Live Where The Weather Is Great, Invest Where It Isn’t

Ever wonder why Honolulu, Hawaii has the highest median life expectancy of any city in America? Sunshine, moderate temperatures, walkability, and an unhurried pace do wonders for your mental and physical health.

As a relatively low-stress guy who doesn't have to commute to a day job to sit in meetings all day, every time I go back to Honolulu to see my folks, my stress goes down even more. Two weeks in and my shoulders drop an inch.

I used to live on the East Coast in Virginia and New York for 10 years. They were good times with beautiful four seasons. I remember playing tackle football in the snow at McLean High School and getting stuck at my friend's dorm near Cooper Union during an epic NYC snowstorm for days.

But once I moved to the West Coast, specifically San Francisco in 2001, I realized there was a much higher quality of lifestyle to be had for earning the exact same amount of money. In fact, I distinctly remember thinking how much cheaper San Francisco was than Manhattan. About 30% cheaper to be exact.

San Francisco Is Cheaper Than Manhattan, With Better Weather

From 1999 – 2001 in Manhattan, I split a studio with a friend for $1,700 a month. When I got to San Francisco in 2001 and corporate housing ended, I moved into a two bedroom, one bathroom apartment for $1,600. Cheaper and more space.

The same then when I went to buy a two-bedroom condo overlooking Lafayette Park in Pacific Heights. It was at least 35% cheaper than for something similar in Manhattan.

Then came the day that sealed it. I drove up to Sugar Bowl, Lake Tahoe to snowboard in two feet of powder on a Saturday, drove back that same afternoon, and played tennis on a sunny 70 degree evening in the Marina. That was the moment I decided San Francisco was where I wanted to be long term.

Living In Nice Weather Costs More Money

I write this post because I stumbled across a great chart on X plotting 110 U.S. cities. The Y axis is a climate index built from nine weather variables using 1991 to 2020 normals, where a higher number means nicer weather. The X axis is the median home sale price from Redfin. The quadrants are split at the sample medians of 57.2 on the climate index and $430,000 on price.

The correlation is obvious. Nicer weather, higher home prices.

I've written in the past about how everyone looking to make their fortune should seek to live in the most expensive city they can afford, because expensive cities tend to have the highest job and wealth-building opportunities. Since there's no ceiling on how much wealth you can build, you should move to where the opportunity density is greatest.

But looking at this chart, I wonder if I had the causality partially backwards.

Maybe expensive cities aren't expensive only because of the jobs. Maybe they're expensive because 12 months of usable weather is the one thing money genuinely cannot manufacture.

Personally, I'm much happier when I get to be outside 12 months a year instead of 8. So is my body. Health and happiness are much more valuable than money. Taking it a step further, I argue the health benefits of early retirement are priceless.

Pricey Paradise: The California Premium Is Rational

Look at the upper right quadrant and it's almost entirely California. San Diego, Chula Vista, Oxnard, Long Beach, Santa Ana, Anaheim, Irvine, Los Angeles, San Jose, Fremont, Oakland, and San Francisco. Honolulu and Miami sneak in too.

People love to say these cities are overpriced. I'd argue they're priced correctly, and here's why.

Great Wealther

In a place like San Francisco, Irvine, or San Diego, your home is not just shelter. It's a health club membership, a mood stabilizer, a childcare venue, and a social calendar all rolled into one.

My kids are outside every single weekend of the year. There is no three-month stretch where the family is stuck indoors slowly driving each other insane. That has real, quantifiable value even if no appraiser will ever put it on a line item.

Greater Wealth-Building Opportunities

Then stack the second benefit on top. These same cities have the highest concentration of high-paying jobs, venture capital, IPO wealth, and ambitious people in the country.

You get the weather premium and the income premium in the same zip code. That's why the dots cluster in the top right instead of scattering randomly.

Scarcity Of Land

The third point is on constraint. Scarcity is permanent. California has an ocean on one side, mountains on the other, and some of the most restrictive building rules in America. Austin can add housing supply endlessly. San Francisco cannot.

So no, I don't think buying a $3 million home in a great-weather California city is irrational. You're paying up for an asset with a fixed supply, a permanent demand driver, and a daily quality-of-life dividend that pays whether or not the price goes up.

Interestingly, Honolulu scores lower on the climate index than San Diego or San Francisco, likely because July and August get hot and humid. But Honolulu's median home price is dramatically lower than San Francisco's (~$1.2 million vs. ~$2 million).

If we do relocate back one day, we'll be saving a significant amount of money while arguably improving our lifestyle.

The Sweet Spot: Good Weather, Still Affordable

The upper left quadrant is where the value hunters should look. El Paso, Tucson, Lubbock, Bakersfield, Fresno, Modesto, Paradise, San Bernardino, Las Vegas, Phoenix, Mesa, and Glendale.

