Do you remember the scene in Back To The Future Part II when Biff Tannen opens up a safety deposit box and reveals to Marty the way he got so rich was due to a sports-betting almanac his future self gave his younger self? Oh how I wished I could have done the same thing as a young lad.
Then I grew up and got pounded by an unforgiving industry that allowed us to only eat what we killed. Damn, why does life have to be such a meritocracy?!
It’s good to dream. Dreams are a tailwind of hope that make you believe one day all your wishes will come true. But daydreaming is a passive activity. Only losers dream without taking any action. Practice predicting the future in order to build a greater fortune!
Back To The Future
Don’t tell anybody, but I actually bought a pocket-sized DeLorean time machine on eBay in early 2014. Unfortunately, the maximum time travel setting was only 30 months into the future. What do you expect for 10 bucks + shipping and handling?
When I got to the Fall of 2016, I saw my future self doing yoga in red underwear on a deck I built off a master bedroom. How weird! It was like a dream – seeing yourself without fully being able to see yourself without your future self seeing you. So I did what any good time traveler would do and took a snapshot.
What I realized was how peaceful and happy I was meditating under a fading sun. I didn’t want to alter the time-space continuum by asking my future self how life was. Instead, I just observed. The fixer in Golden Gate Heights I was looking to buy in 2014 was the one!
2014 self taking a picture of future self in 2016 through time travel
Seeing the future gave me confidence to write this post, “The Best Area To Buy Property In San Francisco Today” in 2014. In the post, I argued that Golden Gate Heights, The Inner Sunset, and Parkside (District 2) were the most undervalued neighborhoods in a then, very hot real estate market.
The reasons I highlighted to buy included: ~40% lower pricing than eastern neighborhoods, a restriction in new single family home construction, the eventual creation of more public transportation out west, ignorance about the weather, prejudice against a middle class Asian demographic, Uber and Lyft slashing commuting costs, and the ability to buy ocean view property cheaper than any other international city in the world.
I even created a map in 2014 that gave some color on the various neighborhoods and where to buy.
Best Place To Buy In SF, created in 2014 by FS
After a 25% – 30% ramp in property prices in the Western district since 2014, real estate firms and the media are only now talking about how District 2 is the hottest area in San Francisco in 2016 while all other neighborhoods take a breather!
Here’s what Paragon Real Estate group, producer of the most comprehensive SF real estate reports had to say about San Francisco in their October 2016 newsletter:
Since the market recovery began in 2012, various districts have taken the lead as the hottest markets in San Francisco: The affluent and prestigious Noe-Eureka-Cole Valleys district and Pacific Heights-Marina district (check: bought Pac Heights condo in 2003 and Marina SFH in early 2005) led the recovery out of recession. Later South Beach/SoMa, Hayes Valley and, especially the Mission, went white hot as the high-tech boom surged (though, honestly, high appreciation rates became general throughout the city). In mid-2015, price appreciation in many the more expensive and fashionable districts started to slow down and plateau.
With the search for affordable homes, and houses in particular, becoming ever more challenging (or desperate), the greatest pressure of buyer demand moved to a large, lopsided curve of historically less expensive neighborhoods running along the western-most edge of the city from Outer Richmond south to Lake Merced, then east across the southern border with Daly City, and up through Bernal Heights and Bayview.
Of these, we believe Realtor District 2, Sunset/Parkside, with its quiet streets and low crime rates; its closeness to the beach, GG Park and highways south to Silicon Valley; and its attractive, modest-sized houses built mostly in the 1930’s and 1940’s, is now the hottest, most competitive market in San Francisco.
Here’s their Hottest Neighborhoods In SF Map for 2016.
The best place to buy property in SF, October 2016 version by Paragon Real Estate Group
Amazing! More than two years later, now everybody is talking about Golden Gate Heights, The Sunset, and Parkside. You can read their full report here with more juicy data about what’s going on. Curbed SF picked up the report and so did other major sites focused on San Francisco.
The $10 DeLorean time machine was so worth it! Unfortunately, I’m totally joking, or am I, about time travel. The real answer to predicting the future is all about HUSTLE BABY! Here’s what’s going on:
1) On the hunt every weekend. Because I love real estate, design, and fitness, I try to go to as many open houses as possible to see what’s out there, speak to Realtors, and potential buyers. After speaking to hundreds of people a year about their thoughts on the market, it’s much easier to get a real idea of where the market is going.
2) Aggressive international travel. Everybody who cried in 2014 about how expensive San Francisco is had NO CLUE how cheap San Francisco real estate actually is relative to other major international cities because they haven’t done the proper comparison. When you actually go check out property in Hong Kong, London, Paris, Mumbai, Singapore, Vienna, etc. and compare what you can get in an apples-to-apples manner, you’ll see very clearly the value embedded in SF real estate. How is the median home price in Vancouver higher than San Francisco, when there’s not even a large, well-paying industry there?
3) Thousands of data points from this site. One of the benefits of having a relatively large personal finance site is that I can see trends in real time. My analytics show me which articles are gaining in popularity from search and which articles are fading. Of course, I’ve still got to correctly analyze the data, but my data provides an edge in making better investment decisions.
