Soon after sharing my ill-timed purchase on a Lake Tahoe vacation property, an interesting thing happened. A nearby house on the same side of my street sold for $1.56M. The house is the same style as mine with a similar floor plan, but has a 20% smaller lot and slightly inferior views due to a couple of trees blocking the ocean.
The neighboring house was in mediocre shape just like my house was when I purchased it for $1.23M in early 2014. Basic math shows a ~27% appreciation in 2.3 years, or a 134% cash on cash return based on a 20% down payment. In retrospect, parlaying an expired 4% yielding CD into SF real estate was a good move so far. Let’s see how much the market corrects this time around.
I invited the selling agents, Nancy and Bob over after the sale to get the skinny on the market and provide an assessment of my home. After about four days of deliberation, they sent me a detailed valuation analysis report and said “they were 85% certain they’d be able to get at least $1.85M – $1.9M for my house.” The total return would therefore be 31%-35% or a 155%-175% cash on cash return on the down payment if you include my ~$170,000 in remodeling costs. Gross profits = $440,000 – $490,000.
All these figures don’t mean anything until my property actually sells. These figures are just nice to know in case I change my mind about holding San Francisco property forever. No other international city is so cheap with so many growing companies paying so well. If you have the proper skill-set, your income potential is incredible.
Check out the average salaries of software engineers for some of the largest tech/internet firms. Multiply these salaries by two and you’ve got a typical homebuyer on the West Coast.