Consiering Condo Investment - Good Time or Stupid Idea?

[ikarcuaso]

My wife and I are thinking about buying a small, condo unit in a new, 7-story downtown San Francisco bldg. (South of Market). Some units have already sold. The units are very tiny (<400 sq ft) and go for less than $350K. "Regular" size condos in the area (~1000+ sq ft, etc) go for $500K up to over $2 million. It looks like nearby studios rent in the low $2000s per month, give or take.

We consider this a long-term investment. We plan to rent out the unit. FWIW, we rented our prior single-family home for a couple years before selling it in 2005. We've never bought real estate as strictly an investment before. We're considering a condo because it's less expensive, and I currently don't have much interest in the greater maintenance requirements (either DIY or paying someone else) that come with renting a single-family home. Any thoughts? Go for it, or am I stupid for considering this?

[pwd72s]

The happiest day in my life is when I quit being a landlord...

[berettafan]

not sure but have a coupla thoughts;

1-you sold your last rental home near the peak of the market. it probably left you thinking you've got some sort of nack for this. look inward very carefully before deciding that you DO have a nack.

2-very simple rule when buying rental property to keep yourself out of trouble; Does rent cover the mortgage (and taxes if substantial)?

[berettafan]

yet another thought;

-i like the idea of owning an 'entry level' home as an investment. i feel like there will always be a market for it (not necessarily a profitable one but the liquidity is maybe better than niche stuff).

[pwd72s]

"Feeding the alligator" is something you wish to avoid. If rent covers taxes, insurance & mortgage, there still will be downtimes between renters, maintenance, etc.

It took me 15 years to figure out that there are easier ways to make money without the hassles of being a "mom and pop" landlord.

Still, the experience did eventually give me the funds to enter into those better investments. In other words, paying that monthly mortgage tab was a kind of a forced savings plan.

[ikarcuaso]

Originally Posted by berettafan

not sure but have a coupla thoughts;
1-you sold your last rental home near the peak of the market. it probably left you thinking you've got some sort of nack for this. look inward very carefully before deciding that you DO have a nack.

No, we don't think we're smarter than anyone else. We realize we were VERY lucky with the timing. Our former neighbor told us the buyer of our old home recently sold it for nearly 40% less than what he paid us!

[stevepaa]

I would still wait a little. I think prices will still go lower over the next year.

[Eric Coffey]

$350k +/- for Less than 400 sqft. seriously? The smallest condo I've ever been in was about 700 sqft. and it was TINY. How can you possibly fit a bedroom, bathroom, kitchen, and living areas in a 20'x20' space? Anyhow, for "lock and leave" living, you usually don't see $850+ per sqft. unless it's at or approaching the ultra-swanky level, and very well appointed.
At that level, the condo dues are often out of control as well (I've seen them WELL over $1k/mo.). Something to consider if you have to carry it (vacant) for any length of time.
FWIW, I was researching Downtown San Diego condos for a client a while ago, and found quite a few very nice units (2br/1,000+ sqft) in great locations for under $500 a square.

[Rick Lee]

Are you paying cash or financing? Getting a loan nowadays for an investment condo can't be easy, no matter how great a borrower you appear to be on paper.

[sammyg2]

If you invest in a condo, Shaun will call it a scandal and you will have to cover it up

[serge944]

Originally Posted by Eric Coffey

$350k +/- for Less than 400 sqft. seriously? The smallest condo I've ever been in was about 700 sqft. and it was TINY. How can you possibly fit a bedroom, bathroom, kitchen, and living areas in a 20'x20' space? Anyhow, for "lock and leave" living, you usually don't see $850+ per sqft. unless it's at or approaching the ultra-swanky level, and very well appointed.
At that level, the condo dues are often out of control as well (I've seen them WELL over $1k/mo.). Something to consider if you have to carry it (vacant) for any length of time.
FWIW, I was researching Downtown San Diego condos for a client a while ago, and found quite a few very nice units (2br/1,000+ sqft) in great locations for under $500 a square.

It's basically an oversized closet so the city dwellers can come out...of the closet...

[Tobra]

Do you really want to be a landlord in California?

Those places are too tiny.

[Porsche-O-Phile]

You're crazy if you think you're going to see Dollar #1 out of that place for at least 10 years.

[Moses]

20' X 20' ????

Where is it, San Quentin?

[Eric Coffey]

Originally Posted by Rick Lee

Are you paying cash or financing? Getting a loan nowadays for an investment condo can't be easy, no matter how great a borrower you appear to be on paper.

True dat. At least it wouldn't be jumbo. Getting an investment jumbo loan is getting ridiculous. Like minimum 35% down ridiculous. Obviously there are a few creative options, but it's getting pretty brutal.

Originally Posted by Moses

20' X 20' ????

Where is it, San Quentin?

Ha! At least in San Quentin, there is no HOA, and you probably get free cable!

[kstar]

I think SoMa is a great market and prices will at the minimum stay firm and you'll most likely see respectable appreciation in the years ahead, IMHO.

Just my opinion based upon some personal commercial RE history in the SoMa area and my feelings that San Francisco's limited physical space and difficult approval and permitting processes, which drastically limit new development, will keep supply tight.

[ikarcuaso]

We still need to crunch some numbers, but we s/b able to put down enough to ensure at least break-even cash flow monthly. We won't consider any investment requiring a JUMBO loan.

Originally Posted by kstarnes

I think SoMa is a great market and prices will at the minimum stay firm and you'll most likely see respectable appreciation in the years ahead, IMHO.

Just my opinion based upon some personal commercial RE history in the SoMa area and my feelings that San Francisco's limited physical space and difficult approval and permitting processes, which drastically limit new development, will keep supply tight.

Kinda what we have in mind. I'd never consider shared housing as an investment in the suburbs.

Yeah, it's tiny. We believe there are those who are willing to sacrifice space for an opportunity to live in the heart of SoMa.

[pwd72s]

I've seen bigger galleys on sailboats...at this price, why not buy a nice sailing yacht & charter it?

[serge944]

This might be a stupid question, but, uhh...where do you sleep?

[Eric Coffey]

Originally Posted by serge944

This might be a stupid question, but, uhh...where do you sleep?

I've highlighted the sleeping quarters on the floorplan for you:



The new trend in SoMa city living is to sleep hanging upside down, like a bat.

There's another "closet" joke in there somewhere too