4) SF landlord with over a decade of experience. When it took almost five weeks to find tenants for my Pacific Heights condo in May 2016 I knew the condo and rental market was in the middle of a downshift. In the past, the most it would take to find tenants was three weeks. If you are a real estate reporter who has been renting his/her rental for the past several years, it’s hard to know what’s really going on compared to the landlord that’s in the weeds, speaking to dozens of prospective tenants and testing out different price points in the market.
So What’s Next?
It’s nice to make a 155% – 175% return on a $248,000 down payment in 2.5 years based on a prediction. That’s $384,400 – $434,000 of equity that can be extracted to have one bender of a time in Vegas! Why even bother working with those type of gains?
But the good times are now over. San Francisco real estate above $2M will correct over the next two years by roughly 10%. Real estate under $2M will correct by ~5% because mortgage rates will stay low and six figure jobs are a dime a dozen here. In other words, the spread between high end and lower end will narrow.
The large supply of new condominiums in the SOMA/downtown district is putting downward pressure on the luxury market ($2M+). Eventually, the price weakness will work its way down. Potential buyers should not be in a rush to buy anything. Instead, be patient and wait to buy before the thousands of Uber and Airbnb employees get liquid through an IPO likely at the end of 2017 or 2018.
I am certain that six months after their respective IPO lockups, thousands of employees will sell their RSUs and options and convert their funny money into real estate. They will reignite the property market. Why do I believe this? No, I haven’t gone to the year 2018, I’ve simply talked to hundreds of private company employees who all are itching to buy real assets.
As for District 2 (GGH, Inner Sunset, Parkside), I’m sticking with my prediction that if you can find a single family home here, especially one with an ocean view, you are going to outperform the rest of the SF market and the national market the longer you own.
Practice Predicting The Future
I write with conviction because why bother writing otherwise? It’s like having a Neutral rating on a stock as a research analyst. Weak. Get in the mindset of always taking action with your mind and body. Here are some concrete steps you can take to predict the future on something that interests you.
1) Formulate the positives in writing. It’s not enough to make a verbal argument about why you believe something is a good buy. You must put fingers to keyboard and mindfully type out your arguments. You’ll find that through writing, you’ll catch things you hadn’t previously thought of before.
2) Find the negatives. So many investments sound wonderful when you first come across them. It’s kind of like meeting a hot guy or girl for the first time. You’re infatuated; then you break up and ask yourself, “What the hell was I thinking?!” Your goal is to find the most bearish people and get them to tell you why they hate your idea. Listen carefully to their reasoning, find out their track record, and take careful notes. If you find everybody to be bearish, you might have an attractive opportunity on hand. The opposite could be said if everybody thinks your idea is a home run.
3) Make your predictions known. You don’t have to publish your thesis for everybody to read like I do on Financial Samurai. But you need to have someone read your thesis to hold yourself accountable. When you turn out to be wrong, analyze why. When you turn out to be right, make sure you aren’t confusing brains with a bull market.
You Have To Make A Move
If all you do is talk about an idea and never put money to work, you are wasting everybody’s time. Making money is all about mobilizing capital and executing. Just make sure you invest in a risk-appropriate manner. There is no sure thing!
Here are 20 ways to get rich:
1) Solve a reoccurring problem
2) Study something that is in high demand
3) Work in a lucrative field
4) Aggressive saving
5) Invest in real estate over the long term
6) Invest in the stock market over the long term
7) Constantly invest more in yourself (education, presentation, hard skills, speech, EQ)
8) Not buy a car worth more than 10% of your gross income
9) Outwork everybody else
10) Predict the future
11) Join the right company in the right space based on your predictions
13) Have a tremendously optimistic attitude
14) Take on a mentor or two
15) Build a large network
16) Listen more than speak
17) Always be willing to try new things
18) Take calculated risks every few years
19) Not settle for the status quo
20) Be nice and trustworthy
Here are some other predictions:
* Self-driving cars won’t be ubiquitous in five years like everyone says.
* 99% of startup employees would have done financially better if they got a non-startup job.
* The 10-year bond yield doesn’t break 3% for the next 10 years despite the Fed raising rates by over 1% during this time.
* Real estate crowdsourcing is going to boost property values in the Midwest and South as money more easily flows to the regions.
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I’ve been predicting a Great Divide among millennials. One group of millennials will enjoy substantial inheritances (homes and other assets) from their baby boomer parents. The other group of millennials will not inherit and will not own homes. The first group of millennials will have the opportunity to amass even greater wealth off the second group.
As the number and proportion of rent serfs grow, many fortunes will be made off them. Your best long-term holding in North America is properly-priced rental property because rent serfs will always have a need for the shelter it affords.
Samurai
What about the rest of the Bay Area, outside of SF proper?
Of course I would expect that the outer cities and neighborhoods would experience a larger correction than we would see in the city of San Francisco, whereas the relatively expensive neighborhoods around the big tech HQ’s like Google and Facebook might correct less.
It would be interesting to try to predict if there might be certain pockets here or there that unexpectedly outperform.
