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How to Live for Free in the Most Expensive City in America

Scott Trench
10 min read
How to Live for Free in the Most Expensive City in America

Special Thanks to Mashvisor.com for providing some of the critical data used to create this piece.

Let me tell you something that most people hate to hear:

Where you live is up to you.

The wealth building process, including investing in real estate, is a direct function of both how much you earn and how much your life costs to maintain. If you live in an expensive city and you are an independent adult, you are responsible for your high cost of living.

I made a very deliberate choice not to move to an expensive city upon graduating college and sacrificed some earnings potential for a very real tens of thousands of dollars in cheaper living expense. When you decide to live somewhere expensive, you forgo the opportunity to build wealth like those who live in other places.

If we accept this, then you have to understand that when you live in an expensive city like San Francisco, you forgo wealth building opportunities for the luxury of living there. I didn’t understand this choice personally.

Then I visited.

I had the good fortune of being able to visit San Francisco last week on a business trip for BiggerPockets.

I loved it.

I get why the people who live there must love it, too.

There’s the gorgeous scenery, the coast, the beach, the mild weather, the beautiful buildings, and the lovely parks.

There’s great food, beer, restaurants, and entertainment.

But what really stands out are the people.

The tech entrepreneurs with their boundless optimism, many of the very best young people just getting started in life and working at the greatest companies in the world. Those continuing the decades old San Franciscan counterculture movement. And of course, those left behind by the incredible progress of the city — the homeless and beggars that are impossible to ignore.

San Francisco Housing

Overall, there’s a culture in San Francisco that is impossible to replicate — and one that might (for some folks) be impossible to walk out on.

If that’s you and you want to get involved in real estate, you are in a tough spot.

That said, let’s talk about the purpose of this article — how to get started in real estate in San Francisco (and expensive cities like it).

First, let’s define why traditional real estate investing is so difficult in San Fran. There are two main reasons:

  1. Real estate in San Francisco is among the most expensive in the country.
  2. Rents, while incredibly high, are some of the lowest in the country relative to property purchase price.

That second point is the real key here for the aspiring real estate investor. Most barriers in real estate can be overcome by finding great deals and by partnering with those who have the capital to fund your new business.

But if a property loses money, there’s not much that can save you.

While the average citizen might think that rents are crazy expensive (and they are!), for the owner of real estate, the rents are only material in relation to the purchase price. Below, find a chart indicating some of the larger cities in the country. Here, we divide average Fair Market Rents (FMR) by the average sale price.





Note* – These graphs are provided using the data from BiggerPockets’ real estate investment market index

These three graphs tell us three things:

  • Rents in San Francisco are really expensive.
  • Home values are insanely expensive.
  • Because home values are so much more expensive relative to average rents in San Francisco, San Fran has one of the lowest rent-to-home-value ratios in the country.

These three points pose a challenge for landlords because when properties generate little cash flow per dollar of purchase price, it means that a leveraged real estate investment might negatively cash flow.

In other words, if you are an average Joe looking to buy traditional rental property, you will bleed cash.

That doesn’t help us with our goal of living for free.

But is there a way to make this work?

Short-Term Rentals

As I discovered on my visit to San Francisco, not only are rents very high, but hotels are very expensive as well. In fact, the entire short-term rental market is expensive.

While searching for a place to stay on Airbnb, perhaps the largest short-term rental platform in the city (and the country), I was shocked at the absurdly high prices and the absurd places being offered.

One of the cheapest spots near the financial district (where the conference I was attending was being held), for example, was going for $179 per night. This wouldn’t be crazy — except that I was going to stay in a one bed, one bath 400 sq. ft. apartment with some random girl who would be selling the bedroom and sleeping on her couch! What!?

While I admire the amazing frugality of this particular woman, that seems a little extreme.

But it also sparked an idea — what if San Franciscans could make this woman’s strategy work as a true investment? What if they could cash flow on these high end condos by renting them out on Airbnb? Perhaps that would allow them to take advantage of their love for and knowledge of the city and purchase property right in their backyard — property that actually makes some kind of financial sense.

