I wrote a couple of days ago about buying multi unit properties, but I didn't mention mixed use properties. Mixed use buildings are those that have both commercial and residential space. It is generally a storefront on street level with apartments above. This is the ideal scenario for someone who runs a business, wants to own their space and live close by. You really can't get any closer than upstairs! A mixed use building could also be a great investment, as commercial spaces sometimes have higher rent and longer leases. Also, there would be no rent control for the commercial space.
Because there is commercial space involved, your financing will be different. There will only be one loan for the entire building and it will be considered a commercial loan. With this type of loan there is a minimum down payment of 30% required.
A major benefit that comes with a mixed use building is with condo conversion. With a two unit residential building, if both units are owner occupied you must fulfill a one year occupancy period before you can bypass the condo lottery and apply for your condo conversion. With a two unit mixed use building (one commercial and one residential) you do not have to fulfill that one year occupancy requirement. You can apply for a condo conversion right away. Once the building goes through the process there will be a commercial condo and a residential condo.
The same benefit applies to a three unit building. The two residential units, provided they are both owner occupied, can fulfill their one year occupancy requirement (a residential building with three units would otherwise have a three year occupancy requirement) and then bypass the lottery to start the condo conversion process.
There are currently 16 mixed used buildings available all throughout San Francisco, ranging in price from $779,000 to $2,800,000. If you are considering a live/work scenario, looking for investments, or want to take advantage of the early condo conversion for a jump in value, this way be your way to go.
Saturday, September 29, 2007
Friday, September 28, 2007
Condo Vs. Single Family Home
Whether to purchase a house or a condo seems to be a pretty hot topic of conversation these days. I am getting a lot of questions about the advantages/disadvantages of each scenario. The most common question is which is a better investment. Of course it all comes down to money. In general I would say that the single family home is a stronger investment. As I have reported in past postings, the median home price in San Francisco has appreciated over the past few months while condo prices have gone down over that same period of time. That is a general note for all of San Francisco. When you are looking at the strength of your investment, I think it is important to look specifically at the property you are considering. Location is probably most important, because the one thing you cannot change about a property is its location. Condition of the property is next, and with a condo that includes taking a look at the association. Is it run efficiently, and are there healthy reserves for building maintenance?
When making the decision about what type of property you would like to buy, you need to answer a couple of questions that may help guide you in the right direction. The first question is, "how much do you want to spend?" Figure out what a comfortable monthly payment is. That amount along with the size of your down payment will determine your purchase price. Let's say you've done that and you've come up with a purchase price of $800,000.
The next question is, "where do I want to live?" If you want to live in Noe Valley or anywhere north of there, you are pretty much condo bound with $800,000. You can buy a house in Bernal Heights, Sunset, Mission Terrace, Exelsior, Ingleside, and other neighborhoods on the southern side of the city for that same amount. In San Francisco, the neighborhood you choose will determine the type of property you can afford.
You also need to ask yourself, "what is most important to me?" Take a look at your lifestyle and think about what you want in a home. If your vision is children and pets playing in a backyard, then a single family home is probably the way to go. On the flip side, if you travel a lot for work or can't be bothered with gardening or maintenance of a building, a condo is definitely for you.
My advice is that instead of looking at the property for answers, take a look at your lifestyle and what you need. Think about why you need what you need as well; there may be a few different solutions. Make a wish list and don't be afraid to ask for everything you want...you just might get it!
When making the decision about what type of property you would like to buy, you need to answer a couple of questions that may help guide you in the right direction. The first question is, "how much do you want to spend?" Figure out what a comfortable monthly payment is. That amount along with the size of your down payment will determine your purchase price. Let's say you've done that and you've come up with a purchase price of $800,000.
The next question is, "where do I want to live?" If you want to live in Noe Valley or anywhere north of there, you are pretty much condo bound with $800,000. You can buy a house in Bernal Heights, Sunset, Mission Terrace, Exelsior, Ingleside, and other neighborhoods on the southern side of the city for that same amount. In San Francisco, the neighborhood you choose will determine the type of property you can afford.
