How will interest rates affect San Francisco Real Estate?
A reader asks:
The Fed keeps raising its interest rates, and this is causing long term and short term interest rates to steadily rise. Should I buy now or wait until interest rates start to come back down?
Our answer:
No one can predict what interest rates will be in the future. The San Francisco Chronicle reported June 29, 2006, that rates have passed the 4 year high, but a day later reported that "Sales of New Homes Increase Unexpectedly". When interest rates are rising it can actually be the best time to buy. During the period where interest rates were lower there was such a frenzy in our market that buyers were paying 10-40% over the asking price or the last comparable sale in the neighborhood. Even with low interest rates that translates into higher loan amounts. Now that rates are moving higher the market is slowing and buyers are getting the opportunity to negiotiate on the price. In some cases they are buying for less than they might have had to pay a few months ago. Keep track of monthly San Francisco real estate market trends on our website. Keep in mind there is about a 30 day lag in reporting because escrows typically take about a month to close.There is very little down side to buying now. If interest rates fall you can always refinance to lower your payments. - Janis Stone, Mick Orton
Parking problems when owning San Francisco Real Estate
A reader asks:
The parking in San Francisco has always been a problem for me as a renter and now as a potential homeowner. Is there a way to fix the problem of buying a home or condo that does not have a garage or parking space?
Our answer:Many properties in San Francisco are older buildings constructed before cars were invented so they do not have parking. When you are considering purchasing a property you can think about adding a garage. This can be done by either raising the building or excavating, or a combination of both. Not only will this provide parking for you but will add value to your property. In order to find out if it is either structurally or economically possible to add a garage, consult with a contractor who specializes in garage construction in San Francisco. (Add a Garage is just one of the contractors who tackle this type of project.) They can come out to the property and give you an estimate before you purchase the property. Also be aware there may be height restrictions for your particular area so check with the city and any neighborhood associations as well.
If you cannot add a garage either because of the physical qualities of the property or because it is too expensive, often you can rent a garage in the neighborhood. Depending on where you live, this can be a good way to have parking and pay monthly for it. Before trying to sell a house or condo that has no garage, we often counsel clients to obtain leased parking to make their properties more attractive.If you do not mind parking on the street, you can obtain a residential parking permit issued by the City, which allows you to park in your neighborhood without getting a ticket for parking more than the time limits imposed by the city. Of course, you still have to find a parking place near your home, but if you do not use your car everyday this could be an option.- Janis Stone, Mick Orton
A reader wants to know why his house isn't selling
A reader asks:
The market has been so good that I tried to sell my house by myself last spring. I didn't get much interest even though I did advertise in the San Francisco Chronicle for a couple of weeks. Do you have any suggestions?
Our reply:
Please don't take offense, but buyers and sellers think Realtors make all this money for just sticking up a sign, putting an ad in the paper and answering the phone to sell your house. There is a lot more that goes into marketing your property when a Realtor does it. I am going to answer the question as if we were not real estate agents, for the purposes of education.
First of all there is the liability issue. How were you going to protect yourself against an over zealous lawsuit? Brokers are required to carry liability insurance. In addition, Realtors carry "Errors and Omission Insurance" to protect themselves. But you, as a seller, have no such protection when selling your own home.
Real estate agents are also there to answer legal questions. Realtors are kept up to date on the most recent changes in real estate laws. Additionally, a good Realtor can offer advice for solving problem situations that invariably arise during the Escrow period! And let's not forget the endless resources at their disposal such as mortgage brokers to help the buyer, escrow officers, and the other professionals that are helpful when selling your home.
With "for sale by owner" properties, the issue of the agent's commission usually comes up. Sure, the commission looks like a lot of money, and it is. But did you know that, on average, a Realtor can sell the same house for 16% more than an owner can get on his or her own (figures come from www.Realtor.org)? When you look at property values in San Francisco, you're talking about a lot of money! For this reason alone, Realtors more than pay for themselves by handling the transaction.
There are also a lot of expenses that go into properly marketing your home to ensure it is exposed properly.
- Advertising in the Chronicle is just one part of a San Francisco Realtor's job.
