Andrew’s Frequenty Asked Questions

Q: Why does it seem like I can generally get more for my money with a TIC in a 3-unit building than in a 2-unit building?

With the market in San Francisco remaining quite healthy with relatively low inventory and large price tags, entry-level buyers continue to consider partial interest purchases in buildings (as Tenants in Common – TICs) at the same time they seek out more traditional condominium purchases. Most TIC listings are 2-4 unit buildings that are offered for sale as a whole, although we are beginning to see larger building sales offered and structured as TICs as well.

The answer to the question of value is closely correlated to how easily or not the building can convert to condominiums. Although we need to evaluate each property’s ownership and tenancy history to come to a conclusion of price/value and conversion opportunities, generally speaking current City rules provide 2-unit buildings the opportunity to convert to condominiums much more quickly and easily than larger buildings – those with 3 or more units.

In a best case scenario, 2-unit buildings can usually convert within 3 years of the City’s rules being met, while larger buildings might take 8+ years to get through the same process.

Because of this general ease of conversion, we find 2-unit buildings priced at a premium and their units valued very closely to what they might be offered at if they were already condominiums. 3+ unit buildings, however, are generally priced 15-30% lower on a per-unit basis, due to the risks involved with confidently getting through the process of conversion, and the logistical and real risks of having your finances intermingled so closely during the TIC ownership period.

For more information about the world of TICs, please visit my TIC page.

Q: What is the deal with CA property taxes? I was recently told 1st installments are due in Dec, and 2nd Installments in April?

California assesses property taxes based on a fiscal year, from July to July. For each tax year, the tax bill is published in October; the first half, covering the first six months from July through December, is due on or before December 10th, and the second half, covering the second six months of January through June, is due on or before the following April 10th.

Q: My husband and I are contemplating renovating our home or building a new one from scratch. Can you tell us what the sales prices per square foot are for an existing home vs. remodeling costs vs. a vacant lot?

Price per square foot is just one metric used to analyze real estate values. I’d caution you not to use $/sf too rigidly in establishing value, as the numbers vary considerably based upon many factors, including such things as property layout, location, vintage, finishes, view, etc.

Residential construction/remodeling costs also vary based upon what is being done. For instance, kitchen and bath remodels can range greatly in price depending upon finishes, etc. Generally however, you should expect the low-end of construction to cost $300/sf, and likely more if there is structural work to be completed (ie. adding 2nd level.)

Land costs are generally driven by location and what can be built. For instance, land zoned RH-2 will allow 2 units to be constructed, and will likely fetch more than one zoned for only a single family home. In any event, demand for land in SF is so tight here that parcels are regularly bid up highly by contractors who will be “swinging the hammers” themselves, and thus the ultimate selling prices reflect only sufficient margin to cover a developer’s profit.

Q: Why does the price per square foot go up the smaller the place is? I’ve seen a 432 sq ft listing at $700+ a square foot, but when you look at 3 bdrm houses with 2000 sq ft, the price drops into the high $400’s. Is this to be expected or are the smaller places highly over-valued?

The price per square foot in San Francisco is always greater for smaller properties. In other words, you get more for your money the higher the purchase price.

That’s because San Francisco has a “floor” in prices due to the enormous demand for housing. More people bid for the lowest priced homes, which forces higher prices in that asset class. Since fewer people are bidding for the more expensive properties, they become better values for the money spent.

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