AT&T Park (San Francisco) Condo: I should sell, right?

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AT&T Park (San Francisco) Condo: I should sell, right?

Annelyse Finley
San Francisco, CA · Member since 2015 · 21 posts · 12 votes

Two years ago I bought a condo next to AT&T Park (San Francisco). I did not buy this unit as an investment. I bought it to live in. Because…

…every morning I get to go for a jog on the Embarcadero and see the sun rise over the Bay Bridge and--on really long runs--the Golden Gate bridge too.

…I get to watch World Series baseball in my front yard every even year.

…Public House has a rotating draft beer menu that rivals what’s on tap at any other bar in the city.

…and my commute is a 20 minute walk every day to the financial district. No Bart, no muni, no toll plazas. Priceless!

But my priorities have changed and I’ll be moving to a house with a yard in the burbs. So, should I sell the condo or rent it out?

Relevant facts include:

*Market value of the condo has gone up $100K in 2 years--but selling costs would wipe out most of the gain

*Rent would cover PITI, but not the monthly HOA (very expensive), parking, maintenance and capex.

*I’d be paying $1K/month out of pocket to hold and rent. I could stomach this, but it would definitely put a dent in my ability to acquire other investment properties.

*The Golden State Warriors basketball arena is being built nearby—-which makes two pro sports stadiums within walking distance.

*There’s a bunch of shiny new condos being built across the channel in Mission Bay—mine will look pretty old and dull in comparison.

I'm assuming any rational person would say Sell Sell Sell! based on the negative cash flow of $12K/yr.  But would anyone argue in favor of holding?  

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Arlen Chou
Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes
9y

@Bob E. I thought I would take a minute and highlight what I perceive as the benefits of an appreciation loaded strategy. Firstly, I believe that many people get caught up in the face value of the "appreciation vs cash flow" debate.  In my opinion it is wrong to think of this as a black and white issue.  A good investor should be looking for BOTH appreciation AND cash flow.  In the coastal markets the equation is a high barrier to entry, POTENTIAL high appreciation and low cash flow (which gets better over time).  In the flyover areas the barrier to entry is low, the potential for a appreciation is low and cash flow is RELATIVELY high. Any investor not getting both, appreciation and cash flow, is doing something seriously wrong...

The difference to me is the amount of headaches and the infrastructure needed to support the different types of markets. In a high cash flow strategy, a large number of units must be owned.  By definition that means a high number of deals must be made with associated buying/selling/renovations costs.  Also the logistical costs go up exponentially: more toilets, more appliances, more roofs, more yards to maintain, etc.  I do acknowledge that labor rates in the flyover areas are substantially lower, but base material costs are really not that different.  

Additionally, at some point with the compounding model of adding low cost units, an investor stops being and investor and goes back to becoming a worker bee: a team must be created and actively managed, analysis on dozens if not hundreds of units must be done on an ongoing basis, additional deals must be found and closed, etc.

I prefer the appreciation model because there are substantially fewer moving parts in the investment machine.  Properties that I have purchased 3 years ago are worth nearly double the purchase price and average rents are over double what they were at the time of purchase.  I have pulled my initial cash back out and bought more units in the Bay Area that also have positive cash flow.  As time moves forward, I HOPE (I think it is a good bet) appreciation will continue to rise on all of my properties and I will enjoy positive cash flow from my re-positioned units.  I hope that clarifies why the appreciation loaded strategy might be of interest to some people.  

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  • Matthew Peterson
    Sunnyvale, CA · Member since 2015 · 9 posts · 2 votes
    10y

    If your numbers are correct, it sounds like renting isn't a good option.  I would get in touch with a local realtor and have them give you a comparative analysis - your appreciation seems low (12% assuming it's worth around $900,000 today).  Anyway, I work in the South Bay so can't be of much professional help in San Fran (unless you'd like a referral).

    Also remember that you're going to pulling out/rolling over equity as well as appreciation so, hopefully, your net sales proceeds will look better than just $100,000.

    0Reply
  • Gabe C.
    Investor · San Francisco, CA · Member since 2016 · 192 posts · 95 votes
    10y

    I work down the street from AT&T park (4th and Brannan). There are no less than 6 high rise buildings being built on adjacent blocks. They just finished the Dropbox building, they're building a 14 story Pinterest building right next to us, they're knocking down the Tennis club to build another one, the Wells/Starbucks/parking lot is going to turn into another high rise, the parking lot across the street is about to become a 1mil sqft building. There are a ton of jobs about to roll into your neighborhood for people that would love to walk to work. I saw that Facebook was considering building in SF too. You already mentioned the Warriors stadium. I would personally spend the $12k/yr to hedge long enough to find out. 