- Once you've signed the listing agreement and are ready to go, your home is placed on the MLS which gives you instant exposure to every Realtor in the City as well as any outside of it who have a subscription. This act alone exposes your property to some of the best agents in the country (San Francisco has some of the top producers in the US) who would not have otherwise seen your listing.
- Some Realtors also do featured ads in popular local magazines (i.e. Nob Hill Gazette, Homes, Real Estate times, etc.) to give your home even more exposure.
- In addition, most agents now have their own websites to help promote their current listings. Did you know that in 2004 only 15% of buyers first learned about the home they purchased on the Internet as compared to 24% in 2005. Of those Internet buyers, 81% of them purchased their home through a Realtor.
- Property information statements need to be printed for the open houses.
- Just listed cards are sent out to a select list of people to ensure someone shows up at those open houses.
- Even more important are the brokers' tours (called caravan and other things in different areas) where agents can come (with or without their clients) and see your home in one or two showings. This is less disruptive to you. Chances are, if you were representing yourself, most agents didn't even know your home was for sale.
So next time you decide to sell your house, please consider working with an agent. Be sure to interview a few and pick the one you think will do the best job. Good luck.
- Mick Orton
A way to downsize in San Francisco without increasing your property taxes!
A reader asks:
We've owned a very large home in San Francisco for many years, and would like to downsize into a smaller property yet remain in the City. Our home is now worth a lot more than we paid for it, and we have very low property taxes. Is there a way can we buy a new home without increasing our taxes?
Our reply:
In San Francisco there is a means by which you are able to sell your home and buy something of less value within 2 years, provided you sell it within the same county in which you buy (with certain exceptions as noted below). There are many restrictions on this one time transfer of your taxes, but may be of benefit if you fall within the guidelines.
According to a 2006 article on the California State Board of Equalization's website, "Propositions 60, 90, and 110 are constitutional amendments approved by the voters of California. They provide for the transfer of a property’s base year value from an existing residence to a replacement residence, under certain conditions, for qualified persons over the age of 55 or persons of any age who are severely and permanently disabled.
"Conditions that need to be met in order to qualify for the exclusion are:
- Both properties must be located in the same county, unless the county in which the replacement residence is located has an ordinance that allows intercounty base year value transfers.
- As of the date of transfer of the original property, the transferor (seller) or a spouse residing with the transferor must be at least 55 years of age, or be severely or permanently disabled.
- At the time of sale, the original property must have been eligible for the Homeowners’ Exemption, or entitled to the Disabled Veterans’ Exemption. (Generally, the replacement dwelling must be of equal or lesser value than the original property.
- The replacement dwelling must have been acquired or newly constructed within two years of (before or after) the sale of the original property.
- The owner must file an application within three years following the purchase date or new construction completion date of the replacement property.
- The original property must be subject to reappraisal at its current fair market value. Therefore, transfers of the original property that are excluded from reappraisal (e.g., most transfers between parents and children) will not qualify."
The article goes on to explain the process, answers many question you might have and gives a number for their Technical Services Section at 916-445-4982 which you may call if you have questions.
- Janis Stone, Mick Orton
How to pull money out of a property without selling it - Part 2
A reader previously asked:
I want to pull some equity out of my San Francisco property and pay as little as possible or no taxes at all. Is there a way to do this?
Our answer:
In addition to the suggestions we made in our post for Wednesday, June 21, 2006, a reverse mortgage may work well for older citizens (62 or older) who have a lot of equity in their property. This vehicle allows homeowners to convert part of their home's valuye into cash. Although the home equity line of credit also provides cash with out tax consequencews, they still require payments of at least interest only. In a reverse mortgage the money goes the opposite direction... to the people who need it! Be aware, this plan works well only if the homeowner expects to stay in their home for at least 5 years. Reverse.org has a list of Frequently Asked Questions (FAQ) with lots of information.
Go to the Reverse Mortgage Internet site to find a reputable local reverse mortgage originator.- Janis Stone
The wisdom of real estate investing versus other investments
A reader asks:
I have been looking over the market reports posted on your website and see that from 2002 to 2006, the May statistics show that my single family home has risen in average value by about 57% which averages out to about 14% a year for that 4 year span. Why would I take such a chance on something so volatile as the real estate market (possible market changes, rising interest rates if I have a variable rate loan or other unknown factors), when there are much more stable investments like the stock market (which has returned about 10% a year (on average) or maybe even buying a triple net lease?
