The Real Estate Investing Rule To Follow: Buy Utility, Rent Luxury

If you plan to invest in real estate, there's a key real estate investing rule you should follow. It's called Buy Utility, Rent Luxury or BURL for short. Using the BURL method, you increase your chances of making a higher return on your real estate investment while also maximizing your capital for a better lifestyle.

Let me first share some of my experiences investing in real estate since 2003. Next, I'll explain in detail what BURL is why you should follow this real estate investing rule.

Part of the reason why I bought a smaller house in 2014 was because I wasn't willing to be a renter of my own house for its market price. At that time, the market rent price was ~$8,500/month. Crazy high, I know!

The price to rent my house had grown from about $5,000/month when I first bought it in 2005. If I had kids and a penchant for throwing tons of money away on rent, maybe I would have stayed.

BURL is a way for all real estate investors to stay disciplined when looking for the next property. As we exit the pandemic, the real estate market is very strong. As a result, even more discipline is necessary to get a good deal.

Rental Opportunity Cost And BURL

To optimize my finances, I figured I should buy a new house more suitable to my house-spending desires. At the time the max I was willing to pay to rent was ~$5,000/month. Next, I should rent out my old house at market to those willing to pay $8,500/month in rent. This way, economic waste is eliminated, and everybody is happy. This is the BURL rule in a nutshell.

Conduct the same mental exercise with your existing home. If you haven't rented in a while, you may be surprised by how much your primary residence can command for rent in the open market. Inflation is a beast, which is one of the reasons to own real estate over the long term.

The cost of living in your home isn't the actual money you are spending to live there. The actual cost is the opportunity cost of not renting it out at market rate.

Real Estate Investing Rule To Follow: BURL

Let me share with you why it's important to follow the real estate investment rule of Buy Utility, Rent Luxury (BURL). If you want to maximize your lifestyle and your net worth it's more important than ever to pay attention to this rule.

Buy Utility, Rent Luxury (BURL)

A common real estate investing rule a savvy real estate investor follows is to pay no more than 100X the monthly rent as the purchase price. In my example, an investor wouldn't pay more than $900,000 for my now $9,000 a month rental house.

That said, it's IMPOSSIBLE to follow this real estate investing rule when buying in expensive cities such as New York, San Diego, LA, and San Francisco. Even finding properties priced at 150X monthly rent is extremely difficult to find.

Lifestyle And Capital Appreciation

Why? Because there is excess demand looking to buy property for lifestyle and capital appreciation. Housing becomes more than just basic living expenses, it becomes a luxury option. A Honda Civic takes you around just fine, but some people like to buy classic Ferraris.

I've chosen to live and remain in San Francisco because I believe it offers a great combination of wealth creation and lifestyle. The average temperature is in the low 60s and six-figure jobs are a dime a dozen.

In addition, consulting opportunities are endless, it's picturesque, and the food is amazing. Plus, there's tremendous diversity, and there are plenty of outdoor activities thanks to the topography. San Francisco is amazing, which is why it's so expensive.

I'd love living in Hawaii, but it lacks a robust domestic economy. With tourism as its main industry, the economy is subject to the whims of others. Unless you are a doctor, lawyer, or entrepreneur in Honolulu, there just aren't many six-figure jobs. You need to already be rich or have a location independent business to comfortably afford a sweet home.

Rent Luxury Example For BURL

Rent Luxury, Buy Utility - real estate investing rule
Rent this

Spending $9,000/month ($108,000 a year) on rent sounds expensive. But, it's actually good value since you need to spend roughly 303X the monthly rent (25.25X annual rent) to buy my house at market price ~$2.7M. The 100X – 150X monthly rent rule gets blown out of the water.

Even if you owned the $2.7M home outright, you'd still have to pay $33,000 a year in property taxes ($2.7M X 1.2%), $2,500 a year in insurance, and around $5,000 a year in maintenance costs.

Meanwhile, your $2.7M could earn a 2.5% annual rate of return risk-free = $68,500 for a total cost of roughly $109,000 if you had no mortgage. Knowing the numbers is very important when following a real estate investing rule.

Most Homebuyers Only Put Down 20% Or Less

But the reality is that most homebuyers only put down 20% or less. Let's say a buyer put down 27% and got a $2M mortgage at a 3.5% interest rate. His annual mortgage interest cost would be $70,000 on top of $33,000 in property taxes, $2,500 in insurance, $5,000 in maintenance = $110,500.

