How Do People Afford To Buy Property In Expensive Cities Like San Francisco

With the median home price in San Francisco and New York City now hovering around $1.7M, many often wonder how people afford to buy property in expensive cities. How do first-time homebuyers come up with $320,000 down payments and afford $1+ mortgages?

As someone who has owned property in San Francisco since 2003 and has made dozens of offers, let me tell you the secret to how regular people afford to buy expensive property. The formula is quite simple.

Salary + Another Salary + Bank Of Mom & Dad = Housing Affordability.

Only a tiny minority of people in their 20s are about to afford homes at these prices.

Salaries Are Bigger In Big Cities

If you give people who live in big expensive cities time, they should be able to afford the median-priced home by themselves. If they partner up, then it's even easier.

The average person joining Facebook, Google, Apple, Uber, banking, consulting, law etc makes about $100,000 – $175,000 a year right out of college. In 8 years, when they are around 30 years old, they are making $200,000 – $350,000 a year all in.

But wait, now each one of these folks shacks up with another person in a similar situation. You’ve now got a household income of $400,000 – $700,000 a year.

With a $400,000 – $700,000 a year household income, you can easily afford a $1,000,000 – $1,500,000 mortgage based on today’s interest rates (~3.125% for a 30-year fixed, ~2.875% for a 5/1 ARM according to Fannie Mae).

If you haven't refinanced your mortgage rate yet, I highly recommend doing so! Check online with Credible, the leading lending marketplace today where lenders compete for your business. Personally, I refinanced to a 2.625% 7/1 ARM with no fees. The decline in mortgage rates has enabled more people to afford to buy property everywhere.

Historical mortgage rates - People can afford to buy property because mortgage rates are declining

Affordability In Expensive Cities Is Actually UP

Now hold up. You’re saying average people don’t work at places like Facebook, Google, and Quora. Well, despite these tech, finance, consulting, and law firms employing tens of thousands of people, the average person who is willing to come to San Francisco and pay such a high cost of living does indeed work at companies that pay well, otherwise, they wouldn’t be here. Places like SF and NYC are the gravitational centers for gung-ho, highly motivated people.

Due to the pandemic, rents declined in expensive cities. Therefore, the affordability to rent has gone up. However, prices only declined by a little bit in 2020, but have since rebounded strongly. I believe buying New York City property offers the best value now. San Francisco real estate prices have done well since the pandemic began.

How Do People Afford To Buy Property In Expensive Cities Like San Francisco

Further, only about 20.5% of 18–35 year olds in San Francisco own homes and only 36% of the entire SF Bay Area population own property. Therefore, you only need 1/5th to 1/3rd of the population to be earning this type of money to afford a SF Bay Area home.

The debate on what percentage of people should be able to afford to buy property in the SF Bay Area is something different altogether.

Bank Of Mom & Dad Is Everywhere

If you secretly look behind the covers, the Bank of Mom & Dad is ubiquitous when it comes to first time homebuyers buying in expensive cities around the country. BoM&D is how people can afford to buy property in expensive cities.

I’ve spoken to hundreds of agents and the estimate is roughly 35% of first time homebuyers get help in the form of a down payment or full payment from their parents. It’s the only logical way if your 25 years old annoying colleague making $120,000 a year suddenly tells everyone he just bought a $1,200,000 condo!

I’ve surveyed all my neighbors over the 10 years I lived in the Marina and now the three years I’ve lived in Golden Gate Heights, and practically every one of them got help from their parents. That’s the world we live in folks. The Baby Boomers are the wealthiest generation in history because they been able to save and invest the longest during the biggest boom in history.

Just be careful to not turn out like a couple of my deadbeat neighbors who are all in their late 20s or early 30s with no motivation to do anything. They all get to live for free in a paid off, multi-million dollar home. To be gifted wealth instead of earning it is one of the worst curses ever!

San Francisco home price appreciation and San Francisco median home price over time

Marina District, San Francisco Neighbors (2005-2014)

Here are some real examples of my young neighbors living in expensive homes. There is no way they could have afforded living in these properties without the help of their parents.