Do you have any prediction for the rest of the Bay Area, like Oakland and the East Bay, Daly City and the Peninsula, Silicon Valley?
Thanks.
I do, but I’d have to write another massive article! Are you in the Bay Area? If so, what is your current real estate situation?
I’d like to throw a hat in on this question. Details: West Oakland Condo. After purchase price and remodel I am up 75%. The predicament. What to do with significant equity that isn’t balanced with significant savings/investments. House rich, cash poor.
To sell and trade up to single family in a better east bay neighborhood (thinking condos will dip more and faster than single family) or leverage equity and purchase single family in another area then Airbnb or traditional rental to cover mortgage and HOA dues of existing condo.
Upside of west Oakland. Huge loft. Walking distance to Bart. 15 min to SF when there’s no traffic. 1hr to SF when there is. Poor schools and neighborhood can be sketchy at times. It’s cliche but Long term could west Oakland be Brooklyn? I’d love to see a full post on these subjects one day. Thanks for sharing all the good thinking over these years.
Solution to being cash poor is to just save more! Sooner or later, you’ll become cash rich again no? Or, is your cashflow super tight each month? If so, I’d work a side gig to boost income.
Luxury condo pricing is coming down now. So much new supply in SOMA SF, and the Millennium Tower is sinking.
If you can hold on to your WO Condo, then hold on for as long as possible. Everything becomes the same eventually!
I make solid money but single income family trying to make it work. We are not great savers but trying to work on a plan- we aren’t on a tight budget and buy things as needed/wanted. Should get better once we are both working agaian and kid is in school. But that’s a couple years away.
If WO loft real estate is buy and hold. Would you leverage equity to buy more real estate now or wait until the market is cooled off 18-24 months?
My next big decision is buy or rent in a better neighborhood/public schools.
I’d wait to buy for another couple months. Especially since you just said you are cash poor and don’t have the money to buy. If the amount of money you’re saving each month or each paycheck doesn’t hurt I don’t think you’re saving enough.
Long time reader, I am from Ohio I read your 2014 article and was fascinated by your research and decided to buy house in golden gate heights. I have been on the hunt for house since June 2015, Sam golden gate heights was already expensive by that time, the outer Richmond inner sunset parkside and GGH were similar priced. Finally ended up in westportal. Thanks for your guidance.
Very cool. Hope you are enjoying Westportal. I go there for some Greek, Indian, and Italian food once a month! Was it a big shock in prices coming from Ohio?
Really liked westportal I still live in Ohio. I rented the house through a management company.
There’s this guy called Adam who started the San Francisco blog called socketsite about 10 years ago. He’s a private school kid who went to a fancy private MBA and he was so angry that with his pedigree he could not buy property, therefore he started his own site to bag on San Francisco property.
Fast forward to today, he is so biased with his site that he failed to recognize and acknowledge and foresee a massive bull market over the past seven years. As a result of his negative bias, his site has languished and so has his revenue. And the kicker is, he is still renting after 10 years! If he bought when he started his site he would’ve made an extra $600,000 in equity.
If he would have been more balaced, his site would be 5X it is now. The guy is such a fool totally got it his predictions wrong. He let his biases and ego cloud his judgement.
It’s a shame he isn’t more balanced. Being negative real estate for the past 5 years really hurt his readership. As an investor, it is important to do your best to put your personal biases aside to make better decisions. He does have an entertaining site if you’re feeling pessimistic though!
At the end of the day, it’s just money :)
“San Francisco real estate above $2M will correct over the next two years by roughly 10%. Real estate under $2M will correct by ~5% because mortgage rates will stay low and six figure jobs are a dime a dozen here.”
Just wondering how you came to predict a correction of 10% above $2m and 5% sub $2m? I’ve noticed the market changing but have been really curious approx how much it will go down.
Based on past housing cycles, pricing, and the job market. I’m seeing the price declines for the past 6-12 months now, and they should continue.
Last downturn, housing in SF corrected by 15% – 20%. I don’t expect this one to be as bad, but we are also at a higher base.
The employment gains are large right now.
Would you predict that the US is entering recession as we did during the last two downturns in SF RE (2001 & 2007)?
The USGS has fantastic maps for such issues as liquefaction, shaking risk and landslide risk. Here is one link:
The maps are plenty detailed so you can figure out which blocks in the Bay Area are better than others. You can even select which earthquake fault you want to go (e.g., San Andreas or Hayward Fault). I believe they also have flood risk maps (though I may be confusing that with another site) which is helpful if you want to factor in global warming.
wow, this is super helpful. Thanks JC!
Long time reader here, first time poster! Glad you are sharing your predictions with us, it’s very insightful for a relatively new Bay Area resident :) I’m on the lookout to buy a place in SF, still deciding between areas and type of house (condo vs. house).
One question for you – are you at all worried about the foundation of residences in the NE of SF (areas like SOMA, North Waterfront, Marina, etc? I’ve read extensively that many of the homes in those areas are built on landfill, and thus prone to liquifyation (sp?) during earthquakes. This one issue has discouraged me from buying a condo in that area. I’ve been looking at single family homes near Balboa Park (Mission Terrace, Sunnyside, Ingleside, Merced Heights, Crocker Amazon, etc), any predictions on those areas? :)
Howdy MS, nice to hear from you. Did you take any of my advice back in 2014?
