Make a $MIL on some buyouts and rehab in SF?

26 Replies

I'm curious what @Amit M.  , @Joanna L.  , @Kevin Young  , and some other San Francisco folks think about this listing. Is it possible to make a million dollars on this building? (Wildly speculative of course, but not the craziest thing I've ever heard..)

https://www.redfin.com/CA/San-Francisco/149-Duboce-Ave-94103/unit-151/home/1063811

Currently listed at $1.4MM, 4-unit, 1br's coming in at 3,836 sq ft, or $364/sq ft, w/ a nice fa

Oh yeah, and the garage is one of the biggest I've ever seen! I would love that unit!!!

Check out the pics.

And a flat room for a nice, sunny roof deck ;)

You need to watch out for Prop G. You can't flip a multi-family or risking paying uber high flipper tax. I believe as a result there are many multi's on the market right now. People are heading out for the exit... which should make buy-and-hold guys like @Amit M happy?

Originally posted by @Manch Hon:

You need to watch out for Prop G. You can't flip a multi-family or risking paying uber high flipper tax. I believe as a result there are many multi's on the market right now. People are heading out for the exit... which should make buy-and-hold guys like @Amit M happy?

 Isn't that only for less than a year? I think anything on this would take more than that also, but it looks like potentially a lot of upside to me, even without market increases in this red-hot area..

J, did you visit the unit?  How much rent do you think it can generate?

Lifted from Socketsite:

The tax would be based on the resale price of the property with the graduated tax rate determined by the length of the hold. The proposed tax rates for buildings sold within five years of being purchased:

  • Sale within one year: 24 percent
  • Two years: 22 percent
  • Three years: 20 percent
  • Four years: 18 percent
  • Five years: 14 percent

The tax would not apply to “single-family homes, condos, owner-occupied tenancies in common, properties not being sold at a profit, new construction, properties being turned into affordable housing, and buildings with more than 30 units.”

Originally posted by @David Cheung:

J, did you visit the unit?  How much rent do you think it can generate?

 I haven't seen it yet. Just saw it online.

I think $3-4K after remodeled, especially as a 2br. 900 sq ft/ unit should make that reasonable.. Smokin hot location. Close to mid-market where all the tech companies are at. Close to market. Close to Mission. Parking..

@J Martin (why am I not able to tag you?): First of all that building will sell more than the asking price. Probably over 2 Mil. The tenants buy out, depending on how long they have been there, are there kids going to local schools, etc. Rent $$ you mentioned seems reasonable for that area. But like Manch said, if they pass the Prop G this coming January, you won't be able to sell immediately. Which is still fine as long as you get really great tenants who will move out in a few years.

You can't condo convert anymore now tho. They have banned that until the next 10 years!

@Joanna L.  and @Manch Hon  ,

I'm not as worried about the tax, b/c I like to hold, and I think there will be legal challenges.. Bummer on the condo conversion. Knew it had changed, but wasn't sure how.

Would still be killer as a buy & hold if could get at $1.4MM IMHO. But as you said, this may be a super-low list price. It does have 1 unit vacant, so an owner-occupant with long-term thinking could probably make some good cash if they get in at the right price..

Just make a bid on it. You never know. 

Prop G is really interesting. I suspect it's very good for longterm buy and hold landlords. It  means flippers would be out of the bids, and property on market would tend to be crappier and thus lower priced.  

@J. Martin  

Welcome to SF.  Exactly the reasons (flip tax, no condos, rent control, ....on and on) you couldn't pay me to even entertain such a deal. Deals in SF are the definition of beating my head against a wall.  If you GAVE me that deal, I'd have to think long and hard about the brain damage and likely would pass.  Typical SF, they make life hard for developers, while charging exorbitant fees, and then complain about affordable housing.  Crazy-town.

@Joanna L.   mentioned: 

You can't condo convert anymore now tho. They have banned that until the next 10 years!

Wow, Serious?? I thought they have crazy people hanging outside city hall, I guess they have crazy people hanging around inside city hall too.  LOL.

Originally posted by @Andrew Eaton:

@J Martin 

Welcome to SF.  Exactly the reasons (flip tax, no condos, rent control, ....on and on) you couldn't pay me to even entertain such a deal. Deals in SF are the definition of beating my head against a wall.  If you GAVE me that deal, I'd have to think long and hard about the brain damage and likely would pass.  Typical SF, they make life hard for developers, while charging exorbitant fees, and then complain about affordable housing.  Crazy-town.

For every flip tax that stops a flipper, there is a buy and holder to take advantage.
For every condo that can't be converted, there is an opportunity for potential TIC.
For every tenant under rent control, there is a discount (sometimes significant) built in to maneuver to full market rents.
For every migraine created and ridiculous law implemented, there is another long-term millionaire made.

Well not every migraine and law, but you get the point. Sometimes, the restrictions create opportunities..

But regarding your point about SF (and in general CA), you're right Andrew. We want it all. More affordable housing - just don't build it in my neighborhood.
Better schools - but lower my taxes.
More homeownership, but no loose loans.

etc etc etc..

Originally posted by @Andrew Eaton:

@J. Martin  

Welcome to SF.  Exactly the reasons (flip tax, no condos, rent control, ....on and on) you couldn't pay me to even entertain such a deal. Deals in SF are the definition of beating my head against a wall.  If you GAVE me that deal, I'd have to think long and hard about the brain damage and likely would pass.  Typical SF, they make life hard for developers, while charging exorbitant fees, and then complain about affordable housing.  Crazy-town.

