Buy Real Estate As Young As You Possibly Can

Buy real estate young

If you want to get rich, it's probably wise to buy real estate as young as you can. Inflation is too powerful of a force to combat. The earlier you buy real estate, the more you can let your returns compound.

Think about all the times you've heard your grandparents buy property for so cheap. It was time that gave them the greatest gift to wealth creation!

My biggest real estate regret was not buying a two bedroom, two bathroom, double balcony condo with a view of Manhattan's Chrysler Building in 2001. I was 24 and could have put down 10% on the $760,000 property that is worth over $2,000,000 today.

Now I'm almost 44 and no longer have a desire to “grow into my debt” through aggressive hustle. Instead, I'm all about paying down debt and simplifying life. Raising two kids is exhausting!

Why I Love Real Estate

I'm a huge fan of real estate because you only need to do four things to grow your wealth:

1) Come up with a downpayment using my 30/30/3 home buying rule

2) Pay your mortgage on time

3) Try not to buy at the top of the market

4) Own your property forever.

If you do these four things, I'm confident that thanks to inflation, at the very least, your net worth will be healthier than if you just rented. After decades of renting, you will have no equity. At least with real estate, you have a chance to get richer.

A while ago, I decided to put together a “progress chart” to see where I stand with one of my rental properties. I had just refinance the property and was feeling good about it.

A couple folks mentioned $850,000 was still quite a large mortgage. I agreed. That's why I came up with an accelerated pay down plan. I'm all about creating goals, making charts, consulting with others, and tracking my finances to make sure I'm on target. You should do the same. It's very enlightening.

What I realized from this exercise was that perhaps I was spending too much time trying to build wealth with too many different asset classes. If I just focused on optimizing this one rental property in my portfolio, there's a good chance it alone could make me a multi-millionaire

Why You Should Buy Real Estate Young

When it comes to building wealth, simple is better. Understanding real estate as an investment is about as simple as it gets.

1) Real estate prices move in 7 – 10 year cycles.

2) There's a natural tailwind due to inflation.

3) You want to own real assets because money is only a medium of exchange that loses value every day due to inflation.

4) With inflation, rents naturally rise. If you stay a renter, your costs will always go up quicker than a homeowner's costs, making retirement a little more difficult to manage.

5) Despite inflation, interest rates keep coming down. This is the goldilocks scenario for all real estate investors who get to take advantage by refinancing their mortgages or getting record low mortgage rates for purchase while also raising rents. Credible is my favorite lending marketplace to get pre-qualified lenders competing for your business for free in under three months.

6) Humans are undisciplined savers and spenders. Having a mortgage forces you to save because each month you are paying down principal.

7) After you've finished paying off your property, if you wish you can add the full value of the property to your net worth. Everybody should make this calculation to see what their minimum net worth will be.

8) Living in your house doesn't require investment work. Living is just life.

Real Estate Wealth Building Chart

Here's my progress chart for a property I bought at the end of 2004 for $1,525,000. I bought real estate young, first at 26 and then this property at 28.

For years prior, I saved and invested 50-75% of my after tax income in order to one day break free from an unsustainable career. The numbers are estimates within 10% of true value/cost.

Benefits of buying real estate early - buy real estate young

Housing Chart Analysis

In 2005, I've already been an adult for 10 years. I missed my opportunity to buy a place in Manhattan at age 24. At 26, I finally bought my first property in SF, a 2/2 condo. The place was nice, but I regretted not buying to my maximum potential because I was afraid.

Therefore, at age 28, I went all-in and bought a single family home for $1,525,000 by taking out a $1,220,000 mortgage. It was kind of nuts to have over $1,600,000 in debt at such a young age. But I felt bullish about my future, having just received a promotion at my firm. No risk, no reward.

The total cost to own after deductions was about $4,800 including property taxes, insurance and maintenance. Given you can only deduct $1,000,000 in mortgage indebtedness, my goal was to get the mortgage down to $1,000,000 sooner.

However, after the $305,000 downpayment, I had practically nothing in the bank so I didn't make extra principal payments the first five years. Instead, my immediate goals were to work hard at my job so I wouldn’t get fired and to replenish by savings account by saving 70%+ of my after-tax income.

If you take on huge debt, your motivation to work hard will shoot through the roof!

Opportunity Cost To A Down Payment

There is an opportunity cost to sinking $305,000 into a down payment. In my case, I would have only invested this downpayment money in more conservative asset classes like CDs, treasuries, or muni bonds yielding ~4% at the time.

So yes, I could have made about $1,000 a month risk free, but I wanted to swing for the fences while I was still young. I was either going to blow myself up or get rich sooner, rather than later.

Related: Invest In My 401k Or Save For A Downpayment?

A Scary Decline

I had two good years of property price appreciation until the financial meltdown chopped off ~22% from the 2007 high. I estimated my property's value declined to $1,400,000 – $1,450,000 in 2010 because that's the value I was able to convince the city to agree on to lower my property tax bill for several years.

The downturn didn't feel good, but it didn't hurt my lifestyle. I still enjoyed living in my place with a fixed payment. I just locked down all superfluous spending. My $6,000 vehicle named Moose was good enough!

When you never plan on selling, devaluations don't hurt as bad. Financial Samurai was born during this time of turmoil.

The Property Market Recovery

By mid-2011 things started to recover. The S&P 500 bounced off its lows and people were interested in buying property again. Interest rates declined, and I refinanced my property before I left my day job in 2012.

2012 was the time I seriously thought about selling my house given I didn't have a steady W2 income anymore and Facebook had just gone public. Having $1,075,000 in debt just from this house without having a day job was concerning. Still, all I thought about was simplifying life!

