Originally posted by @Account Closed:
Chris, the $5,400 is the ACTUAL appreciation that Brian has experienced. Over 40 years of tracking appreciation would put it closer to $3,000 a month but appreciation happens in spurts. For 40 years there has been 9-11% appreciation in the Bay Area. In my modeling I am using 8% since inflation has been low for some time. This is just using ACTUAL figures and making a business assumption going forward.
Sustainable rents? The advantage of being around so long is that I have first hand knowledge of the same thing being said in the 70's (Prop 13 was started in the 70's) 80's, 90's, 00's, etc. Yep, can't get any higher I'm cashing out and leaving. If you've been in the Bay Area you've surely heard of people who have left and can't come back because they've been priced out. Happens in every decade.
Had Brian listened to the 2%ers, the unsusstainabilitors he would not have his over $325,000 of appreciation. Brian, would that suck? Think about that going forward.
This isn't an I'm right, you're wrong kind of discussion. There are so many variables that trying to frame it as such is misleading, in my opinion.
For the record, I've lived in the bay my whole life and heard that "once you leave you can't come back" argument plenty of times. Despite that, I know literally dozens of people who have done it without any problems. I don't doubt your math, but there are also many factors other than just the historical average to consider. There have been periods of high inflation since the 70s, the emergence of Silicon Valley, and other supercycle-type events. On top of that, I suspect that running those same numbers even 3 years ago would've resulted in a much different CAGR.
As for rents, I can think of 25+ people I know personally with six figure salaries who have been completely priced out of the SF/Oakland/Berkeley rental market. And I'm not talking about the last 40 years, I'm talking about the last 2-3.
My point is: it's hard to say empirically that the outlook Brian and I share is wrong. Reallocation could actually be a prudent decision in a market that's experienced substantial gains over the last several years. Couple that with the fact that Brian is moving out of state, maybe that's the best decision for him. We might have a period of reverting to the mean ahead. In my opinion, price appreciation is the cherry on top when it comes to real estate, cash flow is the sundae. I assume this is different for everyone.
Funny side note: this must be a topic you're passionate about, Bob. I was doing some research on Google and several of the top results were conversations you've had on this topic here on BP.
