Why appreciation matters in the SF/Bay Area

168 Replies

Originally posted by @Amit M.:

no, @Ben Leybovich   is right. There are a lot of stupid, wealthy people in the Bay Area.  Unlike the mid west, where there are a lot of stupid, poor people.  

Amit,

That was hilarious.  I guess you have a point based on this "where millionaires live in America" article.  

http://www.kiplinger.com/slideshow/real-estate/T01...


Originally posted by @Manch Hon:

I must be dense. Why is it stupid?

Manch,

Based on my experience, the people, that acknowledge they are dense, are not dense at all.  However, the ones, that believe they know it all, actually don't know much.  It's what you don't know will likely hurt you the most.  

So, I'll stay humble and keep investing right here in SJ, where it has treated me best.  Like they say in tennis....there is no right way; there is no wrong way; there is always a better way.  So keep searching.  Don't forget me when you found it.

   

@Minh L. Very true and wise words. I actually learned a lot from you, @Amit M.  and @Bob Bowling 

I am now a believer in investing in local markets. As I told you guys half of my portfolio is outside of the Bay Area. Had I known you guys earlier I would have put every cent I have in local markets. :)

And I will never call other people stupid.

Originally posted by @Christian Carson:

One more note -- California does not have a monopoly on price appreciation markets. There are plenty of them out here in Ohio.

I don't believe anyone is saying CA has a monopoly on appreciation.  CA just happens to be an appreciation market.  That's it.  Therefore, when one is investing in CA and doesn't factor in an average appreciation rate, the analysis is incomplete.  Also, our market is known to be cyclical.  Knowing where we are in the cycle of the market plays an important role in inputting the appropriate parameters into our analysis.

Weren't you the one that has a property appraised for $90k, but you couldn't sell it for $82k?  To scale it up to our market, a $900k house would have sold yesterday for all cash had it listed at $820k.  In fact, there's a good probability that $900k house would have sold for $925k - $950k with multiple offer within 2 weeks being on the market.  That's how liquid our market compared to some other markets.  

With respect to who is smarter than whom, it typically comes down to net worth.  Should an individual take advice from someone who is not doing as well as s/he does financially? People are where they are in life for a reason.  They are successful for a reason, or they are poor for a reason.  When someone says they're lucky, it's just a nice way of being humble IMO.  As Benjamin Graham said "Due diligence is the mother of all luck."

this is getting to be a rather entertaining thread :)

Originally posted by @Minh L.:

With respect to who is smarter than whom, it typically comes down to net worth.  Should an individual take advice from someone who is not doing as well as s/he does financially? People are where they are in life for a reason.

Show me a well-educated bootstrapping entrepreneur and I'll show you a thousand trust-fund Wall Street bankster multimillionaires who couldn't complete a Monday New York Times crossword if their lives depended on it.

I think Ben is very smart. His 10 unit for 19k is just one example. Ben adds value with his management skills and that is brilliant. That kind of accumulation would not be possible in SF. An additional skill set would be required. I am sure he possesses as is. 

Thanks,

Matt

Education and entertainment .. all in one spot - Love it! 

Interesting thread.  I would suggest that appreciation of net worth is what matters.  In CA that can be done by purchasing and holding and individual property.  In other markets your property won't go up in value as much but you get a lot more cash-flow.  

If you rivets the cash-flow over time you get a form of appreciation.  Instead of having one property that goes from 300 to 600k in value you might have 10 properties worth 300k that turn into 20 properties worth 600k.  

You just have to adjust your strategy for the market you are in and you can make money.  Apply the wrong strategy to any market and you can lose money.  Making good management decisions can force appreciation in any market.

We shouldn't be so harsh on Ben.  Poor guy already is so upset about all the real estate wealth we Californians are enjoying.  

And I absolutely agree with Ben's analysis - especially looking at myself accumulating ton of wealth in the last 5 years. Although one wonders that when it is a "fact" that even brainless people can make easy money in the SF market, wouldn't one be even more stupid to know this fact and still not come and invest in the SF market?

