If you want to make money post-pandemic, I think you’ve got to focus on big city living again. Big cities are where there will be the most number of job opportunities, entrepreneurial opportunities, investment opportunities and networking opportunities. The easiest way to profit from the return to big cities is by investing in big city real estate.
Due to the coronavirus and tremendous media hype about the death of big cities, the time is ripe to focus on big city living again. Rents have bottomed and are starting to tick up. For my 2022 housing market forecast, I believe real estate in big cities will outperform.
I’ve been living in big cities since 1999 and every time there is a dip, big cities come roaring back with a vengeance. I see the same thing happening in 2022 and beyond.
Some of the wealthiest people I know have been buying real estate in their neighborhood during the height of the pandemic. The idea is to take advantage of fear and rare inventory to build a community for their children and extended family. Smart I say!
Big City Living Is Here To Stay
To build wealth, you must constantly try to predict the future. Because of this, you may often get beaten to smithereens by the masses for thinking differently. However, thinking differently is how you can build enormous wealth.
I haven’t been this excited in a very long time. Due to the coronavirus and tremendous media hype about the death of big cities, the time is ripe to focus on big city living again. With two highly efficacious vaccines being administered, there is going to be an explosion in demand for living in
Try and use the media to your advantage. For example, if you want to sell something, highlight the most absurdly bullish article you can find to the potential buyer and vice versa.
Since 2003, I’ve highlighted articles from various negatively predisposed sites to help me buy real estate at a discount. The strategy has been effective because people tend not to do their due diligence. Instead, they tend to just read headlines and assume it to be true.
Here’s the thing though. By the time you read things in the news, the trend is sometimes stale. For example, I’ve been writing about investing in the heartland since 2017. Only now is there full-blown mania about buying in and relocating to lower-cost areas of the country.
Excited About The Future Of Big Cities
One of my biggest worries as a father is that my children will have a difficult time competing in this ultra-competitive world.
Every agro person seeking to create a fortune tends to migrate to big cities like New York City and San Francisco. This includes people from other countries as well. Big cities have historically provided the most opportunity and will likely continue to provide the most opportunity once the pandemic is over.
Many of the biggest and most innovative companies are headquartered in big cities. Therefore, many of the highest-paying jobs are also in big cities. Just look at the IPO of San Francisco-based Airbnb. It has made thousands of employees millionaires. Despite travel and Airbnb bookings way down, valuations are way up because the demand for hospital and travel is huge.
Once you develop a network of successful friends, your chances of great fortune and opportunity for your children also go up. After generations of wealth-building, it is very difficult to pull roots.
The problem has always been that it is difficult to get a great job paying big bucks at a great firm in a big city. Given my wife and I are average people with average intelligence, our children will likely turn out to be average as well.
Michael Lewis’ best-selling book, Liar’s Poker, highlights a running elitist joke that you never want to get stuck doing “equities in Dallas.” I’ve got nothing against Dallas as it’s one of my favorite heartland cities. Equities in Dallas is just a saying Lewis coined if you don’t land a role at a bank’s headquarters.
Big City Living Can Be Tough
I’ve already gone through the meat-grinder of trying to make it in a big city. I did two years in NYC and 11 years in SF before negotiating a severance.
After 13 years, I just couldn’t hack big city work anymore because the hours were too long and the pressure was always intense. That’s what happens to average people. We get weeded out. At least I was able to make and save enough to generate enough livable passive income.
Now with two kids, after eight years of trying, I’ve stated that I’m failing at early retirement. If I don’t figure out a way to generate more retirement income within the next three years, one or both of us may have to go back to work. Our monthly unsubsidized healthcare cost alone is $2,400. This cost will likely continue to increase no matter how healthy we are.
It is tough to have to make $300,000+ a year to live a middle-class lifestyle in a big city nowadays. Families are burning out just to run in place. When the March 2020 stock market sell-off hit, it really put a damper on my motivation to earn more to provide.
Therefore, the only other logical solution besides making more money is to relocate to a lower-cost area of the country or world.
However, thanks to the pandemic and the media, maybe we won’t have to!
How The Coronavirus And Big Media Is Helping Big Cities
Let’s look at all the positive effects the coronavirus and the media hysteria have had on big city living.
1) More opportunities for newcomers.
Out with the old, in with the new. If it is indeed the case that more people are “fleeing” big cities, then this clears the way for more opportunity for folks who’ve tried to get a choice job in a big city but were rejected. More people leaving also means recent college graduates have more opportunities as well.
