Friday, July 6, 2012

Bullish move – boom market? ...everything is cyclical.

In San Francisco, the 2012 market thus far has experienced amazing evaluations in home sales.  I wanted to take a moment to focus specifically on 936 Clayton Street and build a case study example of just how robust (in expectation, particularly) the market has become in the recent year.

As a brief intro: 936 Clayton Street is a traditional Edwardian home found in the sought after sub-district of Cole Valley.  It was purchased earlier this year (2/14/12) for $1,593,550.  Here is the official MLS link for details:

936 Clayton sold earlier this year

A well-known (and highly regarded) developer bought it with the intent of churning a lofty profit.  Just four months after purchasing, the home has come onto the open market asking $2,850,000 – nearly $1.26m over the recently purchased price.  To help justify the material pop in asking price (value), it is imperative to note that the developer has updated the home throughout (including new systems) and added one full bathroom.  No additional square footage was added to the home, as the tax records note 2,700 square feet of living space.  Here's the official MLS link for details and pictures:

Renovated, finished product now available

At first glance, one may question how the developer can be  rationale in asking such a material amount after owning the home for only a brief four months.  To help us better understand the reasoning, here is a quick breakdown of renovation and sale costs associated with this extensive remodel and anticipated ROI:  

Sale price (assuming sells @ Ask) = $2,850,000

                Construction costs = 2,700 sq ft @ $200 per foot = $540,000
                Soft costs (i.e. Permits, architectural Plans) = $20,000
                SF Real Estate Transfer Tax = $21,375
                Brokerage Commissions (@ 5%) = $142,500
                Purchase price of home = $1,593,550

(Anticipated) Profit before taxes = $532,575

The construction costs are the only (main) variable that could materially impact the profit margin.  In any event, the going rate for most developers in the City when ‘Flipping’ a project is about $200 a square foot (though tight, it can be done when a GC or developer is doing the renovation for their own principal profit).

Not too shabby for a four month turnaround!  Stay tuned for the sale price, as it will be interesting to see how the market interprets the developer’s efforts along with discerning the underlying market value given the amenities and specs offered by this home.