Worrying about an earthquake is like worrying about getting hit by a bus. You know it’s a possibility, but it doesn’t bother you because it’s hard to control fate. You can take insurance, sure up the foundation, ask your neighbors what happened during the last earthquake to see how it went. All you can do is hope for the best.
There are actually people who buy property in New Orleans and the coastal Florida region who get hit with huge storms EVERY YEAR. You just have to be comfortable with your choices. Life is all about risk and reward!
All those areas you mention are great value relatively speaking. I’m bullish on the area as well, it’s just a little too far for me at the moment.
I wish I knew about your blog back in 2014 :)
You make a good point about the risk and reward!
Long time reader, just wanted to contribute this interesting article on “18 Year Land Value Cycles” spotted by economists –
Good thing we still got 10 more years until ARMAGEDDON! :)
“And when the full 18-year cycle comes to an end in 2026, Manzoor said the “un-payable mortgages, catastrophically high house prices, and unsustainable land prices will lead to the greatest collapse in the history of mankind.”
Great article, I loved the list of 20 ways to get rich! Are you going to explore in such details all of them?
P.S. about your 2018 predictions: I don’t think uber&airbnb employees that may eventually sell their stocks/options are enough in volume to impact the house market.
Oh you’ll be surprised what 1,000, let alone 10,000+ people who all want to suddenly convert funny money into real estate can do to the housing market. Less than 1% of the housing market trades at any given time. For example, there are only about 500 homes listed in SF right now.
Did you see what happen after FB went IPO in 2012? It was nuts! Of course there are lots of other factors too, but all you need are catalysts.
What are your predictions and how do you plan to profit from it?
What a great prediction you made! That’s very impressive, and you’re now reaping the rewards! I’m not as good at predicting trends as you, so I’ll just trust your points 6 – Invest in stocks for the long run – and get rich that way ;) If I can also take calculated risks every few years ,like you suggest, then I know (hope..) that I cannot fail.
Thanks for all the wisdom – just the 20 point list should e worth a lot of money, as it’s right on the spot.
I noticed in 2014 a particular skill-set being sought in my temp work. I had not heard of it before. I did some research to see if I felt that it was a skill I could reasonably acquire. I concluded I could learn. In the Fall of 2015, I found a cheap class in that skill. Then I found a free class and a tutor. I’ve now almost mastered the skill, and have learned that the pay rate is more than double what I make as a temp now. The type of money that drastically change all of my finances. This skill is rare and needed once every six months based on the advertisements I see. I’m hopeful that once I get a gig in it once, I will hear of many other gigs and get myself into that pipeline.
Great post Sam,
I enjoyed what you said about writing with conviction. I think the same way. I always try to write with a bit of an edge.
This post is also packed with a ton of solid advice! Working things out through writing is an amazing way to make sense of it all. I’ve come to think that a lot of bloggers are therapeutically writing themselves through something. It might explain why a lot of them stop after about 6-to-12 months.
As for the tips on getting rich, the top points I like are the following: 4) Aggressive saving | 6) Invest in the stock market over the long term | 8) Not buy a car worth more than 10% of your gross income | 9) Outwork everybody else | 11) Join the right company in the right space based on your predictions | 12) Leverage the internet | 20) Be nice and trustworthy.
They’re all good points but those are methods that work best for me. I think it’s important to know your strengths and weaknesses to know which get rich methods to apply. Thanks for sharing the post!
I had predicted that I would get pregnant right away as soon as my husband and I decided to start trying to get pregnant. This prediction was wrong because we didn’t have much facts to back it up. My regret is that we didn’t at least get some fertility testing done a few years ago knowing that we wanted to wait until I was 35 to have start having children. We should have at least done some ovarian reserves/ovulation testing and semen analysis. Depending on the results of those tests we would have learned IVF was the route we needed to take and that the success rate of a live birth was only 38% for a 36 year old woman. That success rate is low when you contemplate spending close to $20,000 for two IVFs. The success rate of IVF goes down by about 3% each year after age 35 for women so we should have started IVF earlier. Anyway, if there are any couples out there that are delaying starting a family I hope you’ll at least consider doing some fertility tests early on.
Hi Lily,
Sorry to hear it’s been so difficult. I totally understand! I have a huge post on the cost of IVF here: https://www.financialsamurai.com/how-much-does-ivf-cost-discussion-on-infertility/
It’s hard to plan so early in your 20s without knowing your future partner or whether you want kids. And the cost, oh my. Not all employers offer this expensive benefit.
What are you doing doing wrt children now?