Our reply:
Thank you for your question. Obviously you given this a lot of thought. Experts agree on several things when considering investing.
- First, should you invest and why?
- Second, where are you going to invest?
- Third, do you understand the risk versus the expected return?
- Fourth, how much risk are you willing to take?
- Fifth, is your investment liquid and does it need to be?
- Sixth, are you diversified?
- There are other factors, but these are usually the main ones.
Let's take a look at your last example first, triple net leases. Investopedia defines these as, "A lease that designates the tenant as being solely responsible for all of the costs relating to the asset being leased. The costs could include any upgrades, utilities, repairs, etc." Horn Capital Realty of Bay Harbor, Florida says, "The triple-net lease offers a long-term lease with the guarantee of steady cash flow and practically no risk." As this points, out there is practically no risk, so the reward is usually set at a cash on cash return of about 10% which is better than some other investments. As part of a diversification plan to investing, these are great money makers. We have some of these ourselves.
Your second example, the stock market, though relatively stable over the long-term, it can also be very unstable in the short term. True, they address item 5 above; liquidity. With an online account, you can buy and sell almost immediately. There are lots of websites dedicated to setting up accounts to buy and trade stocks. There are also lots of informational websites. How to Advice by Charles M O'Melia is a pretty good place to start. As long as the stock market continues to go up, the cash on cash return remains about 10% on average (this would probably apply more to mutual funds, of course) and a savvy investor could make much more on individual stock picks. But you invest $100 you buy $100 worth of stock. As part of a diversification plan to investing, these are also great money makers. We have some of our investments in mutual funds as well.
Now let's talk about our favorite tool for building wealth, real estate. You pointed out that San Francisco real estate from May of 2002 until May of 2006, the return is roughly 14% a year for probably much riskier than the above 2 investment types. But let's take a simple example of a single family home selling for $1,000,000. Even for San Francisco, that's a little low, however, it's a nice, round number! So let's use that. Many people are buying homes with 10%, 5% and even 0% down, but let's use an example of 20% which is pretty common (especially now that interest rates are rising rapidly on the second loans which are often necessary with 90% financing - often called 80-10-10 financing. That's 80% first, 10% second and 10% down payment). Are you with us so far?
With this example, the 20% down payment would be $20,000. On an investment valued at $1,000,000 that rises in value at 14% a year, that property would then be worth $1,140,000. That's 14% on the investment, but a 700% cash on cash return. Of course, this represents the rosiest of scenarios.
But consider a more normal scenario. Let's say the market rises only 2% for that year. On a $1,000,000 property that's $20,000. In this case, the cash on cash return would be 100% return. Rich Dad author, Robert Kiyosaki and his Rich Dad advisors like Dolf DeRoos and Diane Kennedy all agree that Real Estate is one of the best ways to build wealth! Of course, when and where you decide to invest will ultimately make this a good or bad deal.
- Mick Orton
A first time buyer has questions about how to get started buying a San Francisco home
A reader asks:
As a first time buyer, what are the first steps in buying a house or condo in San Francisco?
Our reply:
Our first suggestion would be to meet with a mortgage broker to see what price range home you qualify to buy. There are also mortgage calculators (Dennis Kowalski of Princeton Capital has one on his site) to give you an idea of what you can afford. But meet with a professional who will know what loan programs are available to you as a first time buyer. Once you know this it will go a long way in determining what area you should be looking in and the type and amount of the property you should buy.- Mick Orton
Explaining the difference between a TIC, a condo and a co-op for Real Estate in San Francisco - Part 1
A reader asks:
In San Francisco, I hear a lot of people throw around the terms, tenancy in common, condominium and co-op and often use them to describe the same property in the same sentence. What is the difference between them?
Our answer:
We thought we'd answer your question an several parts. In Part 1 will cover "TIC" or Tenancy In Common as a form of ownership.
