Being Swallowed Alive: The Collapse of San Francisco

39 Replies

I was born and raised in San Francisco and as we all know, this city is changing big time. My wife and I felt fortunate that we were able to buy a home here in 2016 despite the astronomical cost. Our children know nothing else but being able to walk just a few feet from our door to buy dim sum, a burrito or an ice cream. The diversity and difference among residence is a strength and something we value greatly. However, the techie exodus is breaking our business plan and we don't know what to do. I'm trying to learn OOS investing in Ohio - Cleveland and Columbus, but I also need to solve the crisis forming from the roof over our heads.

We bought a house needing remodel and once all was said and done sunk $1.14M into it. We borrowed from the bank and from family for the down payment so our debt service is high. Fortunately, although our property is a SFH on paper, the downstairs has a discrete entrance and we've been renting it like an inlaw. That income has allowed us to live at modest cost and at less than what comparable rent would be for the space we occupy upstairs. Until now... Rents across the city are falling. We think once our tenants lease is up in summer,, they'll want to move on to a larger space, in a better neighborhood for less money or out of SF entirely. At the same time, vagrants suffering from drug and alcohol abuse are for the first time pitching tents on our street.

We feel trapped between falling rents and falling home prices, rent control, and bad city policies on crime and homelessness. We aren't political people, we just want to live in peace without loosing our shirt financially.

We've thought about lowering the rent downstairs to keep the tenants but rent control would prevent us from raising it later. We are after all in the most tenant-friendly city in America. We thought about renting the entire home if they move out, but think we'd still be underwater $1.5k-$2k each month (rents are down +30% YTD across the city). SF only allows 60 days of airbnb per year unless you stay in the property. Or, if we sell, we'd likely lose our portion of the down-payment and possibly some that we borrowed from family.

Covid 19, the techie exodus and bad City governance has completely broken our business model for house-hacking San Francisco. We are being swallowed alive and can't seem to devise a clear path forward without going underwater every month or taking a six figure loss on a sale. I keep telling my wife that we can't throw good money after bad, but I too don't want to sacrifice half a decade of home and savings to get out of the crisis taking over San Francisco. And for those that think this city is a sh*those, it is, but not because residence are too liberal or somehow deficit or foolish. People here are open-hearted and compassionate. But, we have poor leadership and there is too much money and power to be lost if the policies destroying the city are changed for the bettrr. Greed isn't the exclsuive eomain of our city. It's just more obvious because of how beautiful it once was just a few years ago.

If you guys have suggestions or opinions, I'm all ears and would love to hear them.

I feel you man and have been in your shoes. I once was a proud New Yorker and first time home investor in 2005. Then came 2009 and things started to change. Since we were in suburbs we weathered the storm. The problem was big government spending, high taxes. Today, I received an offer to potentially make 50% more than what I currently make at my day job but I have to consider moving to Boston. I'm reluctant to move back to city where cost of living in exponentially high.

I would suggest not to involve a Realtor to sell, this could possibly save you and the buyer decent chunk of money. Or hire one that can help you with paperwork only. Market that house on Zillow or wherever, show it yourself. (Don't get me wrong, I highly value relationship of RE Brokers and Agents)

You also need figure out your and your SO employment situation.

Don't worry you will survive.

@Joseph Mah    

A couple of thoughts.......just kind of spitballig hear.

Have you thought about moving your family into the bottom (discreet) entrance area and renting out the entire top area?

And/Or........seeing what the SF Housing Authority would pay if you had a Section 8 tenant there? They may pay more than or at least close to market rent.

And/Or....Getting a Heloc/Cash out refi on the property and putting that money toward buying properties in cashflowing markets like the ones you mentioned?

And/Or.........selling the house (In the City houses are going for over asking price right now). Take those proceeds to buying a properties in cashflowing markets like the ones you mentioned. In the meantime, rent somewhere, but stack the cash(flow) until you decide if you want to buy again.

