Despite reported rents going down anywhere from 15% for 2-bedrooms to 30% for studios in San Francisco, San Francisco real estate prices keep going up in 2020. The question is, how come?

As a resident of San Francisco since 2001, a homeowner since 2003, a landlord since 2005, and a personal finance blogger since 2009, I’ll share with you my perspective on why San Francisco real estate prices keep going up during the pandemic.

Big media like Bloomberg, SF Chronicle, and more love to focus on the negatives. Perpetually negative local blogs like SocketSite and Wolf Street, who missed the big run up since 2011-2012 also like to focus on the negatives because they’re hoping they’ll finally be right. However, I’m here to tell you a more balanced point of view.

Yes, I’m long San Francisco real estate. But I also sold a single family home in The Marina district for $2.74 million back in 2017. Therefore, I feel I have a balanced perspective on the market. I’m also a landlord who recently spent a month interviewing a dozen prospective tenants.

San Francisco real estate prices keep going up, as you can see in the chart below. Let’s explore why.

I’m always searching for reasons why things are the way they are. It’s also fun to connect the dots and come up with an investment thesis to make a lot of money. What I’ve recently discovered is that because the minimum qualifying income required to purchase a house is so low, there is still a lot of upside to housing prices.

For years now, I’ve made the case that Americans earn more and are wealthier than we all like to think. And finally, after three years of waiting, the U.S. Census Bureau came out in 2020 with 2019 data saying the real median household income has reached $68,703.

$68,703 is a healthy middle-class income. The question now is: Is $68,703 a high enough household income to afford a median-priced home?

Let’s look at data from the California Association of Realtors (CAR) on the required minimum household income to afford a home.

The housing market is in a tricky situation given massive unemployment, continued shelter-in-place, the coronavirus, and tremendous uncertainty. However, after a massive 44% month-over-month rebound in U.S. pending home sales in May and another strong 9.6% rebound in September, the U.S. housing market is stronger than ever! Here are my housing predictions for 2021.

Housing Makes Predictions 2021

With at least two viable vaccines with a ~95% efficacy rate from Pfizer and Moderna, low mortgage rates, an accommodative Fed, and huge pent up demand, I think the housing market will continue to reach new highs in 2021.

Record-low mortgage interest rates are enabling homebuyers to afford more home. In the past, I would say spend no more than 3X your annual income on a home. Today, you can stretch to buy a home up to 5X your annual income due to mortgage rates.

Further, we are all spending more time at home. As a result, the intrinsic value of a home is going way up. We also desire to invest in a more stable physical asset that generates strong cash flow. Finally, we have the millennial generation in their prime home buying years.

Given my housing market prediction, if you’re looking to buy a home and can afford to do so using my 30/30/3 home buying rule, buying property before we reach herd immunity is probably going to turn out well. Just make sure you live/own your own for at least 5 years, if not 10+ years. The longer your holding period the better.

The Return To Big City Living

For big cities like New York City and San Francisco, I believe there will be a V-shaped recovery in demand in 2021 as hundreds of thousands flock back to big city living again.

All of my wealthiest and smartest friends are buying up San Francisco property before 2021 to position themselves for such a rebound. Further, the value of rental income has gone way up because interest rates have come way down. It takes a lot more capital to generate the same amount of risk-adjusted income. Therefore, smart investors are buying up rental properties as well.

Here are more detailed thoughts about my housing market predictions for 2021.

Owning rental properties only ranks fifth out of my eight best passive income sources. However, as interest rates decline, the value of rental properties and their cash flow has increased. Therefore, owning rental properties has currently moved up to my #1 passive income investment today.

As a financially savvy individual, your goal should be to accumulate as many underpriced cash flow-generating assets as possible. I believe this permanently low-interest-rate environment is once more favoring owning rental properties.

The S&P 500 and the NASDAQ had incredible performance in 2020. However, rental properties lagged. Therefore, I think rental properties will catch up as investors put money to work in relative laggard investments.

As a tired father who yearns to earn 100% of his income 100% passively, it’s tough for me to accept that owning physical rental properties is once again the right thing to do. However, for the average person, building up a rental property empire is one of the most promising ways to build wealth.

In my endeavor to stay on top of the commercial real estate market, I’ve interviewed Marious Sjulsen, EquityMultiple Co-Founder & Head of Real Estate.

EquityMultiple is a real estate investing platform for the self-directed accredited investor. They offer a diverse array of rigorously vetted, professionally managed commercial real estate investments.

Their per-investment minimums are as low as $5k, and they offer debt, preferred equity, equity, and fund offerings, enabling each investor to tailor their real estate portfolio to their investment objectives and risk tolerance.

EquityMultiple also offers robust in-house underwriting and asset management, as well as a dedicated Investor Relations Team. Their goal is to make real estate investing simple, accessible, and transparent for individual investors. EquityMultiple is also a sponsor of Financial Samurai.

As a landlord since 2005, I believe in developing a good relationship with my tenants. I treat my tenants as customers and want to provide the best living experience possible. This article provides tips for prospective tenants in a strong rental market.

If you are a landlord looking to find great tenants, this article should also help you make a better decision. Having great tenants really makes a difference in terms of peace of mind and your quest to build reliable passive income.

This article consists of two parts:

• An interaction I had between one prospective tenant and how it all unraveled. The interaction may help both renters and landlords better negotiate a lease. Since attending business school, I’ve found using real-life case studies to be the best way to teach and learn.

• Tips for getting the rental property you want in a highly competitive market. These tips are based off my experience as a landlord for over 15 years and new things I learned from my latest tenant search.

The home remodeling industry is booming because everybody is spending more time at home. However, unfortunately, home remodeling always takes longer and costs more than expected.

I’ve done four major home remodels before. None of them were pleasant experiences. All projects took longer than expected. After my first two home remodeling projects, I finally wisened up to the game some general contractors play to extract as much money from homeowners as possible.

If you are planning on buying a property and remodeling it, please know that the permitting and remodeling process can be a very big PITA. If you are not good with dealing with stress, buying an already remodeled home may be a better bet.

Let me share with you one home remodeling example that demonstrates the opaqueness of home remodel pricing.

The median homebuyer age in America is getting older and older each year. With the goal of increasing our asset-to-liability ratio to 5:1 or greater by the time we retire, buying a home too late may pose problems. Let’s do a little digging into why this is.

The median age of first-time homebuyers is now 33. This is the oldest age on record dating back to 1981, according to the National Association of Realtors. Back in 1981, the median age of first-time homebuyers was between 28-29.

It’s clear that the rising cost of homes, the rapid increase in college tuition, and the delay in household formation all have something to do with the first-time homebuyer age ticking up. Thankfully, we’re all living a little bit longer as well.

The median age of first-time homers increasing by ~14% since 1981 is interesting. However, what’s even more interesting is the fact that the median age of all homebuyers is now 47. This is a 51% increase over the median age of 31 in 1981. What’s going on here?