Attorney, Andy Sirkin, the local San Francisco TIC expert, says, "The acronym 'TIC', which stands for tenancy in common, along with the terms 'cotenancy' and 'fractional ownership', refer to arrangements under which two or more people co-own a parcel of real estate without a 'right of survivorship'. This type of co-ownership allows each co-owner to choose who will inherit his/her ownership interest upon death. By contrast, the type of co-ownership called 'joint tenancy' requires that each co-owner’s interest pass to the other co-owners upon death."
He goes on to explain some of the ways a Tenancy In Common is different from condominiums and cooperatives. We will refer to these in our later articles on the second two types but also go into the nuances of each.
Stimmel, Stimmel and Smith, another San Francisco law firm, explains, "...[referring to new buyers] The question is how to break into that market. How does one manage the economics of buying the first home, the first condominium in such an expensive market? Condominiums were long seen as the best and least expensive way for those with limited funds to enter the market and enjoy the appreciation and tax benefits that come with home ownership."
In short, a tenancy in common allows many people to own the same building, in effect, pooling the resources of two or many people to buy more than they could afford on their own.
One problem with this form of ownership is, what happens when one of the parties wants to move and the others don't? A well written agreement should cover this, as long as an expert has been consulted from the beginning.- Mick Orton
Retirement accounts and San Francisco Real Estate
A reader asks:
I have quite a bit of money in my retirement accounts and heard from a friend that there is a way to use this to do real estate investing. Do you know anything about this?
Our reply:
We are familiar with a company based out of Oakland called Entrust Administration. They can help you invest in Real Estate using you IRA or 401(k) money. Go to their website and you will see what types of plans they can work with.
One of our clients used his retirement money as a down payment on an out-of-state second home. He was told if he sells, all the capital gains will go back into the plan and not be taxed until the money is taken out at retirement. You can see how this could be used over and over again to defer what would normally be taxable gains. It can be an exceptional wealth building tool.
On the other hand, Fox news contributor, Gail Buckner, cautions readers in her 2002 article to think hard before using retirement money to invest in real estate. She says, "While investing in real estate in and of itself is not prohibited, it does present a lot of problems. If there's not enough money in your IRA to purchase the property outright, then your IRA would have to take out a mortgage -- not you.
"I doubt you will find any lender willing to make a loan to an IRA without your personal guaranty. And your guaranty of the loan to the IRA would be prohibited. Also, you should note that pledging your IRA as collateral for any type of loan is also prohibited." She goes on to give other reasons, but check with the experts to see if new rules overcome her list of objections.However, Realty Times writer, Phoebe Chogchua, is more positive in a 2006 article. We realize that she is writing for a magazine that promotes the real estate industry so there might be some bias. At the same time, the article is much newer than the one above and probably has more current information.
If you would like more information, Realtor Magazine Online has a really good article explaining this relatively new concept. As always, talk to experts before making any financial decisions based on information found here.
- Mick Orton
No Statewide or National Recession on the Horizon: UCLA Anderson Forecast
No question here! This is good news for the economy but mixed news for Real Estate in California. RIS Media reported in their daily e-news, "RISMEDIA, June 22, 2006—In its second quarterly report of 2006, the UCLA Anderson Forecast anticipates a slowdown in real estate across the United States and in California. But absent other factors that historically precede recessionary conditions nationally and in the state, no recession is foreseen. " Our number show that the San Francisco Real Estate martket still remains stong.- RIS Media
Mold issues with San Francisco Real Estate
A reader asks:
I've heard there are a lot of issues with mold and mildew. Considering the foggy and damp weather, do you think this can be a big deal when investing in San Francisco real estate?
Our answer:
Mold and mildew can be an issue anywhere but where there is more moisture in the air it can be a factor. Mold can develop when there is inadequate ventilation and often develops when windows and doors are kept shut and moisture from cooking, showers and laundry accumulates. If leaks in roofs, bathrooms, or other parts of the house are not repaired and moisture builds up, mold can develop within the walls and floors. The occupant of a property should be careful about moisture in the home. It helps to open windows, use fans in the bathroom and kitchen for ventilation, and make repairs to leaks before they cause too much damage. In these ways mold can be managed. However, if someone cooks and uses the shower and laundry and does not open windows or ventilate the rooms, then mold can become a problem. The Sunday, June 18th San Francisco Chronicle has a good article regaring this issue.
