This post first appeared in the March edition of: Cirios Trends: In Search of Real Estate Opportunities.

This month’s zip code spotlight moves to what can truly be called the heart of the San Francisco Peninsula. Nestled between South San Francisco and Burlingame, San Bruno is a suburban haven only minutes from the city.

Homes in the area range widely in cost, from $1.3 Million dollar mansions on the hill to affordable, $300,000 row homes closer to the bay. In the midst of all this, a solid core of reasonably priced (by peninsula standards) homes provides an excellent alternative to more expensive south peninsula locales. The median listing price currently rests at around $650,000. For this price, homebuyers can get a reasonably large 3 bedroom home with a good sized lot.

With a housing stock largely consisting of homes built in the 1950’s and 60’s, opportunities abound for rehab investments. Foreclosure activity has been on the rise in the area of late, while prices seem to have leveled off somewhat. As you can see from the graph below, the moving average sale price for homes has actually increased slightly over the last 6 months. During that time, supply has come down from its spike in 2008 but is still slightly elevated from traditional levels, likely due to the increase in foreclosure activity.

What this means is that home values in the area are increasing despite downward pressure from increased supply. This is a good indicator for the medium term prospects of San Bruno real estate, as it indicates that demand is higher (relative to supply) than it has been traditionally in this area. If supply does taper off, prices should go even higher. In the meantime, we feel that price stability for this area is very likely, making rehab investments in the area quite attractive.

This post first appeared in the March edition of: Cirios Trends: In Search of Real Estate Opportunities.

Opportunity Overview:2730 Sherwood Dr., San Bruno, CA 94066
For many people familiar with the Bay Area, the Peninsula is a place where only the wealthy can afford to live. And while this holds true for most areas, there remain some desirable areas that still afford first-time buyers a place to call home. One of these towns is San Bruno. Known more for its poor weather than affordable homes, San Bruno often gets a bad rap: There are plenty of neighborhoods that aren’t buried within the fog belt. San Francisco International airport is close (although in some cases too close), and job centers are a short drive North or South. Homes frequently sell for less than $600,000 which, on the Peninsula, is downright cheap.

Property Details
Bedrooms: 3
Bathrooms: 2
Living Area: 1,140 square feet
Lot Size: 5,432 square feet
List Price: $549,000
Sale Price: IN ESCROW (8 days on market)
List Date: 2/12/2010

This property was purchased at Trustee Sale on January 4, 2010 for $444,000. In just over 30 days, the buyer was able to relist the property for more than $100,000 above acquisition cost. The quick turnaround indicates that improvements were more than likely cosmetic in nature. Given the lack of equivalent homes on the market, it ‘s safe to assume this property will sell at or above its asking price.

Here is one potential scenario of how an investor would make out:

(Note that the cost figures below are estimates)

$444,000: Purchase price
$30,000: Repairs and remodel
$1,520: Taxes
$3,500: Insurance
$5,000: Escrow costs
$484,020 Total Investment

Although a $30,000 budget is not especially large, given the small size of the home, many high quality improvements could have been made. The final numbers in our scenario look like this:

$570,000: Sale price (estimated)
$28,500: Less Real Estate Commissions
$484,020: Less Total Investment
$57,480: Profit
11.9% ROI

A return of 11.9% is not as high as other deals we have seen come across the steps, but escrow is scheduled to close on March 11th, so the deal took just under 70 days from purchase to eventual resale. The annualized return on this deal was meaningful, indeed.