Renting

There are a number of factors right now that are contributing to the frenzy of growth in prices that we’re experiencing and I thought I’d talk about some of them in the next several posts. In my mind at least these factors all lead me to believe that this is more of a value reset…not a short term bubble. The first one that comes to mind for me is the problem with rentals in this area. Last summer I helped a client rent their townhouse at Bay Vista, it’s a 3 bedroom, 2.5 bath townhouse in 1290 sq ft. I ran one Craigslist ad…I got 25 applicants. We asked $3000 a month. Several parties offered up to 6 months rent in advance. Some offered over the asking price. I was shocked. You know what…it’s worse now!

I have a multi unit building I’m going to list in San Francisco. It’s got four units, a 4 bedroom place, two 3 bedroom places and a 2 bedroom place. I went to Craigslist to check and see what rents were going for on similar properties. The lowest rent I found in the area this building is was $4900 a month. That was for a 3 and 1…and based upon the details I figured it was really a 2 and 1 that the landlord was allowing the dinning room to be used as a bedroom. It was astonishing looking at these ads. Many places are listed for $6000 to $18000 a month. Studios are renting for $2800 a month.

A wonderful friend of mine told me today that she received notice that her apartment in Redwood City is going to take a 10% increase from $3800 to $4180. For an apartment just off of El Camino. Just to put that in perspective a bit, an $800,000 loan on a house at 4% has a monthly principal and interest of $3800 a month. That’s of course fixed…for all we know a 10% increase in rent could be coming every year of so to keep up with the demand of the market.

Needless to say, a whole bunch of folks do not like the idea of paying more in rent than they could purchasing. Lots of the buyers out there right now are in this category. I can’t see rents plummeting and as a result I’m thinking more people are going to be entering the purchase market. Why give a landlord $4000 or more a month when you can invest in an asset that’s paying off as well as real estate does?

Comments

  1. I can’t believe the tiny townhouse next to us is going for 3500/ month. It’s really crazy!

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