Sam
Hi Sam,
We are just starting our IVF journey. Our second fertility doctor appointment is next week so it really hasn’t been that difficult. Thanks for the link but I read it a couple of weeks ago…your website has yet to disappoint me on a topic (every time I’ve googled for a topic along with the words “financial samurai” you’ve come through!). I live in Florida and haven’t been able to find any insurance companies that will cover IVF. We’re looking into companies that will provide set $ packages for the desired number of embryo transfers. The benefit of the packages is they seem cheaper and will reimburse a portion of monies paid if you don’t use up all the embryo transfers purchased because a live birth was achieved with less transfer attempts. We’re limiting ourselves to 4 separate embryo transfers. If it doesn’t work out then we’ll move on with our lives. We have so many things to be grateful for, such as the other children (nephews/nieces and godchild) in our lives, that it doesn’t seem right to get hung up on infertility. My husband and I have been together for 6 years now and I still find myself excited to see him when I get home from work. Life with my husband is fun and having children would add to the joy but life will still be good either way.
Lily
That would be cool if folks get in the habit of Googling “XYZ term Financial Samurai.” I try my best to go deep on as many topics that are important to folks.
The IVF insurance for a set amount is a great idea. I didn’t realize they’d reimburse a portion of the monies paid if you don’t use up all the embryo transfers. Any idea how much the insurance costs for 4?
I went to an Open Adoption seminar the other day. Very eye opening how many mothers who want to give up their babies for whatever reason and how folks can help. Ever thought about going that route?
It costs $23,000 for 4 embryo transfers which includes two retrievals for eggs. If a live birth is achieved during the first two transfers (using 1 fresh egg and then 1 frozen egg) then $8,300 would be refunded. The $23,000 doesn’t include the necessary medications which can range from $2,000-$6,000 for each egg retrieval cycle. So total costs would be approximately $27,000 to $35,000 if all 4 embryo transfers were to occur.
Based on our newest test results we have the option of trying Intrauterine Insemination (IUI) which is much cheaper at $800.
I’m definitely open to adoption but my husband doesn’t want to think about it until we find that artificial insemination doesn’t work for us.
Sam,
Long time lurker first time poster. First, congratulations on the investment! That is a spectacular return!
I love your steps for predicting the future, particularly publishing your thesis. For a while, I debated internally as to whether I was holding onto an investment because of conviction or if I was wrong and just too stubborn.
I found that writing down your thesis (just a few notes) helps with that considerably. That way you have a benchmark to compare as events start to unfold.
Thanks Andrew. Writing out your thesis and pitching it to others, especially the skeptics is really the best way to help you make sure you aren’t missing too many things.
What are your predictions and investments for those predictions now?
Hey Sam!
Well, since oil collapsed I’ve been investigating if there are any pockets of opportunity to take advantage of the situation. I think I’ve found an oil company that has been conservatively well run for decades and well capitalized in the low commodity environment. I figure if oil goes back up to even the $70 range, I can double my money. In the mean time, I’m happy to collect a 2.5% dividend while waiting.
My other main prediction is potentially another bear market within the next few years. I think the fed is badly equipped to deal with the next bear market. I’ve been hoarding cash over the past year waiting to deploy it back into index funds and individual stocks.
At this point in the bull market, I think we’re closer to the top than the bottom so I want to make sure I have dry powder when things get tough!
What is this mysterious oil company you speak of?
Reserve Petroleum (RSRV)
Yes, I know it trades over the counter and is illiquid. And yes I know I’m probably bat crazy for touching this thing haha! However, I do love how this company is run:
Positive FCF over the past decade (including 2008)
Paid out $177 in dividends-per-share over the past 12 years (which is almost the current stock price)
Management team owns a decent share of the company and is paid a fraction of what they could really earn.
Huge cash balance—almost 70% of the market cap is cash. In fact, when oil crashed to the mid $20s, this thing traded below cash value.
They do not use leverage, so risk of bankruptcy is low.
Met with the team in Oklahoma City at the Annual Meeting and they know their stuff. Again, I’m probably crazy, but it seems like an interesting opportunity to play the oil crisis, so I allocated a small position in my portfolio.
Hi Sam,
I currently live in Manhattan where I own a coop. Although I love my home, the coop board only allows up to 2 years of sublease for the lifetime I own it. Also, the board nickel and dime the owners — there is even a 2% flip tax if you choose to sell!
Lately, I thought about moving out to San Francisco. I’ve read and reread your articles on purchasing a home in San Francisco. You have some great pointers, but some are conflicting with one another and I’d love some clarification if you have time. You’ve said…
* Buy in an up and coming neighborhood
* Buy property in a micro area few people have ever heard of
* Buy in the most prime neighborhood possible
* Buy property close to the best schools and convenient transportation
* Not only should you buy a home with expansion potential, you should consider buying a home in the most expensive neighborhood with the largest expansion potential possible.
In other articles, you’ve suggested the readers to look into Golden Gate Heights which is an up and coming neighborhood that no one ever heard of. However, you also say to buy in the most prime neighborhood possible. Which is it?
What is the cost of construction in San Francisco? Is it worth to expand and remodel or purchase something more turnkey? In Manhattan, it’s more expensive to remodel a fixer-upper than buying something already finished.
If I’m interested in a single family house or condo with an expansion potential in an up and coming area with a 7 year discovery time, where should I start? What are the prices I should expect? Now that it’s 2016, do you have a different perspective than you did back in 2014 prior to purchasing your current residence?