Then you must bake in the opportunity cost of not getting a 2.5% risk-free return on the $700K and you get $17,500. The total gross cost of ownership is therefore $110,500 + $17,500 = $127,500 after putting 20% down. 

Obviously, renting for “only” $108,000 a year versus owning for $127,500 a year is a financially cheaper option if you don't include the tax benefits, not to mention the benefits of less maintenance stress.

The only way the owner comes out ahead is through principal appreciation and tax deductions. The problem most people have is coming up with the 20% downpayment. Meanwhile, getting approved for a mortgage is much more difficult post financial crisis and post pandemic.

Buy Utility Example For BURL

Buy Utility, a Raymondvilla, Texas lovely home
Buy this

Now let's look at the other side of my BURL real estate investing rule. In the MidWest, there are actually $100,000 properties that can earn you $1,000 a month in rent. The value you get in the heartland is partly why I'm so bullish.

An $80,000 mortgage at 3.5% after putting down $20,000 only costs the homeowner $359.24/month or $4,310.88 a year.

Add on $200 a year in property taxes, $1,000 a year in maintenance, and $500 a year in opportunity cost for not earning a 2.5% risk-free return on the $20,000 downpayment costs only $6,010/year to own compared to $12,000 a year to rent.

If you live in the Midwest, you need to be a buyer of real estate since it's cheaper and you can cash flow immediately. Capital appreciation is slow compared to coastal city property, but that's OK because the income generation is so much higher if you begin to accumulate rentals.

So why doesn't everybody just buy all the Midwest property they can? It's partly because many people in the past believed that in order to buy Midwest property, you had to live in the Midwest.

Benefits Of Investing In Real Estate Crowdfunding

It's natural to want to be able to see and manage the property you want to own. Given half the country lives in the coastal cities, half the country focuses on accumulating coastal city real estate. But now, you can surgically buy specific Midwest property through real estate crowdfunding, which makes following my real estate investing rule so much easier. This is financial arbitrage at its finest.

The solution for half the population living in expensive coastal cities such as SF, NYC, LA, San Diego, Boston, Washington D.C. and Honolulu is to therefore rent where you are and buy in the Midwest and South to maximize income and net worth.

What Determines Luxury And Utility?

We can qualitatively say without prejudice that coastal city living can be considered Luxury living while non-coastal city living can be considered Utility living.

Who doesn't want to be near the ocean, see the ocean, fly direct to other countries, eat a wide assortment of food, be constantly entertained, and take advantage of the highest concentration of job opportunities? There's a reason why expensive cities are expensive.

But of course, non-coastal city people will balk at this classification given there's so much non-coastal city living has to offer too. There's something great to be said about a slower pace of living, much lower costs, and lots of space.

We're all biased for where we currently live or where we come from. Therefore, the easiest solution to determining what defines Luxury and Utility is to utilize objective math.

Luxury And Utility Median Price To Rent Ratio

According to data compiled by Zillow, the national Median Price to Rent Ratio is around 11.44 (see dotted horizontal line below). Therefore, we can say the higher a property is valued above 11.44X annual gross rent, the more it is considered Luxury and vice versa.

If we use one standard deviation to determine the Luxury and Utility Median Price to Rent Ratio, the breakpoints are roughly 13.3X and above for Luxury and 9.6X and lower for Utility. In other words, roughly 68% of homes in America trade within 9.6X – 13.3X annual gross rent, which makes renting or owning a wash.

As you can see from the chart, San Francisco (Zillow includes Contra Costa and Alameda counties) trades at a Median Price To Rent Ratio of 20.51X, way above the 13.3X ratio I've determined to equal Luxury.

However, my rental home trades at 26X annual gross rent, therefore, I decided to sell my rental property in 2017. I used the proceeds to reinvest in lower-cost areas of the country, buy stocks, and municipal bonds for 100 passive income.

Buy Utility Rent Luxury (BUR) real estate investing rule
Luxury = 13.3X Median Price To Rent Ratio Or Higher

Invest In Properties That Trade Below 9.6X

On the flip side, check out properties in Raymondville, Texas with a Median Price to Rent Ratio of only 5.2X. In other words, the median $60,000 house commands almost $1,000/month in rent ($60K / 5.2 = $11,538/year). In other words, in just 5.2 years, you can have your renter pay back your entire property assuming you took out a 100% mortgage!