Thankfully, I didn't sell because a nice five year bull run ensued. In retrospect, I should have bought more property in 2012.

San Francisco Home Prices After Facebook IPO - buy real estate young

The Going Gets Better

In 2015, despite having over $1,000,000 in equity in a property that I valued at $2,300,000 compared to online estimates of $2,800,000, I still couldn't refinance my 5/1 ARM 2.625% mortgage because I didn't have two years of freelance income under my belt. I was disappointed, but felt strongly that another opportunity would arise before the fixed rated adjusted in June 2017.

In 2016, I finally refinanced my mortgage to 2.375%. The cost to own dropped to only around $3,000 a month after deductions (mortgage interest cost of $1,682, property tax of $1,600, $200 for insurance, and $200 for maintenance). Meanwhile, estimated rent for the house now ranges from $8,800 – $10,000. It is a blessing to be able to lower costs through a refinance and raise rents.

From 2017 – 2019, the real estate market declined as global growth softened, private tech/internet company valuations declined, layoffs increased, more new condo inventory filled the market, and poor performing IPOs.

Today, the housing market is very strong and rents are rising aggressively. As a result, buying real estate as young as you possibly can has turned out to be a wise choice. In 25 years, your children will likely marvel at how cheap real estate prices are today.

Rent increases on fire

Future Plans For Real Estate

By 2025, I plan to completely pay off one rental property mortgage and buy another forever home to live in for 10 years. As our net worth grows I'd like to continue living well based on my Primary Residence As A Percentage Of Net Worth guide.

If I do nothing else, this property alone will make me a small fortune. I'll need it, because in 10 years, $4 million might be the new $1 million

Sure, there might be a massive earthquake, a fire, or another huge economic collapse between now and 2025 that will destroy my plans. Thank goodness for homeowners insurance and risk-free assets.

But if I stick to the program, there's a real possibility that the scenario I've created in this chart will come true. Now it's your turn to create your own scenario.

What Actually Happened To This Property

When I first wrote this post in 2015, I estimated the value of the house was about $2,300,000. I modeled out the property would be worth roughly $2,500,000 in 2025. Thanks to a raging bull market, I was able to sell the house for $2,740,000 in 2017.

It was a fortuitous situation because I only had one buyer. I wasn't excited to sell, but with a newborn, I needed to focus. I was happy to sell the house for $2,500,000. But when I got him up to $2,740,00, $240,000 more and eight years earlier than my forecasts, I just had to sell.

I ended up reinvesting the ~$1,800,000 in proceeds in real estate crowdfunding, the S&P 500, and municipal bonds in 34/33/33 increments.

So far, so good. I've been able to generate a much higher return in my reinvested asset classes. Further, the income has been generated 100% passively.

My favorite real estate crowdfunding platform is Fundrise. You can invest in a diversified portfolio of private real estate investments that generates a steady income stream. It's free to sign up and explore.

Automatic Wealth Building

Buy real estate young. When we are young, time is on our side. But once we hit middle age, time starts becoming our enemy. We lose our enthusiasm and energy the older we get. When you buy real estate young, you can more easily ride out the cycles. It takes time to build equity and take advantage of refinancing opportunities.

All I want to do as a 43-year-old fella is relax! Once we're past 55, it becomes harder to justify buying a property because we might die before we pay it off.

Save as much as you can, figure out where you want to live for the next 10+ years, and get long inflation by buying at least one property as young as you possibly can. 

If you don't invest a single dollar in any other asset class, at least you'll end up with a fully paid off property within 30 years to provide some financial security. If you can build a diversified net worth, all the better!


Explore real estate crowdsourcing opportunities. If you don't have the downpayment to buy a property, didn't buy real estate young, don't want to deal with the hassle of managing real estate, or don't want to tie up your liquidity in physical real estate, take a look at Fundrise, one of the largest real estate crowdsourcing companies today.

Real estate is a key component of a diversified portfolio. Real estate crowdsourcing allows you to be more flexible in your real estate investments by investing beyond just where you live for the best returns possible.

Take advantage of lower rates. Check out Credible, one of the largest online lending platforms today that will get lenders to compete for your business. Fill it your needs and get real quotes from qualified lenders in under three minutes. The process is easy and free. Rates are at all-time lows!

For more nuanced personal finance content, join 100,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. Everything is written based off firsthand experience because our finances are too important to be left up to pontification.

170 thoughts on “Buy Real Estate As Young As You Possibly Can”

  1. Hi Sam,

    I am glad I ran into this article. My husband and I are looking into buying a 2 bedroom 1 bath condo in SF. But we are worried that the market is right at it’s peak and we will need to wait out any upcoming downturn after buying. You predicted 2017/2018 the market would soften. How do you feel now that we are in November 2017? From a “buyer’s” perspective, the market is still pretty competitive but sellers pricing strategies seem to be less effective than before. Should we continue renting, saving and keep our nice cushion every month? Or should we max out our budget and buy now?

  2. Hi, my husband and I trying to decide whether to rent or buy. We live in Orange County, and the most we can afford is a 2 bedroom condo for 440k or under. We have a one year old and another on the way. We have been getting a lot of pressure to buy from many of our family members, who have made a lot of money in the southern CA housing market. However, I am skeptical about paying so much for so little space. If we rent, we’ll probably pay 2000/month. If we buy, with a 10% down payment, we will be paying 2600-2700/month. What would you suggest doing? Thanks!

    1. It’s hard for me to get excited about buying California real estate right now. I just sold one of my rental houses in San Francisco because the prices are crazy in terms of annual gross rent.

      Graduations on your second kid. How do you think about the cost of housing versus the cost of raising children?

