September 13, 2011

Socialism in San Fran: “Cheap” housing for poor six figure income earners

Today’s featured listing is courtesy of Burbed reader Lars, so thanks very much!  Comments here can get a little raucous, so maybe it’s time for a my-political/economic-system-can-beat-up-your-political/economic-system rantfest.  Yes, this is a Below Market Rate listing.


1800 Washington St #314, San Francisco, CA 94109


SQ. FT.: 476
$/SQ. FT.: $590
PROPERTY TYPE: Junior, Condominium, Studio
STYLE: Modern/High Tech
VIEW: City Lights
COMMUNITY: Pacific Heights
COUNTY: San Francisco
MLS#: 382137
SOURCE: San Francisco MLS
STATUS: Active
ON REDFIN: 179 days

Luxury below market rate unit. Must be 1st time homebuyer & income eligible. Maximum income level for 1 person:$104,400; Two People:$119,250;Three People:$134,200.Offers submitted with: Application, loan preapproval, homebuyer education certificate/proof of class registration, and SF Purchase Contract. Please contact Realtor for application & more info. Unit avail. thru the SF Mayor’s Office of Housing & subject to resale controls, monitoring & other restrictions. See sfgov. org/moh for info. Fair Housing Opportunity. Offers are on a first come/first serve basis.

imageHere’s what Lars has to say about this property:

Not sure if this is good material for your blog, but I found this a bit absurd:

You can qualify to buy this 476sqft "below market rate" shoe box for only $281,000 if you are a first-time home buyer making less than $104,400 per year. Good thing that SF is taking care of the poor. Socialists! I wonder if the deal includes food stamps for the Whole Foods nearby?

I want to know why San Francisco property for poor people gets 23 photos.  Most of the crapboxes we dig up in Redwood City and East Palo Alto only have one exterior shot taken from the agent’s about-to-be-repossessed-Mercedes.  If you look at the listings we feature in East San Jose you get a second blurrycam of the kitchen where light from the window overwhelms the tired cabinetry and 1963 appliances.  (Maybe that’s imagenot a bug, but a feature.)

This listing isn’t like that place on Russian Hill with 82 photos, but it’s 28% of the way there!  So what if half the shots are building exteriors and common space, while another third are neighborhood eateries?  The typical Mountain View close-to-Google-and-nothing-else-to-recommend-it 3/2 has 9 pictures if you’re lucky!

This is so much better!  Example: Midnight snacking is easy, as the kitchen is just three steps away from your sleeping area!

imageHowever, the Whole Foods is three whole blocks away (but not too far to merit its own photo)!  That shouldn’t matter too much, as almost everything else will be passing right under your window.  Never mind a place on a busy street; this is a place on the corner of a fracking Federal Highway, and this unit is only on the third floor.


Hope you like the horn section, and I don’t mean from the SF Symphony 12 blocks south, nor do I mean marching bands parading down Van Ness. This is more of a spontaneous jam, as in vehicle horns from traffic on a six-lane thoroughfare.

imageAnd watch out for those resale controls, as this ten year old unit has already changed ownership three times.  But you get to go to the Mayor’s Office to apply!  Now that’s class!

And don’t fret about those strict income limits.  Grab yourself a couple of jobless roommates (they’re everywhere!) and you might just slip in under the $134,200 max.  That’s at least 148 square feet a person, lots of elbow room for SF housing!

So why deal with arbitrary rent hikes in a tight market?  Buy this place and deal with arbitrary HOA fee hikes instead! That extra $545 a month isn’t going to kill your budget, as long as one of your roommates can find a cash job off the books.

Comments (20) -- Posted by: madhaus @ 5:06 am

20 Responses to “Socialism in San Fran: “Cheap” housing for poor six figure income earners”

  1. barcode software Says:

    This property looks really good. Thanks for sharing the detail about it.

    Edited: Removed spam link, kept compliment. Don’t know why someone from Canada would want a BMR unit in San Francisco, though.

  2. SEA Says:

    476 square feet? Clearly this place is meant for China man without suitcase of cash.

  3. CB Says:

    I crap bigger than this home.

  4. madhaus Says:

    That’s a problem, CB. I don’t see a photo of a bathroom. Maybe you have to walk to Whole Foods for that, too.

  5. nomadic Says:

    Pretty sad that a BMR unit is priced below the 2008 deflating-bubble price and has been on the market for six months. This adventure in socialism isn’t helping anyone.

  6. sfbubblebuyer Says:

    There’s no bathroom because you’re not supposed to actually spend time in the place, you’re supposed to be out in the city living the urban lifestyle.

    Besides, they provide a step-stool and garbage disposal. So… problem solved!

  7. SEA Says:

    Even today’s BMR can be sold above future values.

    From the Mayor’s office:

    “It is important to note that while the Mayor’s Office
    of Housing sets the maximum resale price for a BMR unit but the owner may have to lower the price in order to attract the next buyer.”