Raymondville, Texas clearly is considered Utility, and a savvy real estate investor should be buying Raymondville property all day long if their job market remains stable. The problem is that access to the market hasn't really opened up yet.

Not to worry though, since there are literally hundreds of other towns and cities with properties that trade below the 9.6X Utility classification ratio if you look at the CrowdStreet platform. CrowdStreet is a way for accredited investors to invest in individual real estate opportunities, with a focus on 18-hour cities where valuations are lower and rental yields are higher.

18-hour cities are secondary cities with lower valuations and higher rental yields. These cities also have higher growth potential due to job growth and demographic trends. 

If you are a real estate enthusiast with more time, you can build your own diversified real estate portfolio with CrowdStreet. However, before investing in each deal, make sure to do extensive due diligence on each sponsor. Understanding each sponsor's track record and experience is vital.

Alternatively, you can check out the Fundrise platform, the industry leader who manages over $3.5 billion and has 400,000+ clients. Fundrise focuses on diversified eREIT funds to give investors more broad exposure. Their returns have historically been stable and consistent.

Buy Utility Rent Luxury (BURL) real estate investing rule
Utility = 9.6 Median Price To Rent Ratio Or Lower

Related: Real Estate Crowdfunding Learning Center

The Optimal Investment Lifestyle Combo

Of course, real estate is a very personal situation for each individual. We live where we want to live mainly due to our families, friends, and jobs. Not everything is about money.

But given this is a blog about ways to optimize our finances, a savvy real estate investor should seriously consider my real estate investing rule advice of Renting Luxury, Buying Utility.

Here's a scenario I've been pondering now that I'm in the second half of my life. I want to be closer to my parents and live it up like a boss before I die.

Another Luxury Vs Utility BURL Example

For the sake of dreaming big, there's this sweet 5 bedroom, 5 bathroom, 6,400 sqft new construction home in Honolulu with a killer view asking $6.95M. Think how many sweet blog posts I can write from the pool!

Let's say the real price is $6.2M since it's been sitting for a while. Based on a 25X Median Price to Income Ratio, this means I can rent the house for approximately $248,000 a year or $20,500 a month.

$20,500 is a lot of money. But think about how much rental income $6.2M can earn in Raymondville, Texas.

First, check out this picture and short video highlighting the $6.2M property. I'm happy to throw a pool party for readers who want to stop by and hang.

Rent Luxury, Buy Utility - real estate investing rule
Financial Samurai reader pool party anyone?

If the $6.2M was deployed in Raymondville, Texas, I could theoretically earn an insane $1,192,307 a year in gross rental income since the annual gross rent to price ratio is only 5.2X.

After spending $248,000 a year living in a sweet home in Hawaii, I'd still have $944,307 left over in cash flow if I followed my real estate investing rule of Renting Luxury, Buying Utility.

Seriously, the last thing I want to do is own a humungous house with tons of ongoing maintenance to deal with. But renting it is a different story. Besides, I don't have $6.2M laying around!

Real Estate Investing Rule Shortcut

Here's a shortcut to decide whether it's better to rent than to buy. The chart below shows the share of homes in each city that can be rented out for more than their monthly expenses according to Zillow's database.

Of course, you just can't buy every single property above the rental profitability line. You must still carefully run the numbers and do your due diligence.

Where it's best to be a landlord than an owner - real estate investing rule
Source: Zillow analysis of Zillow Rent Zestimates and Mortgage Payments, Property Taxes, Insurance and HOA Dues.

Below are the 10 markets where the greatest percentage savings come from buying vs. renting according to Zillow: 

Detroit: -48.9 percent (it's 48.9 percent cheaper to buy here than to rent)

Baton Rouge, LA: -47.6 percent

Columbia, SC: -45.5 percent

New Orleans: -44.5 percent

West Palm Beach, FL: -43.5 percent

Greenville, SC: -43.4 percent

Charleston, SC: -42.8 percent

Philadelphia, PA: -42.6 percent

Cape Coral-Fort Myers, FL: -42.4 percent

North Port-Sarasota, FL: -42.1 percent

And below are the 10 markets where the percentage savings from buying vs. renting are the smallest according to Zillow:

San Jose, California: +12.2 percent (it's 12.2 percent cheaper to rent here than to buy)

San Francisco: +5.8 percent (5.8 percent cheaper to rent)

Honolulu: -2 percent (2 percent cheaper to buy)

Seattle: -10 percent

Portland, OR: -13.8 percent

Madison, WI: -14.7 percent

Milwaukee, WI: -15.5 percent

Sacramento, CA: -15.8 percent

Oakland, CA: -16.3 percent

Las Vegas, NV: -16.8 percent

However, after two years of price underperformance during the pandemic, I think big cities such as San Francisco and New York City are buys.