Related: AirBnB vs. Traditional Rental Income: A Creative Way for Investors to Cash Flow in Expensive Cities

Perhaps San Franciscans, like the mythical house-hackers of other cities (like myself here in Denver, CO) could live for free.

So, I talked to my colleague Peter from Mashvisor.com, and he generously donated some incredible data on Airbnb rental rates, occupancy, and competition (total listings) over the past few months. This data is broken down by neighborhood and includes only the ten neighborhoods in San Francisco that see the most Airbnb action. You can check out that raw data and some of my calculations for San Francisco in the spreadsheet I built here.

I then took that data and made a little bar graph (you’ll notice I like those). Here are the results:


Let’s break down what’s going on here. Airbnb income is a function of two things:

  1. Average rent per night
  2. Average occupancy

Unlike a traditional rental, where occupancy is usually 90 percent or higher, short-term rentals typically miss a few days per month. This means that cash flow can vary greatly depending on the month, the time of year, important events, etc.

The data here takes the average of both the nightly rate and the average occupancy levels. We then multiply that out to get an average monthly income based on historical averages. Note that some of these neighborhoods had particularly low occupancy rates (below 50 percent). While that may have something to do with that particular neighborhood, it seems to me that a great marketer could substantially improve on these income numbers with some intelligently applied effort.

Finally, in the dataset, we take the average sale price of the most commonly sold type of property in that neighborhood. For most of the neighborhoods studied, we’re looking at condos. But for the Silver Terrace and Outer Sunset neighborhoods, we look at single family homes (SFRs).

Looking at the data, it looks like two neighborhoods, Cow Hollow and South Beach, might actually make mathematical sense, on average, for this particular strategy. It looks like the average Airbnb listing could bring in almost $50K in revenue per year for those locations! This suggests to me that it IS possible to cash flow in San Francisco with a typical property in some of the most desirable neighborhoods in the city.

In Cow Hollow, for example, Airbnb provides almost twice as much monthly income as Fair Market Rent for the city! And remember, that’s the average for this dataset. Think you could do better than average? I do.

Again, feel free to download the dataset for yourself here.



I hope that so far I’ve at least convinced you it is possible to cash flow in San Francisco. I still wouldn’t touch this city as an outsider, and I’m definitely not saying that things will be easy, but I hope the numbers I present here at least indicate that cash flow is possible.

It’s possible, that is, if you can overcome some major hurdles:

Hurdle #1: You have to LIVE in the unit you are renting out.

To quote Airbnb’s website (a much more thorough explanation than we will delve into here and one that any and all parties interested in short-term rentals in San Francisco should reference in conjunction with the official documents distributed by the city government):

  • Primary Residency Requirement. To register your listing, you must live there for at least 275 days per year (or if you haven’t lived there for a full year, 75 percent of the days you have occupied the unit). This means, in effect, that your ability to share your space while you are present is unlimited, and you may rent out your entire space while you are absent for up to 90 days per year. Read more in the City’s Starter Kit or on the Planning Department’s information page.

For more information on how to get started with short-term rentals on Airbnb, check out this Short-Term Residential Rental Guide, put together by San Francisco’s government (also linked above in the Airbnb quote as a “Starter Kit”).

Hurdle #2: There’s a passionate lobby in San Francisco dedicated to stopping you from making money off short-term rentals.

Those interested in short-term rentals in San Francisco should be aware that there is a very entrenched lobby against short-term rentals. This lobby likes to patrol the internet, Airbnb, and has even commented on my prior writing here on BiggerPockets.

This lobby is extremely diligent about fighting those looking to Airbnb their properties, as I can attest, having been called out by members of various anti-Airbnb lobbyists while discussing this very subject in the past.

A savvy short-term rental investor will carefully read the laws and follow the city’s instruction to the letter. You have been warned — there are those who are strongly opposed to you succeeding in this type of investing, and they will do their best to bust you if you so much as put a toe out of line.