    Not sure what the AirBnB laws are atm (it sure isn't popular), but you might even be able to make more doing that than renting, given your location. 

    2Reply
  • Jake Van Vorhis
    Real Estate Agent · San Francisco, CA · Member since 2015 · 69 posts · 16 votes
    10y

    Hey @Annelyse Finley,

    I'm an agent in SF. In my opinion, holding in the city is very smart for the long term if you can. However, in your situation, I think selling your current place in order to buy, hold, and rent something else that cash flows or comes out even would be the wise move. The brand new Mission Bay condos are great, but HOA's are pretty high and the market has been saturated with new inventory. It is my personal belief that the general evening out in the market recently is at least somewhat due to the influx of luxury condos, as for the first time in years, supply for that market niche has come much closer to demand. I also agree with your thought about the newer buildings being much shinier and attractive to both tenants and future prospective buyers.

    I imagine one thing to think about for your situation is where else (in the city, peninsula, or elsewhere) your equity could purchase something else that would potentially be an even better investment. Depending on what you would be able to afford, I might suggest a single-family home in another neighborhood in the city for a few reasons. Primarily looking at the macro-trend, when developers in town build new housing, they are condos. If you look 5 or 10 years out, the percentage of housing that is comprised of single-family houses will only shrink smaller and smaller. For appreciation over the long term, it obviously makes sense to own where the supply is most constrained.

    Those are my thoughts at least. I'd be happy to put together an analysis of the comparable sales for you if you'd like. Either way, I hope that is helpful, and best of luck to you in your investments!

    0Reply
  • Sean Walton
    Wholetailer & Architect · San Francisco, CA · Member since 2015 · 544 posts · 298 votes
    10y

    Because of the current airbnb laws you could only do 30 day minimum rentals  or not more than 90 days per year if shorter terms. If you don't mind more turnover it may be a way to lessen that loss per month. A place that rents for $3500/month long term can rent for $4200 to corporate stays type people but minimizing vacancy between tenants gets trickier. Although you can use it as a pied a terre or for out of town guests those nights

    Also there may be some disagreement with this statement but if your condo was built 10 years ago maintenance and capex should be lower than the typical rules you seen thrown about.

    I think because of all the new inventory coming online I don't see your value dropping but I think the appreciation will level off this year, and with all the ridiculous apps and startups getting funded these days I see a correction coming in the next 10-16 months.

    0Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    10y

    Tough call. Wish it was more like + $200-300k appreciation at this time, then keep it for sure. BUT, my inclination is to ALWAYS try to keep as much property long term in SF. And if you are starting a family and also have a professional career outside of real estate, then the nice thing is that you already have your investment made, you know the building, you have fixed your tax base, etc. (in 10 years time you'll be glad you did.)  so if real estate isn't your primary business, finding another investment in the area (with high end tenants, easy to manage, etc.) won't pencil out either cash flow wise. 

    Before deciding for sure read this analysis from Paragon again and look at that first chart. It's a reminder that in 5-10 years you'll be glad you kept that condo in SF!  Could be a pied-a-terre, retirement income, etc. for your long term future. It's very hard to own two properties in prime Bay Area. If you can swing it, it will bring many rewards IMO.  Good luck!

    http://paragon-re.com/3_Recessions_2_Bubbles_and_a_Baby

    1Reply
  • Pratik Jhaveri
    Investor · Palo Alto, CA · Member since 2016 · 9 posts · 0 votes
    10y

    $1000/mo of negative cashflow is hard to swallow. Here are the positives - you likely have a low enough mortgage rate (being the owner/occupier) and hence have a good fixed cost. At the least I would speak with both a realtor and leasing agent to see what each one says. You MAY not be negative $1000/mo for all you know.

    Here are some leasing agents I compiled. I'm still trying to decide who to work with. Sorry I cant post contact details on BP posts

    Berendt Properties
    Craig Berendt
    J. Wavro Associates
    James Wavro
    Gavin Coombs Companies
    Gavin Coombs
    Chandler Properties
    Carolyn Chandler
    Structure Properties
    Jeff Jurow
    Property Management Systems
    Michelle L. Horneff-Cohen
    Wilson Properties
    Rachel Swann
    Swann Group
    0Reply
  • Jon Q.
    Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    10y
    Originally posted by @Annelyse Finley:

    Two years ago I bought a condo next to AT&T Park (San Francisco). I did not buy this unit as an investment. I bought it to live in. Because…

    …every morning I get to go for a jog on the Embarcadero and see the sun rise over the Bay Bridge and--on really long runs--the Golden Gate bridge too.

    …I get to watch World Series baseball in my front yard every even year.

    …Public House has a rotating draft beer menu that rivals what’s on tap at any other bar in the city.

    …and my commute is a 20 minute walk every day to the financial district. No Bart, no muni, no toll plazas. Priceless!

    But my priorities have changed and I’ll be moving to a house with a yard in the burbs. So, should I sell the condo or rent it out?

    Relevant facts include:

    *Market value of the condo has gone up $100K in 2 years--but selling costs would wipe out most of the gain

    *Rent would cover PITI, but not the monthly HOA (very expensive), parking, maintenance and capex.

    *I’d be paying $1K/month out of pocket to hold and rent. I could stomach this, but it would definitely put a dent in my ability to acquire other investment properties.

    *The Golden State Warriors basketball arena is being built nearby—-which makes two pro sports stadiums within walking distance.

    *There’s a bunch of shiny new condos being built across the channel in Mission Bay—mine will look pretty old and dull in comparison.

    I'm assuming any rational person would say Sell Sell Sell! based on the negative cash flow of $12K/yr.  But would anyone argue in favor of holding?  

    I would estimate that it'll be 5+ years of negative cash flow until rents cash up and cover your expenses.  Something similar happen to me on some condos I own in San Bruno.  They were my first investments and worse investments, but they cash flown now and I'll probably hold them...

    What you're asking is a personal question and you should consider your investment alternatives. If your HOA allows Airbnb that would be more work, but would lower the negative cash flow.

    0Reply
  • Eduardo Zepeda
    Real Estate Broker · San Francisco, CA · Member since 2016 · 76 posts · 50 votes
    9y

    I'd say that it ultimately depends on what your investment goals are. It might be an easier question to answer if it was weighed against another specific opportunity and whether your money would be better put to use in one or the other, but as a standalone call it's not as easy. If you do hold it for now, even though you'll be negative cash flowing you won't be "losing" money as you'll be paying down the principal and gaining equity. In the second half of 2016, I've seen rents plateauing in SF in the wake of several thousands of units, mostly in the luxury dwelling sector, come online with many more soon to follow, so I don't necessarily see rents increasing much in the near future, but that's not to say they won't climb again down the road. Nonetheless, I'm a strong believer that a market like the Bay Area, namely SF, will always be an excellent long term hold investment if it wasn't for the almost certain appreciation alone. It'll just come down to whether or not you see an opportunity that you need the cash for. Either way, let us know what you decide. Good luck!

    0Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    I own 3 condo in SF and I bought them back in 2007/2008... I would say it took me about 3-5 years to be cash flow position, but now I am sitting on sizable appreciation of around $1.8m... So patience paid off....

    That said, I am not a fan of SOMA/Mission area, partially due to the high HOA... They only go up higher each year....

    All mine are in Pac Height or Russian Hill, smallish building of 4-5 units... NO sky high HOA....

    So  I would sell in your situation.,

    2Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    9y

    @Diane G. your experience is interesting. I also own several condos in SF, but I own almost all of the units in the 2 buildings (I own 2 units in a 2 unit building, and 2 units in a 3 unit building where my sister has the 3rd one.). So I pretty much control both hoa's and make all the decisions, which I prefer. 

    My question to you is how easy is it to get along with the other owners of your small hoa's?  I assume that the other owners occupy their unit?  So isn't there sometimes problems with the owners and your tenants?  Owners are usually pickier and don't like renters in their buildings. And in small buildings I could see this being a constant problem, as the other 3-4 owners get together against you and your renter. I'd be interested in hearing more about your experiences with the other owners. Thanks! 

    0Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Amit M.

    Merry Christmas, happy to share....you are right, I am the only investor in each of the small HOA... I did not have much owner/tenant issue as my tenants tend to be someone making $300K a year and travel 60% of the time....

    The problem I used to have is that whenever there is a repair, I always want to do it cheaply, and the other owners always want to do it "right".... I have since giving up trying to be cheap and just let them make all the decisions and I get hit with 1/5 of the experience... No problem after that.... it also helps that my tenants are usually there for 4-6 years....

    0Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    9y

    That's the great thing about renting out in SF- the tenant quality is very high, and it sounds like yours are working out. I saw in your other posts that your considering out of state. If you want a lot more info on this, I suggest you search on BP forum "appreciation vs cash flow". Or just search for posts under my name. You will find a lot of posts, and many comments from me, on why I would never get out of SF (or other expensive coastal areas of CA) to invest in fly over states. The short answer is this- cash flow pays the bills, but appreciation will make you rich. But if you continue to invest in SF, you'd be better off finding a value added deal, where you can expand the units, add a unit, tenant turn over (hard with rent control of course), etc.  You really have to be innovative to do so, but if you can pull it off you can make a killing in SF!

    Personally I'm partying like a rock star because I finally got rid of this totally nutty, high drama legacy tenant in a building I own (she was the last to leave). It's a duplex with an inlaw (she was in the inlaw). I got the two main units vacated this summer, and just finished renovating them. I didn't want to rent them out while this crazy person was still there, but thank god she is out now. Plus I am going to legalize her unit (the city has a new program to legalize illegal inlaws - go figure, classic San Francisco counterintuitive nuttiness :), which will add a lot of value to my property. Plus now I have full control of the building and I can rent out to the tenants of my choosing. This building was definitely a challenge, but will have super high rewards in equity created and a strong cash flow too. Total win-win, and a building to keep into perpetuity. 

    2Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    The problem with investing in SF is that you can't scale unless you have 10 or 100 of millions to invest....And I dont have that sort of money.... Say you have $400K and you want to buy up to $1.3M, what can you get in SF today? A nicish condo that you can rent out for $4500, which barely cover your expenses.....

    But with $1.3M elsewhere, I imagine you can get a cash flow of $12K from rent? the question is what the expense look like, especially if out of state.....

    0Reply
  • Gary Nakauchi
    Forum Troll · Mesa, AZ · Member since 2015 · 17 posts · 6 votes
    9y

    My partner and I are using 400k to purchase in Phoenix, 15 units that will cashflow 20k+ yearly plus principle pay down of about 13k, we are borrowing 600k from the bank.  Offer in NOW.  Rents are about $100 below current market rents.  I've only been looking the past 2 months, and 2 better deals I barely lost.  The current one does however have about 100k in capital expenditures I can see; roofs, AC units, but interiors are great.  

         Next year I'm looking to syndicate with outside capital (Southern California) when I refinance my triplex and have presentable tax returns for the current property.  There are a couple $1 million  20 unit properties I'm passing on because I want a cushion for unseen.  

    Send me a private message/collegue request however this thing; If you can get started out here then you can pull outside capital into Phoenix as well in a few years. Job growth exceeds the nation here, and businesses are moving here, which drives rents. I'm not concerned with a market correction as long as my internal financials are lined up, and there are several brokers I call once a week to try to get properties before they hit MLS.

    1Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    Hmmm.... I just heard some horror stories from my friend who bought a 23 unit in Alhambra hood of Phoenix...eviction, late to no payment on rent, turn over....

    Can you provide a little more details on this offer that you are currently in?

    0Reply
  • Account Closed
    Minneapolis, MN · Member since 2014 · 332 posts · 288 votes
    9y
    You don't live in a cash flow marker, you live in an appreciation market. If you hold 20 years, based on your numbers it will cost you $240,009 to hold. Ask yourself - will the value go up more than $240,000 in the next 29 years? Can I afford to hold that long? I lived in SF and developed real estate there. I would guess your condo will be worth twice, maybe three times it's current value in 20 years - assuming global warming is still held at bay.
    0Reply
  • Matt Mason
    Investor · Los Angeles, CA · Member since 2013 · 231 posts · 260 votes
    9y
    Originally posted by @Account Closed:

    You don't live in a cash flow marker, you live in an appreciation market. If you hold 20 years, based on your numbers it will cost you $240,009 to hold. Ask yourself - will the value go up more than $240,000 in the next 29 years? Can I afford to hold that long?

    I lived in SF and developed real estate there. I would guess your condo will be worth twice, maybe three times it's current value in 20 years - assuming global warming is still held at bay.

    Keep in mind, rents don't tend to stay static in the Bay Area like almost all of the Midwest, so your comment is really not indicative of San Francisco.  With Prop 13 and even modest rent growth the cash flow should improve year after year.  You assume there will be price appreciation with no real rental growth, but that is not how it works over the long term as you don't get price appreciation without rental growth and vice versa over long periods of time like 20 years. 

    With that said, I think we are much more at the top of the cycle and won't see the rent growth of the last 7-8 years for a while.  The easy money has been made and I would rather take the tax free gain and get a 3-4 unit value add property in the next few years if I were to advise the original poster.

    2Reply
  • Account Closed
    Minneapolis, MN · Member since 2014 · 332 posts · 288 votes
    9y
    Matt Mason I misread the OP. No more responding to posts when sleep-deprived! Ha thanks for clarifying.
    0Reply
  • Account Closed
    Minneapolis, MN · Member since 2014 · 332 posts · 288 votes
    9y
    I read the OP to say annual holding costs were $12k without renting it out, which after re-reading obviously makes no sense at all. 🤐
    0Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    9y

    @Diane G.  you're looking at immediate cash flow at the expense of appreciation. That's the whole point, you'll never get rich of cashflow only in low to no appreciating markets. Also you don't need $10 mil to invest in SF.  Oh well, to each their own. 

    0Reply
  • Charlie Chung
    Burlingame, CA · Member since 2016 · 29 posts · 22 votes
    9y

    @Annelyse Finley it seems like there is some good advice about looking at what other investment opportunities could be had if you weren't tied up in this condo.

    Two other things I would note: a) look at the tax implications, for example are you going to hit the limit for your primary residence gain on sale exclusion, and b) assuming you are not short on cash, I don't think the $1,000 cash outflow is the relevant figure to consider, I'd subtract out the average amount being paid towards the mortgage principal balance each month.

    -Charlie

    1Reply
  • Bob E.
    Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
    9y

    I guess I don't get the appreciation thing, for 1.8 Million I could buy 30 properties in the midwest rented at $900 a month.  Using the 50% rule I would be able to add a new property every 5 months, growing monthly cash flow roughly 900 dollars a month (900*2*.5) every year.  With compounding I don't even want to think where I would be in 10 or 20 years.  For me, that's appreciation!

    1Reply
  • Arlen Chou
    Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes
    9y

    @Bob E. I thought I would take a minute and highlight what I perceive as the benefits of an appreciation loaded strategy. Firstly, I believe that many people get caught up in the face value of the "appreciation vs cash flow" debate.  In my opinion it is wrong to think of this as a black and white issue.  A good investor should be looking for BOTH appreciation AND cash flow.  In the coastal markets the equation is a high barrier to entry, POTENTIAL high appreciation and low cash flow (which gets better over time).  In the flyover areas the barrier to entry is low, the potential for a appreciation is low and cash flow is RELATIVELY high. Any investor not getting both, appreciation and cash flow, is doing something seriously wrong...

    The difference to me is the amount of headaches and the infrastructure needed to support the different types of markets. In a high cash flow strategy, a large number of units must be owned.  By definition that means a high number of deals must be made with associated buying/selling/renovations costs.  Also the logistical costs go up exponentially: more toilets, more appliances, more roofs, more yards to maintain, etc.  I do acknowledge that labor rates in the flyover areas are substantially lower, but base material costs are really not that different.  

    Additionally, at some point with the compounding model of adding low cost units, an investor stops being and investor and goes back to becoming a worker bee: a team must be created and actively managed, analysis on dozens if not hundreds of units must be done on an ongoing basis, additional deals must be found and closed, etc.

    I prefer the appreciation model because there are substantially fewer moving parts in the investment machine.  Properties that I have purchased 3 years ago are worth nearly double the purchase price and average rents are over double what they were at the time of purchase.  I have pulled my initial cash back out and bought more units in the Bay Area that also have positive cash flow.  As time moves forward, I HOPE (I think it is a good bet) appreciation will continue to rise on all of my properties and I will enjoy positive cash flow from my re-positioned units.  I hope that clarifies why the appreciation loaded strategy might be of interest to some people.  

    5Reply
  • Bob E.
    Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
    9y

    @ 

    @Arlen Chou   I agree having a lot of units can be a headache, that is why we either have property managers or just sell them with owner financing.  

    For PM managed houses the manager takes care of maintenance and collecting rent, we pay taxes and cut a check if we have a bigger ticket expense.  

    For property we sell with owner financing we have a professional servicer collect loan payments (PITI) from the borrower. They charge $18.50 a month and ACH the balance to our account. No tax, insurance, maintenance, HOA fees, etc. If someone stops making payments the servicer makes all the calls and if it goes to foreclosure they will put insurance in place and hire the attorney. Very simple. We buy with cash and if we need cash out of a deal we then sell some of the payments on the loan to an investor that just wants the paper without having to do the front end work. No bank loans that can be called. This model works best with low price homes in the Midwest but it works very well for those homes, we are converting a lot of our holdings to this model.

    0Reply
  • Arlen Chou
    Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes
    9y

    @Bob E. that sounds like a great set up!  I like the seller financing part!  Its great to hear all of the different flavors of investing here on BP.

    1Reply
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