Neighbor #1 in 2005: 26 year, lived in the bottom unit rent free, parents lived in the top unit. In 2015, parents moved out and he rents out the top unit to a couple for $4,600/month and still lives for free. In 2017, he offered me $2.1M to buy my house next door, and I politely declined. Here’s his text to me.

Neighbor #2 in 2006: Bought a single family house across the street from me for $1.5M. He was in law school and 24 years old. His parents bought the house for him and he rented out three bedrooms for a total of around $3,500 a month.

Neighbor #3 in 2005: Owns a 26 unit apartment building cashflowing $30,000+ a month back then. He was 70. He’s leaving the entire building to his two adult kids when he passes.

Golden Gate Heights District, San Francisco (2014-Present)

Neighbor #1 in 2014: 32 years old and lives at home with her mother. Mother also owns a $1.3M SFH she rents out in the Sunset.

Neighbor #2 in 2014: Dad bought the house for him for $1.1M when he was 36. The son is 42 now. He says he works on the internet, but I don’t think he and his wife work with three kids and a full-time nanny.

Neighbor #3 in 2017: Dad bought the house for her for $1.3M and did a gut remodel. Daughter is 40 and is the sister of Neighbor #2. The dad actually owns 20+ properties in San Francisco. He started accumulating them 30 years ago when he immigrated from Hong Kong.

Neighbor #4 in 2014: 21 year old attending community college. Lives in his parents house for free while renting out a room to his buddy. Owns a sports car and motorbike. After transferring to a 4-year accredited college and graduating in 2017, he now works a minimum wage job. But it doesn’t matter because his parents have already gifted him a paid off house worth ~$2M and has all the toys he’d ever want.

Neighbor #5 2019: 45-something year old couple. Lives in his father’s house with his partner, who is a grocery store manager. His father lives somewhere else. Their house is worth over $2M.

Neighbor #6 2021: A beautiful house I was eyeing was listed for $3.1 million. It sold on May 1, 2021 for $3.525 million! The couple look to be in their late 30s with only one daughter. It turns out, according to the listing agent, the wife's parents came up with $1 million of the down payment. Dang. You can see the house in this post where I've been tracking San Francisco real estate sales during the pandemic.

San Francisco median house sales price trends for Golden Gate Heights, Inner Sunset, Bernal Heights and more

Diversifying Into The Heartland

In 2017, I sold my San Francisco rental home I bought for $1.52M in 2005 for $2.74M, or 30X annual gross rent in mid-2017. I tried to sell the house in 2012 for $1.7M after the financial crisis, but thank goodness nobody wanted to buy it! Ultimately, I sold because I was paying $23,000 a year in property taxes. I also had PITA tenants, lots of maintenance issues, and finally became a first time dad!

The proceeds were reinvested in real estate crowdfunding. With platforms like Fundrise and CrowdStreet, I am able to invest in heartland real estate where valuations are lower and cap rates are higher.

Further, thanks to the pandemic, demographic migration to lower parts of the country has accelerated. Earning income 100% passively is also fantastic.

Both Fundrise and CrowdStreet are free to sign up and explore. More people can afford to buy properties in places like Austin, Memphis, Houston, Charleston, and other areas. Therefore, I expect home price appreciation to continue out there for decades. I've personally invested $810,000 in real estate crowdfunding so far.

Good luck everyone! In a hot real estate market as we are experience now post-pandemic, be picky. Run the numbers. Be patient. There’s always another deal to be had.

Long And Strong Real Estate

I’m still long one rental in Pac Heights and three properties in Golden Gate Heights, the best neighborhood in San Francisco. But I've had my fill now in San Francisco and plan to continuously diversify into the heartland.

If you want to make money in real estate during the late innings, it’s best to follow BURL: Buy Utility, Rent Luxury.

About the Author:

Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of it. He spent 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley. was started in 2009. It is one of the most trusted personal finance sites today with over 1.5 million organic pageviews a month. Financial Samurai has been featured in top publications all across the internet. You can sign up for his free newsletter here.