Well said Andrew.  Sometimes, the road one seeks to avoid is the road leading to it.  Talking about the law of unintended consequences.  

I don't think Prop G will have a big impact on anything at all. Unless I am mistaken, flipping multi-fam is not really a thing. I can see it in maybe 2-plex, but 3 and up gets very difficult with protected tenants and all. Getting one set of tenants move out is difficult enough. Getting 3 sets out? Oh man.

@J. Martin  

Interesting that it says it's been on the market for 32 days though.  Something we don't know about it?

-Tom

@J. Martin   Big hassles = big money in SF. But having said that, I'd still pass on this particular deal. 

Originally posted by @Amit M.:

@J Martin  it's been on market 32 days and recently reduced. Also sold november 2013 for similar price. Why selling it w/o profit?  Something fishy. My guess is the sucky *** tenant profile. Two units are rented at $500/mo, markets rate is$3500. U think they are eager to leave?  No way, José!  Plus this part of duboce has tons of traffic exiting Hwy 80 one block feet away. 

This would have been a classic tic play, but almost certain to require the ellis act due to tenants. The situation is so tense in SF now, and why prop G is on the ballet, to disincentivize tic flips. Plus, the housing activist lawyers would represent the tenants gratis, and have a field day slowing down yours ellis eviction. Hell, you may even get protesters showing up at your door step. Yep, it's gotten that bad. 

I also don't like this as a buy and hold. 1- forget Ellis. 2- let's say by the stroke of God you managed to buy out these tenants.  Add that to a serious renovation budget, holding costs and sh!t-happends fund, and I'm sure you're all in at north of $1.8 mil. Not enough cash flows for all the headaches IMO. I'd want to collect at least$4000/mo for all this trouble and risk.  So this, plus prop G potentially putting the kabosh on tic conversion, makes this bldg problematic. 

@Andrew Eaton   Big hassles = big money in SF. But having said that, I'd still pass on this particular deal. 

All good points Amit. I saw the prior sale right after I posted it. Definitely a red flag that things didn't go as planned on the last purchase. If I could get in with w/ FHA under the $1.2MM cutoff or whatever it is on 30yr fixed.. make that huge garage a unit for me.. then almost have my mortgage paid! Then just wait it out until the mortgage is paid off :) I don't think I'm going to do it. Maybe just a crazy dream..

But I have a feeling I'll be looking at this same listing 15 years from now and really be kicking myself in the ***! lol

@J Martin - do you know what the process is to add a unit in a garage.. Have you a link you could share.  Great thread.. Thanks!

@J. Martin  the problem with your garage 'fantasy' is that it's not legal :(. If neighbors call city/nark on you, the city will issue a NOV asking you to removed it. OTOH a new law was passed allowing legalization of existing illegal inlaws. That's what I'll be dealing with on my Bayview property next year. It's a complicated process (surprise, surprise), but golden profit-wise if you can persevere. 

Originally posted by @Amit M.:

@J Martin the problem with your garage 'fantasy' is that it's not legal :(. If neighbors call city/nark on you, the city will issue a NOV asking you to removed it. OTOH a new law was passed allowing legalization of existing illegal inlaws. That's what I'll be dealing with on my Bayview property next year. It's a complicated process (surprise, surprise), but golden profit-wise if you can persevere. 

 I did hear about that conversion news.. They're trying to add new housing stock however they can. That was part of the impetus with the tiny apartments also..

I don't think you saw my link on my garage conversion plans! lol

By the time they come back to ask about it, what garage unit..? It's just a cement garage.. Capped water/sewer from a previous owner, and occasionally used for storage..

Again, I'm not putting in an offer.. Just a "crazy" dream.. (That I don't think is all that crazy..)

Originally posted by @David Cheung:

@Joanna L.   mentioned: 

You can't condo convert anymore now tho. They have banned that until the next 10 years!

Wow, Serious?? I thought they have crazy people hanging outside city hall, I guess they have crazy people hanging around inside city hall too.  LOL.

Condo conversions can still occur in San Francisco.  Even easier is two units can still be condo converted under the right circumstances. 

How do two-unit buildings bypass the condominium lottery?

Two unit buildings with a clean eviction history bypass the conversion lottery if both units are occupied for one year by separate (unmarried) individuals who each own at least a 25% interest in the property during the entire occupancy period. This exemption from the lottery is also applicable to mixed use buildings having no more than two residential units, both of which are owner occupied. Occupancy is proven by sworn statement. No other building types can bypass the lottery. Vacant apartments do not count as owner-occupied. A two-unit building cannot bypass the lottery if an elderly (over 60 who has resided in the building for 10 years), disabled or catastrophically ill person was evicted from the building after November 16, 2004. A building from which two or more tenants (regardless of age or disability) were evicted from separate units for any reason unrelated to the tenants’ behavior after May 1, 2005 can be converted only after 10 years of owner-occupancy unless each unit was occupied by a separate owner on April 4, 2006.

@J. Martin   hey, I saw it just went pending.  

Jayyyyyyyy....did you just impulsively put an offer on this thing?!?!

Originally posted by @Amit M.:

@J Martin  hey, I saw it just went pending.  

Jayyyyyyyy....did you just impulsively put an offer on this thing?!?!

 lol I did not.

But there must be a visionary out there!! lol I hope they were inspired by my garage conversion pic ;)

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.