Rent is dropping quickly in San Francisco

CA · Member since 2016 · 1k+ posts · 1k+ votes

So I have a rental that is currently on the market in the A+ neighborhood in San Francisco.. When I posted the listing on Zillow 13 days ago, the Zillow calculated rent is $4600, and that became $4300 today...

Also, for the first time in maybe 10 years, I have people come in and asked if I can drop my asking price from $4250 to $4000...

I think the correction that many of us on BP anticipated is starting now....

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Steve R.

Investor · San Francisco, CA · Member since 2014 · 2 posts · 5 votes

Zillow is not the only source indicating that rents in SF are dropping.

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Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
9y
I guess we would have to put renting a nice 2+1 for $4100 in perspective. The guy coming out of a coma from 10 years ago might have been paying $2100? Now explaining to him that $4100 is a discount. There could be more rent dips at these prices perhaps is normal.
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Ariel Smith
Rental Property Investor · San Diego, CA · Member since 2016 · 306 posts · 205 votes
9y
@Bill Henley that seems like a great price point for your area. I'm interested to see what you end up selling for. If you don't mind me asking, where are you moving to? Most sellers I'm working with have a desire to cash in on their equity, but have no where to go unless they move out of the area. For that reason, many sellers are holding on despite the high sales prices.
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Bill Henley
Investor · Berkeley, CA · Member since 2016 · 45 posts · 43 votes
9y
@Ariel Smith: In October 2015 we got a HELOC and my wife has used this source of funding to buy seven properties/21 units in her home town of St. Louis, Mo. The plan from the beginning has been to move to St. Louis and do real estate full time. We were originally thinking in terms of waiting till I turn 66, in 2020. However, the combination of my age, the pre-existing plan to move to St. Louis, and the possibility that the market for our Albany house will be worse in 2020 than it is now, have combined to persuade us to sell and get out sooner rather than later. Bay Area homeowners who are not at the age or other circumstances where it makes sense to sell out and move East should at least look into getting a HELOC and using it to buy properties in positive cash flow markets.
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Ariel Smith
Rental Property Investor · San Diego, CA · Member since 2016 · 306 posts · 205 votes
9y
@Bill Henley yes HELOCs can be great strategies to leverage equity. Well congratulations it sounds like you are on the fast track to hitting your end goal!
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Bill Henley YUP Oregon 92% caucasion 7% Hispanic 1% everyone else.
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David Faulkner
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9y
Originally posted by @Matt R.:

I guess we would have to put renting a nice 2+1 for $4100 in perspective. The guy coming out of a coma from 10 years ago might have been paying $2100? Now explaining to him that $4100 is a discount. There could be more rent dips at these prices perhaps is normal.
On the bright side, at least you wouldn't need 50 of them @ $600/mo like you would elsewhere. 7 unitsx$4100/mo should do just fine, would be slightly easier to manage, and clearly keeping up with inflation has not been a problem either ... you could go into a coma and wake up rich instead of trying to 1031 your way to 50 out of state :)
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Diane G.
OP
CA · Member since 2016 · 1k+ posts · 1k+ votes
9y
@David Faulkner
you guys are all way too funny.... By the way, out of the 3 offers I got, one was a sight unseen....
I guess $4150 is that affordable...
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Andrey Y.
Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
9y
Originally posted by @Sean Carroll:

@Diane G. I have noticed that rent has been mainly stagnant at large complexes over the past year but I have not seen any drop to much except for the special deals here and there. The problem with out area is it is still expected to grow for many more years and as you know we have a huge housing shortage :/
Housing shortage or not.. there comes a point where people won't be willing to pay 60 or 75% of their monthly income for rent. I don't care what the housing shortage is, this would eventually result in a lower rent in a given area or the folks will move to a different area where they don't pay their entire paycheck on rent.
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David Faulkner
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9y
Originally posted by @Bill Henley:

My wife and I are making a bet that the Bay Area market is about to nose over and are selling our little 2+1 house in Albany CA (between Berkeley and El Cerrito). It went on MLS on Friday. www.911evelyn.com. About ten agents brought clients through on Saturday. Open house #1, 2:00-4:30 on Sunday (yesterday), our agent says 200 people walked through and she handed out 100 flyers. It's either, "This *has* to be the high point of this market," or, "I sure wish we'd held on another 6-12 months." Time will tell.
Time will tell ... but I suspect that time frame when you know for sure will be another 6-12 years, not 6-12 months. If your time horizon for the Bay Area is not that long, though (which sounds like the case), then that doesn't really matter and you are probably making about as good a choice as you can as nobody really knows for sure what the next 6-12 months will yield.
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Paul B.
Rental Property Investor · Dallas, TX · Member since 2015 · 503 posts · 504 votes
9y
Originally posted by @Andrey Y.:

Originally posted by @Sean Carroll:
@Diane G. I have noticed that rent has been mainly stagnant at large complexes over the past year but I have not seen any drop to much except for the special deals here and there. The problem with out area is it is still expected to grow for many more years and as you know we have a huge housing shortage :/
Housing shortage or not.. there comes a point where people won't be willing to pay 60 or 75% of their monthly income for rent. I don't care what the housing shortage is, this would eventually result in a lower rent in a given area or the folks will move to a different area where they don't pay their entire paycheck on rent.
Aside from people's preferences not to spend that much of their income on rent, a tenant who chooses to pay that much (or perhaps does it because he has no other choice) is a lot riskier than one who is only spending 30 or 40% of his income. A hiccup like a car breakdown or a medical issue is going to have a much larger impact on his ability to pay the rent, and in a tenant-friendly state, you can't evict so quickly. So even if your market rent is high, your actual collected rent (I believe the term is "effective rent?") could be significantly lower.
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Diane G.
OP
CA · Member since 2016 · 1k+ posts · 1k+ votes
9y
@Paul B.
I dont think you understand about SF at all based on your comments... People that rent $4150 have income north of $300K... One applicant is transferred in from DC, wife works in US army, husband a pilot.. Combined income of $350K... Another applicant is transferred in from MD, one partner is internal designer at $170K, other partner is a banker, not sure about his income becasue they qualify on one partner already....
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Jon Q.
Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
9y
Originally posted by @Diane G.:

So I have a rental that is currently on the market in the A+ neighborhood in San Francisco.. When I posted the listing on Zillow 13 days ago, the Zillow calculated rent is $4600, and that became $4300 today...
Also, for the first time in maybe 10 years, I have people come in and asked if I can drop my asking price from $4250 to $4000...
I think the correction that many of us on BP anticipated is starting now....
I suggest free rental surveys on rentometer.com. They're very accurate.
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Paul B.
Rental Property Investor · Dallas, TX · Member since 2015 · 503 posts · 504 votes
9y
Originally posted by @Diane G.:

@Paul B.
I dont think you understand about SF at all based on your comments... People that rent $4150 have income north of $300K... One applicant is transferred in from DC, wife works in US army, husband a pilot.. Combined income of $350K... Another applicant is transferred in from MD, one partner is internal designer at $170K, other partner is a banker, not sure about his income becasue they qualify on one partner already....
Of course there are many high earners in SF, and that is how those high rents are feasible. I was responding to the comment that eventually people won't want to pay 60-70% of their income on rent. Your tenants are obviously not stretching to pay your rent. I wasn't referring to them.
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Raquel D.
Investor · Shakopee, MN · Member since 2017 · 102 posts · 60 votes
9y
Originally posted by @Bill Henley:

@Ariel Smith: In October 2015 we got a HELOC and my wife has used this source of funding to buy seven properties/21 units in her home town of St. Louis, Mo. The plan from the beginning has been to move to St. Louis and do real estate full time. We were originally thinking in terms of waiting till I turn 66, in 2020. However, the combination of my age, the pre-existing plan to move to St. Louis, and the possibility that the market for our Albany house will be worse in 2020 than it is now, have combined to persuade us to sell and get out sooner rather than later. Bay Area homeowners who are not at the age or other circumstances where it makes sense to sell out and move East should at least look into getting a HELOC and using it to buy properties in positive cash flow markets.
I was glad to read this because this is what I am looking into -- I'm in the process of getting a HELOC to purchase multifamily properties elsewhere (midwest, St. Louis is a main area I'm looking at!) and once I get a few, I'll probably move out of California. There are a lot of nice things about living here but it's not a place for real estate investing at the moment (at least not with my net worth, haha)
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David Faulkner
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9y
Originally posted by @Raquel D.:
Originally posted by @Bill Henley:

