Lately, I have had a number of people ask me about buying a two-unit building. For parents who have children they’d like to see return to San Francisco after college, buying a two-unit building gives them an investment that one day may be used by their children as a home. Others would like to buy a two-unit building (as my husband and I did) in order to live in one unit and rent the other. Some prefer to buy a two-unit building since it is easier to convert into condos if each unit is owned by a separate person. In that instance, the owners avoid a normally required SF lottery and after one year of ownership, they can apply for condo-conversion.
Let’s take a look at what two-unit buildings have been selling for in San Francisco. Last year, 298 two-unit buildings sold throughout San Francisco. The average sales price was $1,994,787, with the most expensive two-unit building selling in Cow Hollow for $6,980,000 and the least expensive selling in Ingleside for $702,500. The average time on the market was 47 days. The average size of the buildings was 2751 square feet and the average price per square foot was $711.78. The neighborhood which had the most sales was Noe Valley with 27 and the Inner Mission came in second with 20 sales.
There are a number of things you should consider when buying a two-unit building or any multi-unit building as an investment or for your personal residence. Whether it is currently vacant or tenant-occupied is at the top of the list. A building is more expensive when vacant because it is not occupied with tenants who may have below-market rents or who may be “protected” and can not be evicted even if you want to live there. With a vacant building you get to do what you want so you can rent at market rates, or you can move into any unit you want to live in. For these reasons, it is often preferable to buy a vacant building since moving a tenant out can be legally and emotionally complicated. However, you will pay a premium for a vacant building.
If you do decide to move forward with a tenant-occupied building, the first thing you will want to do is consult an attorney. For example if any of the tenants are “protected” under the SF Rent Control Ordinance, the attorney can help you understand the complications, such as the categories of “protection” under the Owner-Move-In provision. Protection is defined as living in the unit for 10 years and being at least 60 years of age or disabled, or living in the unit for 5 years and being catastrophically ill.
Another thing to consider if it is tenant-occupied: do you want to be a landlord in San Francisco with its strict rent control laws which apply to buildings built before 1979? This means you will be restricted as to how much you can raise the rent (this year it is 2.2% which is one of the higher amount years). Additionally, you will have the responsibility of maintaining a unit for your tenants and dealing with the sundry and various things that come up when you rent to someone.
Finally, there are the usual issues with any real estate acquisition. What is the condition of the building and how much is it going to cost for upkeep to the roof, exterior painting, etc. in the upcoming years? Can you afford to maintain the building given the expected rental income and debt service?
These are just some of the things to consider when buying a two-unit building. Don’t get me wrong, this is the right strategy for the right person! I can strongly recommend this path if you are someone like me who loves the old multi-unit housing stock in San Francisco, or someone looking for a building with a child or aged parent that may move in at some point, or if you are looking for an excellent long-term investment.
If you need any assistance buying a two-unit building or just want to bat around some ideas, give me a call!