My 2022 housing market forecast called for a 8% median home price appreciation. I think many people will rush back to big cities to network and find the highest-paying jobs. However, real estate prices are starting to the client due to higher mortgage rates. So take your time finding a new property and bargain aggressively.

BURL real estate investing strategy - cost of owning versus renting single-family starter home

Plentiful Real Estate Investing Opportunities

The opportunities are plenty to buy cash flow generating properties around the country. Specialized REITs and the rise of real estate crowdfunding companies like Fundrise are making this move easier today. Fundrise is one of the largest real estate crowdsourcing companies today. You just need to figure out what type of real estate portfolio mix you want.

For 15 years I've been 100% long luxury growth markets. Now I'm shifting towards a balance of growth and income (utility) because valuations are stretched in expensive coastal cities. Plus, I no longer want to spend so much time managing rental properties now that I have kids.

As a result, I sold a San Francisco rental home for $2,742,000, equivalent to 30X annual gross rent in 2017. I reinvested $500,000 of the $1,800,000 in proceeds in heartland real estate crowdfunding.

The $500,000 has the ability to generate the same or more amount of passive income as my entire $2,742,000 exposure given net and gross rental yields are so much higher. I re-invested the remaining $1,200,000 in stocks and municipal bonds.

If you can remove emotion, pride, and prejudice from the equation, you should be able to maximize your lifestyle, cash flow, and net worth. Ready to BURL?

Explore Real Estate Crowdsourcing Opportunities

If you don't have the downpayment to buy a property, don't want to deal with the hassle of managing real estate, or don't want to tie up your liquidity in physical real estate, do take a look at Fundrise.

Real estate is a key component of a diversified portfolio. Real estate crowdsourcing allows you to be more flexible in your real estate investments. You can now invest beyond just where you live for the best returns possible.

For example, cap rates are around 3% in San Francisco and New York City. But cap rates are over 10% in the Midwest if you're looking for strictly investing income returns.

Another great private real estate investing platform is Crowdstreet. Crowdstreet offers accredited investors individual deals run by sponsors that have been pre-vetted for strong track records. Many of their deals are in 18-hour cities where there is potentially greater upside. You can build your own select real estate portfolio with Crowdstreet. However, you need to do more due diligence on each sponsor and deal.

Personally, I've invested $954,000 in real estate crowdfunding to generate more passive income and diversify my real estate holdings. I plan to continue following the BURL real estate investing rule as demand for real estate heats up post-pandemic.

Fundrise Due Diligence Funnel
Less than 5% of the real estate deals shown gets through the Fundrise funnel

The Real Estate Investing Rule To Follow is a FS original post. For more original content, sign up for my free weekly newsletter where I have helped real estate investors achieve financial freedom since 2009.

207 thoughts on “The Real Estate Investing Rule To Follow: Buy Utility, Rent Luxury”

  1. Sean Oswald

    How do you square your two rules of BURL and “buy your primary residence as soon as you can,” while living in a coastal city (where buying is a luxury by default)? Which is more important? Perhaps a blog post where you run the math of each scenario could be interesting? As someone living in SF, contemplating between buying their first home and renting, I find myself trying to find the right balance.

    1. You would just rent in SF and buy rental properties in higher cap rate cities directly or through private real estate funds like Fundrise, CrowdStreet, etc.

      But the reality is, it’s hard to do. I’ve gone ahead and bought plenty of primary residences here in San Francisco because I knew each time I would be in the city for at least five years.

  2. I like what you said about how 6000 square feet is probably going to be a few million dollars. My wife and I are willing to spend 3.2 million and need a realtor. We’ll have to get a realtor who knows the suburbs of Atlanta really well.

    Your BURL rules makes a ton of sense! Thanks

  3. Derek McDoogle

    Wow, it’s interesting how you used the rule of not paying more than 100 times monthly rent as the property price. My uncle is thinking about investing money to have an extra source of income. I will share this article with him so that he can see the benefits of investing in luxury real estate.

