant is paying $2,000 for an apartment that is worth $4,000 than “getting rid of” that tenant increases the value of the building by $360.000 if you assume a GRM of 15 – so these buyout numbers seem like a good business decision for owners.
Buildings trade in SF with GRMs of more like 18.5. A decent property priced at a GRM 15 would be sold in a week for well over asking.
I think there is a break even formula a tenant can go by to value a buyout:
1. calculate the number of years tenant wants remain
2. take the rental difference between tenant’s current rent and market rate
3. calculate the compounded difference over the time frame by average rent ordinance increase, say 2% the past decade (I didn’t calculate true value, just a quick assumption), multiply by a tax bracket factor, say 1.6 if paying 40%
That would be a break even value for tenant to leave their rent controlled unit. Willing to bet that 48k is really really low and a bad deal for tenant in most cases for long term tenants.
slight correction. multiply that all by 12 as well 🙂
Someone wanting to do an honest long-term study on information asymmetry in rental real estate could get a very high quality paper out of this if they interviewed recipients of buyouts two or three years after they moved out.
The landlord is more likely to be, and usually is, financially savvy enough to do this calculation and not offer more than the buyout is worth to him in terms of a recoverable increase in value. The tenant is more likely not to be able to understand that the buyout is a bad deal unless they somehow obtain a comparable unit that is also rent controlled, and of course the tenant bears all the risk that they won’t be able to do so after they agree to the buyout.
That $31,491 one-time payment is going to get eaten up quickly when the tenant winds up commuting in from Antioch.
If you want to get even more speculative…
If rent controlled tenant leaves at breakeven, LL can remodel(higher market rate) and rely on turnover to jack up the difference further…
My initial formula seams a bit cheap with regards to corporate-based LL’s that do this as a business model
probably a bad deal if they want to stay in SF. but if they want to leave, its not a bad deal
No because for many of these buyouts the counterfactual for the tenant is a no fault eviction, so the calculus is far more complicated.
The biggest losers in this rent protection game are long term tenants…..They could have bought a small place and become a millionaire over 30 years… They could have moved to a cheaper city and build a better life…Instead, they tough out in a run-down place for 30 years, only to face eviction in their eldly years…Thanks to rent controls…
I hope all these tenant “activists” are more honest – rent control does more in providing them with a job and a paycheck than providing real long term protection for the tenants….
San Francisco has always been a renters’ city, a lot like New York. It’s normal and it was never disparaged like it is now until the demographics skewed toward affluent suburban transplants.
Not saying that buying a place is not a rational decision over the long term, but the only way you are going to be able to come up with a sufficient down payment is to come with a trust fund or have a really high-paying job.
So, I would be reluctant to criticize renters, especially if the are locals, for not adhering to your bottom line business model.
Funny, you sound like Calvin Welch a year or two before he bought his first home.
It’s usually a case of insecurity.
Most of the renters I know in the city are as wealthy as any homeowner with a comparable background. Many own homes elsewhere and nearly all have been heavily invested in tech. The S&P continues to crush real estate as an investment.
The renters just spend less time dealing with home maintenance issues…
I’ll add – real estate is a great investment for people who aren’t very good at saving or investing in other asset classes.
Rent Control holds everyone captive. Tenants become paralyzed from moving on with their lives because they have become thethered to their rent control status. Its very sad
My wife and I have been in our rent controlled apartment since ’94. It’s a great Marina location, and we enjoy living here. How are we not “moving on”?
I love my humble place and it’s home. I know enough that no buyout is enough to stay in SF and elsewhere the COL is increasing quickly. Internet Tough Guys whining about rent control can pound sand.
Regardless of rent control, taxes are cheap and this property mints money. RC allows people to serve your coffee, clean your houses and nanny your children. The property owner has nice cars and homes and goes on international shopping sprees whenever they feel like it. I’m happy with a stable roof over my head.
Rent control isn’t keeping anyone captive – this whole rotten economic system is. Don’t blame rent control.
There have been many renters like you, enjoying your false sense of safety which unravels quickly after the property owner decides to sell and the new ones have to justify a 10x property tax bill. There are other cities where wage owners thrive, some even in America most in Asia, and the key difference is the cities don’t depend on the magnanimity or complacency of their landowners to house lower income residents. Long story short: make sure you have a backup plan when Mr. or Ms. international shopping spree kick the can.
