Unlikely to Survive Another Century

(Chronicle photo)

Mansions costing decamillions get all the headlines, but sometimes it's at the bottom end that one can see how overheated the real estate market is.

Headline: Wooden Shack in San Francisco Sells for $408,000 [bold added]

The dilapidated [765-sq. ft] shack was built as relief housing in 1906 after a devastating 7.8 earthquake ripped through San Francisco and destroyed more than 80 percent of the city. As such, the fixer upper is considered a historical property and cannot be torn down or undergo significant changes.

In one of many hypothetical scenarios an all-cash buyer (I can't see a bank making a secured loan on this property) can earn a slight return of about 2% if he a) invests an additional $40,000 in fixing up the property, b) rents it for $1,200 minus expenses, and c) sells it for $450,000 in five years.

If the property were to be tragically destroyed, however, the owners would make a much higher return, even if one factors in the cost of replacing the structure. Let's hope that the fire department and the next-door neighbors are vigilant against such a tragedy from happening.