In the San Francisco Bay Area, property values are influenced by a variety of factors. When determining the current market price, it is crucial to take into account the property's location, rental income, size, tenant profile, sales comparables, market conditions, property condition, curb appeal, and competition. Pricing the property at a fair market value is vital to attract a large pool of potential buyers, which can result in multiple offers, the highest price, and the most favorable terms.
The San Francisco Bay Area holds immense appeal as one of the most coveted regions in the country, with numerous cities that entice both renters and investors. A property's location plays a pivotal role, as it directly impacts the rental income potential. The higher the rental income or the potential for rental income, the greater the value of the property.
The value of buildings is primarily influenced by the rental income they generate. Properties with higher incomes tend to offer greater returns on investments and are therefore regarded as more valuable. However, California state wide rent control restrict certain units from receiving current market rate income, which can hinder owners from realizing the full potential value in the short term. Insufficient cash flow can also impede buyers' ability to secure financing, potentially leading to a lower property valuation. Nevertheless, in the Bay Area, there are many buyers willing to prioritize long-term potential over immediate cash flow.
The size of a building plays a significant role in determining its value. Additionally, valuing a building involves considering the Price per Square Foot ($/SqFt) and Price per Unit ($/Unit). Investors often rely on $/SqFt as a tool for comparing different property investments. However, the presence of owner-user opportunities or unusually low rental income can affect the $/SqFt calculation. Unless the property possesses distinct advantages or disadvantages or there has been a significant market shift, the $/SqFt value of a property typically remains close to the average of comparable properties. On the other hand, $/Unit can be seen as an indicator of income potential.
The profile of tenants and the vacancy rate of a building are crucial factors to consider. Investors generally seek a reliable return rather than dealing with issues. Vacant units provide investors with the opportunity to have control over potential income. Such vacancies make the property more appealing to many investors, especially owner-users who wish to occupy the unit or developers aiming to renovate either the unit or the entire building. Furthermore, investors tend to discount properties with long term tenants, who are paying below market rents. California state wide rent control under AB 1482 caps rent increases to 10% a year.
After analyzing the aforementioned details of a property, the next step involves comparing its location, size, income, GRM, and other relevant factors with recent sales of comparable properties in the vicinity. While some properties may have numerous comparables to consider, others might have limited options. Since each property is unique, the prices of comparables will naturally vary. However, if a price significantly deviates from the rest of the comparables, it must be supported by an exceptional feature or characteristic to justify its value.
When assessing property value, it is essential to incorporate the constantly evolving market conditions. The dynamic nature of the market calls for diligent analysis and consideration, taking into account factors such as interest rates, economic cycles, the overall state of the economy, geopolitical events, and other external influences. By comprehensively evaluating these elements, a more accurate determination of property value can be achieved.
The condition of a property can influence its price, with better condition generally leading to higher prices. Enhancing the marketability of a building can be achieved by cleaning it up before the sale. While some buildings may be suitable for sale in their current condition, others can benefit from specific improvements that add value. Such enhancements might involve tasks like exterior and/or interior painting, power washing, and minor landscaping. All outstanding code issues or violations should be taken care of, as well as any tenant complaints or issues. Taking care of these items will help a new buyer, acquire your property with ease and confidence.
The availability and quality of inventory in the current market can have an impact on property value. In San Francisco, the strong demand for investment properties has created a scarcity of inventory, leading to upward pressure on pricing.