For advice on prevention of mold or cleaning mold when you see it on wall or furniture go to the EPA website. If you own rental property you may also send tenants information on mold which is available from them. Education on the causes of mold and preventative measures is the best way to help prevent serious mold problems.- Janis Stone
How to pull money out of a property without selling it - Part 1
A reader asks:
I want to pull some equity out of my San Francisco property and pay as little as possible in taxes or none at all. Is there a way to do this?
Our answer:
There are several ways to do this. When to do it one way or another might be a better question. Depending on the market conditions or current interest rates, you could refinance and pull some money out that way. During the past several years ago where rates were historically low, mortgage companies were swamped with people refinancing their homes. When you refinance, any money you take out from the proceeds is not taxed, and it does not raise your property taxes. However, with interest rates going up(check our trusted mortgage advisor with Princeton Capital, Dennis Kowalski's website for the most current information and new trends), that might not be the best strategy right now. It is always a good idea to talk to your accountant or financial advisor to evaluate your situation and determine the best time for you to refinance. There are many things to consider, for instance, the amount of the new monthly payments, what you are using the money for, what the future interest rate might be and how long you think you will hold the property.
Another way that defers most of the capital gains taxes is the Private Annuity Trust. As the Real Estate Journal put it, "Under this plan, the owner of commercial or residential property transfers ownership to a trustee prior to the sale of the property. The trust pays the seller with a special payment contract called a private annuity that stipulates that payments from the sale of the property go to the owner for the rest of his or her life. The trustee then sells the property to the buyer, getting cash for the property and holding it in a trust. The trustee also can invest the money held in trust." With this method only the amount of the distributions are taxed at a rate calculated by the IRS depending on your life expectancy and only at the time the payments are made. When you start hearing legal terms bandied about like "trust" and "trustee", it can sound a little ominous. So check with the experts and ask a lot of questions!- Mick Orton
Single family homes are not townhouses - San Francisco's unique architecture
A reader asks:
I've always wondered this. Why are buildings considered single family homes in San Francisco and not town homes when most of them are built side by side with no yard?
Our answer:
San Francisco is one of the most unique and architecturally interesting cities in the world. Part of the charm comes from the way San Francisco has made use of maximum number of properties in such a small amount of space. San Francisco proper is only 7 miles by 7 miles so the city planners have allowed most houses to be built to the lot lines. Some neighborhoods such as St. Francis Woods are zoned as R1-D which means they have to be detached single family homes and cannot be built to the lot line. The lots in that area are much larger and can accommodate bigger detached homes. Most other areas the average lots are only 25' wide and 100' deep so a builder has to build across the whole lot in order to get a reasonably sized home.
San Francisco does have some "townhouses" but these are classified as condominiums and not single family homes and they share common walls.
The short answer to your question is, town homes share a common wall whereas San Francisco's single family homes actually have separate walls.- Janis Stone
Earthquakes affect buying decisions for San Francisco Real Estate
A reader asks:I am considering buying a second home in San Francisco, but just about the time I decide to make the call to a Realtor, I turn on the news and hear that there's been an earthquake in the San Francisco Bay Area. I really want to own a home there, but how worried should I be about earthquakes when considering buying San Francisco Real Estate? Our reply:Disasters can happen anywhere with regard to "acts of God". Consider places that have tornados, hurricanes, horrendous snow storms, floods. And disasters like these can happen every year. So what's the big deal about an occasional earthquake??? Of course, we're joking. And earthquakes are no laughing matter either.On the whole, buying property in San Francisco should be considered relatively safe with regard to earthquakes. They can happen anywhere, and the effect it would have on your property depends on several factors. Questions you might ask your Realtor when considering specific properties are; what type of soil is it built on? USGS has a soil-type map for San Francisco which might help you when considering certain areas. Another question you might ask is, when was the property built, and has it been retrofitted with shear walls? Does the property have a bolted foundation and adequate reinforcement over the garage if it has one? (we'll discuss San Francisco parking issues in a later post!) It is also going to matter how strong the earthquake is and where its epicenter is. After the earthquake in 1989 San Francisco adopted new building codes for any new construction or major remodeling using the latest engineering techniques and passed a law requiring unreinforced masonry buildings (called UMB by the building department) be reinforced to withstand the effects of an earthquake. So San Francisco has been preparing, and there are emergency systems in place. The City of San Francisco Department of Building Inspection has a site with lots more information on the latest building requirements.
