theFrontSteps – San Francisco

22 Comments on “A great time to buy redux: The gauntlet”

1. fluj
   November 20th, 2008 at 4:30 pm

   Geez. No comments on a cash flow SF property?

2. thefrontsteps
   November 20th, 2008 at 5:55 pm

   my thoughts exactly….

3. 44yo hipster
   November 20th, 2008 at 9:48 pm

   i think it’s a nice property w/good rents, but according to my calcs you will need about 30% down to break even w/those rents.

   if a posh unit was empty (for owner move in) w/a garage spot, i could see the future investor type buying/moving in and keeping it as a buy n hold.

   why do you guys think it’s extraordinary?

4. thefrontsteps
   November 20th, 2008 at 9:54 pm

   Never said extraordinary. Said good buy.

   Agreed, SF is still a minimum 30-50% down proposition on cash flow.

5. fluj
   November 21st, 2008 at 9:05 am

   It’s cash flow positive at 20% down, with 6% apr. Not that that is possible right now for a non owner-resident. For what IS actually possible right now, i.e., 40% down for a non-owner resident buyer, it makes lots of cash month in and month out.

   And I’ll tell you what, there’s no re-balancing of wealth happening in r.e. these days. The old saying, “It takes money to make money”? Boy, it couldn’t be truer these days.

6. anon8mizer
   November 21st, 2008 at 10:24 am

   Why risk so much capital (at 30% down) in SF to buy cash flow? There are homes that sell for $200k in east bay (you only risk $60k) that can get you positive cash flow (and then some).

7. fluj
   November 21st, 2008 at 10:40 am

   Why risk so much capital (at 30% down) in SF to buy cash flow? There are homes that sell for $200k in east bay (you only risk $60k) that can get you positive cash flow (and then some).

   I bet there are houses in Bayview that would do the same.

8. thefrontsteps
   November 21st, 2008 at 10:47 am

   You could probably buy places for less than that in East Bay, and parts of AZ (I speak from experience) and get them rented. The bonus for buying in SF though is that the risk of every house on the block getting boarded up and abandoned is much less.

9. 33 y/o yurt dweller
   November 21st, 2008 at 11:04 am

   Why risk anything in this environment (job losses, vacancies, potentially lower rents, higher property taxes)? Have you ever heard the investment adage “don’t borrow money to buy a depreciating asset?” You have to accept this asset could depreciate further. We overshot on the way up and we could overshoot on the way down. This is what happens in investment bubbles.

   Also, why are you offering investment advice when you are not a CFA or CFP? If you are going to offer investment advice you should at least compare this investment and its cash flow to other asset classes.

   Your down payment will yield much more than this property if invested in a 5% AAA Insured Municipal Bond. Take your $500k and receive $25k a year in tax free interest! This is an 8.48% annual taxable equivalent yield assuming the investor is in the highest CA/Fed tax bracket.

   On a risk adjusted basis, this is a no brainer.

10. 33 y/o yurt dweller
    November 21st, 2008 at 11:06 am

    **disclaimer, I am long Munis, short real estate**

11. fluj
    November 21st, 2008 at 11:29 am

    “Also, why are you offering investment advice when you are not a CFA or CFP? If you are going to offer investment advice you should at least compare this investment and its cash flow to other asset classes”

    Huh? I responded to a specific question that was posed. This is just an intellectual exercise. No one is personally involved. So precisely what advice was offered, to anybody, anywhere?

    Further, are YOU a CFA or a CFP? If not, the “advice” you went on to give was hypocritical. Get off it, bro.

    And what 500K do you speak of? Assume a 320K down payment. Assume 76800K in mortgage payments. Assume another 20K in taxes and miscellany. Assume nearly 120K in rent revenue.
    Depreciate the property. Deduct interest and property tax if not subject to AMT. I see this all as better than the example you provided.

12. 33 y/o yurt dweller
    November 21st, 2008 at 7:37 pm

    Wow! Those are the most aggressive back of the envelope assumptions I have ever seen. No wonder you are in sales.

    First off, I would like to know where you can get a loan on an investment property at those terms (20% down/5.5%/borrowing 1.375mm). Lets start there.

13. 44yo hipster
    November 21st, 2008 at 10:01 pm

    i just saw this, and actually think it’s a good cash flow deal. plus a good location as well as spacious units. you should be able to cashflow< 20% down. (not that you could get a loan for under 20%, but still, as out of pocket cash, this thing is lucrative.)

    you would NOT SEE these kinda deals/#’s 6 months ago…

    http://sfarmls.rapmls.com/scripts/mgrqispi.dll?APPNAME=Sanfrancisco&PRGNAME=MLSPropertyDetail&ARGUMENTS=-N451653898,-N217871,-N,-A,-N16042320

    [Editor's note: Name of agent on that link..."Sunny Bali". Is that for real? I wan to go there...Bali that is.]

14. fluj
    November 22nd, 2008 at 9:59 pm

    Dude, 33yo, are you serious? Those were the terms given out, for this query. I SAID that they weren’t realistic from the start.

    If you aren’t bothered to take the time to read the whole thread, then wtf? You’re bothered enough to be critical? I don’t get it. Color me skeptical of everything you write moving forward.

15. Flouchebag
    November 23rd, 2008 at 10:32 pm

    Fluj,

    You’re an idiot. Any investment could be profitable if the query wasn’t realistic. You give REALTORS(R) a worse name than they already deserve, and that’s not saying much.

16. anon8mizer
    November 24th, 2008 at 1:12 am

    Flouchebag – Where did that come from? Fluj responded to a challenge, and the term of that challenge was 20% down, 6% interest rate, cash flow positive in san francisco. He found one in response to the challenge. Perhaps it would help to review the original conversation so you have an idea of the context:
    http://thefrontsteps.com/2008/11/18/its-a-great-time-to-buy/#comments

17. steve
    November 24th, 2008 at 8:21 am

    @fluj, thanks for taking up the challenge. sorry that you have to have thick skin.

18. fluj
    November 24th, 2008 at 8:59 am

    Flouchebag,

    No kidding. I said that when I first brought up the example, here: http://thefrontsteps.com/2008/11/18/its-a-great-time-to-buy/#comments

    Afterward, the 20% down 6% model was again asked for, per the initial request.

    Thanks, for your part, for maintaining the bad name attached to uninformed anonymous real estate crabs who like to spout off without even bothering to read threads.

19. anon
    November 24th, 2008 at 9:00 am

    Sure, it may be “cash flow positive” if you assume unrealistic financing, and ignore the opportunity costs of the down payment, and discount to zero the risk of depreciation, and discount to zero the risk that rents might decline, and ignore all maintenance and management costs. Bottom line is that investing in income property in SF makes no sense at current prices and rents.

20. fluj
    November 24th, 2008 at 9:06 am

    I can say that at this particular property the renters had large flats for high-ish rents … but they loved them. They were palpably worried about my client being an OMI candidate (he wasn’t.) Mid to high 2′s is not huge rent … it’s the aggragate of 4X that amount that made this one particularly attractive. The tenants weren’t going anywhere, and if they did, bonus for the landlord. Three thousand wouldn’t be out of the question either.

    So assume realistic financing. Compare with the municipal bond counter example. It’s still better.

21. 33 y/o yurt dweller
    November 24th, 2008 at 9:54 am

    he said assume. hehe

22. anna
    November 24th, 2008 at 9:57 am

    Yurt dweller: you just lowered the common denominator, yo.

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