Investor Alley

by Greg Angilly

In every market there are properties that can be obtained for below market value – many that have a strong upside. Here are two we’ve been watching for a few weeks. Our sense is these are available at or below asking and are both strong investment opportunities.

3479 Sacramento St – List Price – $1,075,000

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2 bed / 1.25 bath + bonus room down. Parking and outdoor space and on the market for 90 days. Good location – slightly busier than the typical Presidio Heights location – but surrounded by boutique shops and cafés. Well under the average price per sqft in Presidio Ht’s. I imagine there is a willingness to negotiate the price if other terms of the offer are strong. The unit doesn’t show well at all. It’s dark and could use some upgrades. That said, nothing needs to be done so you can owner occupy while you renovate. New kitchen and bath / upgrade lighting / repaint the façade / research the inclusion of bonus room via interior stairs. With basic upgrades this unit should sell for $1.15+ – if you can include the downstairs rooms you are looking at $1.35+.

2080 3rd St # 8 – List Price – $649,000

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Property has seen several price reductions from original price of $689,000.  Top floor unit with walk out deck with expansive views in smaller building. If purchased for 635K the loft becomes a great investment. Can serve as a nice rental / income property – approximate rental rate is $2500/ month. There are several new projects going in on 3rd St which will bring additional owners and businesses. The Mission Bay campus continues to grow and several new businesses have recently opened along the 3rd St corridor. This area will continue to mature and a deeded top floor deck with views will be a commodity people are willing to pay money to obtain.

I will be tracking these properties for our readers, and I am open for any discussions regarding the two, and/or my opinion on their investment value.

-2080 3rd St # 8 – List Price – $649,000 [mls]

-3479 Sacramento St – List Price – $1,075,000 [mls]

28 thoughts on “Investor Alley

  1. hi greg,

    after seeing many houses that appeared to be a strong investment sell well over asking i have learned that nothing stays on the market that is a true good investment. gosh, even properties that i think to myself, “who would buy this?” have sold within a short stint on the market. Which brings us to the properties that stay on the market for what seems like forever…

    what i’ve noticed is these 100+ days on the market properties seem to sell close to, if not at asking price. who would come and offer that knowing how long the property has been on the market is a different story. but it seems to happen more often than not.

    the pac heights house has lots of potential but only if you renovate and hold onto it awhile. the upside of 100K with upgrades isn’t worth the risk of flipping or holding onto it short term.

    as for the mission bay/dog patch house. it’s so expensive given that it’s 1 bedroom. and while dog patch/mission bay area is up and coming, it is a long ways from being a desirable area to live in, in my opinion. and to charge 2500 rent/month in that area is ludicrous when you can live in an already up and coming neighbhorhood in sf for the same amount if not less.

  2. Lily — thanks for your comment. We’ll agree to disagree about a few points -

    1. While you may find it insane, renters are paying up to $2500.00 to live in 1 bed lofts on the 3rd St Corridor. The area surrounding this particular loft is well beyond “up and coming.” There are established businesses, cafe’s and restaurants, a recently renovated park, an operational light rail system and a world class fitness center all within 5 blocks. As you drift south towards Cesar Chavez you have more vacant warehouses – but 20th and 3rd St is not up and coming – it’s arrived. The area is very popular for renters given the proximity to CalTrain (22nd st Station), 280, 101, Bay Bridge which makes it perfect for people who work in the city and / or commuters.

    2. The Sacramento condo actually lies in Presidio Heights – and while that may seem like a moot point, it is not. Presidio Ht’s condo’s are few and far between with price per sqft consistently breaking the $1000.00 mark. There are people who want to live only in Presidio Ht’s – 7C and will pay a premium to do so. This particular unit is steps from Laurel Village – an ideal location in the neighborhood. You can limit your renovation to 50K and flip this property in 2-3 years. As mentioned, you can live it in while renovating which makes it far more desirable.

    As for people making offers at full price 90 – 100 days into marketing — while that sounds crazy to San Franciscans- 70-90 days on market is fairly standard in the rest of the world. In this case you have two very different strategies – Sacramento St has been on the market for 90 days and they have not reduced the price. They stand firm @ 1.075. 3rd St has seen several price reductions. Tough to justify coming in at full price on either property.