      I would stay patient and try and go bargain-hunting for misprice listings or listings that have been on the market for a long time. I would not be overbearing and chasing hot deals.


  3. Hi Sam,
    I bought a multifamily in 2010 when prices in South Florida were still very low from the recession. The price of the property has gone up by 130%, and rents are very high in the area. I don’t owe anything on it. It seems like I should just leave it alone, but a part of me wonders if we are approaching a bubble and if I should sell now while prices are high. I have not invested in stocks or anything else and wonder if I should diversify. If I do sell, where should I keep the money until I decide to buy again ( theoretically if prices come down again) . Any suggestions?

  4. Sam, what are the areas similar to GGH you believe offer value in SF? I’ve heard Shipyard and excelsior but wanted your thoughts on upcoming area for 2018 to buy.

  5. 20yrs old. 36k salary:20k in expenses. 16k left over each year. Have been with my girlfriend for 7 years now. Wondering your opinion on if it is worth it to buy a 300k townhown in Raleigh, NC to add to my folio and rent it out after 3-5 yrs. Either that or just rent until I’m ready to settle down in 10+ years from now.

  6. What would you recommend for low to moderate income earners? I’m currently 24 yrs old with about 20k in cash and 20k in stock/bonds investment. I earn about 30k a year but would eventually like to purchase a property with the ultimate goal of eventually renting it out. I live in Oakland and have been contemplating possible buying a property in Sacramento, hopefully in the 150k < less range. Any advice is greatly appreciated!

  7. Hi, I have been following your blog for a while. It’s very helpful! I am 23 now and looking for buying a house in South Bay for my primary residence as well as renting it out potentially. I am now debating if I should buy a condo(actual condo, on the 1st floor of a building) in Santa Clara which would cost me $3000/month to operate(including property tax, mortgage, utility, insurance…) or should I buy a townhouse in Sunnyvale which cost me $4500/month. Both would be 3B2B ish and would generate $2600-$3000/month if I rent two rooms out. I am just wondering should I invest for cash flow or appreciation, and there is a concern that condo would not appreciate as much as townhouse.

    1. Hard to say Angela without knowing more specifics. At age 23, have you already saved up for the 20% or more down payment? If so, then you probably can afford to buy a larger place and grow into it with your type of income and savings.

      But the market is finally slowing in the bay area, and will probably continue to slow until Uber or Airbnb goes public.

  8. I am a 31 y.o. and would be first time property buyer. I saw you eluded to waiting till end of 2017 early 2018 to buy a property. Do you think it’s a bad time buy right now? I am not in the SF market I am in Las Vegas. Things seem a bit high for here as well. I will probably stay here for another 3-5 years at minimum. Buy soon in next 3-6 months or wait it out for a while?

    1. If you can find a good deal now (still winter) where you can rent it out for a positive cash flow after putting 20% down from the get go, and plan to live it int for 5+ years, then you may be OK. But Vegas is back to peak prices again.

      The unknown is how much the 10-year yield goes up and whether Trump’s policies are helpful.

      I’m personally waiting for a 10% correction in SF, NYC, Honolulu, and investing in middle America for better returns via RealtyShares. Non-coastal real estate is much more attractive now with higher returns.

      See: Should I Buy A Home In A Rising Interest Rate Environment?

  9. Great post Sam. It’s surprising to me that a Facebook IPO changes the market that much. Seems that if you’re not in the club, you’re gonna be left out of the party for quite a while. I really have no option to purchase a property in San Francisco given the savings that I have. I’ve only become really aggressive about saving recently. I started looking at purchasing a rental property somewhere else that I could afford just so I can some skin in the game. I pulled data from Zillow in order to search for properties which could give me the highest yield for my investment. Per your recommendation I created a blog on my own and wrote a post about find the best rental properties using the Zillow Research data.

  10. Middle Class Millionaire

    I am 100% with you. However, not only is is smart to buy your own home and use that as a way to build wealth….

    …But if you buy rental properties you can see this same thing happen but on a much grander scale. The difference is that you have your tenants pay your mortgage for you! And, if you buy right, you can earn a positive cash flow from your rentals (what is leftover after you pay your mortgage and other expenses). Imagine having 100 rental units, and 100 tenants paying your mortgages for you! It’s like having 100 people putting money into a savings account for you every month. There are so many benefits of real estate… it’s no wonder 90% of millionaires are created through real estate.

  11. Hello Financial Samurai,

    My name is Marcel Jara and I am 19 years old. I recently moved out of my parents house to move closer to school NC State. Through seeing the struggle that my mom went through in my earlier years I made it into an inspiration and motivation for myself to insure my financial future so that neither I nor my children in the future would have to go through the same difficult situations that I did. I am a Human Biology student but have always had a focus towards money and financial independence. I made my first investment to my future when I was in 10th grade with money that I worked hard for and had accumulated overtime by putting 1,000 in my first roth IRA account. Ever since that day I have been saving the majority of my minimal income and investing it as efficiently and effectively as possible. I make 11 an hour working at my parents food truck. Seeing my Dad 55, working countless hours on his business made it clear to me that I did not want to spend the rest of my life working especially at his age although I know that 55 if not old at all but I know that i want to reach financial independence sooner. I have been focused on saving and investing as much as my finances allow me to even if it is just 20$. This has allowed me to have now about 5,000 dollars in investments distributed through Acorns, Betterment, Robinhood, Stash Invest, Roth IRA and today for the first time I invested 1,000 into Fund Rise ereit. I have made each deposit with a lot of hard work and I know that almost everyone deters me from investing my money especially at this age and also considering that I have only a couple hundred dollars in my bank account while still having to pay for my rent and all expenses but what I have pushed myself to do is to deposit about 500$ a month with the little money I have. I have been smart with my money by rarely ever eating out or doing other things that almost everyone my age is doing and wasting their money on. I know you are an extremely busy individual and that your time is way more valuable then spending time mentoring me but that is what I would like to ask. I would like more information on what I should be doing with such a low income while investing and what you recommend would be the best way to invest my money in a way that I can truly build that residual income. I have always been focused to start as early as I can investing because I know the power of compounding although I just have 5,000 invested now I know if I stick to it I can reach financial security in the long run but I want to educate myself more on how I can get financial security with a smaller time horizon such as in the next 10 years because I end goal is to reach financial independence by 30 which is a big aspiration but I know with the right tools and mentoring I can reach it and help others do the same as you have been doing:) Thank you very much for your time!