You are absolutely correct that RC allows people to serve your coffee, clean your houses and nanny your children.. But what does RC do to that server, that cleaner and that nanny? Giving them a false sense of protection until their rents are below the market enough to incentivize an eviction?
Well it’s just raining crocodile tears in here.
Several years back, the owner of a 6 unit building near me did an owner buy out…and five of the six former tenants were able to buy their own places in San Francisco. The sixth didn’t want to own and preferred to rent. There are places in SF that you can buy for $500k and $50k in a lump sum was enough to get the five over the hump to make the down payment.
I sure hope they paid income taxes on that buyout payment.
Your comment is a bit strange. I am not sure why you are insinuating the tenants would have committed income tax evasion? And, if the landlord wanted to claim a tax deduction for the buyout payment (and to be in compliance with the law), they would have issued a 1099 to the tenants for the buyout amounts.
$50k pre-tax in a buyout does not post-tax make the difference between being able to afford a $500k 1 br or not. You’d have to be making $100k to qualify for a loan on such a unit, at which point your marginal tax rate on $50k of income is over 40%.
Marginal tax rate for someone making $100K is likely 25%, not 40%…
Also for $500K purchase, you need $65K annual income to qualify…
“None of the above”: ‘Chris’ is overshooting – the FIT rate would be 24% – while ‘Jake’ seems to be forgetting the 10.3% SIT. So let’s just say “a third”
It is indeed 1/3. I forgot that buyout payments don’t pay payroll taxes. In any case, $30k is not going to be the difference maker. An often overlook issue is that many longtime rent controlled tenants don’t have the type of stable income streams you need to get a mortgage. The ones who do have plenty saved regardless of buyout amount.
“There are places in SF that you can buy for $500”
How long ago was this, I wonder?
There are currently 12 listings under $500K now….So yes, a buyout would be a sufficient downpayment after tax…..
majoirty are BMRs
What is wrong w BMR, unless you are as greedy as your landlord？
Have you ever been involved in the process to actually purchase a BMR? It’s not as if a would be buyer can simply go down to city hall and buy one ….
Think about your logic…
When you are renting, you get a roof with fixed cost, but you are not getting any benefit of market appreciation. With BMR, you get that exact thing back – roof with fixed cost but no market appreciation….
How is that not good enough for you? 🙂
BMR units do appreciate but at rates tied to the change in the Area Median Income (plus an additional 5 percent to cover commissions at the time of a sale).
and one of those is a parking space
I’m new to this conversation, but I am in need of help and support.
I’ve been harassed by my now ex-tenants because in early 2019 I was advised to let the tenants know property sale was a consideration (medical retiree in family home, not rich fat-cat landlord). They began a campaign of lies, assault, and harassment. They left a few months ago and now suing for inhabitability, but made it clear of his intention to try to purchase my property (which is no longer for sale) They tried to get DBI to cite me, without success. Now, they have an attorney on contingency coming after me. They left voluntarily, but claim numerous issues are present. DBI cleared me.
This is my home.
That story doesn’t really make sense. No one leaves a rent controlled tenancy merely because a sale is a consideration. If they wanted to allege habitability issues, they would do so while remaining in the unit. And no attorney would take a case on contingency without any basis in fact. Most likely that feel they have some case for constructive eviction, illegal eviction threats, illegal buyout negotiations or the like. You should get your own attorney right away.
How can you possibly say such things without knowing specifics? No one leaves because a sale may happen? nonsense. If they wanted to allege habiltability issues, they would have while there? who are you to say that? maybe someone got in their ear after the fact. No attorney would take a case on contingency? Indeed. What a strange thing to say. There are many lawyers in this metropolitan area, with motivations that run the full spectrum of human endeavor. What a laughably willful and biased post that was. Typical.
I moved from my family home to another state to be w my son and his family and to watch my grandchildren grow. I rented out the home 17 years ago at a very low rent to a single Mom w 3 children. Her children are grown and my grandchildren are grown and I want to move back to my family home. I’m 72. It is almost impossible to do that because of the current laws in SF and she doesn’t want to leave of course. Very discouraged
Do an owner move in eviction. Or a buyout and sell, buy where values are better and better quality of life!
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