San Francisco Leads the Region as Top City for Rental Real Estate Investment

It is undeniable that San Francisco is a great place to live. Vibrant neighborhoods, an exceptional art and cultural scene, fantastic restaurants, world-class shopping and a stunning natural landscape have all helped San Francisco secure a place among the top cities in the country. With the release of the All Property Management Q2 2014 Rental Ranking Report, the City by the Bay can also add being the No. 1 city in the region – and No. 3 in the country – for rental real estate investment to its list of accolades.

Saving money

The Q2 2014 Rental Ranking Report looks at metrics including vacancy rates, capitalization rates, home value appreciation, annual job growth, rental rate variance, and average days a property sits on market for 75 Metropolitan Statistical Areas to determine the top U.S. cities that are poised to give investors the highest return on their rental real estate investment. San Francisco took the top spot regionally, beating out cities such as San Jose, Seattle, Denver, and Los Angeles, while coming in 3rd only to Grand Rapids, MI (No. 1) and Poughkeepsie, NY (No. 2) in the country.

San Francisco Boasts High Rental Rate Variance to Secure Top Ranking 

With rising San Francisco rental rates a main topic of conversation in the community, it will come as no surprise to locals that the city does quite well in the rental variance metric. In fact, with an 8.44 percent increase in year-over-year rental rates, San Francisco takes the No. 1 spot for rental variance among the 75 cities studied, according to the report. While performing generally well in most categories, this rental rate variance certainly helped San Francisco clinch the top regional spot.

San Francisco also boasts one of the lowest vacancy rates in the report at 4.9 percent (giving it a 10th place ranking in the country) and a good home value appreciation rate of 4.95 percent year-over-year. What might surprise you, however, is the city’s relatively low capitalization rate. The “cap rate,” which compares average property value to average rental rates to determine how profitable a rental may be, is 4.07 percent in San Francisco. This is the second-smallest cap rate in the report. By comparison, Grand Rapids, the No. 1 ranked city in the U.S., offers a cap rate of 9.64 percent. The low cap rate is partially fueled by San Francisco’s high property values.

If you’ve been sitting on the fence toying with the idea of buying San Francisco rental real estate, the All Property Management Q2 2014 Rental Ranking Report suggests you should make a move. Opportunity is waiting – will you take advantage?

This is a guest post from All Property Management.

Founded in 2004, All Property Management helps property owners maximize their rental income potential by connecting them with the largest network of property management services on the Internet. As part of that work we track a number of different metrics, from rental vacancy rates and home values to regional job growth, for 75 different metro areas in 5 regions of the country. We use that data, along with input from our nationwide network of over 5,000 property managers, to produce our quarterly Rental Ranking report, which measures a city’s attractiveness for real estate investment.

New Zephyr Listing at 171 Great Circle Dr, Mill Valley, CA 94941 for $3,300,000

171 Great Circle Dr, Mill Valley, CA 94941

Mill Valley Contemporary Custom designed by Dan & Hal Weiss in 1999, this 6BD/5BA Mill Valley estate embodies the very best of Marin living. An expansive level yard, lush gardens, fruit and palm trees, this incomparable estate property offers the kind of indoor-outdoor living unique to Marin County. Views of Sausalito Harbor and Mt. Tam are amazing! Large level yard with spacious patio areas for indoor-outdoor entertaining and an expansive open floor plan combine for traditional living with 6 bedrooms on the second floor and large home office/guest suite off the main entry. Exhibiting meticulous attention to every detail, the home features energy efficient solar panels, Heavenly Turf lawns and heated floors in the kitchen.

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Dog restrictions in HOAs: yes or no?

Full disclosure: I love dogs. I’m the crazy dog lady who posts ridiculous numbers of photos of my puppy on Facebook. (She’s ridiculously cute, so I can’t help it.) So it’s no surprise that I find the dog restrictions in many HOAs to be, well, ridiculous. Many prohibit dogs who weigh over 35 pounds. The lowest I’ve seen is 20 pounds. The highest I’ve seen is 70 pounds, but that one was an outlier.

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The JacksonFuller team mascots — Bonnie (Matt’s dog) and Maddie (Britton’s dog).