    1. Hi, it sounds like your attitude to saving / learning and investing is strong for a 19 year old. My advice would be to continue reading and learning as much as you can. Knowledge truly is power. You can focus on improving your professional skills which may improve your earning capacity. You would also be wise to improve your financial literacy. Please consider the following two books: Rich Dad Poor Dad (Robert Kiyosaki) & The Richest Man in Babylon (George Samuel Clason). If you haven’t read these books already, they will propel you to the next step. At your age, the most powerful force in the world (compounding) can truly be harnessed. Best of luck on your journey.

  12. Lindsay Liebson

    My husband and I were thinking about buying our first home in San Francisco this winter. I am 27 and we currently rent an apartment and do not own any properties. I know you mentioned that we are near the top of the cycle right now, but you also mentioned that we should buy as young as possible. What are your thoughts on us buying this winter, or waiting another year or two and betting that prices will come down?

    1. Hi Lindsay,

      Winter is always the best time to buy real estate IMO. The reason being is that it’s the holidays and the weather is the worst. You’re really motivated if you can’t wait 3 months to list in Spring.

      If you can find a deal where the cost to own is less than the cost to buy after your downpayment, and you plan to own it for at LEAST 5 years, if not 10+ years, if not forever, then buying this winter is probably going to be OK in the long run.

      I think there will be more deals to be had in the winter of 2017/2018. But of course, I could be wrong. You should look to buy in the winter BEFORE Uber and/or AirBnb go public. There will be lots of money being converted from stock to cash to real estate 6 months after the lockup period is over. Get ahead of that wave.

      Best of luck! And also, check out this article for where I think are the best values and upside in SF today.


  13. Hello Financial Samurai,

    I have thoroughly enjoyed reading your article. My parents own quite a lot number of real estates in Mongolia, an Asian country situated between China and Russia. I myself intend to continue my parents business and I was wondering if you have any advice for me.

  14. Hi Sam,

    Thank you for this site. This is exactly what I need lately. I started working late in life (grad school takes up so many years) and landed myself back in the SF Bay Area with a relatively ok job, but now I’m torn between saving up for downpayment for maxing out my 401K since my current company has a bad match (6 year vesting period). I’m 30 years old and predicting the market 30 years later seems a lot riskier than waiting out a year or 2 to buy a condo instead of renting….

    And would you say 20% downpayment is ok or do you advocate more? Do you have any recommendations on how much mortgage to take on?

    1. Hi Andy,

      Thanks for visiting and sharing my site.

      The SF Bay Area real estate market is cooling. And I really believe it will continue to cool for the next 1-2 years until Uber or Airbnb go public. Hence, there is NO RUSH to buy now. I’d look in the winter of 2017/2018 to take advantage of desperate sellers.

      See these articles that answers your questions!

  15. Sam, I’m a little confused by this article. On one hand you stated to invest in real estate as young as possible. On the other hand, you stated to avoid real estate until a market correction in ~2018. So should we buy in now or wait?

    Also, I’ve seen you show charts for historical and projected real estate prices nationally and in SF. Where can I find the like for my city – New Orleans?

    Some great stuff on this site. Thanks for sharing all your knowledge!

    1. Nikhil,

      If you can find a great deal from a motivated seller and if you’ve calculated all your numbers and plan to stay put for at least 5 years, if not 10 years, then you should buy. In 10, 20, 30+ years, I don’t think you’ll look back and regret having bought.

      Just know that we are closer to the top of the real estate cycle than the bottom. For NO, there should be tons of data online!


      1. Thanks a lot Sam! Another question if you don’t mind. What do you think of as the point at which to leave a nice corporate job to work on your startup idea full time? How do you know when it’s time? I struggle to progress it as a lot of my energy and time go into my full time job but it of course provides a certain security and an independence from living with your parents.

  16. Hi Sam,
    My fiancee and I are new readers and big fans of your site.
    We are also struggling with the decision to buy a place now or hold off until next year or even 2018. Our home market (San Diego) has been appreciating at what seems to be an unsustainable rate, particularly in our price range (around $600 to $700k). We are in our early 30s, combined make about $250k, and our monthly rent is $2k. Finding a good return elsewhere with the money we’re saving by renting seems to be quite tough at the moment. We’d be committed to living in anything we bought for 7 to 10 years.
    Any thoughts on whether to sit tight and keep saving or to pull the trigger if we find something we like, even if it we don’t utilize your spray and pray method?
    Thanks in advance for any advice and for all of your great content!

    1. With a $250K income and only $2K a month in rent, I don’t see any rush to buy. Spend time talking to the realtors about the target price range you are looking for to get more color.

      I’m a buyer now if you can find a great deal from a motivated seller. But I plan to find a great deal from a motivated seller in 2017/2018 b/c I need to save more cash and I know the market is cooling. 7-10 years is really the minimum you should own the property. The longer you can own, the more buying will make sense.