By the way, I’d be careful with condos, too. Surprise! Many of the folks that are against short-term rentals hold powerful positions in HOAs across San Francisco (read: if that’s a surprise to you, you need to do more research before entering this game). Don’t put yourself in a position where you could be vulnerable to a large HOA organization that prohibits short-term rentals. That can destroy your property’s income potential overnight.

Hurdle #3: San Francisco charges a tax on short-term rentals.

San Francisco charges a tax on all short-term (less than 30 days) rental income. This tax is 14 percent and will be paid by the guests. You’ll have to note to the guests that this is a fee that will increase the cost of their stay. While the guests pay it and Airbnb will generally take care of the collection and remit payment to the city, it certainly doesn’t help your cash flow, and it’s not very much fun to pay as a visitor.

Related: BiggerPockets Real Estate Investment Market Index: The Best (and Worst) Major Markets for Real Estate Investors, 2015

Hurdle #4: The price of property is prohibitive to most.

All of this talk about how the numbers might work out for the savvy San Franciscan investor or resident looking to live for free is great, but it ignores the fact that property is so expensive in the first place. How on earth are you going to afford a multi-million dollar single family home or even a condo in a part of town that is reasonable to live in?

This is the part where you have to get creative. Unless you make several hundred thousand dollars per year, you probably won’t be able to make this strategy work with a traditional bank or lender. You may need to team up with wealthy investors, split equity, and find ways to manage a business that is integrated with your life for mutual financial gain. Or you may need to get creative with your debt structure and find a way to gain access to tremendous leverage.

Either way, you will likely have to give up something to purchase property. This will likely affect your returns, but might just be enough to put you in a position to make big profits from future appreciation and enjoy a great part of a great city for free.


A Few Quick Airbnb Tips

There are a two basic, probably obvious points that I want to leave the future Airbnb investor with before concluding this guide:

  • Airbnb income is heavily dependent on location. Obviously, people want to visit your city and be located within walking distance to the great things your town has to offer. That means getting a great spot within a great neighborhood is critical to long-term Airbnb success.
  • Reviews are key. Mashvisor has found that somewhere in the ballpark of 10 reviews creates a huge increase in demand for Airbnb hosts. Prior to your first ten reviews, expect to have some more vacancies than you might have planned for. Once you get those first 10 reviews, however, vacancy rates seem to drop, and your situation continues to improve as the reviews keep coming. Interestingly, great reviews don’t seem to make a vast difference from “OK” reviews, but bad reviews really do hurt. I guess guests just don’t want to have a terrible experience, and ten “OK” reviews are a good start to providing assurance that you aren’t ridiculous and/or likely to terrorize your guests. Don’t give up until you’ve got those first ten or so reviews (as long as they aren’t bad!) — it’s then that you’ll be over that initial hump and (hopefully) begin to really scale.


If the above is TL;DR, here are the key points:

The math that I’ve done for you, with the help of our friends from Mashvisor.com, seems to indicate that it IS possible to seek out some cash flow from real estate in downtown San Francisco using Airbnb. That’s the good news.

The bad news is that this cash flow requires work, property is expensive and hard to finance, and you will face scrutiny and opposition from folks all around the city looking to stop you.

San Francisco, I love your city, but I’m not putting MY dollars in your real estate. That said, if YOU love it enough, there’s no reason why you can’t push through these barriers and put in a little sweat. If you can use math, common sense, creative financing, and carefully toe the line, you might just be able to own some great property and enjoy your beautiful, wonderful culture for free, courtesy of Airbnb. 

Mashvisor aggregates data on traditional and Airbnb rental income to help real estate investors research and analyze neighborhoods, cities, and regions for investment opportunities. Their data may be helpful to investors seeking to perform analysis similar to that done in this article, in cities and regions around the country. Thanks again to them for providing this information for free to BiggerPockets!

Please leave a comment letting me know if you think this strategy would work — or if you’ve found a way to cash flow in an expensive city, let me know how you’ve done it!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.