@Ariel Smith: In October 2015 we got a HELOC and my wife has used this source of funding to buy seven properties/21 units in her home town of St. Louis, Mo. The plan from the beginning has been to move to St. Louis and do real estate full time. We were originally thinking in terms of waiting till I turn 66, in 2020. However, the combination of my age, the pre-existing plan to move to St. Louis, and the possibility that the market for our Albany house will be worse in 2020 than it is now, have combined to persuade us to sell and get out sooner rather than later. Bay Area homeowners who are not at the age or other circumstances where it makes sense to sell out and move East should at least look into getting a HELOC and using it to buy properties in positive cash flow markets.
I was glad to read this because this is what I am looking into -- I'm in the process of getting a HELOC to purchase multifamily properties elsewhere (midwest, St. Louis is a main area I'm looking at!) and once I get a few, I'll probably move out of California. There are a lot of nice things about living here but it's not a place for real estate investing at the moment (at least not with my net worth, haha)
Investing at a distance can be highly risky. Unless you have very good friends who you implicitly trust who are already in the RE business that are willing to help you acquire and manage these properties, I would recommend holding tight to move to the new market, rent for a bit, familiarize yourself with it, network, then invest there as a local, but not before that.
If you choose to do it now remotely (which I do NOT recommend), then find your PM that you are 100% comfy from a reference with no other financial tie to the PM other than a long term happy client of them ... do this BEFORE you buy any property because they will ultimately make or break you and your investment there, and make your PMs job easier by buying in a nice neighborhood rather than chasing yield in a lower end hood. Good luck.
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Diane G.
OP
CA · Member since 2016 · 1k+ posts · 1k+ votes
9y
Ok just tried Rentometer... says my rental should be $4,662..... ok so that is why mine rented out in 8 days with multiples....
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Jerome KaidorPro Member
Investor · Hayward, CA · Member since 2013 · 139 posts · 65 votes
9y
Bay Area values are being driven by high tech. The dotcoms have taken over San Francisco and the Peninsula, driving ordinary people to the East Bay. I am seeing the effect as far east as Tracy. I am saving my shekels, waiting for the next crash.
Properties here in Hayward are going for prices that guarantee you won't make any money, at least from cash flow.
2 Reply
Amit M.
Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
9y
@Diane G., you made rookie mistake #2 and panicked! You rented it too cheap and too quick, if you got 3 well qualified prospects in 8 days. I'm sure you could have gotten 4250 easily by holding another open house or two. Best place to get comps is to study Craigslist beforehand. See if the places that seem like a good deal disappear quickly. The overpriced ones will stick around.
You're also making a mistake by extrapolating that your modest rent drop means the market is going to go down much further. Probably not the case. Also rents haven't dropped in all neighborhoods equally. My mission units are -3-5%, and Bayview is not down at all, but flat. Also there aren't a ton of new listings in all hoods. Mission has more than 2 years ago, but still not a crazy amount, and Bayview actually has less listings. The expensive new construction condo rents have fallen the most.
You make a lot of wild assumptions peppered with hyperbole that don't serve you well. Basically SF went crazy gangbusters from 2013-16. So who cares if it flatlined or drops 5-10%? We got all the upside already. Only people hurting are those that brought retail condos in DT, soma, south beach, etc., and are trying to sell now. Everyone else is just cooling their heels for the next couple of years. And if you find a good off market deal with value added/turn around prospects, I'd still go for it, even now.
Only way SF as a whole drops anything approaching 20% is if we have a systemic financial, trade or global crisis, which of course is possible given our erratic gov. But so far markets haven't lost confidence in the White House. No one wants a financial crisis, so assuming that the gov can project stability, we should be ok in SF too. Just a softer housing market and not as many rampant tech growth stories. SF is still super prime, and people with means continue to fall over themselves to live and work here. Nothing's changed, just slowed down a bit.
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Diane G.
OP
CA · Member since 2016 · 1k+ posts · 1k+ votes
9y
@ amit m I am not sure if there is going to be a 20% correction... but softness is already here... a 5 to 10% cooldown is very likely... given the baseline of SF properties, that is a $120k savings easy... why not wait then?
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Amit M.
Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
9y
@Diane G. again, you're not really listening. No one said wait/not wait, because it's not as simple as that. What if you find a great deal now? What if prices do drop 20% but interest rates are 3% higher? It's not a binary or black and white decision based on absolute assumptions.
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Diane G.
OP
CA · Member since 2016 · 1k+ posts · 1k+ votes
9y
@ amit m I would love to buy when rates are 10%.... at least that is what I did last cycle... I bought and took out rates st 8.75% and I was negative $1000 per month per property for a few years... then I refi to 4%, all a sudden, I am positive $2000 per month per property.... Once you make the purchase you are stuck with the price purchase for 30 years... you can get a new rate every 2 years That said, I have been looking st Redwood City for a SFH around $1.3m range... let me tell you those have been going at lightning speed... very discouraged ... not sure how long I can manage to wait
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Amit M.
Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
9y
huh...novel...
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Ian Saingarm
Investor · Bend, OR · Member since 2016 · 52 posts · 15 votes
9y
@Keith Gifford @Kent Martin I find this interesting!
Ian
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Nischal Belthangady
East Bay, CA · Member since 2014 · 5 posts · 3 votes
9y
https://www.bloomberg.com/news/articles/2017-05-24/san-francisco-goes-from-first-to-worst-in-u-s-home-price-gauge
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Diane G.
OP
CA · Member since 2016 · 1k+ posts · 1k+ votes
9y
@Nischal Belthangady
Thanks for sharing... I agree with the article almost entirely except I felt the price drop is more than 4% at the high end, I would say easily 7%~8%.....
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