  17. I purchased my house about 2 years ago here in SLC, UT. It’s appreciated roughly 20-25% already. The housing market continues to be hot here (UT home prices to increase an avg. of 5% in 2016) as local businesses grow and expand as well as out-of-state businesses moving here to take advantage of UT’s favorable tax breaks, not to mention the standard of living here is a lot less than larger cities across the US which means these businesses don’t have to pay its employees as much here as they would in say NYC or SF.

    Having said that, I do feel that the market will slow down over the next few years as you mentioned and I’m debating what to do:

    1. Sell my house. It’s hard not to want to sell considering the 20-25% gain (less realtor fees + taxes). Do I sell now and rent for a couple of years until the market has a correction then buy another house?

    2. Hold onto my house. Is it better to hold onto this house long term and eventually turn it into a rental? It’s a 4 bed/2 bath house in a great location and should make a great rental. The only issue I forsee is the fact that it’s an older home and things will eventually need to be replaced or upgraded. There are no sprinklers so I know renters won’t take great care of the yard, etc.

    What are your thoughts Sam? Does anyone else have any advice for me?

  18. I did some calculations on two properties I own in Cupertino and San Francisco. The Cupertino property was valued at $20,000 when the original owner purchased back in 1959 (I bought from him about 10 yrs ago). The San Francisco property was valued at $36,000 in 1971. Based on current market value, the Cupertino property appreciated at 8.1% annually, while the San Francisco property appreciated at 7.9% annually. From 1959 to present, S&P 500 rate of return was 6.5% annually, not counting dividends.

    If you were to pay all cash for properties, S&P 500 outperforms even Bay Area real estate when factoring in dividends, and this doesn’t account for maintenance and property taxes on the property. It’s due to your leverage ratios that make owning real estate in the Bay Area the big winner.

    Real estate is local. I think for much of the country, real estate appreciation just exceeds the inflation rate. Over the past several decades, homes have gotten much bigger, so $/sq ft may not even be keeping up with inflation for much of the country.

    Most people are very comfortable with leverage for real estate ownership but would never consider such leverage ratios for investing in the stock market, rightly so.

    1. Good calculations! I would take a 7% to 8% annual compounded game any day. This shows the power of compound interest and inflation. The question is: how much did you pay for the Cupertino and San Francisco properties and how much are you renting them out for ?

      I find owning property to be much more relaxing during downturns than owning stocks. It doesn’t feel good to lose money in the stock market and receive no utility from your money. At least with owning a house, you can still live your life and enjoy your property while the market is falling apart.

  19. FinancialFree123

    I know 3 Asian families in California.

    One owns a piece of land in Palo Alto that is so big that Facebook tried to buy it from them to build their campus. They refused to sell.

    The other 2 families in southern California have enough rental properties to generate 7 figure incomes each other. One of them own 120 rental houses.

    They all started with just above average wealth. But over 30 years, with some luck and hard work, they achieved unbelievable wealth.

    I calculated with 12-15% annual returns you can achieve that crazy money. That kind of return is attained by being lucky (in California), optimization (networking, knowing the banks and contractors so you always get the cheapest property), careful but also consistent reinvestment with moderate leverage.


    1. Amazing. My neighbor, who is ~66 and drives a beat up service truck owns about 30 properties in SF as well. That equates to a $25M+ portfolio and he still works hard everyday building and maintaining. He’s gifted his son and daughter each $1.2 – $1.6M houses as a result. (Inspiration for this post: A Massive Generational Wealth Transfer Is Why Everything Will Be OK)
      So the question is, if an immigrant who speaks poor English and doesn’t have any advantages can build this type of wealth, why don’t more people who already live here and have all the advantages in the world?

  20. “5) Despite inflation, interest rates keep coming down. This is the goldilocks scenario for all real estate investors who get to take advantage by refinancing their mortgages or getting record low mortgage rates for purchase while also raising rents.”

    In 1980 mortgage rates were approximately 16 percent. We’ve been on this lowering of interest rate wagon since then. Median House Price in L.A. County was 99k and the cost to own the home after 30 years with interest 393k. Imagine that! Ok so I have the opportunity to pay off 99k faster to avoid paying the full interest over 30 years, right?

    Fast forward to today Median Home price in LA County is somewhere around 460k. Cost to own the home after 30 years with roughly 3.5 percent is approx 617k. Wow! You’d have paid more in interest in 1980 than you would’ve today. What a bargain most would say…

    So this leads me to my logical conclusion that the interest is built into the principal of the home and there is no opportunity to pay the mortgage off in a reasonable amount of time. 20 percent used to be needed when the principal-to-Total Cost Over 30 Years ratio was lower. Today, principal is high since interest is built in which is why you see 3 percent down payments as the norm today.

    I wonder how many buyers are priced out (Based on Household Incomes) of these markets due to interest rates being low. I would suspect a lot (with my thesis that interest is built into the principal).

    All-in-all I feel like the federal reserve is doing everything in its power to inflate away the 2008 debacle. I wouldn’t be surprised to see lower mortgage rates going forward. FHA loans are allowing people to leverage up to 625k in los angeles area. I see this as the floor since these loans are easy to qualify for as long as your income is in the proper range.

    Should I count on -16 percent mortgage rates going forward to get the same investment gains? I am investing what I can into stocks. I am waiting for the next crash to jump into the RE market. Making slightly more than median household income in Los Angeles isn’t what I thought it would be. I couldn’t imagine raising a family living in a 1 bedroom apartment for 2k a month. I am saving 60 percent of my income and my net worth is on track with your models, but Real Estate is so far out of reach today for me without sacrificing my retirement accounts being maxed out.