I'd focus on trying to make a decision taking the emotion out of it. If you can hold the property through this challenging time, do you think values and rents will recover or what is the other option that you have in mind if you were to sell the property? Selling a property isn't cheap so the place you move into would have to make sense after taking into account sale and moving fees... No matter if you're "up or down" on the investment, you want to figure out whether there is a better opportunity cost or option you can move into.

And thank you for sharing your story. I feel like many have similar stories but are not posting about them out of shame or feeling embarrassed about their situation. Mistakes were made but its how you learn and grow from them that counts!

@Joseph Mah

It sounds like you’re having a lot of stress focused around that tenant potentially leaving and not being able to rent it at the same price. I’d recommend talking to that tenant first to see if they want to renew and try to get them to sign a new lease. If they don’t want to sign then I’d recommend start marketing the property in advance to try to get it filled up.

In regards to the Airbnb potential, it sounds like your home is zoned as a single family and since you’re technically living in the “property” I would imagine you could Airbnb the bottom section 365 days since you do occupy the property as a whole as a single family. I’d check with someone local doing management there. I manage short term rentals here in Columbus, Ohio so know it may be different.

If you want to stay in San Fran but invest out of state, you could do a cash out refinance or HELOC to use that money in the Midwest such as Columbus, Ohio. Or you could sell your home there, take the proceeds to buy a more affordable one and use the difference to invest out of state in the Midwest.

[Solicitation Removed by Moderators]

while tempting the grass is not greener..  

If retail buyers are lining up like the person above mentioned and your really worried Sell out and then rent since rents are way down.     And if you dont need to be in SF for work maybe you can look at other areas for employment..  U can buy a fantastic home in the Portland metro area for 500 to 700k  New construction like we are doing in Canby Oregon..

for rentals I like Vegas frankly.  I have invested in all the markets you mentioned and Vegas A class is something to think about..  when you run all the numbers.  And maybe U want to concentrate on something else that creates income other than Tenants..  there are many ways to make money in real estate without rentals.  Just say in.. granted its the easiest to understand and get financing for.. but maybe open your thought process.

Now you may get all sorts of replys from the folks in the mid west looking to sell you something.

But let me give U reality.. I had a HML company in Oakland in 87.. this was typical deal I made a 200k second on wonderful home on Green st. a few blocks off of Lombard to the west..

the 89 crash happened and well there was a 900k first on it. that went into foreclosure the folks that made the loan just did not want to throw good money after bad ( like your saying) so they let it go..  Well that 5,500 sq foot home by 97 was worth well over 2.5 mill and today who knows 4 to 6 million ????  SF bounces back.. when i made the loan in 87 I had a MAI appraisal at 2 mil..  so values did crash.. but Boy did they come back.

I dont know where your located out in the Avenues or Bay View or some other area..  but keep that all in mind.
I mean what are you going to do with 100 or 200 a month cash flow on a few rentals half way across the country that will never really go up in value more than what rents are and what a investor will pay for a given cash flow.

I get the model to stack those up and really go for it.. I mean i did it.. I had over 200 of them .. Last month I sold my last mid west rental..  all gone now..   So just playing devils advocate from someone who was born in Burlingame in the 50s and raised in the bay area ..

@Steve K. thanks for sharing your own experience. I'd like to remain a proud San Franciscan, but man is this city making that hard! The downward spiral has been so fast and all-consuming. We know there's a way forward, it's just a matter of when and how much it costs.

@Brian Garlington , we've thought about moving into the bottom but then we would be a family of four packing into 550 square feet. Not the end of the world, however the upstairs is nice and the rent control and eviction protections could mean we ultimately loose financial control over the house. We think downstairs tenants will be more transient.

Never considered Section 8, but I suppose we shouldnl look into that. We'd be underwater at current market rate rent but maybe that program would be more generous. Good food for thought.

Yes to the HELOC! Putting that in place as we speak. Planning to still leverage our equity to invest in OOS RE. We would in-fact sell if the tenants move out and if we'd recoup at least our down payment. Like the idea of representing ourselves to save money too. Our margins are now non-existent bc of the exodus and bc of our neighborhood being generally less desirable than others.