You also need to ask yourself, "what is most important to me?" Take a look at your lifestyle and think about what you want in a home. If your vision is children and pets playing in a backyard, then a single family home is probably the way to go. On the flip side, if you travel a lot for work or can't be bothered with gardening or maintenance of a building, a condo is definitely for you.
My advice is that instead of looking at the property for answers, take a look at your lifestyle and what you need. Think about why you need what you need as well; there may be a few different solutions. Make a wish list and don't be afraid to ask for everything you want...you just might get it!
Thursday, September 27, 2007
Potrero Hill
It is funny that Potrero Hill is today's subject. I had my hair cut this evening by a great new stylist, new for me that is, and while she was snipping away we were talking about real estate. She asked if there was anything available in Potrero Hill. I told her that there had been next to nothing there lately, but that there were a few nice properties just hitting the market. That tends to be the case in really great neighborhoods; once you get in you never want to leave.
What makes Potrero Hill so great? The first thing that comes to mind is the weather. This is no doubt one of the sunniest spots in the city, and the really great part about it is that because you are on the hill you can look across to Twin Peaks as it gets covered in fog. That brings me to great thing number two...VIEWS! Potrero Hill offers some of the greatest views in the city; views of the Bay, downtown views, views of Twin Peaks, and sometimes you can find them all from one property. Another less talked about perk of living in Potrero Hill is that it is one of the safest spots to be in an earthquake as it sits on bedrock.
18th Street and 20th Street are the main commercial drags on the hill. There you will find restaurants, cafes, shops, a grocery store, and much more. Because of the nice weather many of the restaurants have outdoor seating which creates a wonderful atmosphere on warm evenings. Also, at the bottom of the north side of the hill (which tends to be the most desirable side) there is a new Whole Foods grocery store, the Metronome Ballroom (where I have taught dance for the past seven years or so), and more restaurants and cafes.
So how much does it cost to live in this wonderful place? The median home price over the summer was $830,000. An example of something selling right now at that price is this 3 bedroom, 2 bath split level condominium located on a quiet cul-de-sac block of Kansas Street. It is listed at $849,000 and is 1700 square feet.
One small drawback on the hill is that there is no BART or muni trains. The only public transportation here are buses, but you are only one quick bus ride away to BART or downtown.
As far as schools go, there is a private preschool, two public elementary schools, one private elementary, and one public high school. Starr King Elementary located on Carolina Street (one of the public schools) has San Francisco's first Mandarin immersion program.
What makes Potrero Hill so great? The first thing that comes to mind is the weather. This is no doubt one of the sunniest spots in the city, and the really great part about it is that because you are on the hill you can look across to Twin Peaks as it gets covered in fog. That brings me to great thing number two...VIEWS! Potrero Hill offers some of the greatest views in the city; views of the Bay, downtown views, views of Twin Peaks, and sometimes you can find them all from one property. Another less talked about perk of living in Potrero Hill is that it is one of the safest spots to be in an earthquake as it sits on bedrock.
18th Street and 20th Street are the main commercial drags on the hill. There you will find restaurants, cafes, shops, a grocery store, and much more. Because of the nice weather many of the restaurants have outdoor seating which creates a wonderful atmosphere on warm evenings. Also, at the bottom of the north side of the hill (which tends to be the most desirable side) there is a new Whole Foods grocery store, the Metronome Ballroom (where I have taught dance for the past seven years or so), and more restaurants and cafes.
So how much does it cost to live in this wonderful place? The median home price over the summer was $830,000. An example of something selling right now at that price is this 3 bedroom, 2 bath split level condominium located on a quiet cul-de-sac block of Kansas Street. It is listed at $849,000 and is 1700 square feet.
One small drawback on the hill is that there is no BART or muni trains. The only public transportation here are buses, but you are only one quick bus ride away to BART or downtown.
As far as schools go, there is a private preschool, two public elementary schools, one private elementary, and one public high school. Starr King Elementary located on Carolina Street (one of the public schools) has San Francisco's first Mandarin immersion program.
Wednesday, September 26, 2007
Weekly Sales Report
Welcome to another Wednesday sales report. There was not quite as much activity this week than there was in weeks prior. New inventory is back down to regular numbers; sales were down a bit as well. There were 12 escrows opened this week as opposed to 18 the week before. There were 14 closed escrows. Of those, exactly half sold over asking. That statistic has remained fairly steady over the past weeks. Six sold under asking and the remaining one sold at asking.