    Lily — let’s buy both of them and in 5 years you’ll tell me i was right!

  3. lol, ok, i’ll tell you that you are right without having to make the financial risk! i still don’t feel mission bay/dog patch area is up and coming nor that it has already came and went. i just saw a ad on CL for a rental unit there 1bd/1ba for 1300. and when a friend was looking for a rental recently we saw an entire house listed at 2500 in that area. but she decided not to live there because while the lightrail has made it more desirable, it is still not safe neighborhood nor a place where there is a lot to do. a few months back there was a condo for sale there and then it was pulled off the market after sitting for a month and i assume it was because they didn’t get any offers?!? but like you said, we’ll agree to disagree.

    as for the presidio heights place, my only qualm was that it isn’t worth the risk of buying, putting in 50K only to have a 50K profit since you yourself pointed out it was worth 100K more than list price if it had been upgraded. plus you have to factor in closing costs and what not which would mean that you break even by your own calculations of its worth. now holding onto to it for a bit is a different story…..

    but agree to disagree it is! :-)

  4. Greg, you’re a brave man coming onto the board advocating a flip in this environment. Still, I think your points are valid. As someone who watched PSF rise to meteoric levels in Manhattan from ’97 to 2006 with so-so, albeit redone, 1 bedrooms now regularly trading at $2000+ per sqft its hard to argue that there is no precedent for a continued rise beyond comprehendable levels. I still think NYC is a unique city, but SF has some unique qualities as well. No one said it didn’t take guts to ‘invest’ in real estate and finding rough gems is an art.

    I do agree that a good strategy is making a bid just before the seller is going to lower the price, which does get renewed interest in most properties. Still, you have to know the market to be able to anticipate a price drop, and to know that the buyer is willing to accept that price. I do believe in Location, Location, Location. But I also think there is something to be said for: Location, Location, Timing!

    Good post.

  5. I disagree that SF has only some unique qualities. It has droves of unique qualities. And that in my opinion is what continues to drive the market. Not to be one of those boors who constantly compares cities. You know, LA is like this. New York is like this. blah blah blah. But can we admit that NYC and SF are equally unique? What’s really like SF ? Sydney, maybe? What’s really like NYC ? London? possibly? Nothing domestic, at any rate. These are the two most unique cities we have in this country. That’s why real estate has become so doggone expensive. At least we don’t have euro laden pockets gobbling up all our prime real estate, yet.

  6. Alex, good job highlighting potential investment properties. Keep them coming! I’m in the market to buy during the slow period of 4Q. I want to buy before bonuses are paid in 1Q08. Thnx.

  7. kenny makes an interesting point regarding the “euro-laden” pockets – they haven’t arrived yet to a large degree. But if we continue to see the dollar plummet, and certainly if we start to see price declines in any meaningful way – you can bet that millions of euros will come flooding into the city.

  8. Eddy – thanks — I imagine this posting on a different web blog would get attacked pretty good and I’d be called a variety of interesting names. Fact is there are opportunities in every market — you just need a larger amount of money to get your foot initially in the door.

    I’ll be 100% forthcoming — if i had the means, i’d purchase both of these properties – first the Presidio Ht’s unit as I’m certain if this place was dialed it would sell quickly. The scarcity of product in District 7C offers you a great chance. I’d owner occupy that and sell it in two years. If I had 20% to put down, I’d buy 3rd St and stick a couple in there to rent the place for a few years.

    Seriously – someone let me borrow the money and we’ll see if i’m right! Go Barry — hit 2 tonight on your birthday (Yes I’m going to the game)

  9. Kenny, you can’t replicate that NYC is the financial capital of the world and that more money flows through its concentrated base of residents than does here,or anywhere other than maybe Dubai but I don’t think that is a ‘real’ comparison. So in that regard, NYC has NO equal. When it comes to intangibles like quality of life, amenities, etc… sure, SF and NYC are both abundant. But SF has a lot in common with Seattle or Boston; maybe Denver (sans the Bay). NYC is really an island unto itself, which in many respects actually makes it less desirable to a large portion of the population.