    I look forward to a future article from you telling us that the bottom is in so I can get started off on the right foot.

    1. I hope other people realize that interest rates have been going down for 35 years. I write this over and over again.

      Have you ever been long property? I believe the next “bottom” will be in the winter of 2017/2018. My chart above is my forecast for coastal cities of properties you actually want to buy.

      Interest rates will stay low for longer. This is structural now.

  21. Are you sure the zillow “zestimiante” reflects the real value of your property Rob. A more accurate estimate could be found by consulting with relators. Also if your more interested in a greater return try flipping houses or specing houses. To generate a significant return in rentals you would need atlas 4 million whereas if you invest 2 million into flipping houses or building you would be looking at around 300-500k a year

    1. Yes, in fact I’d say Zillow is more accurate than the realtor’s I’ve worked with, including on my last property in that market that I tried to sell with two realtors before realizing zillow was right and converting it to a rental. Zillow is also very accurate for rental prices in my market as well. The market those 3 properties are in has been very stable (not much appreciation, if any) so perhaps that’s why its been accurate, but it’s also been very accurate based on selling prices in my neighborhood just outside of Charlotte the last 6 months and what the appraisal came up on my 15 yr refi 2 months ago.

      I don’t have time or knowledge to buy fixer uppers. I work a corporate job that works me about 60 hrs a week on average – which pays well. Also, in my area I don’t think you’d be able to generate as good of returns on flipping/spec homes as you would in markets like California and some other hot real estate markets. And the market can crush you on the downside with those types of investments. Rentals will nearly always have at least some ROI.

      Assuming 50% leverage, you can generate about 14-18% NOI returns on rentals in my market if you manage them yourself and not counting property appreciation. Unlevered is around 7-10% NOI excluding appreciation.

    2. I find Zillow to be extremely INACCURATE. See:

      Properties that are sold are dressed to the 9s. They are remodeled, staged, cleaned, and in the best condition possible. That sales price is then used for all other comps.

      Discounts need to be used. Zillow has this property at $2.8M. I’d be lucky to get $2.5M, and more likely $2.3M b/c my place hasn’t been remodeled in a while.

  22. I also made a huge mistake not purchasing property when I was young (like 26). We looked at a crap-shack in 1998 that was selling for $110,000 in the SF Valley (can’t get ANYTHING for this price anymore). I thought it was a dump and we didn’t think we’d qualify for it any way (I think we would have qualified looking back now). Fast forward (or not so fast forward), and we are in the process of purchasing a manufactured home in a community. This is a mixture of buying and renting all at the same time (I’d love to hear your thoughts on this!) We’re buying the home, which is very reasonable compared to the current market (and NEW!) and renting the land it will be sitting on. Our plan is to live in the home for at least 15 – 20 years, by then the home will be paid off and we’ll only be paying insurance, property tax, and land lease.

    1. Could you have torn down the crap-shack in 1998 or remodeled? I always try and buy property that has expansion or remodeling opportunities where buyers don’t want to bother doing the work. I’ve finished building a master bathroom in my house. Now I’m building a ~280 sqft deck off my master bedroom over the next two months. Fun! And it should make the house more livable and valuable.

      I feel mixed on renting land and owning a house. Land is what is most valuable. The whole idea is not to be beholden to anybody when you own your own house. But, just do the math on the price discounts of such homes and the benefits. Do the math on rent versus buy and all that stuff.

      At the end of the day, we rent everything anyway since we all die.

      1. I’m curious to see your deck – the build process and final product!

        As for our manufactured home, we’ve crunched the numbers and over time it will be a better option than renting forever. Ultimately, it will allow us to live in a much nicer place and at a lower cost as we head towards retirement. We also have the option to move the house once it’s paid off (but this might not make sense financially – reselling it would be the better option.)

  23. Finance Solver

    Fantastic advice (I actually might just take it because I have ~$30000 saved up in the bank and I’ve recently graduated college). But before I take the drive into real estate, do you have any recommended books or websites that you recommend to study up on it? I do want to invest but only when I understand it and would like to hear any recommendations :)

  24. Thank you for your excellent post Sam. How do you feel about the Greater Los Angeles market? Do you think it will also face a downward trend in the next 2-3 years?

  25. My experience with real estate hasn’t been great so far unfortunately. These first 3 are from a growing area in the Southeast with just under 300k people in the city and a MSA of around 1 million.

    First purchase – 2005 – 2k sq ft townhome – 3 bd, 3 ba for $155k in a quickly growing area of Town. Sold in 2009 for 133k. After realtor comm, concession to buyer of $1.5k and other closing cost, and repairs to close, I lost over 30k. This townhome is estimated at ~140k today per Zillow.

    As soon as I sold that townhome in 2009, I simultaneously bought a 3bd, 2 ba 1437 sq ft SFM in the best school district in the county and really for probably > 100 miles for $155k just on the edge of town. That house is currently valued at $157k per Zillow. I converted this to a rental in 2013 and currently make around $150/mo cash after a 10% maintenance reserve managing myself. However, if I was to sell it now, after realtor fees and the like, I would lose money on this home. Should be able to refinance this within the next year and increase the cash to around $350/mo. Plan on making this a LT rental.

    In 2013, I bought a 4bd, 4ba 3040 sq ft home in a posh part of town for $355k. Zillow estimate for this is $361k. This is currently being rented for roughly cash flow breakeven with a 7% maintenance expense managing myself. Plan on making this a LT rental.

