I can’t believe how many people are asking me about 1330 Chestnut, and I haven’t had time to check (cough…bull shit!)…but it is now sold. Asking $1,495,000 sold $1,550,000 and only spent 15 days (during the mortgage crisis) on the market.
Reminder: If you were to receive the sfnewsletter either from me, or your Realtor/Mortgage Broker, you would know ALL the comps in the city every Friday. No joke.
1330 Chestnut [MLS]
Very nice! Went inside. Beautiful remodelled bathroom. Sold for $1,055,000 last yr, 200K remodel job, so $300,000 in profits 1 yr paying long term capital gains tax of 15% instead of normal income. Multiple offers. This comp brings up the value of the entire building, the block, and surrounding area. Well done.
This is an example of someone recognizing an opportunity, taking a risk, investing time and money into the job, and coming out ahead. Nobody gets rich doing nothing and complaining on blogs all day :)
Congrats on the sale…I like your writing style, and I’ll continue to read your blog!
Rich
let’s see what it appraises at and whether the buyer can get funding for the proposed terms. i had a deal for my place and it blew up based on these factors not coming in as planned.
James, it’s already a wrap.
Marina Gold Box (bordered by Bay St., Vaness, Lombard, Laguna) = bedrock. This is one of best secrets in terms of relative value in the 94123 district. Over the past couple yrs, you’ve seen a violent upward movement in prices. 3221 (3321) Octavia St. anyone?
congrats then all around. what did the appraisal come in at out of curiosity?
The math doesn’t add up. I don’t get 300,000 profit. After taking out:
Costs: 200,000 repairs
6% broker commission
interest, mortgage payments
property tax
100,000 at most.
Nobody pays 6% broker commission anymore. The most is 5%, especially for $1million+ properties. 100K at the most? lol.
You forget, if he didn’t live here, he would have had to pay over $75,000 in gross income to live in something comprable. Add that back, or minus that out of costs.. $200,000 in repairs? Hello… 200,000 + a purchase price of $1,055,000 = $1,255,000. Given he held for one year, the owner only pays a long term capital gains tax of 15%. If you were making this type of income, you’d have to pay around 45% in tax.
Glad to have opened your eyes :)
Purchased for 1.025. So the gross was 525.
525 – 5% commission of 77,500 = 447,500. Not sure why everybody is hollering 6% on here all the time. Six percent is actually quite a bit less common than 5.
447,500 – 200K (MAYBE??? Doesn’t necessarily look it, and did they do the work themselves? ) = 247,500. Could have just as easily cost 150K or less.
So now it’s either 247,500 0r 297,500. Subtract one year and five months holding costs, let’s call that 100K. But did they live there?
I come up with either 147,500 or 197,500. Not too shabby for a yearlong project.
It breaks down to a roughly 150 or 200K return on like 300K spent in roughly 16 months or something. Pretty solid. Not the best. But good.
Kenny – Why is it that NOBODY adds back the cost the homeowner would have incurred if they were to rent a similar quality? You have to add back around $75,000 for the 12 months.
If they could live for FREE, yes then you can’t add back that cost saved, but not in most cases.
Another key is TAX RATE. Let’s say the return was 200K after a 15% LT capital gains tax. To CLEAR 200K if one had to earn it through income, you would have to make about $380,000, since you will be taxed at 45%.
I am consistently surprised at how people do make wise tax decisions, or factor these in.
Kenny – If you still do not understand why you have to ADD back the ‘rent saved’, but it another way.
Let’s say the person cleared 200K after tax. You then compare the $200,000 gain vs. what the individual who rented a similar property would have made. Let’s say it’s around $4,000/month net after tax or $6,500/month gross $75,000 in rent the renter would have spent. What is the return on $75,000 in gross rent? The answer is -100%, or ZERO.
Hence, you have the owner clearing $200,000, and the renting clearing a -$75,000 for a gain to the owner of $275,000. This is VERY important to understand, and again, this doesn’t take into consideration how much in GROSS INCOME one has to clear to make $200,000 based on a 45% tax rate.
I understand all that, Wondering my man. That’s why I asked the hypothetical — did they live there or not? If they lived there, it’s an even better project. Given that they opened up a couple of walls, it’s likely they didn’t live there the entire time.
I gave it a max holding cost of 100K, and I think that’s generous. A real analysis makes it even better, figuring in capital gains, deduction of interest, etc. Maybe they didn’t even put any money down?
We really don’t know what happened. They might have been out of state speculators subject to California withholding. There are any number of variables. But I’d call it a pretty good deal regardless, and we are in agreeement on that.
If he did remodeling, he probably DIDN’T live in that house during the short time of possession.
BTW, don’t forget transfer tax, which the seller pays (about 0.7%).
http://www.sfgov.org/site/assessor_index.asp?id=15241#WITTTRFTCACOSF
If the rent is $4k/mo, then that is $48k per year. you don’t adjust that number to some pre-tax equivalent.
and living in a home under construction is no picnic in the park. so, if the flipper of this property lived onsite, the “equivalent rent” saved is significantly less.
regardless, you are making too many assumptions, and too many tax adjustments.
we know the purchase price and the selling price.
we can guesstimate the cost to remodel, the transaction costs and the cost of capital.
tax considerations are different for everyone and should be applied accordingly, AFTER the fact.
so, purchased for $1.025mm, sold for $1.55mm
guesstimates: remodel cost $200k, transactions costs of $87,500 (closing, selling, etc) and carry/opportunity costs of $100k (mortgage interest, taxes, insurance, etc) = profit of $137.5k
200k more or less in repairs sounds like the place was inhabitable imho for “full renovation”.