You might also buy earthquake insurance that would cover damage to your home. Though there is a substantial deductible, it could protect your equity in the event of a catastrophic earthquake.
Regardless, there are no guarantees in life! So if you are really worried about earthquakes then maybe the California, and San Francisco in particular, is not for you. Earthquakes happen all up and down the west coast, and have even happened as far inland as Yellowstone Park. So we do not feel that San Francisco is more "unsafe" than anywhere else on the West Coast or even Hawaii. Having been in San Francisco for over 30 years, it is actually easier to face the risk of earthquakes than have to worry about having tornados every summer as they do in the Midwest and South!
In closing, let us review. The most important thing you can do is be prepared; retrofit your home, have emergency supplies and good insurance. If you want more detailed information about earthquakes, the California Geological Survey has an interesting website which answers specific questions about earthquakes.- Janis Stone and Mick Orton
When buying a new home in San Francisco which area has the best restaurants?
A reader asks:
As a single man who really doesn't like to cook, in which area should I be looking to buy if I want to have easy access to the best restaurants in San Francisco? Our answer: You're in luck if you choose San Francisco as a place to live. The City (as we like to call it) has a plethora of great restaurants. Areas (with links here to the San Francisco Chronicle's website and Wikipedia) like Pacific Heights, Russian Hill, North Beach, Nob Hill and Telegraph Hill are really popular with people who want easy access to great restaurants. Some of the best restaurants are within walking distance regardless of which area you might choose. There is a site where San Francisco restaurants are reviewed by the people who count; (the ones who pay to eat in them!) called SFSurvey. And just because you choose one area to live, doesn't mean you can't take a quick cab ride to another area and check out other dining options! You can also read the neighborhood guide on our website to get an idea about what different areas for San Francisco Real Estate have to offer. - Mick Orton and Janis Stone
Upside and downside of investing in multi-units in San Francisco
A reader asks: I am thinking about buying multi-units in San Francisco as an investment and renting them out for income as well as building equity. Do you think this is a good idea? Our answer: Buying multi-unit buildings in San Francisco for rental income is a challenging because of several factors. First of all, San Francisco properties are governed by rent control which restricts yearly rent increases to 60% of the CPI (consumer price index) and allows some tenants to be "protected".... in other words they cannot be evicted even if you, as the owner, wants to live in their unit. (There is what's known as the Ellis Act which is explained briefly in an article on the San Francisco Tenants' Union which also has a link to a PDF of the actual law.) However, the Board of Supervisors is pro-tenant and tries to discourage individual ownership of units by passing laws that prohibit owners from converting their units to condos if there is more than one eviction. Go to the City of San Franciso webpage and do a search on condo conversions; you will see all the laws that are being proposed or that have been passed to limit the amount of condo conversions being done. Needless to say, there is too much to cover in the space we have here! You might ask, why would a city government be anti-condo conversion if the producing of more real estate properties adds to the property tax base and increases the city's revenue? Good question. At this time many building owners do not live in San Francisco so there are more renters who vote. Given this dynamic, I think you understand who the politicians tend to cater to. The San Francisco Tenants Union is one of the most powerful lobbying forces we have. Fortunately, the San Francisco Association of Realtors (which tends to be more pro-property rights) is another strong lobbyist. Another reason your idea is challenging (you thought we forgot the question, didn't you?) Many of the units sell for a large gross multiplier which means you will not get positive cash flow unless you put more than 50% down. And in that case you lose the advantage of the normal leveraged investment that real estate normally provides. Horizon Financial Associates has an article from 2004 which explains leveraged investments rather nicely. So what do investors do? Therefore, investors in San Francisco Real Estate depend upon appreciation to recapture their investment. That appreciation has been due in part during the past few years to reselling multi-unit buildings as TIC's (Tenancy - in - Common) and/or doing conversions to condominiums. However, with the passage of the new law mentioned above, it undermines the ability of owners to vacate their buildings so they can sell the units individually. (Owners have been using the Ellis Act to be able to deliver vacant buildings to potential buyers or sell to individual parties as TIC's.) So before buying any units as investments, analyize the current income, understand that any increases will be limited by rent control, and have a good attorney to talk to when and if you have tenant issues. I would never suggest you negiotiate with any tenant without using an attorney who specializes in tenant/landlord issues. Tenants have successfully sued well meaning landlords for simple misunderstandings. Also be sure to have good insurance with protection for tenant issues. As we like to tell our clients: "It's not how much money you make, it's how much money you keep".Note: Since we wrote this article, we found details on the condo conversion process from legal consulting firm G3MH which we have downloaded to our website in PDF format. We hope you find this useful.- Mick Orton and Janis Stone
San Francisco Real Estate housing bubble and renting versus buying!
