Al’s take on purchasing a second home.
As a fulltime active realtor in one of the most exiting cities in the world I can be busy almost 24/7. To relax I need to escape the city and just chill. Trips to Utah, Palm Springs and Las Vegas can work however they are too far from the Bay Area. If something goes wrong with a transaction I want to be able to hop in my car and get back to San Francisco in less than two hours. The solution: a vacation home in the Northern California wine county.
I have been concentrating on the Russian River community of Guerneville, which is an hour from the Golden Gate Bridge if you step on it. It is also 20 minutes way from the Santa Rosa Coldwell Banker office if I need anything that involves an office. Perfect!
After my last circuit to Palm Springs, Las Vegas and Utah in May I felt the time had come to make the decision to find a vacation home, no matter what.
The problem is scarcity. Once the medium price of a home in San Francisco hit one million dollars the real estate market became very heated throughout the Bay Area. Even Guerneville is suffering from inventory shortages. Two years ago when I was toying with the idea of purchasing a country home in the Russian River area there were over 60 homes on the market, many of them very affordable. Now there are less than 20 and prices are rising.
With that in mind Casper, my faithful mutt, and I jumped in the car and drove to Guerneville to re-examine some of the properties I had turned down in the past as too quirky or too dilapidated. I was that determined to get something.
Some of the homes we saw that Friday were nice. One of them has a live redwood tree in the middle of the bathroom, which I though was interesting if a bit over rusticated. My problem, however, was that all I saw were very close to other homes. I wanted something in the middle of the redwoods with few neighbors.
Casper and I had lunch at Armstrong Woods after which, on a whim, I traversed the streets in the areas I liked, hoping to encounter a “For Sale” sign. We drove this way then that, up and down the hills, through the flats and next to the river. I decided to ascend Summit Rd. where one of my pals once had a cabin. Returning down the steep road I turned onto Old Monte Rio Road, which skirts the mountain and is parallel to Highway 116 for several miles. No chance of flooding here.
We had gone about 1 1/2 miles on this tiny, winding road when out of the corner of my eye I saw “For Sale by Owner.” In 100 feet the house appeared and I parked in front. This could be it, I thought. Just one house to the left and then nothing to the rear the side and in front. A real fixer-upper. I walked up the stairs, viewed the second floor balcony and the ground floor deck before realizing someone lived there so I descended the stairs grabbed my cell and called the number on the sign. A week later I was in contract to purchase the property.
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Al’s Take on San Francisco Proposition G
There they go again. Once again well-funded special interests are asking voters to stick it to property owners. This time around the latest outrageous money grab is a blatant plan to implement legalized extortion. Proposition G, the so-called anti-flipping proposition, is on the November ballot and will affect most properties in San Francisco. Proponents claim it will exempt single family home owners. The truth, however, is that those single family homes with in-laws are indeed intended to be a large slice of the shakedown.
Proponents claim Proposition G curbs what they call abuses of the Ellis Act, a state law that allows owners of buildings to get out of the rental business. The proposition imposes a heavy tax on those selling their building within the first five years of ownership. The surtax starts at 24% and is lowered every year until it disappears at the end of the fifth year. In San Francisco the medium price of a home is approximately $1,000,000 so the surtax would $240,000. From what I understand this tax goes into the City’s general fund for the policos to do whatever they want with it, nothing goes to housing.
Couple that gouging with the last money grab where a landlord must pay the difference between the evicted tenant’s old rent and the rent paid for the new abode for two years. That particular law is in litigation with a federal judge asking the City of San Francisco how it came up with such a preposterous formula. Proposition G could also be in litigation for years but the surest way to kill this lasted attempt at property theft is to defeat it at the ballot box.
I foresee the disappearance of single family in-law rental units should Proposition G pass, reducing dramatically the housing stock in San Francisco. The large investors can afford to wait out the five-year limitation but mom and pop cannot. Look at The Vann, a large new building on Market Street. The completion of this building was delayed until the economy got better. Even the tall crane looming on the vacant lot remained in place until the better times started to roll. I was always scarred to drive under it.
In San Francisco where prices are very high developers and house flippers will just add that surtax to the price of the property, making properties more expensive. Vote as you see fit but be informed. Don’t just vote to follow the pack. Get the facts at www.stopthehousingtax.com.
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Al’s take on unaccomplished goals
My goal for 2017 remained unattained as 2018 was rung in on the New Year. That unfulfilled goal was to buy a second investment property in Palm Springs. What to do? Sit and condemn my failure, assign blame and dwell upon an unfair world that thwarts my ambition? Sure, but not for very long. The mild hangover from the night’s festivity had hardly dissipated before I faced facts and busied myself in analyzing what went wrong.