    In fact, outside of the “super metro” cores, most of the country’s housing is still below 2005 levels (Florida is still mostly way below 2005-07) not even adjusted for inflation. With the average median household income of around $55k/yr, it also is likely to limit your mobility with making a Home Purchase as most won’t be able to cover 2 payments both from a DTI or if the tenants stop paying or trash the place. My household income is around $275k/yr (90% me, 10% wife) so no big deal for me today but definitely would have been 5-10 yrs ago. Don’t get me wrong – I think owning real estate should always be a part of a diversified portfolio, but leverage goes both ways – amplifies gains AND losses. San Fran, NYC, etc remind me a lot of Japan’s housing prices – especially Tokyo’s – until the 1980s.

    1. Thanks for sharing your history Rob. What locations in Florida are you buying in? I have friends who are telling me Miami has done very well over the past 6 years. Is this not true?

      I take the view that SF is undervalued as a rising international city. Nowhere can you find ocean view properties for less than $1,000/sqft for major cities.

      I think NYC has a HUGE international demand curve from Asia and Europe, making prices there astronomically high and sticky.

      Perhaps all the major US cities turn into Tokyo one day. But I don’t think that day is here for the next 20+ years.

      1. I’ve bought property in the Carolinas – not in Florida – just familiar with the market due to family and friends. Carolinas didn’t go nuts in the mid 2000s, didn’t drop as much in the recession and haven’t rebounded as much, either.

        Miami has done well the last 6 years but is still way below 2005-2007 levels:

        Looking at the 20 cities Case-Shiller covers, the following are still below 2005-2007 levels
        Las Vegas
        San Diego
        Washington, DC

        Most of the rest, including SF (which indicates your property has significantly outperformed), are basically right at 2005-2007 levels or just barely over. Denver and Dallas are the two exceptions.

        So in the last 10 years, 13 out of the largest 20 markets are still down and I believe they’ve rebounded better than second tier markets and all rural areas.

        I’m not quite as optimistic that housing will go higher from here unless median household income goes up but given that I have quite a bit of my net worth tied to real estate, I’m hoping my pessimism is unfounded.

        1. Gotcha. Yes, buying near the top or the top makes returns difficult. And we are right now near the top.

          One of the main points of this article is simply this: within 30 years, no matter what happens, you will have a paid off asset that can help with financial security. You can live in it for less than renting, sell it, or rent it out. You won’t even feel much pain throughout the years b/c the payments are automatic. Get this asset out of the way, and utilize your extra money to invest elsewhere.

          1. Well one I bought at the bottom of housing in 2009. But at least the one I bought last year in Charlotte area is up 10% in a year or so based on zillow and refi appraisal.

            If you hold it for 30 years (or anything close to that long), it definitely makes sense. Most people only own their home for 6-9 years, though (trading up, moving, etc), and adding in buy/selling costs, and sometimes expensive repairs, and renting can make sense for people around middle income levels since most won’t qualify for a second housing mortgage on another property with just $55k/yr in median household income if they get a good job offer in another city and happen to be upside down or just don’t want to take a loss. People on this site I’m sure probably are at least 2x that for household income and probably able to hold as rentals if they move. Just depends on risk tolerance.

   (slightly old article but shows holding periods for real estate from 2003-2011)

            1. As soon as the commission cost come down to a more reasonable fixed rate, flat rate, or 2%, the real estate industry will see a ton more transactions. Before then, we should all be incentivize never to sell our properties. Why lose out on 5% and pay taxes? It is a wealth killer.

  26. Sean Desmarais

    I am 23, work in commercial banking, and live in Napa. Housing prices are about equal to SF, as I couldn’t even qualify for a rent to own property last week. Should I save up and buy RE in 2018 (yes the market will turn over soon) or should I risk my money fortune hunting in stocks.

    1. Yes, same all you can for the next two or three years. Napa is definitely seeing a downward decline and pricing. The first properties that go are those second homes and vacation properties. I definitely would not buy enough for right now. Worst case scenario you have a ton of liquid money in two or three years.

  27. Appreciate the real data and total cost of ownership numbers. Makes me glad I stayed in the valley and didn’t move to SF.

    Rent vs buy will always be a personal decision. But I agree. In today’s manipulated markets, real estate is one of the few ways individuals can assume some control over their investments.

    It’s not just the hot money out of China that’s causing the real estate surge. Real estate has a value that goes beyond numbers and his you deep in your soul in a way no other investment can.

    Like sex, love, and parenting, if you’ve never tried it, you will never understand.

  28. I live in Manhattan in prime real estate location. My rent is $4,200 in a 1br that would retail for $1,500,000 or so.

    Quick math means $8k a month all in mortgage, tax, condo fees (latter two are not too high under $1k each).

    I can’t figure out why I would buy given I can just build “equity” by pocketing the $3,800 difference no?

    Household income $400k. Two salaries. Late 30s no kid. Been in NY for 10 years. Not sure where we will be next 10.
    Apartment hard to rent (no AirBnb allowed or short leases and high move in and out fees).

    Should I NOT buy? Have 20% down payment in cash but not much more at all. Buy/Hold/Rent???

    To me the difference in monthly when owning rather than renting is staggering and any help appreciated from Sam or other readers.

    1. One thing you have to ask yourself is why or what were the reasons why you didn’t buy 10 years ago, five years ago and three years ago. Only you will know the answer. For me? I didn’t buy into thousand and one because I was afraid after bubble burst and I was uncertain about my job future.

      $4200 a month in rent is cheap if the place really is worth $1.5 million. $4200 is exactly what I am renting out one of my places for and I would be extremely lucky to get 1.2 million, more like 1.1 million.

      When you are at these expensive valuation levels, the key variable is your duration of stay and your forecast of principal appreciation. I think we are past the market top and are in a two-year downward trajectory, so I would keep on renting if I were you if you’re looking to buy at that level.