These cities score well on climate and sit at or below the national median price. The trade-off is summer. It gets seriously hot in the Southwest for two to three months a year.

However, the dry heat trade is a legitimate one that millions of people make happily. Air conditioning is a solved problem, if you have the activation energy to install it. Mornings and evenings are pleasant. Winters are doable. And when a family can buy a 2,400 square foot home with a pool in Phoenix for less than a one-bedroom condo in San Francisco, that's compelling.

If I were starting over today without the Bay Area career anchor, Las Vegas and Tucson would be on my short list. Zero state income tax in Nevada makes the math even more interesting.

Cheap And Challenging: Where The Yields Live

The lower left quadrant is Detroit, Toledo, Cleveland, Rochester, Buffalo, Des Moines, St. Louis, Columbus, Milwaukee, Memphis, Tulsa, Wichita, Omaha, Fort Wayne, Pittsburgh, and Minneapolis.

Low prices, harder winters.

Some of the best communities in America are here. Housing is genuinely affordable, meaning a schoolteacher married to a firefighter can own a home outright by 35, which is much harder in the upper right quadrant cities.

The parks are good, the food scenes have quietly gotten excellent, and the people seem to be blessed rushed and friendlier. There are plenty of multi-millionaires living happily in Cleveland and Detroit who think the rest of us are the crazy ones for paying such outrageous home prices.

Here's the part that matters for your net worth though. Low price plus stable rents equals high rental yield. A property in the lower left quadrant might generate a 7% to 8% gross yield. A comparable property in San Francisco might generate 3%.

Paying For Something Else

The lower right quadrant is New York, Manhattan, Boston, Jersey City, and Newark. Then there is Arlington, Nashville, Dallas, Austin, Plano, Durham, and Seattle sitting right on the line.

High prices, tougher climate.

The lazy take is that these residents are getting fleeced. I don't think that's right either. I lived in Manhattan for two years and I love, love New York City. For six months a year it's the best city in America, and nothing else is close.

You're not paying for weather there. Instead, you're paying for career density, culture, food, institutions, and the fact that everyone you need to meet is within 20 minutes of you.

You're also often paying to be near family, which is a value that no chart can price. People stay in Boston because their parents are in Boston. People stay in New Jersey because that's where the grandkids are. After several years in one place, roots develop and leaving gets harder. Pretty soon a decade or two goes by and you wonder where the time went.

That's a life.

The BURL Solution: Rent Luxury, Buy Utility

So how do you get the great weather, the great opportunity, and the great returns at the same time?

You stop assuming the city you live in has to be the city you invest in.

This is the extension of my BURL strategy, which stands for Buy Utility, Rent Luxury. The original idea was simple. If a luxury property rents for a gross yield well below what you could earn elsewhere, you're better off renting that luxury and deploying your capital into utility-grade properties that actually cash flow.

Apply that geographically and it looks like this:

Live in an expensive city with great weather and abundant opportunity. San Francisco, Los Angeles, San Diego, New York if the career demands it. Rent if the price-to-rent ratio is absurd, or buy if you've found a place you'll hold for 10-plus years.

Invest in the Sunbelt and the heartland, where prices are lower, yields are higher, demographics are moving in your favor, and you never have to endure a single February there.

You capture the income and lifestyle of the top right quadrant while capturing the cash flow and valuation upside of the left half of the chart. You are not required to shovel a driveway to collect a rent check from Ohio.

My San Francisco rentals generate a fine return, but the yield is nothing compared to what's available in lower-cost markets with strong job and population growth.

The catch, of course, is that becoming a long-distance landlord is a great way to inherit a second job. Tenant screening, roof repairs, and 11pm phone calls do not respect time zones. That's why I invest in Sunbelt real estate passively through Fundrise and REITs instead.

Fundrise is a long-time sponsor of Financial Samurai and Financial Samurai is an investor in Fundrise.

The Lifecycle Approach

Here's how I'd sequence it if I were starting post-college life again.

When you're young and still grinding toward financial independence, live where job opportunity is greatest, no matter the cost. Pay the high rent. Withstand the polar vortex if you have to. Stack the cash and take the risks that only ambitious cities let you take.

Once you've built enough wealth to generate real passive income, you have optionality. Now you can move toward a more moderate climate. And ironically, because you're wealthier by then, you can afford more of the cities in that upper right quadrant.

The funny thing is, if you do relocate to a pricey city with great weather, you might end up making even more money given all the wealth-building opportunities and networks there. If that happens, you and your children may never have to leave the good weather behind.

The great thing about America is you're free to move to any city or state you wish. Find your place and your people and enjoy it. When you no longer do, consider moving. The country is enormous and more varied than any chart can capture.

Reader Questions & Suggestions

Where does your city land on this chart, and does the price you pay feel worth it? If you live in a high-cost, great-weather city, what would it take to get you to leave? If you live in a lower-cost city with harsher winters, what do outsiders consistently get wrong about your city?

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