I had my thirty-percent down payment and a letter from Stearns Lending citing me as good for the mortgage. What more could I have needed? Inventory, as it turns out. My goal came to naught in part because inventory in the Palm Springs area, just like here in San Francisco, is tight. There had been no property on the market that met my cash flow requirement. Perhaps that requirement is too rigid but at this phase of my life I must be comfortable in what sort of new risk I assume.
In the Palm Springs area residential property under $600,000, an amount in which I find my comfort level, moves quickly with all cash sales too often setting the pace. When I realized how that market was trending I looked north of San Francisco and found much the same up there as down in the desert communities surrounding Palm Springs. Those retiring baby-boomers are snatching up property at an ever escalating rate. I’m happy I had made two purchases in the past four years and was all set to make another in 2017. Of stocks and bond I know very little so I will stick with real estate since that is what I know and enjoy.
While not buying anything in 2017 I did visit the Palm Springs area thrice last year since a tenant had vacated a unit at “Casa Tortuga” in Cathedral City. I revamped the entire unit, including a new kitchen and bathroom I installed new appliances and new blinds in all rooms. At the same time I painted the outside of all three bungalows, the cinder-block wall facing the street and removed all the flotsam and jetsam that had accumulated outdoors over the years. A very nice tenant moved in and I hope the building just keeps going as usual.
Although my 2017 goal was not realized I’m happy to report that on the 17th day of this year I made an offer on a single family home in Cathedral City which closed on February 22. The four-bedroom, two-bath house with a pool, occupied by a stable tenant, pays for itself and produces an income of $400 per month. Better late than never.
I hated not meeting my goal for 2017 and didn’t give up easily but I will not make a bad deal just to accomplish it. Set realistic expectations and don’t give up on your goals. They may be met late but meeting them anytime is great.
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Al’s take on time capsules
A minor diversion from the drudgery of renovating an old property can be the excavation of old, forgotten items buried in the bowls of the structure. A chest underneath the floor boards containing gold coins or a missing Picasso masterpiece plugging a drafty corner are always possibilities but the usual discovery is valueless trash that nonetheless provides interest and sometimes insight.
Under a sheet of cheap linoleum in a bedroom of one of the flats I’m renovating was a cache of newspapers from November of 1973. Sifting through them provided a glimpse of life in America 39 years ago as documented by the San Francisco Chronicle, the morning paper, and the San Francisco Examiner, the afternoon daily during that era.
Superficially the newspapers back then looked pretty much as they do today. Upon examination, however, there have been some changes. The biggest change is that the content was big. Page after page of hard news, concentrating mostly on national and international events, provided a heft that contrasts very favorably to today’s skimpy coverage. Headlines ranged from The President: ‘I’m not a crook.’ to Anne Weds Mark, Mama Weeps. Richard Nixon is long gone as is the marriage of Princess Anne to Mark Phillips but Watergate still lives in infamy and the weeping Queen Elizabeth is still with us as she smiles during her Diamond Jubilee.
On the surface the advertising looks much the same, although these days there are no ads for nifty typewriters. Even the prices for much of the items aren’t much less than one sees today. Two caught my eye. A big ad for Salem cigarettes strikes a discordant note with today’s health obsessed newspapers while a nearly full-paged ad featuring a perky Anita Bryant pushing Florida orange juice four years before she achieved notoriety throughout much of the country, especially here, is a poignant glance at a less polarized time.
What has changed, of course, is the cost of housing in San Francisco. Prices listed on Sunday, Nov. 25, 1973 range from $18,950 for a two-bedroom house in the Outer Mission to $139,500 for a “grand manor” in Pacific Heights with 5 bedrooms, 2 with ensuite bathrooms, a family room, a two-car garage and elevator! In between is an Upper Market custom built two-bedroom view home for $68,500 and three-bedroom, two bath Bernal Heights number for $31,950.
If only time travel were possible we could snap up what would now be considered outrageous bargains instead of agonizing whether our house-hunting budget should be $600,000 or $700,000. Still, while times may change the time to buy is always now.
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Al’s take on purchasing an investment property
One of the things I love best about being a Realtor is helping people get into a home or helping people sell their home so they can go to the next facet of their lives. Another thing I like about being a Realtor is buy properties for myself and either keeping them for the rent or flipping them for a profit. Being in the trenches of what is coming on the market some properties you can pick up before they hit the open market.