  10. You’re right about the concentration of wealth in NYC. But look at how small SF is. How unique in a myriad of ways. How dense. Its deeply entrenched zoning restrictions. A city of little houses. This all factors in. Sometimes even I can’t believe that there are only 800-850K living here. As we probably all know, since many of us SF residents host visitors a lot, that fact trips most uninitiated people out when told.

    I love Seattle, Denver, and Boston, but I don’t see those comparisons. Of the three I guess Boston somewhat resembles SF in more ways than most cities you could find. But Denver, especially, sprawls. Denver resembles LA more than SF. And Seattle is twice as large as SF with 2/3 the population.

  11. Not to be a wet blanket, but… “Full offer” prices are not always what they seem. I made a full offer bid on a property a few years ago and got cash back concessions out of the seller to cover closing costs and some repairs. These concessions can be material. So, the selling price that gets recorded is not always what it actually sells for.

    Second, I’m usually mystified about things being “good investments” for rental income when I try to run the math on them. Maybe I don’t do the math right. The $649k loft would require about a $3,200 mortgage + another $500 or so in taxes + maintenance and repairs + another $500 in HOA. How does a $2,500 rent payment come close to offsetting these costs? Not to mention that I’m putting $130k down, which could have sat in the bank earning a few hundred a month, so there’s an oppt. cost here.

    Doesn’t seem like a very god investment to me in the short term but perhaps I’m missing something?

  12. BTW: I do like the other property. I don’t know the hood that well, but I’m a big believer in properties that need only cosmetic fixes. Living in it while you fix it is not that fun–I’ve done it–but it’s fiscally conservative. If you have some vision, you can typically make money because a lot of people can’t even see past bad paint colors…

  13. Kenny, totally agree with your points. For me the biggest thing is the amount of wealth and density in NYC. It creates massive scarcity and drives prices high. I do believe the exchange rate factor is also a significant issue at the middle and top end in NYC. SF just has too many other residential options outside the city that are practical, and the jobs aren’t ‘centered’ in the city so there isn’t such a ‘need’ to live in the city. So the wealth here gets distributed and the competition (although it exists here) is not as intense for properties. What we are seeing is that the wealth that is here is turning every single property into a high end re-do. That’s what I saw in NYC was ordinary places getting the first class treatment on renovations and once the majority of places there got renovated; prices really took off. I could go on and on about NYC real estate and the reasons for the rise there. My point is that SF shares some of market uniqueness of NYC and that I do believe that some opportunity may exist here.

    Dave, take 1771 N. Point that just sold for what I have to guess is around $4.5-5M. Let’s say $4.75 since I don’t think it went over asking. Bought for $1.7 (not cash outlay, financed). Put ~$1.2-4M into the renovation (probably also very heavily financed). So they have debts of $3.1 and maybe, on the high end, a 20% cash into the project of $650k + interest on the balance, call it 50k. Then they sell it for $4.75. Do the math here. Big profits. Even if my math and assumptions are dramatically off. Point is that there are opportunities and you don’t have to cover mortgages if there is big upside in the project.

  14. Yes, that math works, eddy. But the post above talked about the lower priced property being an income property, not a flip. That’s the part that I can’t reconcile.

  15. Dave — couple things and thanks for responding to the post — am glad people got involved.

    1. I didn’t mean to imply that 20% down financing would allow you to break even with a $2500.00 mortgage payment – I ran some numbers past a finance guy and he’s looking at $225K down to make the numbers work.

    2. Clearly the best investment use of both properties is owner occupancy for 2-3 years. In the case of 3rd St – the area will look significantly differnet in 2010 and this all assist in the appreciation of the unit.

    Thanks again to everyone for chiming in — i’m going to monitor these two and will let ya know what becomes of them.

  16. I agree. I don’t know if I can stomach living down there right now but that Muni is going to really help. I’ve always felt like Potrero is too much of an island, disconnected from the City. The rail is a lifeline, IMO.

  17. That’s funny — I love Potrero – it’s where I rented my first apartment in ’97 – I see it as launching point for everywhere in the city and the weather is as good as it gets in San Fran – add to that my favorite “sports bar” in San Fran, the Connecticut Yankee — gotta love a place that plays Widespread Panic and the Dead while the Giants are on the TV!

