All Forum Posts by: Wes Brand

@Michael Delpier The first property (1.1m 3bed TIC) was in nob hill. Not "tendernob" but "nob hill". The next one (890k 2 bed condo) was 2 blocks southwest of that. The 1.5m vacant duplex was in Duboce Triangle. The 1.2m 3bed was about a block south of Japantown (not a condo, no HOA there). Not the best area, but certainly safe nowadays and livable. All of the above include 1 car parking at no extra charge with no special assessments or fees coming up. There are several other properties in the same area in the same price range. Do you think that nob hill, russian hill, the marina, western addition, duboce triangle, pac heights, and soma are terrible places to live? (well, maybe soma is)

If you're headed to Daly City you're into 600-800k for a 3-4bed property territory. If you stay a bit closer to SF, around the balboa park or glen park BART stations, you're into 800-1m for a 2-4 bed. If you're headed to the inner sunset or outer richmond you're into the 1.1m range. You can spend more, but there's plenty of inventory at the lower price points. If you do spend more you're looking at around 1.3m at the top end of the market near glen park and balboa park bart. These are all far from your 1.5m entry level numbers. 

If you're willing to drop down to 1bed or studios the prices go down to 700-750k in the "in san francisco" areas, or 300-500k in the "outlying areas" (there are some studios with bay views for 500k and HOA fees of 300-500/mo)

My point is that you have a seriously warped view of what an entry level property costs in SF. What drives the lower cost? The market isn't at 1.5m for an entry level home yet. There's nothing wrong with the properties; that's simply not where the market is, unless your idea of an entry level property is a new build 3 bed condo, or a vacant duplex. I'm not going to answer the "is it affordable" question; my post has nothing to do with what's affordable, only where the market is now. 

(I will, however, say that chances are your person with a 9k/mo take home salary is not spending 3k/mo in rent -- if they're serious about buying in the city they're likely living with roommates and splitting the 3k/mo between them and another person. And if you're a couple you're both earning 120-150k+, so you have a total income of 240-300k+)

@Michael Delpier

Entry level is $1M on the SF peninsula, and $1.5M in SF.

What is entry level? 1.5m gets you a vacant duplex in/near the Castro with 3 total beds. There's a 3 bed TIC on the market now in a good area for 1.1m (no offers on it yet). A 2 bed in that same area just sold for around 890k. Yes you'll have an HOA fee, but it's pretty far from 1.5m as the starting point. If you want non-HOA properties there was a 3bed w/1 car parking near japantown that didn't sell for 1.3m...because two others on the same block sold recently for 1.2m. This is all in SF proper. If you go out to bernal heights/Crocker Amazon/outer mission you can find 2-4 beds in the 800-1m range with no HOA.

Neither FHA nor VA will work for Ron, as the place is currently 100% rented (I'm assuming that means "I'm not going to evict one of them to owner occupy")

I don't know lenders in Texas at all. Best bet would be to take a couple days and set up a bunch of meetings with them in person. You're looking for smaller banks (or credit unions) in the area.

I would talk to at least 5 local portfolio lenders before you say "I can't refi" -- you have equity in the house as it is now, and the house brings in income, and you're refing the current balance not cashing out. 

Lenders will look at the income the property brings in when calculating DTI ratios (I hear ~70% of the rents is average) so as long as you have enough in reported income to qualify the rest of it you're good. Big banks generally want to see 2 years of rental income on taxes, smaller/local lenders will typically use anywhere from "signed leases" to "6 months of rental income". The loan amount is likely too small for commercial financing, but that's another good option; in that case generally ONLY the income from the property is used (but they usually want bigger loan amounts)

 Don't worry, the bubble is going to pop soon and you'll be able to scoop it up at $54,000 from the fool who buys it at $55,500

My recommendation is talk to a CPA. There should be a way to structure it to have 0 tax liability to everyone. A couple hundred to the CPA to avoid taxes all around should be easily worth it.

You might get into hot water by selling it for under the appraisal price before renovations were done. Well, you'll probably be ok, but the IRS might look at the difference in market price and purchase price as a gift and charge your nephew tax on the difference. 

I would not pay off your primary residence first in this case -- it's the lowest interest rate and provides no return by paying it off. You save some $ in interest, but only 3.5% / yr; you could make that in stocks without even needing to worry about a downturn -- paying it off is wasting money. 

You could consider paying off the rental, but the interest rate there is low enough that I'd say keep them around and just stick the money in other investments. Either invest in a second rental in CA (your free cash to throw at these things means you should be able to buy another rental...) or invest in stocks/bonds/etc. Why do you want to be debt free before retirement? The longer you can let the debt sit the better for you -- your payment is fixed but the value of your money is not. Say there's hyper inflation and in 10 years $1 is worth $2. You still owe a total of (say) 700k, but in real dollars that's only 350k now. Not to mention you're making money in other investments on the $ you could have used to pay it down. There is such a thing as overleveraged, but that's when a downturn wipes you out and forces you to sell. If you have 50k / yr to spend, a downturn isn't going to wipe you out...

If you don't want to have another investment property, think about just keeping the total amount of $ for the debt in a separate index fund, and then take money out of that account to pay it off -- you'll make more $ in interest than you save by paying it off early.

@Jacob P. You'll want to look at the expected upcoming expenses. If they just replaced the roof and heating system, well, it's likely to last for another 30 years (on the roof). You want to compare the surplus per year, along with the replacement schedule and make sure they're on track to have enough $ built up to replace them without a special assessment in N years (where N is the remaining useful lifetime of the component). 

Think about: Roof, Siding, Furnace, Boiler, Any typical pest problems (not common, but common enough that it might happen), Foundation, Any exterior paint they cover. Also consider any typical emergency issues that might crop up (ice dams causing a leak in the roof?) 

You want them to have enough in reserves to cover the typical expenses by the time the component is likely to go without doing a special assessment forcing you to pay extra for it. For example, if they just replaced the roof it's probably good for ~30 years, so you amortize the cost of a new roof over 30 years and expect reserves to build up to that amount. A furnace, let's say, 15 years, do the same thing (times the number of furnaces they're maintaining) Expect it to cost the HOA more than it'd cost you to do yourself, but not by a ton. Also keep in mind that the HOA is probably stuck replacing "like for like" unlike you would. If you're buying into a luxury building and a leak causes damage to the unit below, they're going to replace the damaged fixtures/finishings with the same quality, while if you were doing on it on your own, might decide to "deluxurize".

Tagging @Jerry Padilla. He's based a couple hours away from you but might have some ideas