  4. I’ve stated looking into Real Estate Crowd funding and have completed 2 deals on RealtyMogul and attempting to complete one on CrowdStreet. RealtyMogul gave me a dedicated person to assist me who has been great, responsive and knowledgeable. Crowdstreet has not returned 2 calls with messages left on Monday 1/13 and no one answers the phone through out the week calling the number given in the Their deal singing screen. Message says leave a message and they will call me back or email them for faster service. They have not returned either call after 5 days and have also not responded to the email other than an automated espouse saying they received the email. I am trying to complete the documents for my first deal with them. Is this normal operating procedure for CrowdStreet?

  5. Situ
    50% outright owner in a SB, CA 1031 investment duplex. Bought for 1.1 in 2006 going in with zero basis, current market value 1.5. Now deploying $72,000 steady annual gross rent.
    Using your rule – Value is 21x annual gross rent. Its getting up there.
    Principle home where I live is in London for past 11 years. Purchased for £750,000, now worth £1.5 ish..give or take (with Brexit some downturn in market has taken place). Practically own outright. As above in another post, we have Council Tax here in lieu of Property Tax which for me is $1500 a year. So I am thankfully not burdened with that issue here. I also luxury vacation rental London home when I am in SB/elsewhere; do very well with the 12 weeks/year its operating as a VR. Using your rule: 38x annual (VR) rent (but only 12 weeks/year)
    As a 60 year old, having done the long-distance land-lording+partner+8 hour time difference = headache routine, I want to either
    1) Buy out my partner/brother in the SB duplex, hire a PM to manage it, use one of the units to live in while I am in SB (around 3 months a year) + VR’ing it when I am not there. Other unit would be long lease to cover the big costs.
    2) Selling my bro/partner my share or selling entirely on open market and moving into a more passive and diversified income stream. I have no other investments besides real estate. Time to shift that. Will for sure be reading up on your posts.
    This one articulated some of my latent thinking ( This was the first link I landed on via a google question! ) – Weighing up the the real benefit of being able using one of the units for myself and my son while in SB over renting on an as needed. Yes, I would not have the day to day land-lording side, I would still be covering all costs: $13,000 PT (that could rent me a nice VR for 2 months in SB) plus all operating costs + PM (6%) outlined in the various posts above.
    Does it makes more sense to cut bait, even with the CG implication (which is significant) and invest in a more diversified passive income producing/growth scenario. Going to look into these passive REITS have been hearing about them, have a fairly good handle on entering the stock market.
    Eventually I will sell London once we all digest Brexit here (prob 5 years) and make a move back to SB. Big looming issue is CGT in UK and US as I am a two-home owner. No CGT in UK on London home if I sell, but CGT on London home to Feds (and possibly CA if I reside there when I sell it) and CGT in UK for SB duplex should I sell that because I am a domiciled resi here (both capture worldwide income and inheritance).
    Upshot….. I own two luxury and no utility and no diversification and all my income is from land-lording and property management, which I am getting to the end of my tether with.
    Is it as simple as selling the duplex and putting the funds in eReits and stock market is the better move over holding onto it, using it now and then, being responsible for hefty 50% mortgage on the value of the buyout and selling it 5 years.

  6. It is foolish to buy and attempt to rent out expensive properties. Buying and renting out multiple inexpensive properties is much wiser because if there’s an economic downturn (which there always is) many renters need to downsize so the high end rental properties will be left unrented while the low end places will always be rented. In renting, occupancy is king and if you cannot talk about occupancy rates in a given area with authority, you really have no business being a landlord. And occupancy rates are one of the most closely held secrets of property owners.

    It is important to understand that renting out property is always a risk. Getting money for nothing, which is what investment is, does not carry zero risk. It actually carries much more risk than just working. That’s why the author emphasized why SF is so great because of the endless consulting and 6 figure jobs – even he knows that those income sources are lower risk than property investments and you need them to fall back on if your investments go south – which will ALWAYS happen from time to time if you invest for long enough.

    It is only the people who jump into the investment market, invest for maybe a decade or so then retire and get out – and who are lucky enough to jump into the market right at the beginning of the bull and jump out right at the end – who are naieve enough to think that investments will always go up – like the author presents here.

