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One Bedroom Condos: Own vs. Rent

by sfishome on September 16, 2011

This seems to be the year of the one-bedroom condo for the SFisHOME Real Estate team. After recently closing two one-bedroom listings, we added two more for a total of 3 on the market right now.

It appears that prices have dropped for one-bedrooms more than for larger condos. So much so, that with rates at record lows, it is now as cheap, or cheaper than renting.

Below are the numbers and details on our three current listings. With tax deductions applied, all 3 are cheaper to own than rent.

1856 Powell Street #302. This is prime North Beach. They say the top three qualities when picking real estate is Location, Location, Location. Just 1 block to Washington Square Park and to Columbus Avenue and all of it’s shops and restaurants. While this condo doesn’t have parking there are a lot of garages nearby, plus both ZipCar and CarShare have lots within 1 to 2 blocks. Meanwhile, you can walk to most downtown office buildings in 20 minutes, or to the Wharf in 10 minutes.

Asking price is $419,000
4.2% interest rate wtih 20% down and your monthly mortgage is $1,640.
Property taxes are roughly $420 per month
HOA dues $475 per month
Total per month = $2,535

The condo might rent for that amount, but I’d guess that $2,000 is a safe bet. Meanwhile if you can write off your loan and property tax payments you may get as much as $700 back in taxes. If so, it is cheaper to buy this condo than it is to rent. If you can get $2235 in rent you may be looking at a savings of $400 per month.

776 Tehama St #13. This is currently tenant occupied so we know they are paying $1,850 per month. Rents have gone up since they moved in, so there is upside there as well, although you are locked into their lease for another 12 months.

The condo was built in 2006 so it is more or less brand new – great for landlords, especially since the building also has outside property management. You would still be responsible for in-unit problems, but as I said it is pretty new. It is only 556 SqFt but feels larger because the space is used so well, and because it has sliding glass doors to a private balcony. It has parking and while a very urban location might not be for everyone, the tenants are exactly who this type of condo appeals to, young and urban who enjoy the proximity to the freeways, BART, and walking distance to downtown, Hayes Valley and the Mission.

Asking price $399,000
4.2% interest rate wtih 20% down and your monthly mortgage is $1,560.
Property taxes are roughly $400 per month
HOA dues $359 per month
Total per month = $2,319

If you are able to get $700 back per month on taxes your effective payment is $1,619 which means your gross profit is $231 per month with the current rent payments. That is about a 3.5% return on the money you have to put down to purchase it which is better than most places you can park your money right now. Keep in mind that in 30 years the tenants will have paid it off which is an effective additional return of $10,640 per month ($319k loan divided by 30 years) if you keep it that long (this doesn’t work on shorter holds because most of the principal is paid off at the end of the 30 years).

2701 Van Ness Ave #711 – we actually have an offer on this, but it is a short sale and the lender is not currently budging on what they believe the Condo’s value is. So let’s use the lender’s price of $475,000. This is another great walking spot – you can walk to Cow Hollow, Russian Hill, the Marina and more. $475,000 in this location with one-car parking is almost unheard of. And this is a gorgeous classic 1929 building. The unit itself could use some updating, but it is a great layout.

The Lender’s asking price $475,000
4.2% interest rate wtih 20% down and your monthly mortgage is $1,858.
Property taxes are roughly $475 per month
HOA dues $487 per month
Total per month = $2,820

If you can get $840 back in taxes your effective payment is just shy of $2,000 and I’d guess this condo would rent for $2500.

Rent or Buy? In San Francisco, one-bedroom condos are now looking to be more affordable than renting. However, since I’m relying on tax deductions to come to these conclusions, you have to run this by your accountant to see if this is true for you. Also, taxes for owner-occupiers may be different than for investors. Since I’m not a CPA I’m not able to give tax advice. But this article is a great reason to call your CPA right now.

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