      There is a risk of course that the 1.5 million will cost 1.6 million or 1.7 million when it’s time for you to buy. But as you said, if you’re saving the difference and investing in making money, maybe it doesn’t really matter because you’ll still be able to afford it. I would personally should to buy a two bedroom two bathroom condo for more flexibility and upside.

      1. Excellent response, very appreciated.

        I didn’t buy 10 years ago b/c I started working late, 5 years ago because I was starting to make decent money but had no savings, and 3 years ago because I felt like what was in my price range would be too restrictive a few years after (i.e. would buy a small 1br and be unsatisfied) and due to new job (in)security.

        My income is also 3x now what it was 3 years ago, and I expect it to stabilize now, so I feel like I am getting financially ready. I save a little bit over $100k a year after taxes and retirement.

        $4,200 is cheap, and I negotiated decent price increases over next 2 years as well, so my risk is hedged. The place might be worth more…a couple of similar units recently sold for $1.6-1.9m a few stories above mine. I’d buy mine at $1.5m.

        Normally in NY a $1m 1br will yield $3.2k or so rent.

        What I think is making a big difference in high price vs. low rent where I live are a few intangibles (location and view) that are highly valued by a buyer but may not for renters. In addition, there are a lot of condo fees to move in and out which limits turnover.

        Or we just got plain lucky. Other similar units rent at $4,500+

        Principal appreciation where I live will be modest. I figure 6% a year. I agree on the downward trajectory. Commercial real estate here is showing lots of vacancies. And it’s starting for residential real estate…I want to be ready.

        I am not sure if my apartment value will drop (I doubt) but I think it may stabilize while I keep saving, at least that’s the plan. Just very confused about such a gap vs owning / renting.

        I save the rest in 55 equities / 45 muni bond etf.

        A 2br in my building is more like $3-5m (they’re 1300 sqft+) so that’s out of the question for now. In less desirable locations (but still good ones) a typical 2br will be close to $2m these days.

        Typical 1br run from $800k-$1.9m Thanks again Sam! Your blog is my #1 personal finance / financial freedom read. I got inspired since reading and my saving rate is now ~55% of after-tax take home.

        1. Wow…. $3-5M for 1,300+ sqft is muy expensivo! Why do you think the media always harps upon SF being so much more expensive when it is clear that Manhattan blows SF out of the water? You can get 1,300-1,500 sqft 2/2s in SF in great locations for $1.3 – $1.9M. Damn, maybe the 1,300 sqft 2/2, double balcony place at 22 East and Madison w/ a view of the chrysler building is actually worth $2M from the $760,000 I could have bought it for?!

          Related: How Do People Afford To Live Comfortably In Expensive Cities Like NYC On Less Than Six Figures?

          I’m glad I’ve helped motivate you to save and get on the path to financial freedom. It’s so worth it not to have to work after a while and do your own thing. Take full advantage of your opportunity now, as you never know how long it will last.

        2. BTW, here’s something else to think about. Let’s say you want to buy a $1.7M place. If it inflates by 4%, you’ve got to make $68,000 on your salary just to keep up. Your $400K combined income is great, but that means you need to grow your salary by 17%. Possible? Of course. But long term sustainable, difficult unless you are on track for partner/MD mega millionaire status.

          1. Interestingly, I am almost in the exact same situation as Mark. I’m starting to look for properties again but I am paying $5,300 for a 1 bdrm. Just got married. If we buy, we would like to buy for a potential family, ideally 2 bdrm 2 bath with office, which is going to be in the $2.5-$3m range. It’s hard for me to imagine going from $5k per month to $12-15k per month. On the other hand, I don’t want to buy a 1 bdrm 1 bath, because we know we will not be happy with the space and I don’t want to spend money and time moving, only to then move again in 2-3 yrs. The other issue is psychological, nearing 40, I am breaking $1m, but I grew up with very little and it is hard for me to fathom that I could ever buy a $2.5m apt and am always concerned that my businesses will crash.

            The good news is that instead of sitting on multiple downpayments worth of cash, I have been steadily investing in commercial real estate around the country. Mark, you may want to consider this as an option – basically I’m geoarbritraging by investing in markets with 7% cap rates, for ex, and paying my rent with that money (I still pay the difference as I have only put $500k in those strategies). Currently, I have stopped doing this because I see Manhattan prices dropping fast and I want to be there and ready if asks start hitting my bids.

            Anyways, good luck out there! I love Manhattan, but I really wish I didn’t!

  29. “If you take on huge debt, your motivation to work hard will shoot through the roof!”

    This has rung very true for me. Very similar to procrastination, you will be much more productive when you only have 1 day before a deadline.

    I do feel your real estate articles are somewhat outliers due to the nature of the SF housing market. You yourself are also an outlier because you’re able to afford a 1.5 million home with a down payment of 300k at a young age. Despite that, I agree with all your sentiments in buying as early as possible and holding for as long as possible. Perhaps the risk of declining home and neighborhood value over time and the importance of always keeping a high cash reserve should be highlighted!

    1. Hi John, my hope is that readers can ignore the actual dollar value of the property and focus on another salient points in the article. But I also understand that it is hard to ignore.

      I should have use the other property as an example to make it more relatable or less distracting to more people, but I just finished refinancing this property so I wanted to make an update on this one specifically. I already wrote post about the other property as entirely in 2015.

      Everything is relative, so I’m just using my own example living expenses San Francisco. I’m sure a $5000,000 property and net worth would be great for someone living in a place where the median house price might only be $300,000 for example.

      Thanks for reading!

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