Tour S.F.’s Below Market Units: Our Most Affordable Real Estate

By (Anna Marie Erwert)

Welcome to 2014! If becoming a homeowner in San Francisco feels more like a fantasy than a resolution this year, you’re not alone. Most all of San Francisco’s recent mayors have noted the dearth in affordable homes in this city. Mayor Lee too has made news admitting that affordable living, or its non-existence, has approached crisis mode and that his office must act.

Civic intervention is why below market rate (BMR) units exist in the first place. Many multi-unit buildings in San Francisco include specially government-designated apartments that will sell for much less than market value. The trick is to qualify for these, then to wade through the paperwork, meet all deadlines, be approved, then to follow the rules set up once you own. Okay, so there’s more than one trick, actually. The process is in fact quite tricky indeed.

[One] such unit at 888 7th St. is at $224,723, its price offers a significant discount: this unit in the same building, of the same size and type, sold for $425K in August of 2013. So yes, lots of red tape. Acres of it. But the pay-off might make it all worthwhile.

Basic requirements:

So what does it take to buy one of these homes? Only a select few will be able to even try.

In almost all cases with BMR units, buyers must be first-time homebuyers who meet income requirements
Maximum income for a one person household can make no more than $70,850, a two person household can make no more than $80,950, and a three person household can make no more than $91,100. The process to prove income includes many additional steps: Per the MOH website “For purposes of determining household income, each person who is 18 years-old or older in an applicant household must present: (a) a complete set of past three years’ federal (only) Income Tax Returns (signed & dated) and W-2 forms; (b) three recent and consecutive income statements; and, (c) three recent and consecutive statements from each savings, checking or any other type of account in which each person has money saved. Mayor’s Office of Housing and Community Development will determine final income eligibility based on your household’s current income and assets.”
Applicants must attend homebuyer workshops and obtain certification
Must get loan pre-approval from acceptable loan source
Meet additional “size restrictions” (whereby one buyer cannot buy a 2-br home; there must be at least one member of the household for each bedroom, though the inverse is not true. A 2-person household can buy a 1 bedroom; a 3-person can buy a 2-br)
Enter and win the BMR lottery: approved applications don’t mean you can buy the home you want. You enter a lottery for the home once you’re approved, and then one application wins the lottery. From there, that lucky winner seeks an actual loan.
After purchase

These requirements follow the new owner once he/she/they take possession of the unit. (Always check MOH website for most current rules)

Capital Improvements: Owners may add eligible capital improvements and special assessments to their resale price only if the improvements are (1) eligible and (2) made after the unit is 10 years old.
Owner Occupancy: BMR units are intended to be owner-occupied at all times and used as a principal residence for the duration of ownership.
Renting: BMR units are intended to be owner-occupied and never used as investment property.
Pricing BMR Units for Resale: A BMR unit will be resold at a restricted affordable price to a household that meets the first-time homebuyer and income qualifications for the program and for the particular unit. New BMR units will be repriced according to change in the median income from the time of the current owner’s purchase to the time of sale. Specific repricing methods vary by development per the Planning Approval and applicable Procedures Manual for each unit. The price of a BMR unit at resale is not guaranteed to exceed the initial purchase price of the unit. However, most long term BMR owners tend to see some appreciation on their units upon resale.
So what do you say, readers? Among homes under $400K in SF right now, the most common options are those for seniors 55 yrs and older, tenancy in commons (TICs) and the below market unit. Given that the median household income for San Francisco County was $73,802 according to US Census data, can the BMR unit be the answer to San Francisco’s affordable home crisis?

Anna Marie Erwert writes from both the renter and new buyer perspective, having (finally) achieved both statuses. She focuses on national real estate trends, specializing in the San Francisco Bay Area and Pacific Northwest. Follow Anna on Twitter: @AnnaMarieErwert