Mighty Small

Good as New

written by Kilby Stenkamp

In an unpredictable market, owners of 2-4-unit properties need to spend wisely to earn high returns and compete with new buildings.

Recently there have been a number of articles indicating a faltering market. When I really look closely at the numbers, I see some of this reporting is not correct.

In researching 2-4-unit sales in 2019 compared to 2018, I found that the first part of this year was indeed slower. We had a late spring market due to heavy rain. Real estate professionals are well versed on how weather affects the market. In 2018, we jumped right into a strong market right after the new year. This year, the first three months were notably slower due to weather conditions. Sure, motivated buyers will bear the storm, but for those who aren’t quite as serious, a rainy day can change plans. The same goes for a beautiful day: some buyers will cancel appointments and head for the great outdoors. Sellers often want to wait for the spring or fall market and of course that generally means more competition. We all know summer months in San Francisco can be sluggish. August slows to a crawl as San Franciscans head to Burning Man and for that last vacation of the summer before school starts. During the summer, most agents will hold on to their listings until after Labor Day. While 2-4-unit buyers are different than single family home or condo buyers, marketing a property to the biggest and broadest audience is always the best approach. This year, I noted more private sales and transactions that sold off the Multiple Listing Service on sites like Top Agent Network.

On my initial review of 2-4-unit sales, I found that comparing the first six months of 2018 with 2019 showed a market dip. When I added July to the numbers, 2019 started to shape up. Year to date in 2019, there were 246 2-4-unit sales; in 2018, there were 271 sales. Maybe less inventory, although so far this year there were more expired and withdrawn listings. In 2019 the highest sale year to date was $8,500,000; the median sale was $2,039,000; and the lowest sale was $560,000. In comparison, during the same timeframe in 2018, the highest sale was $8,310,000; the median sale was $2,018,888; and the lowest sale was $740,000.

The highest sale so far this year was a gorgeous home on Liberty Hill with a legal one-bedroom unit downstairs. The property sold at 98.84 percent of the original list price, but still at a strong price of $1,671.58 per square foot. The lowest sale price so far this year was a property on a busy street and, per the photos and marketing comments in original condition, with a note to be careful on exterior decks and stairs.

Price per square foot dropped slightly during the same timeframe from $740.73 in 2018 to $724.37 in 2019. Days on market are a bit longer from 42 days in 2018 to 50 days in 2019. In a recent San Francisco Curbed article, the author stated: “The problem with these monthly figures is the uncertainty as to which ones are blips and which ones might be part of or the beginning of real trends.” The current differential between year to date 2019 and 2018 doesn’t indicate a real trend. I’m anxious to see how the year-end numbers stack up.

The future of 2-4 units in San Francisco is optimistic. Most of the 2-4-unit housing stock is quintessential San Francisco and appealing to a broad range of buyers. Entry-level investment buyers love 2-4 units. The price point is often more affordable, and they are easier to manage all the way around. Savvy owner-users looking for mortgage relief can afford so much more in a 2-4-unit property. There has been a trend in compound buyers looking for a property that will fit an extended family. Even experienced investors find the right 2-4-unit property appealing.

With rent control, though, you have to proceed with caution. Investing in technology can be tricky as recapturing the cost of modern technology in a rent controlled apartment may not be realistic. I found a good article on what to expect in technology trends for 2019. Apartments will get sleeker and more luxurious—on a vacancy turn, investing in kitchens and bathrooms can really pay off. There are so many affordable resources for lighting and finishes that can really make a space pop. The emphasis on security is on the rise with relatively inexpensive technology like smart locks, blink cameras and wireless home security. Recently two of my neighbors went to Costco and purchased Nest Hello Video Doorbells—they love them.

Many of today’s renters and buyers don’t own cars. They want to be strategically located to utilize bike share stations, electric scooters, public transportation, etc. Smart devices and connectivity are a must have. It’s all about convenience. In an older building, it can be hard to compete with high rises and newer construction. You have to spend money wisely to get the right return.

As a small property owner, one of my favorite resources is Zumper. Not only have they created a smooth “end-to-end” platform linking available properties to tenants and then allowing them to apply online, they have a blog that tracks up-to-date information on rentals and offers great articles and tips for property owners. July statistics on their blog show an upward trend in San Francisco rentals, with one-bedroom apartments averaging at $3,720 and two-bedroom apartments $4,800. Often the value of a property is predicated on rental return, it’s important to stay on top of rental trends.

On Zumper, once tenants apply, owners go to their own dashboard and get a full renters package—at no cost. Zumper recently published a helpful blog post with tips on how to rent properties faster. Quality photos were at the top of the list. Just like real estate sales, landlords need to put their best foot forward. Offer detailed listing information, play up property strengths, know that new appliances go a long way, and consider a move-in special. Move-in specials make a huge difference in attracting tenants and competing with new construction. To compete with newer properties and get quality tenants, owners or 2-4-unit properties have to spend money wisely on turns.

Stay informed and up-to-date on the market. Always put your best foot forward. I’m seeing blips in the housing market, not trends. I am seeing an upward trends in rentals, at least for now.

Kilby Stenkamp is a realtor at Vanguard Properties. She can be reached at kilby@vanguardsf.com or 415-370-7582.