Being single, I have the flexibility with using various tactics to lower my monthly expenses like having roommates or shared economy route for example. Should I look for something smaller in an expensive neighborhood instead?
Finally, I’ve heard that there might be a tech bubble this year (2016). I know that people have said that for the past 2-3 years, but my tech friends are verifying that this year might be it. How will this correction affect the real estate market? Is it best to wait a few months to see if the other shoe drops?
Love the 20+ questions!
Is your 2% flip tax indefinite? Or is there a holding period until it goes away?
Wait two years. There’s no hurry.
Buy either to invest or buy to live. I bought in Pac Heights in 2003 and in The Marina in 2005 to live. Those were, and still are two of the most prime neighborhoods in SF.
“Since the market recovery began in 2012, various districts have taken the lead as the hottest markets in San Francisco: The affluent and prestigious Noe-Eureka-Cole Valleys district and Pacific Heights-Marina district led the recovery out of recession. Later South Beach/SoMa, Hayes Valley and, especially the Mission, went white hot as the high-tech boom surged (though, honestly, high appreciation rates became general throughout the city). In mid-2015, price appreciation in many the more expensive and fashionable districts started to slow down and plateau.”
But as someone who wanted a change of scenery, literally, I looked into GGH and District 2 in 2014. I should have looked in 2012, but had just left my job.
Best thing for you to do is come out here for vacation and explore for yourself!
Sam
I love trying to predict the future because it is forcing you to analyze your underlying assumptions and make connections between thousands and thousands of observations. The cool thing about this is that your mind is automatically trained to do this over the short-run (to keep you from running into things and preserve your life) but you can start to train your mind to put these things together and gain a mental acuity allowing you to increase the probability of your predictions!
Try to make an investment thesis that is very hard to prove wrong.
Finally – I wrote a post on a similar but slightly unrelated theme: How would the “future you” want you to invest now?
Very thought provoking!
Very good analysis. I agree with it. So prices will go down for a bit and then recover once the next round of employees get liquid in an IPO. When are you predicting that buying window to be? Perhaps late summer or Fall 2017? IPO’s could start getting announced early next year, then there’d be time-lag of employee lock-up.
I think what’s interesting about this set of employees is that their buying preferences will be slightly different to the last generation. The upcoming IPO’s are San Francisco companies, with lots of young employees. Many of them have been renting in East Bay for a while and they’ll look to the East Bay to buy. Of course many are also in SF, but the skew is different to a FB. I predict Oakland and Berkeley will do well.
My crystal ball says November 8, 2017 is when Uber will announce its IPO plans. Then it will take 3 months until it lists ie Feb, 2018. And then there will be a 6 month lockup until employees can sell i.e. October 2018. Hence, the window to buy property will be Jan 1 – Oct 1, 2018.
Wouldn’t the time to buy be 2 years before they can sell their stock so you can avoid capital gains tax?
So you should buy Jan – Oct 2016.
Just a thought.
You canbuy now in a declining market. I just wouldnt recommend it. You got time optionality right now I wouldn’t waste. Are you looking to buy or did you buy? If so when did you buy?
Don’t understand me avoiding capital gains. Do you mean buy now and then sell them to you? And then sell in two years? I will never sell until commissions come down.
But who knows for sure? Maybe right now is the perfect time to buy. I’ve just seen past cycles that take longer than one year to play out.
I’m betting on increased civil conflict and balkanization in the US.
Here are a couple of predictions:
* Terrorism, low-intensity insurgency, and civil war spread across the country.
* The US finally breaks up into politically independent, culturally distinct ethno-states.
Cool. How do you plan to profit from your predictions?
I love the reference to Back to the Future. Such a great movie.
The best prediction I made in the future was buying water stocks about five years.
I thought that water is the only one of the utility companies that doesn’t have a potential disruptor in the market and with rising pension costs in cities, water companies would have a chance to buy the aging infrastructure.
Water stocks, interesting! What water stocks are those and are you still bullish over the next 3-5 years?
I bought AWK and AWR. I wouldn’t say I’m bullish since interest rates should rise pushing the stock down as people move to find higher yields. But I feel good over 20-30 years since this is my time horizon.
Hmmm, past predictions? In 2012 I was in a Big City policing department and had completed 10 years in the Marine Corps Reserve. I made a prediction: The last ten years of war and dynamic career boosts was at an end.
When I joined the military (before the war) being promoted to Corporal (4th rank) was unheard of in the first six years of a Reserve enlistment. Thanks to the war I made Sergeant (5th rank) in six years, and Staff Sergeant (6th rank) in nine. Business was booming! But everything from deployments to manpower was rapidly dwindling and the Generals were investing heavily in long term projects like barracks and training facilities.
In my opinion, they were trying to use the last of the “good times” for infrastructure improvement before a winter of peace. I decided it was time to get out of the game and emphasize my law enforcement career since things were dying.
As of 2016, I feel I was lately correct. There are still a few deployments and I’ve heard promotions are still occurring, but at a reduced pace. Recruiting standards have also been raised, a good indication of hard times in the future. Also my unit (which had deployed every three years) has been idle and no news of another deployment on the horizon.
