Posted on: July 2, 2006
A reader asks: I have heard there are different areas of the city are made of landfill. What are the concerns with buying in these areas?
Our reply: Entire neighborhoods of the city such as the Marina and Hunters Point sit on man made landfill (made up of mud, sand, and rubble from past earthquakes) were created when flatland became scarce. Unfortunately, such land tends to be unstable during earthquakes. As a result, the liquefaction during earthquakes causes extensive damage to property built upon it, as was evidenced in the Marina district during the 1989 Loma Prieta Earthquake.
When buying a property in areas that are built on landfill it is important to consult with a structural engineer. They will be able to inspect the property and give you their opinion of the structural integrity of your home. Remember that this is usually the largest purchase you will ever make and it is important to understand protential risk in relationship to earthquakes. Your real estate agent should give you a booklet (one of the requriements when we meet with a client) which explains basic structural components of a property which may compromise it’s stability in an earthquake and what can be done to retrofit a property to help reinforce it to minimize the damage in an earthquake.
You can purchase earthquake insurance for a home but the deductible can be 15-20%. In the case of a condominium you should see if the homeowner’s association has a master policy that includes earthquake insurance. Even if they do, you should also purchase a homeowner’s policy to cover your contents.
– Janis Stone
Posted on: July 1, 2006
Our answer: Hopefully part 1 of this atricle answered the question for you about Tenancy In Common. Now we’ll discuss condominiums.
With condominiums you own the “airspace” that the condominium occupies. Each unit has its own lot number and map just like a plot of land. The owner owns that “lot” which is the interior space from the exterior walls and a percentage of the common areas which can include the land on which the condos are built, outdoor space, roof, exterior walls, and any common areas defined within the CC&R’s or title report. Sometimes this also included a deeded parking space.
The CC&R’s are the Covenants, Conditions and Restrictions of the condominium. These documents define the ownership rights and responsibilies of the condominium project. They are specific to each association and are recorded with the deed and are a matter of public record. Every association has its own CC&R’s, and it is important that when you are going to buy a condo, you read and review these documents so you make sure can live with the rules since they can be legally enforced. (For example some associations do not allow pets or restrict the type or size of the animal.) There may be also be other rules in addition to the CC&R’s.
Condominiums can be financed just like a single family home. However, there are some lenders who will only do loans in condominium buildings with more than 10 units. Others will not loan if too many of the units are rented. And you might have problems getting a good loan is if there is pending litigation in the complex. So check with your lender to be sure.
– Janis Stone
Posted on: June 30, 2006
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.
Posted on: June 29, 2006
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 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
Posted on: June 28, 2006
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
Posted on: June 27, 2006
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.
- 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
Posted on: June 26, 2006
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
Posted on: June 26, 2006
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
Posted on: June 25, 2006
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. We have one linked to our 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
Posted on: June 24, 2006
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.
– Mick Orton