A reader asks:I keep reading in newspapers and magazines about a San Francisco housing bubble and wonder if I should buy now or just keep on renting. What is your opinion?Our answer:About our San Francisco Real Estate market... You've heard of supply versus demand? Low supply and high demand equals a great seller's market. The San Francisco Real Estate market is somewhat unique to other places in the United States in that there are a lot of factors that help create a strong market. One is that there are not many places to build. San Francisco is land locked by the bay on the north and east sides, the Pacific on the west and incorporated cities to the south. And because the city government is so restrictive, it is hard to get building done, thus decreasing the supply. With lots of cultural events, beautiful architecture and great weather most of the year, San Francisco is a much sought after place to live. This increases the demand. These two facts keep the San Francisco Real Estate market in pretty good shape most of the time. (Check our website to look at our history of market reports to see the numbers for the past several years and you will see what we mean.)Now for the bubble. What bubble? What we have been experiencing with soaring prices, multiple offers driving home values up and up; this is not a normal market. Up until recently, the average marketing times for properties have been anywhere from hours to 10 days to 2 weeks! And over asking price sales have been common. When a frenzied pace like this begins to slow down, it's easy to assume that there is a bubble as things settle back toward a "normal" market. As of this writing, according to the Realty Times in its June 16th, 2006 edition (and other sources such as the California Association of Realtors have said it as well), marketing times in San Francisco and other hot areas are changing: "...The market has shifted from a Seller's market to a more normal market, requiring 6 months or more to sell a home, far removed from the market of just a year ago. With 5-6 months worth of inventory, price negotiations between buyers and sellers are common place..." This actually could mean that buyers have move leverage than they have had in the recent past. Our suggestion? Make an offer!In our opinion, there is no reason to rent when you can buy, as long as you buy something you can afford. Here's what Fox News contributor, Jonas Ferris, said in a March 2005 article on MaxFunds.com, "The main reason investors should worry about real estate bubbles is this: most experts say that real estate bubbles are simply impossible..." and about buying versus renting and investing in real estate he says, "...There are three main reasons real estate has generally been a successful investment for most people: 1) by buying a home, investors are effectively paying themselves rent 2) a mortgage is essentially a forced savings program paid into each and every month 3) because of the nature of the investment, real estate investors tend to avoid the poor decisions they make when they invest in other major asset classes..." - Janis Stone and Mick Orton
How can I change my credit score to help me get a better rate on my loan?
A reader asks:
Recently I was denied a loan because my credit score was lower than the lender wanted to see. I got my credit report from Free Credit Report but could not tell from what I saw that thing that was hurting my score. Do you have any suggestions?
Our answer:
We posted a little explanation about how the reporting agencies work in our September 2005 market report which came from our friend and associate, Jay Bransfield. It showed how different factors are weighted to come up with your credit rating.
Most recently, Dennis Kowalski of Princeton Capital introduced something new and really exciting for those who have been turned down for loans or had to accept higher rates due to their credit rating. Princeton has a new CREDIT SIMULATOR which they use to show how people might improve their credit rating if they, for example, paid off their credit card debt or made other financial changes to their credit report. Call him at (415) 229-1241 for details!.- Mick Orton, Dennis Kowalski and Jay Bransfield