My guess is that an HOA will decide to cap the weight of any resident dogs to try to maintain peace and quiet in the building. I decided to look up which dog breeds bark the most, and according to the ILoveDogs website, here’s the list:

  1. Beagle
  2. Basset hound
  3. Jack Russell terrier
  4. Keeshond
  5. Maltese
  6. Lhasa Apso
  7. Boston Terrier
  8. Miniature Pinscher
  9. Samoyed
  10. West Highland White Terrier

See any kind of trend on that list? Seven of these ten are small dogs that would be welcome in an HOA — and be more likely to bark than their larger doggie brethren. So there goes that justification for a weight restriction.

Perhaps the HOA believes that bigger dogs need more exercise and will make more noise just by moving around the condo. According to Pet Plan, the laziest dogs are:

  1. Basset Hound
  2. Bernese Mountain Dog
  3. Bichon Frise
  4. Brussels Griffon
  5. Bullmastiff
  6. Chihuahua (WHAT?)
  7. Chow Chow
  8. Clumber Spaniel
  9. Cocker Spaniel
  10. Dachshund
  11. English Bulldog
  12. English Mastiff
  13. French Bulldog
  14. Greyhound
  15. Havanese
  16. Leonberger
  17. Newfoundland
  18. Saint Bernard
  19. Tibetan Terrier

Fourteen of these 19 couch potato dogs are medium or large. So it’s difficult to justify the blanket belief that bigger = louder.

What about the possibility that a bigger dog will make a bigger mess in the common areas, say, if a wet dog walks in from the rain with muddy paws? I say that one goes back to the owner — no matter how big or small the dog, the owner needs to dry off Fluffy or Fido before walking through the lobby or into the elevator. Common courtesy is common courtesy, regardless of the size of the pooch at the end of the leash.

The last one I’ll mention is breed restrictions — probably one of the foremost political hot buttons of the dog world today. Many HOAs prohibit breeds such as pit bulls, mastiffs, Rottweilers or Dobermans. This one is more difficult because in some cases it’s out of the HOA’s control — the HOA’s insurance policy may prohibit these dogs or others considered to be “fighting breeds.” (And while it’s not the case in San Francisco, some cities have enacted breed-specific bans on certain dogs. Not surprisingly, the ASPCA is against these laws, and there are many passionate arguments on both sides.)

HOAs are trying to reduce liability and financial exposure by limiting breeds that are perceived to be dangerous. What do you think? Should HOAs prohibit dogs of certain breeds or over a certain weight?

Hey, listing agents, take off those 2009 glasses!

Here’s a little trip down memory lane about buying property in San Francisco over the last dozen years or so. Not just buying property, but HOW property is bought — i.e., with financing, with or without financing contingencies, or cash buyers.

bag of cash

2002: Mortgage broker: “No down payment, bad credit, but you’ve got a job? You can get a loan! Or two!”

2005: Buyer: “Man, these properties are getting expensive and the market is competitive. I’m glad it’s so easy to get a loan that I don’t need a financing contingency!”

2007: Seller: “I know it’s easy for buyers to get a loan, so I’m not worried about accepting an offer with a loan.”

2008: Everyone: “Oh S&%$.”

2009: Buyer’s agent: “My buyer client won’t remove his loan contingency until his loan funds.”

2010: Seller’s agent: “Take the all-cash offer. That way we don’t need to worry about the buyer not being able to get a loan.”

2012: Mortgage broker: “This is a solid preapproval. Banks have tightened their underwriting guidelines and if a buyer is preapproved, he or she will get the loan (unless there’s something drastically wrong with the property or it doesn’t appraise).”

2013: Buyer’s agent: “My buyer has gone through the complete underwriting process and only needs to have the contract and title report approved. There are no issues with this property so please don’t toss our offer in favor of the cash buyer offer!”

2014: Seller’s agent: “I know your client wrote the highest offer, but we took one that was lower because it was an all cash buyer.”