A VERY simple way to look at it folks if you compare a real cash outlay to get what’s in the bank or what’s coming out of the bank. A renter had to spend $75,000 of gross income to pay $48,000 in rent, b/c you cannot pay your rent with pre-tax income. This is a good way to look at any purchase b/c a lot of people say, I make $300,000 therefore I can buy a $100,000 911 Carrera S. In actuality, that $100,000 Porshe costs about $180,000 in gross income, or more than half your total gross income instead of 1/3rd.
Once this type of thinking is incorporated in your spending habit, it becomes evident why renting over time becomes a tremendous losing proposition compared to owning. The tax factor is enormous.
One can compare a 100-200K net gain for the owner to 48K loss for a renter, but that underestimates the differential. I conservatively put the figure at $200,000, and the owner did live there. It was a couple, and they are moving back to San Diego. I visited the unit one of the two open houses.
745 Marina Blvd on our favorite bubble blog for $4.95 mil. Best times to buy were not 2001, but 2003 during SARS and the start of the Iraq War, and beginning 2005, when you saw another huge increase that yr.
I’d say buying at $3.1 and selling for $4.95 mil if it sells is pretty good in 2+yrs.
From propertyshark:
Sold in 2001 for $2,600,000
Sold in 2003 for $2,150,000
Sold in 2005 for $3,100,000
WONDERING
the federal tax code alone comprises more than 3.4 million words.
between all the various local, state and federal tax rates, all applied uniquely across various sources of income, all made even more complicated by various rules on deductions and shelters, followed by an entire separate calculation for AMT, it is next to impossible to make blanket pre-tax adjustments like you suggest.
Alvin – You’ve only got to know where to look, to understand tax rates. Starting with the tax rate that goes along with a particular income level.
If you’re making more than $360,000/yr, your federal tax + state tax rate is some 43%-44%. In other words, anything you buy is literally 81% more expensive when you calculate the gross cost i.e. takes $100 gross income to pay for a $54 item. If you are in this tax bracket, homeownership is likely for you. This is part of the reason why you see properties in Disctrict 7, and in Presidio Heights continue to do very well. SF is a city full of multiple six figure + income earners, and there just isn’t enough supply in these areas.
There are going to be record payouts/bonuses this year.
I agree with Wondering. I live next door and went inside. 200K remodel is the MAX. Probably more like 100-150K. Couple lived in the place and they are relocating. The entire block is pretty pumped by this sale. Wealth affect spreading in full effect. You have to minus the comparable cost of rent from the costs of owning if you want a true calculation. The area is hot.
WONDERING
you keep missing the point. My tax preparer knows which part of the code applies to me (hopefully!), and you might know what applies to you, etc. etc. But it’s likely to affect each of us differently. That is why you cannot make broad pre-tax adjustments for everyone like that. one shoe does not fit all.
even in your rather simple scenario you can’t come up with a definite rate to apply (43% or 46% ???), and you aren’t adjusting for the progressive structure of our tax system.
what is the source of the income? because capital gains are taxed differently than dividends, which are taxed different than treasuries, which are taxed different than muni’s, which are taxed different than earned income. do you own your business? is it a corporation or a partnership? and on and on and on…
as for who home ownership is for – that’s much easier. it’s for those who 1. want to own a home and 2. can afford it.
For those first time home buyers wondering about rent. vs buy, and the tax implications & advantages, I found a blog entry on the subject with a spreadsheet tool to help them decide – http://blog.funkywasabi.com/?p=5. It may prove to be useful.
I would agree with Alvin that the tax situations are very complex for each individual. But I would surmise that the picture is not as cloudy for first time home buyers who are currently renting. Most of them fall into the situation of a) have some down payment for a home, b) paying high rent, c) no other way to reduce tax other than to own, or get married, and d) looking to own to reduce tax and build equity. For those, I think the tax situations are pretty straight forward…
That said, I don’t think this chestnut unit would go to a typical first time buyer…
Alvin – Just to clarify, do you rent or own? I agee with your statement on who ownership is for.
At any rate, 1330 Chestnut is a winner. I have never seen this type of property, get this type of price ever, in this part on 94123. I’ve been inside, and I conclude that prices are up at least 10% this year.
2255 Washington St. finally in contract. Made $1.4 mil? It’s about 1,100 sqft.
45 Prado also in contract at $3.295 million.
Wonder if 215 Moulton will get into contract.
Market has gone crazy. On the market for 1 day. In contract. 1,200sqft asking $1.389 mil.
http://sfarmls.rapmls.com/scripts/mgrqispi.dll?APPNAME=Sanfrancisco&PRGNAME=MLSPropertyDetail&ARGUMENTS=-N114600692,-N212075,-N,-A,-N10264312
1981 Pacific, also in contract after ONE open house!
http://sfarmls.rapmls.com/scripts/mgrqispi.dll?APPNAME=Sanfrancisco&PRGNAME=MLSPropertyDetail&ARGUMENTS=-N960695593,-N212069,-N,-A,-N10271462
How did I miss this? Another MGB property in contract. This one, on Franklin. Squarefootage is overstated.
http://sfarmls.rapmls.com/scripts/mgrqispi.dll?APPNAME=Sanfrancisco&PRGNAME=MLSPropertyDetail&ARGUMENTS=-N960695593,-N211002,-N,-A,-N10271462