2019 was a marvelous time to be alive, amiright? The Dow Jones clocked 22 record closes. President Donald Trump was impeached (for the first time). Wages, rents and home prices were riding high in San Francisco, propped up by too much stupid money and real estate speculation. The young and the desperate bought into the co-living trend like it was the greatest thing since sliced bread, and their property-owning overlords were cashing in. Then, faster than you can say tech exodus, the whole racket crumbled.

Crammed to the max with seven bedrooms in the upper unit and twelve bedrooms below, 2576-2578 Folsom Street in the Inner Mission once generated at least $19,000 per month in gross rents. That’s $1,000 per month per bedroom on average. Accounting for approximately $71K of annual operating expenses (scheduled, per current property listing) and $1,875,000 paid for the property in 2015 plus another estimated $500K in improvements, that’s a cap rate above 6.5 percent at full occupancy — and over $13K per month passive net income. In this town, that’s an investment worth jumping on.

From a renter perspective, however, it’s hard to imagine shared living space and bathrooms and having only a postage-stamp size private bedroom is a viable longterm arrangement. Did we mention that the largest bedroom here is barely 100 square feet, and the smaller ones don’t even meet the building code standard for superficial floor area? As time would tell, co-living concepts like this were no match for the pandemic-induced shift to remote work. Add to it mass layoffs and, for the fortunate, the best home buying opportunities in a decade.

Rendering of the lower two floors at 2576-2578 Folsom Street. Previously consisting of a residence above basement and garage, the bi-level unit now has 12 bedrooms and 5.5 bedrooms. Image courtesy of SFAR MLS.

Needless to say, the highest and best use of 2576-2578 Folsom Street today is not what it was a few short years ago. So, what now? To reimagine the duplex, perhaps restoring the upper flat to a 3-bed configuration is a logical place to start. Downstairs, deleting walls to recapture parking for two vehicles and achieve a more livable bi-level unit is certainly not outside the realm of possibilities. Whatever direction the next owner takes it, they’ll be starting with good bones as well as newer roofing and systems.

Inside 2576-2578 Folsom Street, currently listed for $1,795,000 by cooperating broker Urban Capital SF. All listing photos courtesy of SFAR MLS.

A buyer who will establish the units as tenancy-in-common interests, live in one and sell off the other may unlock added value. Not only would this ownership hack possibly subsidize their own home, it opens the door for condo conversion. The absence of any known eviction from the property (according to the listing agent, buyer to verify) satisfies a key requirement for conversion eligibility. Therefore, after 12 months of owner occupancy in each TIC, it’s game on. So long as condominiums continue to command an approximate 10 percent premium over comparable TICs, that’s a sweet six-figure equity boost.

Additionally, holding on to one or both units, an investor may make an income-generating play still. Co-living is out, but conventional leases are always in. The proximity of 2576-2578 Folsom Street to both San Francisco General Hospital and CPMC Bernal Campus presents, as well, a stream of traveling shorter-term tenants. Moreover, as lenient work-from-home policies are walked back by major Bay Area employers — including Meta and Amazon — this commuter-friendly neighborhood is positioned to see rents rise. Location, location, location. This one has it dialed in.

Who’s ready to flex some creativity?