    If that’s not enough to suggest a BMR might go down in value, later in the document:

    “There is the possibility that the unit price may decrease from the time of purchase to the time of
    sale. In this situation, MOH will make every effort to offer these owners the option of selling the
    unit for their purchase price plus realtors’ commission and eligible capital improvements.”

    I’m not sure about “every effort” to sell a BMR unit for Above Market Rates.

  8. SEA Says:

    In the RRRRReal RBA, there is no downside risk, excepting light bulbs and Drano, so it really doesn’t matter how much one pays, but in the case of these so-called BMR properties, there is only downside risk, since the price can go down, but not up significantly. So who would pay above market rates for so-called BMR property AND be limited to only downside risk? It’s one thing to pay a tiny price today and sell in the future for a slightly different tiny price, but it’s quite another to spend 3x your annual income with only downside risk.

  9. The Gilroy Alex Says:

    My simple move-the-decimal-pt. method tells me this will cost $2800 a month to live in. You can rent a HOUSE in PALO ALTO for that. A place like this might rent for …. let’s stretch it a bit …. $1500 a month. Take the other $1300 and buy silver. You’ll thank me.

  10. madhaus Says:

    Gilroy Alex, why would you move the decimal point? This is a unit for a first-time homebuyer, therefore eligible for FHA (3.5% down). But let’s assume different down payments and 4.5% mortgage which is on the high side.

    20% down ($56K)= $1,139
    10% down ($28K) = $1,281
    3.5% down ($9.8K) = $1,374

    Taxes are $3500 a year, or about $300 a month. Insurance would be around $100 a month (I am paying that for my house, but I am not in SF, so I assume insurance is higher there).

    So PITI in worst case (FHA Loan) is $1,800 and maybe a little more for PMI. Oh yeah, and $550 a month in HOA, but we’re still not near $2800.

  11. SEA Says:

    #10- The idea is to take 1% of the purchase price as an estimated break-even point on the rent versus buy decision. Basically if you cannot garner 1% of the purchase price as monthly rent, then it’s very likely a bad rental. Alternatively, if the similar units in the area are renting for less than 1% of purchase price, why buy?

    Now we all know that when housing price appreciation was 20-25% per year, the rent was considered “free money.” On the other end, if prices were to go down too fast, then the 1% would be too low to cover the loss on sale.

    So we have seen when 0% was considered more than enough, since the housing price appreciation would take care of everything, to far more than 1%, for those properties that have gone down in value by 75% over the last few years.

    That said, the cost of capital should be the same, no matter how much is financed, but the monthly cash flow is likely different. I guess we could split the cost of capital between down payment and financed part, but if this were the case, I’d expect that the cost of WACC would increase.

  12. madhaus Says:

    Rent Zestimate for this place is $2351, range $2000-2800. So only the highest possible rent passes your “1% test.” $2351 works out to a rent ratio of 10 if this place sold for asking. Your 1% rule works out to a rent ratio of 8.33 (100/12). Both are strong buys; the actual asking price and Zestimate, though, don’t factor in the HOA costs. SF has typically had a rent ratio north of 25.

    And as we’ve discussed many times, HOA rises with or ahead of inflation.

  13. SEA Says:

    “Both are strong buys”

    Not in a down market.

    From $400k in July 2005 to a $75k foreclosure in May 2011.

    $325k/70 = $4.6k > $4k = shift the decimal monthly rent.

  14. Lars Says:

    I didn’t even notice the $545/mo HOA fees when I first saw the listing. For a studio! Yikes.

    So what if you don’t get any upside potential, everybody knows it will be a flat or down market for the foreseeable future. 😉

    The “sad” part is that I don’t even qualify. 🙁 Though there are a few BMR bargains to be had in the city right now, this ain’t one of them.

  15. madhaus Says:

    Oh come on, SEA, did you look at the neighborhood where that disaster was located? At least this place is Western Addition (Pacific Heights my backside). It’s in the wrong fracking zip code for Pacific Heights!

    We can call it Pacific Widths.

    Lars, thanks very much for this find!

  16. SEA Says:

    Yes, I know that this place is special. 🙂 But we also know that it cannot go up in value much.

  17. SEA Says:

    888 7th St Unit 142 is a BMR unit:
    May 2008 Original sale $298k – June 2011 foreclosure $306k.

  18. The Gilroy Alex Says:

    $1800 + $550 = $2350, so it’s $500 a month below what my move-the-decimal-point method predicts, but I think if you can’t afford it based on my method, you’re shaving things too thin.

  19. * Says:

    > So what if you don’t get any upside potential,

    i thought BMRs had a restriction on sale price; so you’re automatically restricted on the upside.

  20. Modern architecture of approx 20 years old | Says:

    […] contrast all right, and don’t forget this place in San Francisco with 23 pictures at about 1/70th the […]

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