    And lastly, if you cannot do the maintenance work and repair work and remodeling work that property needs – if you don’t understand property or construction – you WILL lose. When my wife and I shopped for our second house 2 years ago it was an eye-opener how much junk was being pushed on the market. Homes with cracked foundations, one with a disguised in-ground oil tank that was still there, shoddy electrical…the list was endless. And all of it carefully concealed by rented and staged furniture, throw rugs, and anything the owner could dig up they thought would do it. One of them had a flower pot on top of the abandoned oil fill and when I moved it and discovered it the sellers realtor claimed it was “a drain” despite oil film still being present!!! It took 2 dozen homes before finding one that did not have major faults covered up.

  7. Dave Anderson

    That is interesting that living in a coastal city can be considered luxury living. Maybe it would be good to find a house in a coastal city. Then I would be able to start luxury living.

  8. You use the risk free rate for down payment but the down payment is at higher risk.
    You also did not calculate the value of time and education that has to go into real estate investing and hunting – over investing in an index fund or REIT for that matter.
    The house appreciation comes with higher taxes
    The tax deduction benefit is not that great because it is only the amount of deduction above standard deduction that is extra benefit.
    As for repairs, you have to have half the handyman knowledge so to not get fooled by handymen
    And the risk of having to relocate for jobs, bad neighbors, what not.
    Do not forget the time value of upfront costs, including your own time/labor

  9. I bought a smaller house in 2011 was because I wasn’t willing to rent my own house for the market price at that time of 8,500/month. The price to rent my house had grown from about 5,000/month when I first bought it in 2004.

  10. Nice Post . I have townhouse in San Mateo which is close to freeway and thinking if I should sell or rent it out for 4500$/month. It is not all paid off. We owned it only for 5 years now, it has appreciated around ~30% and have mortgage to pay off. With bay area market going downwards and it is close to freeway which is also negative, I am not sure if its good idea to hold the property or sell it now and invest in midwest for lot cheaper. It would be great to know your thoughts on this.

  11. You brought up a great point when you said how hard it is to get a mortgage after a financial crisis. That’s why it’s important to invest in a luxury lot while you have money and security. My friend wants to live in a luxury community, so I’ll help him find a contractor that can help him build his custom home.

  12. Great article! I do want to make a few points, though. Productive vs consumptive assets (i.e. buying to rent vs buying to use) is an important distinction to make. You make this point by talking about the opportunity cost to own is determined by the market value. Investing only for cash-flow, though, is a common mantra of real estate investors. I think this pushes investors towards marginal properties and fails to recognize the other benefits (Tax shielding, debt pay-down, and appreciation) Choosing properties with positive cash flow from day one is akin to investing only in dividend stocks. The cash is obvious but the future appreciation and rent growth may stagnate. Also, because the cash portion of real estate returns is taxed as ordinary income ~35% of every dollar goes to tax expense. Appreciation, however can be realized whenever the investor chooses or deferred indefinitely and transferred between generations 100% free of a tax bill. If you’re looking for a long-term investment then capital appreciation is your friend. If you want to consume more today, go for cash-flow.

    1. Andrew Nguyen

      Hi John,

      Rent income is taxed as ordinary income, but if you leverage and take depreciation into account, you usually have passive loss (even though you don’t actually have a loss so it’s like tax free income and then on the back-end, depreciation recapture is taxed at 25% max).

      Investing for capital appreciation is riskier especially if you leverage and not be able to handle the negative cash-flow during your holding period.

      In both situations, you can pass on the investments to your heirs tax-free.

      1. Coastal cities like Jacksonville Beach, FL come with crazy high home insurance, if one can even find coverage. I’ve watched my friend’s home literally get swallowed into the ocean from erosion. It’s hard to consider this luxury living.

  13. Robert T Griesmeyer

    Great Post! I’ve been shopping in Oakland for a home now that I saved enough for a down payment of 10%. Maybe I should wait till next year to see what happens. I have an old post I made on my blog about price to rent ratios and I found that it’s possible to get some good cashflow from markets in Pittsburgh, Miami and Charlotte. I think the MID 750k limit and the SALT tax are a political play to make more people move out of coastal cities. I guess that strategy assumes that people would vote conservative once they do so.

    1. People don’t change their politics with relocation after they have made up their minds. Trump did what democrats wanted – less breaks to the people who can afford expensive homes (progressive taxation).

      1. That’s an astute observation and Trump is a democrat pretty much so this makes sense. I find that people change their politics based on their age; It is also probably true that these hipsters moving to Austin are going to remain liberal and attempt to change the politics where they find their new homes.