For those of you with children, the death of big cities should get you very excited. It means that your children won’t have to compete as ferociously because competition will be more spread out across various cities.
2) Less traffic and congestion.
One of my top reasons for wanting to leave the San Francisco Bay Area was traffic. One time during rush hour, getting across the Bay Bridge to pick up my parents from the airport took 1.5 hours, a distance of only about 20 miles. Now, it is a joy to drive anywhere at any time!
The more people who move out, the higher the chance you can find an empty public tennis court. The same goes for getting tickets to a show, getting a reservation at a restaurant, and so forth when the coronavirus is better under control.
City officials are also helping make cities safer for bikers and pedestrians. With fewer cars, some big cities have shut down formerly busy streets to make room for only pedestrians. Bike lanes are being installed on more roads. Old infrastructure is also getting fixed.
3) Less competition for schools.
Our family got rejected by six preschools partly because demand was too fierce. If more families move to the suburbs, new families will face less competition for preschools. There should also be less competition for private school. If we go the public school route, we’ll have a better chance of winning the lottery to go to a well-rated neighborhood school, instead of across town.
In the end, we finally got accepted to our target preschool for Fall 2021! We are so thankful that some families moved away to give our unspectacular family an opportunity. See: How To Get Into Preschool Or A Great Private Grade School
There will also likely be less competition for universities located in or near big cities. Competition to get into UC Berkeley or Stanford might go from ludicrously competitive to simply competitive. The same goes for other big-city schools such as Harvard, MIT, Boston College, Columbia, NYU, UCSF, Johns Hopkins, USC, UCLA, and Georgetown.
Just remember, you could still go to Harvard and end up a nobody. So please don’t overly stress about having to get into the most prestigious school possible. No matter where you go to school, most people end up doing the same thing and making the same amount of money.
4) More housing affordability.
Instead of having to live an hour away, it may be easier for teachers, social workers, non-profit workers, and holders of other middle-to-low-paying occupations to find more affordable housing in the big city. I tried my best to help two preschool teachers with their housing situation but failed.
When we have a more socioeconomically diverse city, everybody wins. Who wants to live in a city like Monaco where only the very wealthy can afford to live? I certainly don’t just want to hang out with techies and bankers all day.
Below is a chart that shows how San Francisco renters could have locked in great deals in 2020. Rents are now starting to rebound strongly. Take advantage of rental opportunities and buying rental properties!
5) More opportunities to upgrade housing.
In the past, you might have been only able to afford to rent a dark room in a three-bedroom apartment shared with two other roommates in a so-so neighborhood. Now, you might be able to get your own studio or one-bedroom.
In the past, you might have only been able to afford a median priced home, which could cost well over $1 million. But with more supply online, you now have the opportunity to buy a much nicer home for better value.
In April 2020, a month into the first lockdown and when fear was greatest, I saw an ideal property come to market. I couldn’t believe this amazing remodeled house with panoramic ocean views came on the market then. Believing that the bottom was in, I decided to make a offer of $200,000 below asking. After much back and forth, I was finally able to get the seller to agree to a $175,000 discount!
I proceed to then rent out my existing property a month later for $6,600 a month and move into my new place. The new property has significantly improved the quality of our lives.
Look at the latest affordability index for big cities below. Notice how cities like New York, Chicago, San Francisco, and D.C., are the most affordable in 2022+! The opportunity is ripe to buy big city real estate now.
6) More opportunities to buy more rental properties.
With condominium rents down in some areas of big cities and supply up, the price of rental properties are down. Therefore, if you’ve been looking to build a rental property portfolio, you can get in at more affordable prices.
That said, the value of rental income has gone up because interest rates have gone way down. It takes a lot more capital to generate the same amount of risk-adjusted income. Therefore, in actuality, the value of rental properties have also gone way up.
The market just hasn’t reflected this reality yet. Therefore, I’m buying more rental property in big cities today.
When there is the inevitable rush back to big city living, you can raise rents and generate a higher return. This double combo is what makes investors very wealthy over time.
7) More creativity to generate more income.
We’ve all learned we can’t just rely on a day job to survive and retire anymore. Therefore, we will be more creative and find more ways to make money. We will take on more side-hustles. The website we’ve been putting off starting will finally launch. The consulting business will finally start with your first cold e-mail pitch.
