Buying in the Bay Area. Insane?

Question

Hey BP,

I'm a primarily OOS investor living in San Francisco. I have been renting bedrooms for exorbitant prices and considering the possibility of buying a home here, and I want to know if it makes sense or I if am out of my mind.

As I see it, the benefit is clear: There is a huge demand here for property, that won't go away anytime soon barring a total exodus or collapse of the tech industry. Even then the weather is great, so people will still want to live here.

The downsides however are numerous. The huge and growing homeless problem, coupled with a buy-in price that seems unsustainable for most people. Only the rich can afford to buy a home here, and that may mean a decrease in prices if we have in fact hit a top. There is also rent control, and anti-landlord politics that I would have to deal with if I decide to rent it out or go multifamily. As I intend to live in it for now, I wouldn't have to deal with that for some time, though.

As it stands, I have about 200k in cash, and plan to live here for at least 3 more years. Do you think it would be a smart idea to buy a house here, or should I put my money elsewhere?

Brian Garlington · Answer

Being a landlord in San Francisco always requires a "unique mindset". Now more than ever it also takes some serious "huevos".   Be very careful.   I own rentals in Oakland and Concord and those areas in the East Bay seem like conservative Alabama compared to San Francisco. It can be done but be very, very careful my man.

Darius Ogloza · Answer

Southern Marin is a good option if you work in the city and do not mind a 30-40 minute commute.  For all of its reputation for being expensive, Marin tends to have its share of funky little fixer places that can still be had for at or under $1 million.

Nate B. · Answer

@Tyler D'Alessandro

Buy! Why? Simple. Limited supply and growing demand.

Supply of land is limited ( Bay Area is surrounded by water or mountains) and demand is growing ( those who own aren’t selling and those who can afford want to stay here).

Plus, rent control is a policy that hurts the people it is intended to support ( check out Milton Friedman for this Economic theory). In other words, the harsher the rent control, the higher the property values.

Want facts; check out rent control policy’s in San Francisco, Berkeley, Oakland, and Richmond; the formers are strict and prices reflect that.

Richmond has the most relaxed rent control ordinance while San Francisco has the most strict. And priced reflex that.

Finally, property values in the bay are based almost entirely on the building value, not land. In other words, a 1M duplex probably had a 250k land value, meaning you get a great tax benefit due to depreciation.

So when the land cycle picks up (note I said land cycle not property) we will see price appreciate due to land. And right now, IMO, land is cheap.

That’s why I’m loading up in cities like Richmond because the land value is cheap relative to other Bay Area cities.

Brian Garlington · Answer

The East Bay offers more opportunities for cash flow than San Francisco. There are in fact more duplexes, triplexes and 4 plexes in Oakland, than the rest of Alameda County combined. There's also more small multifamily in Richmond than the rest of Contra Costa County combined. That being said you will not see the saort of positive cashflow in the East Bay then you will in the midwest or the southeast.

Tyler D. · Answer

Where would you recommend investing? I've been looking at the east bay as it is still inexpensive and is being gentrified. I'd like your take on this.

Grant Villeneuve · Answer

Yes, buy when you can in SF bay area and you will be rewarded.  Take advantage of super low interest rates RN, stop throwing away money on exorbitant rent and begin building wealth.

In three years you will thank yourself when you build passive wealth through equity and appreciation.  Imagine if you bought three years ago?  Big tech is growing, hiring and not going anywhere soon.  Neither is the iconic international city, stanford university and berkeley, as well as strict supply constraints. Nobody has bought in the bay area and regretted it 3 years later...Worst case you can always rent out your property and cover your mortgage (especially now w. V low rates) an still accumulate wealth through appreciation and write off many tax expenses (depreciation etc). Just find an upward mobility tenant and you will be just fine w. the strict tenant laws--this won't be hard, the city is more than full of them.

You are right, The hardest thing about buying RE in SF/bay area is actually getting into the game; but don't let that stop you from actually doing it.

I am happy to help and talk about different strategies to help you reach your goals.  Don't hesitate to reach out.

Buying in the Bay Area. Insane?

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