The only “good life” was the deployed life, so I’m happy to have left. But things have not yet devolved back to 2002 levels (where we ran around yelling “Bang – Bang” because there weren’t funds for bullets or blanks), so I can’t declare complete victory on that prediction. Granted, when the president laid down a red line in Syria, I was close to being completely disproved!
Nice job making money on your prediction! It’s always good to put your money where your mouth is.
There’s this one Canadian personal finance blogger with no financial education who talked about shorting the housing market in Canada around 2014. He ended up shorting housing stocks and lost a lot of money. So at least he put his money where his mouth is too haha. But the crazy thing is that he actually bought a house this year! And then of course he justified why it was a good decision. Needless to say, he doesn’t have a lot of credibility or a large site. But at least he wrote about it.
That’s nuts! Property can make people think irrationally. We ALWAYS justify why we purchase something, otherwise, we wouldn’t buy that something!
hey Bruce what’s the site for that blogger?
First of all the Back to the Future Trilogy is amazing so I really appreciated you starting the post off with that reference. Second I just have to say how I also appreciate that you think through your decisions so meticulously, similar to I. Sometimes I wonder if I’m over analyzing something, but in reality I’m doing the right thing. Better to measure three times and cut once, right? Can I predict that my team will win the Super Bowl?
Not only can you predict your team will win the Super Bowl, you can also make a bet to profit! And of course, you can always lose. So at least you get in the habit of putting your mouth where your money is.
What’s your thought on mission bay? We are looking at condos there but the price seems to have peaked. Counting the large # of preIPO money there (Uber hq opening up and all), I’m thinking it won’t crash completely even throughout 2017-2018..?
Mission Bay is tough. If you are willing to wait 10+ years, maybe. The issue is the massive amount of condos in the pipeline. If there is weakness, and people start foreclosing, it causes a chain reaction.
I would really focus on single family homes where there is no new building.
I see Mission Bay and the SOMA declining by 10% or more. The market is weak now.
This is a really great article. I really like the detailed research you put behind your investment decisions. That great purchase 2 yrs ago was definitely not a lucky choice (but you have a great track record anyway :) ).
Let’s see whether those predictions will become true or not. Especially the one about the 10 yrs bond yield in the next 10 yrs.
That map from 2014 is incredible! Spot on! I started renting in the Sunset in 2014 and feel like I got a great deal compared to the rest of the city.
It is crazy how a few thousand people buying a home can alter the whole market. But I have observed the same thing – once my Twitter and Facebook friends were able to sell, it is silly to have so much of your net worth in one company’s stock, so they rushed to buy a home.
The international buyers play a huge role too – what are your thoughts about how that will change over the next 5 years?
Yes, less than 1% of the housing stock trades/is available at any given moment. 1,000 people looking to buy or sell can seriously move the pricing needle. And w/ Airbnb, Uber, Pinterest, Dropbox, etc.. there are potentially 10,000+ people who will move the needle!
SF faces an International Demand Curve as a booster + the implicit domestic demand curve. So if things start getting good again out of Asia and the Europe, I think prices will QUICKLY adjust to international pricing standards. We just saw half the units in The Pacific, in Pac HEights sell for $2,000 – $3,000/sqft. That has never been done before here. But just like that, prices shot up to Manhattan level pricing.
I also wonder if things get bad in China if there will be an increased push to get money out into the relative safety of US real estate. So whether good or bad, similar result for SF prices.
Maybe. Wealthier Chinese folks have been trying to diversify their wealth out of China for decades now. Maybe it’s a win-win scenario for the US whether China gets tighter/stricter or looser or not.
Related: How To Profit From The Wealthy Chinese: A Tidal Wave Of Money Is Coming!
That’s really cool you were able to spot the trend and get properties in an under-valued area. That’s something I’ve been thinking as well – invest in real estate in eastern part of lower mainland Vancouver. I believe more and more people will start moving east due to the real estate pricing being lower.
Uh, your 2014 self should have told your 2016 self to put some pants on, otherwise you’d have your picture on a top-rated website while you were in your underwear. :)
Confucius says, “Can’t get tan without getting naked.”
Which top rated site are you referring to?
Dude, your deck is GORGEOUS, and your panoramic ocean view is jaw-dropping. High five for your 2014 self for buying your house with that vision in mind.
I love the process of finding real estate with potential, running the numbers to make sure it makes sense, and then executing the plan and looking back at the end and saying “whoa. I planned that and did it, and it rocked.”
Thanks! It feels so satisfying having a vision/goal and then executing to achieve that goal. Deck has some nice matching furniture now and I painted a table set white for it.
It is kinda surreal that the local RE houses and media are now going all in on District 2. Maybe the article influenced buyers perceptions given it does rank #1 in “where to buy in SF”.
The one thing that I really got out of this post that I completely agree with:
Doing your homework by studying specific areas in specific markets over time can pay off big.
When I hear people ask me “what city should I buy real estate?” My answer is always “what city are you most familiar with? What city do you know all of the different neighborhoods?”
Real estate can vary so much even in individual neighborhoods. Sometimes homes on one street can be taking off while homes one block over are not.