Working in a big city can be tough. However, living in a big city when you don’t have to work a regular day job is actually amazing. Once you have more time flexibility, the number of entertainment options throughout the week are incredible. I’ve experienced the joys of big city living without a job since 2012, and it is great.
There is a reason why tourists from all over the world flock to your big city. There’s just so much to do and see. In the past, people were too busy grinding away to appreciate their own city. Now, things are changing.
8) More relative income.
If you stay in a big city, you will keep earning your salary. If you move away from a big city to work remotely, the chances are high that you will get a pay cut.
For example, Palo Alto-based VMWare Inc. joined Facebook in announcing salary reductions for employees who relocate. For example, if an employee relocates to Denver, the employee must accept an 18% salary reduction. If an employee relocate to Los Angles or San Diego, the employee must accept an 8% salary reduction.
Let’s say you made $200,000 a year working at VMWare Inc. in Palo Alto, CA. Would you accept a $36,000 pay cut and only make $164,000 to live in Denver? I wouldn’t. Not only would you make less money, you’d lose your network, remove yourself from the power center, and have to go through the pain in the butt process of moving.
Instead, it’s much easier to stay put and keep on making 100% of your salary. It’s easier to achieve financial independence by making more money than saving more money.
With rents in big cities still below the long-term median ratio of rents to income, cities like San Francisco, Washington, DC, San Jose, Austin, and Houston, offer great value.
9) You will be viewed as more loyal.
Nothing brings people together like hardship. Whether you’re competing on a losing sports team or living through a terrorist attack, hardship tends to bond people for life.
Rightly or wrongly, the powers that be who remain in a big city through the coronavirus may look down upon those who leave. They will feel a sense of abandonment, which conjures up feelings of disloyalty. A manger is always stressed about employees leaving to competitors.
Leaving a big city when times are tough may be an indication that an employee won’t be able to stick things through with tough clients, tough business cycles, and other hardships.
Therefore, it is only natural for managers to want to promote and pay those employees who stay. Loyalty may be rewarded.
Finally, think about all the wealth mega-millionaires and billionaires who have left places like San Francisco and New York. When the cities need them the most, they leave. They leave behind cities that helped them get rich. Good riddance I say.
10) Better natural disaster defense.
Climate change is likely here to stay. With consistent wildfires ravaging the suburbs of California, some people have started thinking twice about moving to the suburbs or farther.
City codes have made urban environments safer, and in the face of wildfires, it is easier to create safety perimeters around dense urban locations. You very seldom see situations where fires in a big city spread across multiple blocks. Usually, fires are contained between a few homes.
With regards to other natural disasters, again, city codes such as stricter building requirements for earthquakes have made city living relatively safer. Further, with more first-responders and hospitals available, help should come quicker.
If you haven’t updated your homeowners insurance policy in a couple of years, you should. Real estate prices have increase and so has the cost to build homes.
11) Less stress overall.
Once you combine less congestion and less competition with more professional and personal opportunities, more schooling options for your children, and higher affordability, you should feel less stressed overall.
One of the biggest problems about big city living is feeling like you’re always on this never-ending treadmill. Now, you can enjoy the city more given your cash flow and time have gone up.
12) Coronavirus positivity rates are way down.
After initially hitting big cities like New York City, coronavirus positivity rates are way down in most big cities. Residents in big cities tend to focus more on health and safety over the economy. Perhaps part of the reason is because big city residents have more work from home job opportunities.
Conversely, smaller cities in the heartland are seeing higher COVID-19 cases. This is mainly due to heartland states emphasizing more the importance of the economy versus safety. Further, heartland states have much lower vaccination rates than coastal states.
Nobody should judge how people want to live their lives. But at the margin, due to higher coronavirus positivity rates, there will be less relocation and less capital chasing heartland real estate. In fact, there should be more people who migrate out of the heartland and to the coastal big cities.
I’m noticing many more people inquire about migrating to California from the South and the Midwest to live a better lifestyle. This is especially true during the harsh winter months. If you can find a better career opportunity, I say take it.
12) A return to power for Democrats.
With Joe Biden winning the presidency, big city residents are feeling hopeful again. Residents in big cities largely vote Democrat. Key cities such as Detroit, Atlanta, Philadelphia, Atlanta, and Las Vegas were critical for Biden’s re-election.
