Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
I lived in the San Francisco Bay area back in the 90s when the internet was just getting traction.
The internet bubble hadn’t even started to form, much less pop, and still the housing market there was insane.
My wife and I both worked in Silicon Valley and we couldn’t afford a home since we were fresh out of business school. So we rented a “quaint” (meaning SMALL) 900-square-foot, 3-bedroom house – for $2,000 per month.
We didn’t have a backyard, well, because there was a studio cottage back there. It didn’t have a basement. And we shared the garage with the weird hippy living in the cottage.
We were glad to get it because the owner had like 17 applicants for it, and thankfully, they happened to think our 2-year-old daughter was cute, and we both worked.
We lived there for a couple of years...
A little over a year before we planned to relocate back to the Midwest, a house nearby came up for sale. A cute little 800-square-foot, 2-bedroom, 1-bath house on a small corner lot with a short white picket fence around it.
My wife loved it. So we went to see it. It was selling for $200,000.
This was 1997 so no way were we going to spend that much for a house. So we passed on it.
Well, don’t you know that a month before we moved a year later, that house went on the market again – and sold in less than a week.
For $300,000!
Talk about your bonehead missed opportunity!
Still happening and it’s crazier…
So it didn’t surprise me at all when I read about a house being sold in the city of San Francisco.
It’s another “quaint” 600-square-foot, 1-bedroom, 1-bathroom house in an up-and-coming area in the city called Bernal Heights.
Heck, the lot itself is only 1,746 square feet.
This little gem is listed for $800,000, or $1,331 per square foot. Which, on the face of it, actually sounds like a bargain in the city.
Except this little house had something extra. And not a good extra…
The extra was that the house was completely gutted by a fire and condemned last year. And the city is demanding that it be torn down.
Is that nuts or what?
$800k for a tiny lot?
But it gets better…
The listing agent decided to price the house – if you can believe it – LOW - to “generate interest.”
So in all likelihood, there will be a bidding war, which should drive the price closer to $1M bucks.
And that’s not surprising, as a similar fire-gutted condemned “must tear down” house in the city sold recently for $1.4 million. And it too went way over list.
One reporter wrote that:
“It doesn’t appear to matter what condition a San Francisco house is in these days.
So long as the property rests squarely within the city boundaries, the potential
value of the mere dirt under the foundations will drive buyer interest.”
I thought the market was insane in 1997. I don’t have the words to describe it now.
Can you imagine being a real estate investor there?
I can’t.
I like it just fine where I am.
What about you?
Would you jump into a market that works this way? Tell me why or why not in the comments section below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.