Everybody is getting pumped about the new wave of tech IPOs in 2019 and 2020. These SF Bay Area tech IPOs include Uber, Lyft, Airbnb, Slack, Pinterest, and more.

The default assumption is that these tech IPOs will bring in huge demand and drive SF Bay Area real estate prices up. After all, these soon-to-be public companies are worth billions and employ tens of thousands of sub-35 year-old-employees looking to establish roots.

If you ask most real estate agents in the Bay Area what they think about the future of real estate, one of the first things they will mention is the upcoming tech IPO tsunami. They’ll say things like,

“You better buy now before the lockup periods are over!”

“Buy now or get priced out forever!” <- all-time classic line

If you’re a real estate agent, it’s always a good time to buy or sell property since they make money on transactions. No problem as that’s just business.

But I have a feeling the industry is overestimating the impact tech IPOs will have on real estate prices and underestimating the impact tech IPOs will have on a homeowner’s desire to sell.

Remember, to get rich, you often need to challenge yourself to think differently. Herds can sometimes get slaughtered. There are very few “no-brainers” in this world. If there were, we’d all be financially free well before our expiration dates.

One of my goals over the next 24 months is to find a larger house for my family of three. Our house is currently about 1,920 square feet with three bedrooms, two bathrooms, and a nursery. We built a 260 square foot deck off the master and have a small play area in our backyard.

After our house was battle-tested six times with relatives visiting since the birth of our son, we’ve decided it would be nice to have one more bathroom and 300 – 500 square feet of extra living space.

As a writer, I need a quiet place to hide and think. It’s important I separate where I write and where I sleep.

Besides, with a little Pavarotti in the making, our house is getting smaller by the month. Boy does my boy love to sing and talk.

Since purchasing our home in 2014, our income and net worth have luckily increased. We currently spend roughly 5% of our monthly gross income on all housing costs.

Based on my housing expense guideline for financial freedom, we want to maintain our monthly house expenses at no more than 10% of our gross income. Therefore, we feel it’s OK to purchase a house up to twice as expensive as our existing home.

For those of you who plan to buy a house in the near future, be it a first-time home or an upgrade, let me suggest a framework for how to invest your down payment or full payment while searching for your new home.

As I was reviewing the performance of my once healthy investment portfolio, I found a couple standouts: Omega Healthcare Investors (OHI) and Realty Income Corporation (O).

I knew they were performing well, but I didn’t realize how dramatically these two publicly traded REITs have been performing compared to the S&P 500 index until now. OHI is up ~25% YTD and O is up ~11% YTD.

A common assumption investors have is that when interest rates rise, real estate tends to fall because borrowing costs, and therefore, purchasing power goes down.

Given the Fed has hiked the Fed Funds rate multiple times since the end of 2015, and given mortgage rates have also increased meaningfully as the 10-year treasury bond has sold off, it is impressive how well these two REITs have done in 2018.

Let’s look into more detail why higher interest rates don’t necessarily hurt REIT and real estate performance overall and may actually be a positive signal for the industry as a whole.

When the stock market takes a dump, I like to focus on happier things, like nice houses with beautifully remodeled bathrooms where you can actually go to the bathroom.

As a dad, I’d like my parents and in-laws to come visit more, which is why it’d be nice to have a ground floor level portion of the house dedicated just to them. This would make it more comfortable for all of us.

Given I write from home, it’d be nice to have a house large enough so that I can’t hear my boy squealing with joy or crying in frustration. Trying to create while hearing him is one of my toughest challenges because once I hear him, I just want to drop everything and go to him.

Finally, I have some FOMO that if I don’t buy this house now in one of the best neighborhoods in San Francisco, I might never be able to get in. This is my ego talking more than anything else. 

I’ve written several posts helping buyers try to get the best deal possible. As an equal opportunist, here’s a post to help sellers get the best deal possible.

After 30 days of showing my house in 2017, I only had one offer, which was unusual for the San Francisco housing market back then. But I had expected this type of outcome because five years earlier in 2012, I tried to sell my house for 40% less and got zero offers.

My house was on a busy street. Few families felt comfortable living close to so much traffic and road noise. As a result, the only tenants I was able to secure during its rental period were 4-5 dudes.

The person who ended up buying my house was a 47-year-old venture capitalist. He had a daughter and a girlfriend. They were the perfect buyer I had in mind. Although being a venture capitalist sounds impressive, there are many different tiers of VCs. He worked at the VC arm of a food conglomerate.

I’m not exactly sure what his income was, but there was a long delay with his financing because he revealed he was leaving his job to start his own company. The bank didn’t like the uncertainty of his future income, and I had my doubts his bank would come through.

But after going two weeks past his financing contingency, his bank did come through and lent him a whopping $2 million as his primary loan plus another $400,000 secondary loan. In other words, he was only putting down about 10%.

If I was his financial advisor, I would not recommend he leverage up so much to buy my house, especially during a job transition. Better to wait a couple years and see how the new gig goes. Besides, he already owned a nice three bedroom condo not much smaller than my house. I’d tell him to be happy with what he had.

But what’s done is done. I suspect he’ll be fine, especially if he was able to sell his condo, deleverage, and own his new house for at least a decade. Sometimes you got to take bigger risks to live your desired life.

With rising interest rates, rising inventory, and a sluggish stock market, let me share some strategies that may help you sell your house in a softening real estate market.