Do I rehab my San Jose condo to sell, or not?

Question

Hi all, I'm new to the site and this is my first post!

I live in San Jose and have found through BP that there isn't much potential for investing in Silicon Valley, but I'm in the education phase of REI, and am considering getting my feet wet doing a live-in rehab of the condo we purchased in Dec of 2015. We're planning to sell within the next year and have noticed how much more the upgraded condos in our area (Communications Hill) seem to be selling for compared to the original units.

I’m seeking advice from two camps before really looking into this idea though: people who are familiar with the bay area/San Jose market specifically, and people familiar with rehabs in general and what they do for property values.

We bought the place for $604,000 and had it appraised again about a year ago for a refi at $640,000. It’s a 2BR+2.5BT, 1057 sq ft unit. I’ve tried to look at comps in the area but being super new to all this, I don’t know what I’m doing. Zillow is showing me comps with 3 and 4BR’s and almost twice the sq ft, so I’m not even sure if they are comps… We had the condo recarpeted and painted when we moved in, and that’s still in good shape, but the last owners made some “improvements” themselves to the kitchen and bathrooms that are a little janky, so those areas would be our focus.

Ultimately, we want to know if rehabbing would be a good idea in this market, and if so, how much rehabbing should we consider? We're obviously interested in the best ROI we can achieve, but having only been looking into REI for about five minutes now, I need your help!

Please and thank you, BP Community!

David Faulkner · Answer

Do not sell before December 2017. If you live there 2 out of the last 5 years as your primary residence, then your cap gains will be tax free (up to $250k for singles or $500k for married couples) ... to be clear, I think you probably should NOT sell at all, but if you do decide to sell, you need to be aware of this rule for timing as it could save you 10's of thousands in cap gains taxes. That should give you plenty of time to remodel and reconsider :)

David Kyo · Answer

What David Faulkner says about living in it and taxes is spot on.  You've definitely got some appreciation in there from 2015 and the 250k tax free is something you should try to take advantage of.  If you've decided to sell for sure spend a little time understanding your tax implications as it can mean a big difference in how much you get.

I personally use Redfin to do a quick spot check of the area, what's up for sale at the moment and what's sold recently. Here's an example.  You can zoom into your area: Communications Hill

You can also try their Price my home tool and select from recently sold homes in the area (you choose which ones).  It gives you a decent ballpark.

Like David mentioned it doesn't hurt to chat with some agents in the area either as they're usually more than happy to talk to a potential seller.

Jen L. · Answer

@Shawn Franks Welcome to the site.  I agree with @David Faulkner on not believing everything you read on the forum because 99% of BP people has no experience on our market.  Make sure you research more before you give up on the Bay Area.  Also, if you talk to agents, they will want you to sell because that's their business.  Your property increased value by $36k in 1.5 years.  Many people are getting $100/m of cash flow in the mid-west and that means you are already getting 360 months/30 years of cash flow without lifting a finger.  Not only is appreciation not guaranteed, rent is also not, heck, nothing is!  Hang out in here longer and read more posts.  I'm sure people can make good money out-of-state but you're already making good money locally, IMO.

David Faulkner · Answer

So, let me get this straight ... you bought the property for December 2015 for $604k, did nothing to it, it appraised for $640k a year ago, is likely worth much more today, and you want to sell it with the rationale that there isn't much potential for investing in Silicon Valley and the ROI is not very good? Yep, that makes perfect sense to me ...

As to renovations, they are totally market specific ... you need to study the comps. Look at other condos nearby that are for sale ... what are they for sale for and how are they finished out. Look online for sold comps nearby ... look at the pictures from the listing. How much did they sell for and how were they finished out? What is the difference between a nicely finished unit and a dated one? Then talk to some contractors to figure out how much the remodel you are thinking of would cost. Then you will have your value added and the cost to add that value, and can make an informed decision from there ...

Sam Shueh · Answer

For condo of your price range in 95136 it will level off soon in the future. Every county in SFBA is leveling off (Alameda, San Mateo, SF etc). The exception is Santa Clara County which rose 2-3% annually. Downtown SJ it has another 1500 units to be constructed (most are high rise, high ceiling type) and Berressea Flea Market former parking lot is still building 1,000s of them. The price there or at Communication Hills are not that cheap either. My advice is just do enough to get the attention of buyers.  This year the better neighborhoods I have sold rather quickly. Leigh Ave, Bascom/Morepark Ave, and even in east SJ all have multiple offers. Places with $400s due most people do not want to deal with.  The less desirable neighborhoods are along Blossom Hill, Tradewinds old and cramped they are first and prices are leveling off.

Next year, with mortgage interest rate changes who knows about future. To time the market is not a trivial issue.  I know there is tons of new built inventory where one gets 1st or first 2 months rent for free,  the rental market has been sluggish for 2 years now.  You want to send me a PV or eMail I will tell you how much you can get today. 13th year in biz.

Sam Shueh

Campbell, CA

Ian R. · Answer

@Shawn Franks

So just tossing this idea out there...

I'm certainly not an expert in your market BUT have you considered keeping the condo as a short term/corporate rental (if your condo association allows it)?  I suspect that you have tons of corporate tech types that are consistently traveling to your city for business and are looking for nightly/weekly rentals.  If your association allows it, the returns could be massive.  Just food for thought...

Check out last week's podcast (#229 I believe) for an example of someone that's killing it with STRs on AirBNB.

Matt R. · Answer

I think there is likely a sharp broker/agent within one mile who knows what is up for your place including comps. The good ones are ok with getting the chance to list whenever you are ready. You can get multiple opinions if needed. Just let her him know ahead of time you are only thinking of selling and wanted to just check it out for now.

Perhaps consider rents might be the same as you are paying now or more and there maybe little profits if you decided to sell now. Look over the historical on that place and you might see it takes longer hold times to realize the full benefits of investing in SJ. Also do you have another place to live in that appreciates 1 to 3k a month historically? That place will sell in 30 days figure so this needs to be really planned out.

David Faulkner · Answer

Don't believe everything you read. Real estate investing is local, always ... I'm sure there are plenty of real estate investors in your own backyard that are consistently making great returns year after year and are not speculators. In fact, I know this is true because I know some of them ... do you know anybody like that @Minh Le? If they can do it, why not you? Do not give up on your home market just yet, especially after you've already had success there ... study what they are doing to succeed, learn from them, and do the same if you choose ... or if after learning from them you choose not to, well hey, you still learned something that will likely help you and at least you gave it some thought and hands on research rather just believing whatever you read on online forums from folks that don't live in your market and in many cases have a vested financial interest in convincing you to buy property out of state.

John Erik Fraker · Answer

Rehabbing condos for profit in Silicon Valley is tricky business, especially in an area where newer condos are consistently coming on the market.  Many buyers will simply go for the newer build, even if yours is just as nice.

It's also dicey because condo comps have so much less wiggle room to reflect your upgrades than SFR.

I sold my own condo (West San Jose-Saratoga) in 2012, and had done an extensive amount of renovation ($50K).  However, when I listed in for sale, an investor property in our complex tried to short-sell for $150k less than my list price.

I had to wait more than a year for them to get their first short-sale attempt rejected by the bank; re-list at a higher price (still $75K less than mine), sell and wait for their sale to fall off as a comparable before I got my price.

Nobody cared that their unit was a hovel and mine had the most extensive upgrades in the complex - it never got past the comp issue.

I realize 2017 >>>>> 2012, but the comps issue can be a deal-breaker.

Do I rehab my San Jose condo to sell, or not?

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