One of my goals for this year is to purchase another rental property for myself in Palm Springs California which is a city I have been going to since I was a young man and know it pretty well. Although most of my business is in San Francisco the properties have just gotten to expensive for me and even if had the money to purchase in San Francisco the rent control laws would probably land me in jail. Just kidding!. I follow the advice I give to my clients “get something you can afford comfortably” . In purchasing investment property I always want to make some money every month for my self after all the bills for the building are paid. Now, how much will I have to put down to get that done? How much do I want to get every month? How much will the rents go up in the next 5 years and how much will the building be worth in the next 5 years. When you own an investment property you also have to think about the management of it and who is going to do it. Can you as an investor manage the property even if its not where you live? Managing a property takes not only time but you have to be the type of person that can deal with the tenants. As a realtor I deal with lots of people and get along with 98%, there is always that 2% that I have problems with and I know them so well its always better to refer them out to another realtor. I can’t do that with a tenant, he is mine, all mine and I have find a way to deal with them. This days usually Texting works well for me.
As I advice to clients, get a realtor in the area where you are going to buy. I have a realtor in palm springs his name is Thomas and I sold him his first home in San Francisco many years ago. Although he has been doing only 5 years and I have been doing it for 20 somewhat he know the in’s and out’s about that market in that area where is very useful me to make decisions, ie: .pools, zoning, land restrictions, casitas (which don’t exist in SF), Indian owned land which again it does not exist in SF. So its essential to have a realtor where you purchase. Unless your buyer knows the area where he is purchasing refer then to someone in the area. In December I sold a property in San Diego California, the buyer knew the area we had done business before and he just told me to write the offer and get if for him. In San Francisco and the bay area I usually represent myself and save the commission or deducted of the purchase price.
I troll Realtor.com and look for investment property in Palm Springs and also Cathedral City (Cat City) which is next to Palm Springs. I already own a three unit building in Cat City and it has done very well for me not only in monthly income but in tax deduction savings.
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Al’s take on pools
I love pools. My passion for pools started early in life, I would say about the time I was six. My parents used to take me to the public pool in Eagle Pass, Texas and I would stay in the pool until my parents dragged me out. Fortunately, the pool contained an extensive patio where the parents could congregate, gossip and complain to their cronies so I had a good two hours, sometimes three, to splash about with my pals. While the pool was open, only during the summer, we went nearly every day.
At some point my parents enrolled me in swimming lessons. The lessons did help but by that time I knew how not to sink safely swim in deep end without fear. As I got older my parents trusted me to walk with friends to the public pool so I would spend as much time there as I wanted, sometimes all day.
We moved to San Antonio when I was a junior in high school and there I had my choice of lots of pools Woodlawn pool, Alamo Heights pool (the one with the highest diving board), San Pedro Pool and lots more. I visited them regularly. When I was a young adult I moved to Los Angeles where there are plenty of pools to keep me happy. The pool scene ended when I moved to San Francisco.
I never imagined, living for years in cool, foggy San Francisco, that I might own a pool but after deciding to move to Palm Springs, the city of pools, I knew my dream of having my own pool could come true. While looking for houses I pulled the listings and then opened Google Earth. By the size of the lot I could determine the size of the pool.
I Found a house with a pool that is 15 feet by 30 feet, seven feet deep that looked simply perfect. Who cares about the small square footage; I was going to spend lots of time in the pool. When the renter gave notice, we moved on down to Cathedral City.
As always ownership has its downside. Now I must concern myself with the water pump, spa jets, filters, heater and basic pool maintenance. For simplification I turned all that over to the pool man who comes twice a week to clean it, make sure it is chlorinated and free of algae.
The pool was enclosed by a tacky fence which had to be removed. The back yard, fortunately, is enclosed by a six-foot wall and two locked gates so anyone old enough to scale that would be quite able to open a pool fence. Casper the dog, as I do, loves the pool and has been taught to plunge in only with permission.
We bought this house as a rental, then used it to get to the Coachella Valley, we are now looking for a house closer to downtown Palm Springs. One problem in our search is that, having been spoiled by this big and deep pool, there is one more criterion for that perfect house that must be met. Size, price, neighborhood and most importantly pool! The dog insists. And so do I.
My 1031 Exchange
The 1031 exchange we have been undergoing finally completed with a minimum of heart burn. Covid played its role in throwing up obstacles such as documents gone missing and slower response times. Thank goodness for systems of electronic document signing, in use since well before the pandemic hit. However, having a plan and contingencies if that plan does not work out was crucial. I had both.