The Schiller Index does look good and I can attest to buying my first SFR in 1985 for $97k and today the market value is $670k (yes, I still own it). What troubles me is the affordability index in the BA is only 21% for Q12015. I know most my friends kids cannot afford to rent or buy in the BA. For a long time we have been seeing larger extended families living in homes together in order to afford the rents. This has to be putting some eventual limit on the appreciation growth. The modest 3/2 house for $670k rents for $2800/mo. It wouldn't make sense to but it today as a rental, even at $2800/mo, but as a buy & hold from 1985 its doing okay.

Personally I would be happy with 4-5% appreciation. 

@Brian Tremaine

  I grew up in Cupertino and by the time I went into the housing market 1977 houses in Cupertino had surpassed 100k.. and as a new RE Agent I could not buy were I was raised neither could any of my friends.  of course not many of my friends were buying houses at 20 years old either. I ended up going WAY out of town all the Way to Milpitas to buy my first home for 80k  a brand new Shapel home.. I think this is just a trend that will stay

And why place like Portland Oregon has some serious legs... My daughter works for intel. she started in santa clara and they were looking for their first home a starter home in Campbell for 850k.. I told her to get up here and check it out... only a 10% pay cut to work in Oregon they bought a beautiful 5 and 3  2700 sq ft home for less than 300k in the best school districts in the area.. and I think you will continue to see the brain drain from Silicon valley to silicon forest.

Originally posted by @Jay Hinrichs :

@Brian Tremaine

  I grew up in Cupertino and by the time I went into the housing market 1977 houses in Cupertino had surpassed 100k.. and as a new RE Agent I could not buy were I was raised neither could any of my friends.  of course not many of my friends were buying houses at 20 years old either. I ended up going WAY out of town all the Way to Milpitas to buy my first home for 80k  a brand new Shapel home.. I think this is just a trend that will stay

And why place like Portland Oregon has some serious legs... My daughter works for intel. she started in santa clara and they were looking for their first home a starter home in Campbell for 850k.. I told her to get up here and check it out... only a 10% pay cut to work in Oregon they bought a beautiful 5 and 3  2700 sq ft home for less than 300k in the best school districts in the area.. and I think you will continue to see the brain drain from Silicon valley to silicon forest.

 Hi Jay, what area of Portland is this? I think the Portland market is a great long term play. Great standard of living in the area and its still relatively affordable, especially at less than $300k. 

Originally posted by @Jay Hinrichs :

@Brian Tremaine

  I grew up in Cupertino and by the time I went into the housing market 1977 houses in Cupertino had surpassed 100k.. and as a new RE Agent I could not buy were I was raised neither could any of my friends.  of course not many of my friends were buying houses at 20 years old either. I ended up going WAY out of town all the Way to Milpitas to buy my first home for 80k  a brand new Shapel home.. I think this is just a trend that will stay

And why place like Portland Oregon has some serious legs... My daughter works for intel. she started in santa clara and they were looking for their first home a starter home in Campbell for 850k.. I told her to get up here and check it out... only a 10% pay cut to work in Oregon they bought a beautiful 5 and 3  2700 sq ft home for less than 300k in the best school districts in the area.. and I think you will continue to see the brain drain from Silicon valley to silicon forest.

How interesting Jay!  I now live in Cupertino, and moved here from Milpitas 4 years ago!  And I agree the trend you mentioned  (I only know how we stretched to get into Cupertino from Milpitas)!  Of course, once you are somehow in Cupertino - things work out as the market here is incredibly strong (for last several decades!)

The definition of a "normal salary" is different in the Bay than everywhere else. I was talking to an insurance agency owner in SF and he could not hold onto a competent receptionist/assistant for $45hr. They would get trained and hired away almost immediately. Almost anybody who can speak and write clearly in English and presents remotely well can command 6 figures in SF with a little networking.

@Johnson H.

  Beaverton is where my daughter ended up.. 15 minute commute to intel.

My son also owns his own place in Beaverton.. 

I do believe this market will continue to be strong.. but not like the bay area there is only one of those in the world

Houzz was valued at a Billion dollars.  SF bay area is getting frothy.

So that'd be about $9,375 in appreciation each and every month for 48 months!  And I've been predicting this on the internet's since at least 2006! And personally since 1980.   And some fools still call me crazy.  Crazy akamai!

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