@James Ma , thanks James. Hard not to be emotional but you're absolutely right. I've been hesitant to share our circumstances publicly but at this point, I'm out of ideas. I do not see our street, neighborhood or city changing for the better anytime soon. The tech exodus, city policies and politics will see to that. If SF didn't tax its residence the way it does and didn't have such severe quality of life issues, tech workers would probably stay despite the choice to live where they want. The reality is that the costs are no longer worth the diminishing benefits and the damage done will take years to undo.

@Jay Hinrichs , I hear you. Green and Lombard is a great area although they're pitching tents there too. We live in the Excelsior right off Mission. Many compare our area to Brooklyn before it took off (again). I've heard you talk about A class rentals in Vegas on a few threads. Would love to hear more. In terms of SF, what concerns me most are poor city policy and governance. It will take a lot to turn things back around.

@Joseph Mah read what @Jay Hinrichs said again. If you do decide to invest OOS I highly recommend you do so in a market with appreciation potential which is one big reason Jay is talking about A class rentals in Vegas along with no state income tax and reasonable property taxes I think. If you chase cash flow in another state you may be very disappointed as capex and turnover can eat up whatever perceived cash flow you thought there would be and on top of that real estate that doesn’t appreciate is expensive to sell, ie you could be writing a check just to sell. An alternative strategy would be to go into the VR biz which is an active biz where you can self manage and juice your returns, ie more work but more profit. Good luck!

@Joseph Mah PS I’m very sorry your family is in such a tough predicament and I feel for you all. San Francisco is a beautiful city but unfortunately they are literally helping people stay addicted to drugs by providing as much as possible to support their habit (giving free needles, tunicates cookers, etc.). It’s a very sad and horrible disservice when a society at any level actively helps people self destruct rather than trying to really help them stop their addiction, get clean and become a productive part of society. It’s a horrible evil if you ask me. I’m not sure what the answers are for San Francisco but the fruit of their current policy is obviously death and destruction for those on the street and unsafe conditions for the law abiding citizens. We have similar conditions in Los Angeles. Very, very heart breaking.

Vegas median $350,000 with rent of $2,000.  Cant imagine a worser market to get into unless you pay cash and ride the appreciation wave.

This guy borrowed down payment to get his SF house done.   He does not need an OHIO D class property throwing off fake $150 a month.

He needs to Chill.   Probably sell and pay everbody off and RESET.

Originally posted by @Joseph Mah :

@Jay Hinrichs, I hear you. Green and Lombard is a great area although they're pitching tents there too. We live in the Excelsior right off Mission. Many compare our area to Brooklyn before it took off (again). I've heard you talk about A class rentals in Vegas on a few threads. Would love to hear more. In terms of SF, what concerns me most are poor city policy and governance. It will take a lot to turn things back around.

Harrison and 16th Street area have new SFR (condo's) for approx $2.1 million and there's tents as well. Excelsior area has good weather. When it's time to go out bring a jacket when you see the fog rolling over Mt Davidson. Average home price in the city is $1.2 million even the eye sores. Go figure..

Originally posted by @Julius Chinn Chicken:

Vegas median $350,000 with rent of $2,000.  Cant imagine a worser market to get into unless you pay cash and ride the appreciation wave.

This guy borrowed down payment to get his SF house done.   He does not need an OHIO D class property throwing off fake $150 a month.

He needs to Chill.   Probably sell and pay everbody off and RESET.

well for me the numbers are different..  290k  rent for 2100 tax's  1400.. no maintenance to speak of A class tenants..  another 275k fully furnished with about 12k  and rents for 4k seasonally  Hooked up with insurance company that places their clients that have to move out while their homes are being fixed..  I like no drama and easy..  and for me rentals are just a place holder for cash.. Not to make some spectacular return..  there are way better ways to do that in real estate.. 


@Joseph Mah , you said you don't want to lower the rent because of the rent control the good people of our state voted for, but if it allows you to stay in your home, then why not lower it. I mean it is not ideal but hey, eventually (raising it what 5% max per year) you'll be able to bring it back up. Real estate is like a wave, SF will bounce back but it will be time that is not in your favor right now. If you cannot think of any other way to make it work, then what Steve said is a good bet to save you 3-6% by not using an Agent. 