  14. “The cost of living in your home isn’t the actual money you are spending to live there. The actual cost is the opportunity cost of not renting it out at market rate.”

    Or the returns you sacrifice (income plus capital gains) from alternative investments by sinking your capital into bricks and mortar. Whichever is greater.

  15. The 3.5% is not realistic rate for buying an investment property. I recently bought my condo I am living in and got preapproved for 3.275%. The loan representative told me the rate differs at 4.25% for an investment property.

    So the Midwestern example doesn’t accurately depict the correct assumptions.

    I thoroughly enjoyed reading and found the information useful.

  16. I really like the way you are thinking. If you would ask random 3 people on the street what would they do if they won $10M the answer would be: buy a luxury home (like the one from the video you shared) and an expensive car. After a short time, they would realize the maintenance cost is something they can’t afford. Only 10% of people would think the way you presented. Great post will be coming back.

  17. Hi FS! Penny for your thoughts about hanging on to a newly remodeled 3/2 family home investment property in a nice area of Marin today (Oct2017). I don’t own any other properties, and aim to move downtown SF. No debt.

      1. Hi
        Looking to find out if I should sell my rental property worth 400,000.
        No mortgage . Pay 950’per month with two assessments yearly .
        I rent it for 2100 monthly about 3 % yearly income.
        I own and live in a coop apt with a large mortgage and maintenance. Am a senior . Is it time to sell and get the cash. Will pay around 30% taxes, and will come way with $300,000.
        Please help as the renters lease is up shortly.
        Thank u!

  18. I live on the East Coast and am going to be in the market for a utility home in the next 12 months. Luxury is for hotels when I’m visiting with my love. Daily life does not need that. Just a place to be secure.

  19. I’m wondering what this would like like for a city like Chicago. Does it make sense to be a landlord for a “luxury” property and rent utility?

  20. Paco, who said RE in the US/CA goes up forever as that’s obviously not the case as seen from 2007-2012 in virtually all markets? I have no reason to sell RE and in fact want more to think it’s a bad investment so less supply of buyers. Just sharing my input and success as I’ve thankfully made enough.

    Instead of being a smart allic, let’s say you have $10k to invest now with minimal debt and starting to build your financial nut, how would you allocate? I’d say in any market where it’s still the case largely, for sure put that as a 3.5% or .5% FHA down loan and buy your first home where you’re not only paying less in rent, you may experience appreciation years down the I think buying gold, Bitcoin, <100 shares of aapl or spy, or bonds huh?

  21. Can you email me and I can give more info, my old blog..I like to keep a stealth profile Along with wealth as unfortunately a lot of jealous people out there.

  22. Judith Wilson

    Hi Sam,

    You gave a one line passing remark to the idea of capital appreciation here – but that is crucial, and the main reason for buying over renting. I’d argue that most of the return comes that way. The reason that so many people have done so well out of cities like SF and NYC is capital appreciation.

    I think a better analysis would include the capital appreciation in the midwest and places like SF and then see where it’s better to invest your money.

    Also the capital appreciation is significant because it amplifies the return if you take out a loan to buy a property. If the property value doubles in say, 10 years, in SF and does much less in the Midwest which area would you rather be invested in?


    1. Hi Judy, feel free to do the analysis and send me a draft. I think it would be a great read. You can basically do an analysis of that fits whatever you want your thesis to be.

      If $1 million of Midwest property generates 12% annual rental yields versus 2.5% rental yields for 10 years for a San Francisco property, and the Midwest property appreciates by 20% in this timeframe, but the San Francisco property appreciates by 100%, who comes out ahead?

      When did you buy your property and how has it done with its current metrics?

    2. I don’t agree as much investing in the economically depressed and unstable employment base of the Midwest as likely to have months of vacancy which kills returns and then add on minimal and in many cases like Kansas declining values and it’s a losing proposition..add in that Sam is not taking into account the very relaxed permitting there and so virtually assures minimal price appreciation, whereas in California CEQA and other local environmental regs., Especially in SF, ensure continued very limited supply and thus higher prices..for the best income to capital appreciation, I’ve seen Sacramento getting comfortably 7-8% cash on cash returns while having the highest YoY rent increases the last 3 years, these are for 2000 and newer built homes and thus minimal maintenance for years/decades..just had 4 new renters from South SF, Concord (east bay), San Jose, and santa barbara..will continue due to purchasing power, far more spacious and newer homes, ability to telecommute and Amazon bringing 1500 jobs along with other tech money coming here since buying the Sac Kings (Vivek from Atherton, Mark m. From Orinda, Jacobs from la Jolla, former cpo of fbook, etc)