Wherever you decide to buy property, make sure you know the area and surrounding areas very well. Know about the local economy, employment, demographics, etc… Know about building permits (whether homes are overbuilt or under-built/supply & demand factors). Know the ownership to renter ratio in the area. Know the local vacancy rates. My point is that there is much more to real estate than “which city should I buy in” and this post does a great job of showing how different neighborhoods in SF have performed differently over the last few years.
Yes, do your homework. SF has about 119 neighborhoods. Choosing 1-3 neighborhoods out of 119 as THE places to buy for the next 5 years is not an easy task. But hopefully folks can see from the 2014 post that it IS possible to get an EDGE if you do your homework.
I could have very easily just used the $248,000 downpayment + $120,000 in remodeling to just buy stocks, bonds, or kept it in cash. But the ~$368,000 is now about $800,000 – $850,000 after taxes, fees, expenses, and principal pay down. That is a significant difference while also adding to quality of life.
You can spend time working, working, working to make money. Or, you can spend time studying, studying, hustling, predicting, deploying to make money easier. It’s fun to do both. Sometimes you win, sometimes you lose like I did with my vacation property in Tahoe. But I’ve learned from my mistakes, and that’s key for everyone since we will all make them!
I’m terrible at predicting the future. That’s why I follow you! Great job with your real estate prediction. It’s good to know even if we don’t live in the Bay area because Portland real estate market usually follows CA. Our market is on fire now, but if CA slows down, we will hit the brakes too. So I guess we need to raise the rent now while the market is hot. Once it cools down, it will be harder to increase the rent.
Man, I wish I bought up tons of Portland and Seattle property several years ago. I just never go, so I lose the connection to real estate I enjoy, which is living in it and at least seeing it.
Portland is a great city! Just doesn’t have the same economic opportunity as SF at the moment.
I like that you’ve touched on writing down your thoughts in a concrete way before making decisions. That’s what I do on my blog, and it helps keep me accountable. Also, like you said, often when I’m writing down my thoughts I discover new angles that I hadn’t thought of before.
Back in 2005 I made a prediction that oil prices would drop on a public forum. I turned out to be right though I’m not surprised as economics portend that resource prices decline in the long term due to the search for alternatives. The only problem is long term is relative. Thank you Julian Simon.
These days I’m predicting that the market with stagnate but not necessarily decline. However unlike my oil prediction a decade ago, this one is more based on personal opinions then laws of economics.
Cool. Did you take action to profit from your prediction? Like shorting USO or the refiners? The prediction took a long time to play out! So I guess there’s a timing aspect to things as well, which makes things so hard sometimes.
Unfortunately from a market perspective I was unable to find a proper vehicle for the bet. The timing of long term is just too unclear. I did make some money on some friendly side bets, but nothing to write home about.
Predictions are just observations that someone is willing to commit there resources to understanding. Timing is the real skill..we all can predict long term changes in society but when it happens.. now that is the money shot….
I am a CPA and am fortunate to see all types of business ventures from the smallest business to a company going public and I feel all the real easy money in life is made from financing other people’s ventures. Yes u may make more in some other investment vehicles however again time is the issue. So if you invest .as a lender over long periods wealth will all ways follow.
Interesting. Any particular examples you can share? I’m always looking for ways to make more!
The timing really is a tough one right now. I’m really having a hard time figuring out what the next good place to invest is.
I’d really like to build a nice 3-6% tax free yielding muni bond fund portfolio.
Related: Investment Ideas At The Top Of The Market
As a fellow Californian I’ve been paying attention to the closed-end fund NXC for awhile, Nuveen California Select Tax-Free Income Portfolio. It has been trading at a premium for ~12 months now, but if you go back to other periods where rates rose quickly it has traded at a pretty significant discount, north of 12% at times. It is pretty illiquid, which I think contributes to the discount/premium, but if you can build a position over time, and are able to buy at a discount, you should be able to generate 4%+, federal and state tax-exempt. Currently yields 3.95%, keeping powder dry to hopefully buy when it inevitably does trade at a discount.
More info here: https://www.nuveen.com/CEF/Product/Overview.aspx?fundcode=NXC
Love it. That’s so cool you were spot on in your prediction of the real estate neighborhood shift. I really enjoy watching the SF market myself and going to open houses to see what people are interested in and how sellers are pricing their listings.
It’s fun to think about the future and make predictions. I don’t have any epiphanies right now but I do expect the U.S. economy will slow down in the next couple years and we could see another recession. We seem overdue for a correction.
It’s trippy Paragon’s October 2016 newsletter highlights exactly what I wrote in the summer of 2014 with the map and all. I do wonder whether my post in 2014 in some way influenced the market? I’ve had people come up to me and tell me about the Best Areas To Buy Property In SF post who DIDN’T know I was the one who wrote it. One person had just relocated from Singapore. Another person just relocated from New York City. And another person was a startup guy.
Or maybe that’s just simply too presumptuous and pompous to presume that type of influence. Although, if you do type in “best place to buy property in SF,” “where to buy property in San Francisco,” etc.. the post shows up as #1!
Hmmmm….. I’ve got some new wealth building ideas now to think about.