With the surge of new listings that we saw at the beginning of the month and lower sales numbers this week, what does that tell us? There is a large number of listings still sitting on the market. The average days on the market, although it varies from neighborhood to neighborhood, is much longer than the two weeks we were seeing for so long. In general, the average is closer to 30 days. Don't be turned off by a property because it has been on the market for a month. Instead by happy you weren't forced to rush in and overbid.
Another trend I have been noticing lately is that sellers are deciding not to sell if they don't get the price they need. They are opting to hold onto the property; either live there themselves or rent it out. Homeowners who bought in the past year or two have not yet built up enough equity to make a profit on the sale of their home. In the past, San Francisco properties appreciated so rapidly that you could make money in a sale a year or even less after purchase. That has not been the case in the past two years; many homeowners are forced to hold onto their property longer than they intended. A property like this may sit on the market for a month or two while the seller tries to get their price. The buyers will see it sitting on the market and assume they can negotiate a lower price, but the seller will not negotiate. My point is, time on the market doesn't necessarily mean you can get the seller to lower the price.
People are always asking if it is a good time to buy. Nobody can tell you what lies ahead. Nobody knows whether interest rates will rise or fall, or whether home values will rise or fall. What I can tell you is that the longer you hold on to your property, the safer your investment.
With the surge of new listings that we saw at the beginning of the month and lower sales numbers this week, what does that tell us? There is a large number of listings still sitting on the market. The average days on the market, although it varies from neighborhood to neighborhood, is much longer than the two weeks we were seeing for so long. In general, the average is closer to 30 days. Don't be turned off by a property because it has been on the market for a month. Instead by happy you weren't forced to rush in and overbid.
Another trend I have been noticing lately is that sellers are deciding not to sell if they don't get the price they need. They are opting to hold onto the property; either live there themselves or rent it out. Homeowners who bought in the past year or two have not yet built up enough equity to make a profit on the sale of their home. In the past, San Francisco properties appreciated so rapidly that you could make money in a sale a year or even less after purchase. That has not been the case in the past two years; many homeowners are forced to hold onto their property longer than they intended. A property like this may sit on the market for a month or two while the seller tries to get their price. The buyers will see it sitting on the market and assume they can negotiate a lower price, but the seller will not negotiate. My point is, time on the market doesn't necessarily mean you can get the seller to lower the price.
People are always asking if it is a good time to buy. Nobody can tell you what lies ahead. Nobody knows whether interest rates will rise or fall, or whether home values will rise or fall. What I can tell you is that the longer you hold on to your property, the safer your investment.
Tuesday, September 25, 2007
New Lending Restrictions?
What I have been hearing in the past few months since the fall of the sub prime market is that restrictions on home loans have tightened. I had heard that your credit score must now be above 720 and you must have a minimum of 10% down. I had also heard that the lenders had cut some of their loan programs such as those that did not require you to document your income or your assets; they would simply take your word for it. Not any more, they said. It was proving to be too risky as the default and foreclosure numbers were multiplying before their eyes. It seems, however, that although some of the restrictions had tightened initially, things are already starting to loosen up.
A very nice man walked into my open house this past weekend and mentioned he was looking for a house that had a lot of bedrooms so that he could rent out some of the rooms to help pay his mortgage. It turns out I had helped somebody do this same thing last year so I am familiar with the game plan. My past client bought a house in the Excelsior. He lives in the in-law unit and rents out the main part of the house leaving him responsible with only a small portion of the mortgage. He purchased the home with 100% financing, and although he did have some cash reserves, he did not have to pay a penny out of pocket for the house or closing costs until the first mortgage payment was due. The seller paid the closing costs. This is rare in San Francisco, so don't get any ideas!
The man in my open house seems to be in the same situation. He also has some cash reserves but would need help coming up with the mortgage on a monthly basis. He mentioned that he does not have enough for a 10% down payment but could possibly put 5% down. I told him that he would need to get his financing in order first, and that it might be difficult for him based on the newer, tighter credit restrictions.