As for the homeless population, install bright lighting and cameras if possible. Most of them want to be left alone and in the dark at night so this could help. SF used to be the place to go for fun and entertainment for us all around you but today I don't even go there if I can help it and don't recommend it to friends or people I meet due to the lack of leadership I have come to see. I feel for you and hope you are able to figure out how to weather the storm!

Stay strong and as they say, "out of desperation comes opportunity!" You got this! Good luck!

@Joseph Mah

I feel for you man! But, I want you to not panic. What goes up must go down and then it will go back up again.

So you need to think clearly and get creative. You have a asset in a great market that will have demand for sure. You just have to weather the storm of the moment so you can come out on the other side up or even.

I'm located on the east coast in the expensive NYC area. 30% swing seems like a lot but it will swing back 30+ 10-15%. Thats the beauty of these markets there is always demand. You just in the dip of the cycle.

1. I would suggest tighten up your belt and trying to get you person expenses as lean as possible before your tenant lease is up

2. Recognize if you sell now you will be taking a loss and leaving a asset that will give you back way more if you held on to it. So do what you need to do to hold it and protect it. Now with that said if you can afford to hold it then you have no choice but take the lost. If I was you I would say maybe you have to loss 1k a month which is 12k a year to get back to the upswing of the market to grab 50k or more and additional equity. The fees you will pay for the sale at that price point is much more expensive. Realtor fee, transfer tax, closing cost etc....

3. Don't lower the rent since it's rent control get creative. Of the rent price as normal with some perks. Free internet, parking, food credit, utility credit etc......



6. Covid is just a moment in time. Your in a dip and are a little nervous because you been on a little bit of a sugar high. Just realize a lot of people moving will be moving back its just the way it is.

In NYC they said it was dead in the 80's, 90's, 2008 now 2020. Pay attention to the cycle. Every 10 years for the most part it was forecasted doom and gloom. Not take a look at the appreciation of the same assets from each 10 year cycle. INSANE!!!!!!

Now I ask you to do the same cycle analysis for Cleveland or Indiana. Hahahaha what a disaster you will see. The swings are up and down 50% +/-. So on average a 50k property in the past 40 years is worth 180k at the top of the market and when things contract it will be 110k.

Your in the right market dont buy into all the realestate day trading hype of buying cheap in cheap markets is always a winner. Because its not. Buying cheap on the outline of a major city is completely different the buying up a city that has never really been alive

Best of luck brother dig deep and get CREATIVE!

@Mark Pedroza , yeah. Peculiar people in San Francisco - definitely tolerant and too much so. Sounds like you're very familiar with our little neighborhood. And, yeah, still mostly sunny days. I'm always grateful we didn't end up in the Sunset or Daly City.

@Ronnie Galindo , man I wish we had the flexibility to raise rents a max 5% per year! I had to reduce it for the last renewal. And the allowable annual increase for the prior tenants was exactly 0.6%! You read that right. Thank you San Francisco.

We installed outdoor lighting and formed a neighborhood watch. We planted nearly a dozen street trees. We work directly with the local Police Captain and Supervisor. Nothing works. Being on a flat street that's mixed use and basically an alley off Mission Street makes us a prime target for bad behavior. The commercial buildings and their walls invite vagrants to sit down and do drugs. It was great to be so close to everything when we bought but then 20,000 more homeless moved into SF, many of them addicted and/or mentally ill. The City went from sweeping sidewalk encampment to supporting them.

@Joe Edwards , thanks man! Like the idea of a food credit - that's definitely creative. I think what freaks me out is the onslaught of the mentally ill and drug addicted onto our streets. Voters keep dumping more money into that pit. However, you might be right if we held on for another ten years at a loss of $120,000 things could be much better by then and we might reap appreciation much great than what we think know. We know this - it must change.

@Sarah Langley, I did not vote for my problems, as you put it. Keep the sarcasm and condemnation to yourself lady. You're uninvited from this post, thanks.