Meanwhile, Kamala Harris is from the San Francisco Bay Area. Her rise to power should be a net positive for her home city. People tend to take care of their own.
13) Lower commuting costs
With the invasion of Ukraine by the Russians, oil and gas prices have skyrocketed. The national average per gallon of gas is now about $4. As a result, commuting costs are much greater for folks who left big cities.
As a big city resident, you can enjoy plenty of cheap public transportation. Buses, subways, munis, and rideshare services are all quite affordable.
Did People Really Leave Big Cities Faster Than Normal?
The more people who leave San Francisco, the more I want to stay in San Francisco. Of course, there is an inflection point where if too many people leave, then the value of my San Francisco real estate might start suffering.
The irony is, I would pay MORE for San Francisco real estate and other expenses if more of the population left. Many of my friends feel the same way, which is why we are all looking for real estate deals.
One friend is buying a property for each member of his family and extended family. We’re talking three properties for his three kids, one property for his wife, one property for himself, and two more properties for his brother and sister.
He’s using this time period to build a real estate empire for his family to increase the chances they’ll all stick together over time. He’s seen too many families have to scatter due to cost of living issues.
But are people really leaving big cities faster than normal? Based on what I’ve seen here in San Francisco, it doesn’t seem that way. I know there was an initial exodus at the end of March 2020 and April 2020.
However, it seems like the city has returned to normal. The people who left were either people likely going to leave anyway. They mostly consisted of families who wanted to move to the suburbs, or young guys moving back home with their parents.
In fact, I just got an e-mail from one of my tenants who asked if she could use the garage. She bought a new car and is driving back to San Francisco from a small town in Massachusetts.
I didn’t even realize she left for three months because she has been paying her rent on time through electronic autopay.
A Poll Regarding City Dwelling
Back in May 2020, a Harris poll showed only 60% of city dwellers said they wanted to stay in their city. It is now clear in 2021 that predictions of a mass exodus from urban areas due to the coronavirus pandemic were overblown.
As lockdowns lifted, 74% of city dwellers said they are not likely to move out of the city due to the coronavirus pandemic, and only a fourth say they are somewhat or very likely to move, according to the survey of 1,020 Americans from July 31-August 3, 2020.
“As the risk of catching COVID-19 subsides, city dwellers are reminded of why they love city living,” said Will Johnson, CEO of The Harris Poll, a New York-based market research company. Johnson attributed the improved sentiment to the reopening of city amenities like restaurants and nonessential retail.
Let’s Look At Some Job And Demographics Data
Below is a chart that shows most big tech companies during the height of the pandemic concentrated their layoffs outside their Bay Area headquarters. The data is from the California Employment Development Department.
Below is data from Apartment List that shows a 4% quarter over quarter INCREASE in searches for apartments in higher-density cities. Conversely, there was a 3% QoQ decrease in apartment searches in lower-density cities.
Below shows a big difference in searches by San Francisco residents looking to a nearby city like Sacramento versus a 30% decline in the desire to move to a different state.
This makes sense given the proper geoarbitrage strategy is to first look for lower housing within your existing city, then state, then different state, then different country.
Based on the data above, it sure doesn’t look like there is a big city exodus just yet. Even prior to the pandemic, there was a movement from larger metros to smaller metros.
Therefore, the wise investor has to figure out whether the trend is accelerating or not. When you read the big media headlines, it sure seems like everybody is leaving big cities. However, the data says otherwise.
A V-Shaped Recovery In Big City Living
There’s going to be a V-shaped recovery in the desire for big city living. The July 2021 New York City real estate sales numbers indicate this to be true. There were over 1,500 transactions in July 2021, a 14-year high for NYC.
The problem with leaving a big city is that once you leave, it may be difficult to get back in. Your job and existing housing will have been soaked up by newcomers or the faithful who never left.
Hence, if you are planning on leaving a big city, you should hedge your bets.
You can hedge by telling your company you are always open to moving back if needed. You can also hedge your bets by maintaining your big-city social network. Keep in touch with them regularly. Finally, you can hedge your bets by holding onto your lease or property.
For the majority of you who choose to remain in a big city, then you can hedge your bets by investing in 18-hour cities. By investing in less expensive cities, you can diversify and take advantage of demographic trends as well.
Tech Stock Riches
Personally, I’m using this opportunity to buy more San Francisco property and also look for distressed commercial real estate. The NASDAQ rose by over 43% in 2020, making many of us much wealthier. 2021 was another great year for stocks. Unfortunately, there’s a correction in 2022 so far.
