San Francisco Condo

[Christopher Adams]

Hello BP,

I need some advice, and what better place to ask then on the forums. I have an off-market condo that a customer of mine would like to sell. We were causally talking about it while working (not to mix business with pleasure), but now that the job is complete our conversations have become much more serious and I'm stuck on two different deals to offer her. 

The condo is a 2/2 in Nob Hill (very nice area in San Francisco) that needs some updating. We have both talked about a 700k sales price if we left a realtor out of it. Since I have worked in this unit, I know what upgrades it needs. Being a Project Manager, Icould renovate this condo at a very reasonable cost (15-20k). Taking into account these upgrades and current comps in the area the unit would be worth around 820k. The same size units are renting anywhere from 5-7000 dollars a month (I know; San Francisco rent is crazy!) so I have conservatively run numbers in the tune of getting $5500 a month for rent. That should leave us with almost 2k a month positive cash flow (assuming all is calculated correctly on the BP calculator). 

My question is how to approach the deal. My wife and I can not get a traditional mortgage at this price point. We have been battling two different options and don't know which way to go. The first is a 50/50 partnership with another investor. They would put up 350k for the down payment and we would finance the rest. We would then split the net rent 70/30 in their favor and retain 50/50 equity (we would pay for the remodel and act as PM) They would make 5.3% on their cash and benefit from the appreciation in the Bay Area. 

The second option is to offer an owner carry where the owner would benefit from getting a large monthly payment and defer such high capitol gains tax. We don't know much about this option though so this is where we are stuck. My gut is telling me to skip the partnership with another investor if the owner agrees to do an owner carry avoiding splitting the profits with another party. I'd really appreciate your thoughts.

I look forward to hearing what everybody thinks, and I thank you in advance!  

[Amit M.]

ARV only $820k? How big is the place? Sounds kinda low for nob hill, where you should be north of $1000 PSF. Give us some deets on the unit- parking, layout, views, bldg size, floor level, etc.

As for owner carry I've never done it before, but if she's easy to work with and reasonable in expectations, it could be interesting. 

The caveat is be conservative with expected rent. $5k is safe now, depending on unit amenities, but could be rich 1-2 years from now: there could be a tech correction; new construction rentals are coming online at similar rents.