    I can see how you can feel isolated though – # 10 Muni bus line was a nice addition to Potrero Hill — gets ya downtown quickly but without BART or overhead MUNI, it’s a trek to and from the ‘Hill.

  18. I love Potrero’s weather. But it feels like a place where you have to drive to do anything. Almost a suburb within the City. (What do I know? I’ve never lived there…) I prefer Noe or Glen Park, but that’s just me.

  19. You are dead on — Glen Park has the benefit of the BART – Noe has the overhead MUNI line. I spent 2 years riding the # 19 bus in Potrero Hill — it’s an experience to say the least.

    18th St has some great restaurants which are drawing people from all over the city — but you need to drive. The upside – tons of parking in Potrero Hill to along with all that sunny weather — and there’s a good chance you can enjoy a concert in Pac Bell by just opening your window or standing on your roof.

  20. The issue is, how much is trying to make 100K worth to you? It all depends on your income. If you make under 200K…. making 50-100K and paying long term tax of 15% is a very good proposition. If you make 500K and above, 50-100K doesn’t seem that attractive at all, especially to buy and live b/c you are probably living in a $1.5mil+ place already.

    Everything is all relative, and it’s human nature to get accustomed to things really quickly. The more you make, the more you need to make to bother.

  21. Boomtime — GREAT point- I tend to look at investment potential in a property as if I was the one purchasing the property — and I see 50-100K as a NICE chunk of money which would help me keep my family of 4 in San Francisco. I will make it a point to pick a variety of properties next week — some that can be “flipped” with 25K to make 100K — and some that need 1M in renovation to make 3M when flipped.

  22. 1M to make 3M — in residential ? I’m all ears. Not to be snide. I just don’t think that exists. 1M to gross 2M and net about 1M — sure. That’s how, say, a big ole fixer on Clay street will project out. But 1M to make 3M — you’re building condos on an undeveloped piece of land somewhere (not SF) with that equation.

  23. Yes, sign me up for the 1 mil to make 3 mil! I’ll just get some investors together! In fact, if you’re serious, perhaps we should team up? :)

    Takes money to make money, that is for sure!

  24. Alright fellas — I’ll take the challenge — give me until Tuesday afternoon when i’ve completed the Broker’s Tour and I’ll find ya a 1M in to get 3M out. I’m extremely familiar with the complete fixer on Clay St as I had clients make an incredible offer and they didn’t even get a counter. That house sold for just north of 4M – my clients had planned to put somewhere between 1 and 1.5M into the property. Upon completion your looking at upwards of 4500sqft on one of the premier blocks in Presidio Ht’s. It’s not absurb to think they could have purchased for 3.5 and get out at 7M. With a 1.5M renovation they clear 2M.

    Again thanks for checking out the post and getting involved – I’ll target some additional properties this weekend and Tuesday and will continue to track the one’s I post.

    [Editor's note: Greg, which one on Clay, so I can link to it for all the others?]

  25. Greg, that Clay street property is 1M in and 1M out, even by your own example. Follow me — It sold for north of 4. It requires a million, or more, to really shine. You’ll likely carry it for a year. Plan for cost overruns. (They always happen, because that’s how subcontractors operate.) Capital gains taxes, property taxes. Realtors. Staging. Marketing. Certainly you could sell it for 7. How is that not 1M in and 1M out ? I’m talking net, not gross.

    I believe in stuff like that, tho, IF and only IF the neighborhood is A+. I think people are making mistakes in Noe Valley right now, along those lines. People are spending BIG for A- or B+ blocks in Noe these days. It better be pretty spectacular if it’s going to command $3M in Noe Valley. Looking at the location, and the lots, I think there’s some uninformed speculation happening all over Noe.

    But back to the Clay example. Don’t get me wrong. A 100 % return on one’s investment inside of a year? That is awesome, any which way you look at it. But 200 or 300 percent? Again, yes please! Sign me up.

    The gauntlet has been thrown!

  26. I like it crew — I’m from Jersey — so you can’t just toss the gauntlet out there and not expect me to go get it!

    We’ll revisit Investor Alley on Tuesday afternoon.

  27. After 89 days it goes contingent — let’s see if it stays in contract. All i need to do now is prove that the buyer was moved to purchase this property after reading the Front Steps and Investor Alley — show me my finders fee!

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