        1. common misconception know how expensive permitting goes up annually and with a these new assessments, especially in CA? That’s why the new homes bring up comps..i.e. current rental is $400k, brand new pulte/Hovanian homes a block away are $450-$500k+ with a smaller lot, HOA, and higher mella-roos and they’re subsidizing us greatly with higher prop. Taxes and thus better schools, etc. Davis, it’s essentially ocean front property as they a local measure J where voters have struck down any new development for 15+ years and hence median home price is ~$700k matching walnut Creek/San Ramon, with just .2% vacancy so even better rent, as UC Davis keeps increasing enrollment but not new housing.

  23. Sam – Long-time reader, first-time commenter.

    Do you have any advice or experience hiring a property manager for a remote Midwest property? I live in Michigan, and looking in some of the Midwest University cities (Akron) as attractive places to buy. Any tips?

    1. Do a search for local property managers, in the community you want to buy in. In general, they charge 75% of first months rent as a commission for leasing the home for 12-months (includes screening, background, employment checks). After the tenant is moved in, they will charge either a flat fee of 75.00 / month for management, or, a percentage of 6-8% of monthly rent. They will deduct all fees from the gross rent, and direct-deposit proceeds to your bank account.

  24. Whiteknight

    100x is far too strong of a gross return as that translates into a 12% annual rental yield, when getting half of that is a great deal when we see the 10-year yield at just 2.3%..I live in Nor Cal myself, in the Bay ~300x is average=~4%, Davis ~200x=~6%, ~150x in Sac area ~8% which i think gives the best rental yield and capital appreciation ratio..rents have increased there the most year over year the last three years!

    1. I think you are comparing apples and oranges. If you invest in a 30-year governent bond you get your return of 2.86% and that’s it.
      But your “annual rental yield” is not totally yours, you have to deduct the operating cost and use the cap rate. My understanding is that your 12% “rental yield” would imply a cap rate in the 6-7% range under US-conditions with its high property taxes. That would be a satisfying compensation for the risk indeed. If the location is a good one where probability of rents increasing ist very high, in my book you might consider accepting a cap rate in the 3-4% range. If you are paying more you are betting on a decent amount of (rent) inflation for the future and interest rates at least not going up significantly.

      1. Nah pack, in fact the opposite where not only getting the rental yield which is largely tax-free due to depreciation, expenses, etc. But capital appreciation as well..example I’ve gotten is a 4 bd Sacramento home for $255k at the end of 2012 rented that year for $1845..not just appraised at $406k and renting for $2700..CA property taxes are only ~1.2% (varies due to what we have on different developments, mella roos paid off or not, special assessment like Sam brought up in SF regarding BART funding), BUT most importantly in CA protected via prop. 13 where it can only increase the max of 2% since it’s enactment in 1978.. therefore, even though my home is now valued at $406k, it it only assessed for $271k thus saving already ~$1500 EACH year and will compound even more..another example is my father still has the first home he bought in 1979 for $40k, now 4 months ago appraised at $555k, but his basis is just $121k thus saving $430k in assessment or ~$6k each year.. moreover the rent more importantly on that home has increased from $200 to $3200/mo meaning he gets more in rent now each year for this home he originally bought!! And he only put $2k (5% down) so what’s the CAGR on that lol?

        Best of luck all on this great goal of breaking the shackles of enslavement/corporate America . thankfully at 31 I’ve broken free with a self-made net worth of ~$2.5m, but more importantly FCF of $10,800k/mo and growing

        1. Congratulations for reaching financial independence. Can you share your story of how you got to $2.5M by age 31?

          Also, any thoughts of leaving Sacramento, if that’s where you live?

          1. Thanks Sam and likewise! Looks like we both come from first generation parents so that’s always cool..Gladly Sam, what’s the best way?.also was an accomplished blogger from 2011-2013 with seeking alpha and motley fool, garnered 1.5m+ unique page views, ~$100k in profit with that and just got drained(wrote ~500 posts lol and I know you know the energy it takes)..I live between Davis/Sacramento where family is and la Jolla/SD..not a fan of traffic so Def. Not LA area and in the bay fan of Marin (near mt. Tam) or East Bay (Orinda) or peninsula (Los Altos, