A reader recently came to our post regarding 888 Seventh Street, and asked a great question, which we’ll get to below. Rather than email her directly, thus hogging all the glory, we thought we’d use her question as a beta test of our vision of what this site could be. So…we’re posting her question, and hoping our Stammtisch comes through with some answers.
“Hello,
Thanks for putting up these Q&A’s! They’re very helpful, as the liveat888.com website is pretty sparse. My sister was actually selected from the lotto (we both entered), and we’re excited about the opportunity to purchase a condo (fingers crossed-we’re meeting with the banker today about qualifying). My question is, if we get the condo, and want to sell it, let’s say 30 years from now, would there be a restriction on the selling price? We aren’t looking to use this as an investment property, but if we decide to sell it later we don’t want to get totally ripped on the price.
Thank you!
~Sophia”
–888 Seventh Street: an update [theFrontSteps]
–liveat888.com [website]
Sophia,
There are two types of lottery for condominiums in San Francisco. One is the condo conversion lottery which allows apartment buildings to convert their units to condominiums. It doesn’t sound like this is what the question is about.
The second type is the lottery for the Mayor’s Program which is geared toward first time buyers. This is probably what you are describing. There are a lot of nuances to a purchase like this which may be found at http://www.sfgov.org/site/moh_page.asp?id=59162. First off, the Mayor’s Office of Housing (MOH) will set the price for you, not the market. Although they try to be fair to all concerned, there is a formula which may be found at the above link in Step 3, they use to get a price. To that price you are allowed to add 5% to pay the listing and selling agents, but that is all. And finally, the only buyers allowed to purchase the property must qualify for the Mayor’s program.
The good news is, you can buy a place in which to live for under market prices! The bad news is, there are certain restrictions on how much the MOH will allow it to appreciate over time (as described above). One of the reasons for this is, they want the property to remain in the Mayor’s program to give other people a chance at your home when it comes time for you to move on to your next purchase.
People buy property to build wealth, so this will probably not be a great vehicle for that. While we are not experts on the subject, contacting the Mayor’s Office of Housing would be the best place to start. I hope this helps you with your decision.
Janis Stone
Be careful about HOA/Common Charges. Below Market Rate housing does not mean a discount on these charges. In new projects these are often underestimated by the developer or can increase when better-off condo owners decide the want more services. Additionally, there is the potential for assessments for unforseen problems a few years down the road. So while you may be able to barely afford your mortgage, HOA increases can completely skew your budget.
Other things to keep in mind- BMR units may not have the same finishes as the more expensive units, or may not come with deeded parking. And you may find a better deal through the Mayor’s Housing office in an older project like Diamond Heights.
Sophia, the restriction on what you can sell it for lasts for 50 years. So if you buy now, you just might be able to make a killing when you’re 80 or 90!
Sophia,
Something to think about – while you are most likely going to have to sell the unit under the terms of the program – which will restrict your ability to sell at market value, you will still see some great benefits by owning property. In addition to the tax benefits, you will also build credit and obviously you won’t be paying rent.
You should find out if there are any rental restrictions. Potentially that is a means to turn this property into a great investment property for the years to come as that area continues to change and improve on a daily basis.
Sophia,
There are just oo many restrictions. You can’t rent it out for long periods. There is not much appreciation. I am selling my BMR soon because my HOA started from $300, now it is at $650. All the rich folks in my building wanted more luxury things. They wanted 24 security and etc. … I could rent a similiar place for twice as less. Better think twice before you buy!!
Carol Lloyd did a great column on the subject of BMRs earlier this year- Affordable housing provided one woman an opportunity, but she was unprepared for the reality
Seems a lot of negative press on the BMRs here, which is surprising? I think its a good program and certainly an interesting way to qualify for home ownership when you might otherwise not… The links above are a great read for those researching BMRs. Personally if you win the BMR lottery you would be silly to not invest, IMO. Even the modest YoY appreciation that the city will likely let you obtain is a nice premium on a leveraged purchase. The risk is minimal and you can sell it with ease…
Eddy