The house in San Francisco had to be rented for at least two years to qualify as an investment property. We were incredibly lucky that our neighbors next door were prepared to rent our house so they could remodel theirs. They estimated 18 months or so but 27 months later they moved back to their completely remodeled home. At that point we were ready to sell our house.
Just before Thanksgiving we drove up to our house in the Russian River for a week and went to San Francisco daily to spruce up the house and yard. We staged it and, because open houses were not allowed, had a video presentation prepared. That video presentation was gorgeous and the staging was stunning. Our realtor in San Francisco is a woman who is on the ball, tireless and who let nothing slip by her. With her in charge we confidently returned to Cathedral City
As soon as the house went on the market, I started to look for the replacement property. Of course the first place I looked was in Palm Springs since it would be easier to manage the property. However, inventory was tight and at the time there were only 15 investment properties in the four Coachella Valley Cities nearby. I spoke to realtor friends in Utah, Texas and Arizona looking for investment properties but the market is tight everywhere.
My intention was to submit offers on anything that gave us the income I was seeking as soon as we received an offer on the San Francisco home. Although San Francisco is still a hot market, it’s still a little hard to sell a 2-bedroom 1- bath home of 1,150 sq feet for close to two million dollars.
We finally received an offer and the fun started. More to come next month this is all I have time to write this month.
Continued
The offer for our San Francisco house was low. After a few more weeks on the market we reduced the price and the buyer with the first offer stepped up to the plate and made an offer that we could live with and we ratified the offer.
During that process I had been looking for income property in the Coachella Valley and had tightly kept track of the inventory and properties entering contract. Since time is of the essence with the 1031 exchange, I submitted an offer on a six-unit building in Palm Springs before the sale of our house had closed. An offer exceeding the asking price was accepted rather than ours. Not wasting time we made an offer on a four-unit apartment building in Palm Desert.
This property was part of an association of ten buildings each containing four units. Although I was a bit hesitant to buy a building that was part of a complex the income was sufficient, and the property was fairly new and the apartments quite spacious. Our offer was accepted, after which we performed the inspections, examined the disclosures and ordered the complex’s Homeowners’ Association documents. On my part I was still leary about getting into an association rather than purchasing a standalone property.
Ten days after we ratified the four-unit Palm Desert building the listing agent of the Palm Springs six-unit building on which we had previously made an offer called me. He said that the buyers that had made the wining offer were unable to perform. Would we like the building? I asked him to give me 12 hours to think about it and I would give him an answer the following day. After ten hours of discussion, we decided to get out of the four-unit contract and go for the six-unit building we originally wanted. A minor plus for this building is that it is in Palm Springs, but the major plus is that the income is greater.
In the meantime, the San Francisco property was going through the process of closing. We were almost there! At the last minute, the buyer’s lender threw a monkey wrench into the works by changing the mortgage application requirements meaning that the buyers had to start all over with a new lender. Since all contingencies had been removed by the buyers their deposit was in jeopardy.
So, we had a six-unit building and a condo in escrow. These two properties satisfy the 1031 exchange, but the San Francisco property was going nowhere for now. It was panic city, What to do now? More to continue in next months letter.
Continue
What to do! The poor buyers! After removing all their contingencies, the bank Informed them that it had changed all the mortgage qualification guidelines so the buyers’ mortgage would not be approved. This bombshell exploded two days before the closing. I will never use or recommend that bank again.
At this late date, I as the seller, could have kept the buyers’ deposit, something I would never have done since it was the bank’s arbitrariness that brought the deal to a halt. Instead, I steered them to the mortgage banker I often utilized to get the transaction back on track. I had experienced worse obstacles over the years as a realtor in San Francisco so knew that even at this late date we could get this sale done.
During the new loan process for the San Francisco house, I talked to the listing agent of the six-unit building and the listing agent for the condominium, informing each about the delay up north. Both granted me an extension of closing date.
For the next three weeks I kept the listing agents well informed about the loan process. I breathed a sigh of relief when the San Francisco house closed on March 31. On April 10 we closed the six-unit building and the condo followed on May 8th.
Now the real work began. The six-unit building’s roof needed replacing right away. Within a month two vacancies in that building appeared during the period we were remodeling the condo, which was finished in time for a tenant to be installed the first of June. The first vacant unit in the apartment building should be finished by July and the second, which needed much less work will be completed soon after. Then the task of finding two tenants. Fortunately, the rental market here in Palm Springs is tight so we should find tenants quickly. The positive to this is that now we can charge market rent for these two units. Then we can just manage the properties. What a relief! Owning rental property is not for everyone but if you ever want to talk about it do not hesitate to call me.