Back in the 2003-2007 timeframe, it was easy — ridiculously so — to get a loan. So easy, in fact, that even buyers who didn’t have a down payment were able to write offers with no loan contingency. At the same time, there wasn’t a whole lot of cash in the market, so the playing field was at least somewhat level: if a property received seven offers and all had financing, the relative strength of the offers was determined by who had a bigger down payment, who had one loan vs. two, and who had a contingency (or not).

Fast forward to 2008, when everyone in the whole world said a collective, “OH S&%), what just happened?” and the economy imploded. Lenders tightened up their underwriting guidelines and anyone with less-than-stellar financial details was out of luck. No loan for you!

That meant that sellers started to care a lot more about the financial picture of their potential buyers, which translated to anyone with less than 20% down being moved to the back of the line or kicked out of the line completely. Buyers with the biggest down payments came out on top, and of course, a cash buyer would trump all.

Fast forward another couple of years. The stock market was on an upward trajectory, property values were starting to rebound, tech companies were expanding…and the market became flush with cash. At the same time, though, lenders were starting to exhale and loosen up their guidelines just a little bit, and there was no longer a risk that the lender would pull the funding at the last minute before closing (as had happened in 2008-2009).

Which brings us to 2014, a year in which we are seeing a deluge of cash into the real estate market — and a time when some agents look at a 2014 buyer with 2009 eyes. Say a property gets five offers — one all cash and four with financing. Providing those buyers are preapproved with reputable lenders who have sent the buyers’ files through underwriting, there is very little risk that their loan won’t be approved. It’s not a 100% guarantee, but it’s solid enough that we advise our sellers to evaluate the whole offer, not just if it’s a cash offer or not.

What does this all mean? It means that agents should take off their 2009 glasses and stop penalizing buyers who need a loan to buy a house. Yes, they should do their due diligence about a potential buyer before advising a seller to accept an offer, but they should also match their advice with the lending situation as it is *today,* not as it was in 2009.

New Zephyr Listing at 163 Laidley St, San Francisco, CA 94131 for $1,390,000

163 Laidley St, San Francisco, CA 94131

PANO views including Downtown skyline. Quiet Laidley St location on desirable north slope of Glen Pk. Enchanting gazebo garden. Unique, custom home. Well maintained during seller’s 30 yrs of ownership. Numerous upgrades, improvements and creation of large work studio on lower level. 2100 sqft (per appraisal), eat-in gas kitchen w/SubZero + hi-end appliances, formal dining rm, wood-burning FP in living rm, hdwd floors, tilt-cleaning windows. Expansion potential. One-year pre-paid Home Warranty for buyer. EZ street prkg. Close proximity to tech bus stop. EZ access to BART, J-Church Muni, I-280.

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Preliminary Title Notice: Things to Know

I often joke that every page in a disclosure package represents a lawsuit. I assure you that the next document in our look at a typical disclosure package, the “Notice to Buyers and Sellers Regarding Preliminary Title Reports (possible re-sale restrictions for San Francisco Affordable Housing Programs)” originated with a lawsuit. Let’s just call it the “Notice Regarding Preliminary Title Reports” document.

// This post is a part of our series: Your Guide to a San Francisco Disclosure Package //

The Notice Regarding Preliminary Title Reports is a *general* disclosure.

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A law-enforcement official purchased a condominium home (with a buyer’s agent representing them) and paid market rate for the residence. So what’s the problem?

The problem came about when they sold it, and discovered that the home was a “Below Market Rate” (aka Inclusionary Housing Program) condominium, which is a property with deed restrictions that limit the price at which it can lawfully be sold and also sets requirements the buyer must meet to be eligible to purchase the property. Needless to say, the market rate paid by the seller was far above the “below market rate” they discovered they could sell it for.

Below Market Rate homes – because they have numerous documents recorded against the property record – typically have preliminary title reports with a rather long list of exceptions (these exceptions being all of the documents that place the home in the BMR program). And sometimes the exceptions are pretty clear, and sometimes they make reference to maps with 4-point type. It’s always the 4-point type you’ve got to look out for, right?

So the moral of the story is this: understand the exceptions that are listed on your preliminary title report, and don’t sign off on the prelim until you are certain you understand all of the documents referenced in the list of exceptions. Because otherwise, you might just have paid market rate for a below market rate home!