My mission is to buy as many ocean view single-family homes in San Francisco as I can afford. I believe they have the most price appreciation upside. Besides, homes with views are great for working from home. The combination of rising rents and rising asset values is huge for landlords.
I haven’t been able to find deals under $2 million, but I am seeing more opportunities at higher price points.
With tech stocks on fire, I plan to use some of my gains to upgrade our home. I don’t have a huge position in tech, but it is enough to help us buy a nicer home.
My concern is regarding the 10s of thousands of actual tech workers who have seen their net worths surge during the pandemic. When some of them finally come around to converting funny money into real assets, I’m afraid my opportunity to upgrade our home will disappear.
Just look at Airbnb’s surge 100% higher after its IPO. The hospitality industry is still shut down (Airbnb’s entire business), yet it’s now worth $100 billion from just $18 billion in April 2020. The stock market moves faster to reflect the future. Real estate is still lagging behind.
For the many of you who work at Apple, Google, Facebook, Tesla, and so forth, please think about the rest of us. Give us a chance at improving the quality of our lives so we can better take care of our families!
Staying Put For Longer In A Big City
Sometimes, the best course of action is to do nothing. I strongly believe the housing market is going to stay strong for another decade. Demographics, like inflation, are too hard of a force to fight. Vacancies are declining and rents are rising.
For so long, I’ve been planning on escaping San Francisco because it was too competitive, too crowded, and too expensive. With some people leaving and the media instilling fear of a mass exodus, I can now stay put for longer.
To have all the benefits of big city living without the high cost and the crowds would be ideal. Relocating a family is a PITA.
The coronavirus has ironically made big city living better. The key is to take advantage of fear so that when the inevitable recovery occurs, you and your family aren’t left behind.
I’m also looking for the SALT cap deduction to be repealed or increased from $10,000 in 2022 and beyond. The Biden administration plans to raise taxes on the wealthiest of Americans. But it is also planning on providing tax relief to a large percentage of its constituents that live in higher-cost areas of the country.
Diversify Your Real Estate
Although it’s time to focus on big city living again, it’s also good to diversify your real estate investments in smaller cities with lower valuations and potentially higher growth. You can do so surgically with CrowdStreet by investing in individual commercial real estate deals and build your own portfolio.
Or you can invest in a private eREIT through Fundrise. For most people, investing in a diversified eREIT for exposure is one of the easiest ways to gain exposure. Half the battle to building wealth really is about getting the right amount of exposure to a positive investment trend.
CrowdStreet specifically focuses on 18-hour cities and enables investors to invest directly with the sponsor. Fundrise has various fund products that gives you broader real estate exposure with lower volatility. If you have a lot of capital, you can build you own select real estate fund with Crowdstreet.
Both platforms are free to sign up and explore.
Rents in big cities like New York and San Francisco are continuing to rebound. Now, prices are as well. Take advantage of this multi-year trend.
Building A Real Estate Portfolio For My Family
Personally, I’ve invested $810,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000.
With the craziness of Airbnb’s IPO, the demand for travel, hospital, and real estate is there. It was hard to buy Airbnb at its IPO price or earlier to profit. But you can buy real estate and ride the next wave. Airbnb will make thousands of new millionaires in San Francisco.
The demand for big city living is increasing. The pent-up demand to spend money on a better life in 2022+ is going to be massive. Take advantage of buying big city real estate before things get out of control again! The amount of wealth big city residents have made during the pandemic has been enormous.
Live In A Big City, Invest In Small Up-And-Coming Cities
Stocks are very volatile compared to real estate. Therefore, if you want to dampen volatility and build wealth at the same time, invest in real estate. Real estate is my favorite asset class to build wealth.
I recommend living in a big city for career opportunity. If you can eventually buy a primary residence, do so. Big city real estate should continue to do well over the long term as it faces a domestic and international demand curve.
However, I also recommend you invest in 18-hour cities, smaller cities with lower valuations, higher rental yields, and faster growth. The work from home trend and technological advances should continue. And smaller cities like Austin, Memphis, Charleston, and more will continue to grow in size.
To surgically invest in smaller up-and-coming cities, take a look at my two favorite real estate investing platforms.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has historically generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified real estate fund is the easiest way to gain real estate exposure. The minimum investment amount is only $10.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.