Boy was I wrong! He called Countrywide straight away. Countrywide is a national bank known to do sub prime lending; they have really suffered in the credit crunch. I think it is 12,000 employees who lost their jobs? Anyway, the very nice loan consultant he spoke with there mentioned that they not only have loan programs with 5% down payments, but they still do 100% financing. I was very surprised. He mentioned that some programs had been cut initially, such as the stated income/stated asset program, but they recently had started to come back.
It seems some banks are still eager to lend money to just about anyone. Hopefully there has been some lesson in all this, for the banks I mean. The lessons for the borrower are clear. Be conservative. Be sure you understand the terms of your loan. Read the fine print.
A very nice man walked into my open house this past weekend and mentioned he was looking for a house that had a lot of bedrooms so that he could rent out some of the rooms to help pay his mortgage. It turns out I had helped somebody do this same thing last year so I am familiar with the game plan. My past client bought a house in the Excelsior. He lives in the in-law unit and rents out the main part of the house leaving him responsible with only a small portion of the mortgage. He purchased the home with 100% financing, and although he did have some cash reserves, he did not have to pay a penny out of pocket for the house or closing costs until the first mortgage payment was due. The seller paid the closing costs. This is rare in San Francisco, so don't get any ideas!
The man in my open house seems to be in the same situation. He also has some cash reserves but would need help coming up with the mortgage on a monthly basis. He mentioned that he does not have enough for a 10% down payment but could possibly put 5% down. I told him that he would need to get his financing in order first, and that it might be difficult for him based on the newer, tighter credit restrictions.
Boy was I wrong! He called Countrywide straight away. Countrywide is a national bank known to do sub prime lending; they have really suffered in the credit crunch. I think it is 12,000 employees who lost their jobs? Anyway, the very nice loan consultant he spoke with there mentioned that they not only have loan programs with 5% down payments, but they still do 100% financing. I was very surprised. He mentioned that some programs had been cut initially, such as the stated income/stated asset program, but they recently had started to come back.
It seems some banks are still eager to lend money to just about anyone. Hopefully there has been some lesson in all this, for the banks I mean. The lessons for the borrower are clear. Be conservative. Be sure you understand the terms of your loan. Read the fine print.
Monday, September 24, 2007
Multi Unit Buildings
Whether you are looking for extra income to help you with your mortgage or you are thinking of buying property with friends or family, a multi unit building may be the way to go. The most popular (and sometimes most profitable) way to do this is for two parties to purchase a two unit building together. Generally it is two friends who come together to become business partners; owning property together is a business relationship. The goal in this scenario is to convert the units into condominiums. The order of events is:
1. Purchase a two unit building as Tenancy In Commons where both units will be owner occupied
2. Fulfill the one year owner occupancy requirement to start the condo conversion process
3. File papers with the city to convert
4. Have building, plumbing, and electrical inspections and complete all suggested work
5. Have a survey done of the property
6. Prove occupancy
Once all of the work is done and has been signed off on by the city, you become the proud owner of a condominium. This process can take anywhere from 12 to 24 months. Converting tenancy in commons (TICs) into condominiums is desirable as it will raise the property value 10-15%. Also instead of owning a percent interest in the entire building with the other party, you become the sole owner of your unit.
If the building is three to six units, the occupancy requirement you must fulfill in order to convert is three years and then you must enter the condo conversion lottery. Winning the lottery can take another five or six years, so you may not be able to convert for eight or nine years after purchase. In this scenario, you cannot buy with the intent to convert. If it happens, it is a bonus for you.
There are some restrictions on converting based on the eviction history of the building, and these laws change periodically so be sure to check the eviction history of the building and the current laws.
1. Purchase a two unit building as Tenancy In Commons where both units will be owner occupied
2. Fulfill the one year owner occupancy requirement to start the condo conversion process
3. File papers with the city to convert
4. Have building, plumbing, and electrical inspections and complete all suggested work
5. Have a survey done of the property
6. Prove occupancy
Once all of the work is done and has been signed off on by the city, you become the proud owner of a condominium. This process can take anywhere from 12 to 24 months. Converting tenancy in commons (TICs) into condominiums is desirable as it will raise the property value 10-15%. Also instead of owning a percent interest in the entire building with the other party, you become the sole owner of your unit.
If the building is three to six units, the occupancy requirement you must fulfill in order to convert is three years and then you must enter the condo conversion lottery. Winning the lottery can take another five or six years, so you may not be able to convert for eight or nine years after purchase. In this scenario, you cannot buy with the intent to convert. If it happens, it is a bonus for you.
There are some restrictions on converting based on the eviction history of the building, and these laws change periodically so be sure to check the eviction history of the building and the current laws.
Friday, September 21, 2007
Credit Myths
Your credit score has always been an important factor when financing a home. With the fall of the sub prime market it is that much more important as there are fewer lending institutions willing to take the risk of loaning money out to those with lower credit scores. Unfortunately, it seems that the majority does not understand how the credit score works. It seems to go against intuition. I thought I would clear a few things up.
Step one is to check your credit in advance. You can get a copy of your credit report once a year from each of the three credit reporting agencies. It would be a good idea to make this a yearly habit; it does not hurt your score to check your credit in this way and it is free. You may find something on there that you forgot about. There may also be something that doesn't belong there or wasn't reported correctly. These mistakes can take time to clear up; don't wait until the last minute. Make sure you check the report from all three agencies; one may have something the other two do not have.
Don't close any of your accounts! You can certainly pay down your debt, but even once they are paid off, do not close the accounts. You can cut the credit card up if you feel tempted to start using it, but closing the account; erases the credit history and reduces the amount of total credit you have available. The credit score looks at the difference between your available credit and what you are using.
If you have an excess of credit and you feel like you need to close something, make sure it is the newest account as you don't want to erase your credit history. Keep the accounts you have had the longest.
Shopping for a mortgage or a car loan will not hurt your credit. When you are going to make a large purchase, it is wise to shop around and get the best loan possible. Doing this will not hurt your credit score. The credit score will see multiple inquiries of the same type within a short period of time as one inquiry, and your score will only get dinged once.
My last piece of advice is to always seek professional advice before you do anything to try to improve your score. Call a mortgage broker; they would be happy to look at your credit report with you and lead you in the right direction.
If you are already pre-approved for a loan and in the process of buying, don't make any big purchases! Even though your lender has already checked your credit in order to approve you, they will check it once more right before closing. If there is a change the bank could pull out of the loan. I heard a story of an excited couple who went out and charged a house full of furniture for their new house before their escrow had closed. Needless to say, they were stuck with a lot of furniture and nowhere to put it!
Step one is to check your credit in advance. You can get a copy of your credit report once a year from each of the three credit reporting agencies. It would be a good idea to make this a yearly habit; it does not hurt your score to check your credit in this way and it is free. You may find something on there that you forgot about. There may also be something that doesn't belong there or wasn't reported correctly. These mistakes can take time to clear up; don't wait until the last minute. Make sure you check the report from all three agencies; one may have something the other two do not have.
Don't close any of your accounts! You can certainly pay down your debt, but even once they are paid off, do not close the accounts. You can cut the credit card up if you feel tempted to start using it, but closing the account; erases the credit history and reduces the amount of total credit you have available. The credit score looks at the difference between your available credit and what you are using.
If you have an excess of credit and you feel like you need to close something, make sure it is the newest account as you don't want to erase your credit history. Keep the accounts you have had the longest.
Shopping for a mortgage or a car loan will not hurt your credit. When you are going to make a large purchase, it is wise to shop around and get the best loan possible. Doing this will not hurt your credit score. The credit score will see multiple inquiries of the same type within a short period of time as one inquiry, and your score will only get dinged once.
My last piece of advice is to always seek professional advice before you do anything to try to improve your score. Call a mortgage broker; they would be happy to look at your credit report with you and lead you in the right direction.
If you are already pre-approved for a loan and in the process of buying, don't make any big purchases! Even though your lender has already checked your credit in order to approve you, they will check it once more right before closing. If there is a change the bank could pull out of the loan. I heard a story of an excited couple who went out and charged a house full of furniture for their new house before their escrow had closed. Needless to say, they were stuck with a lot of furniture and nowhere to put it!
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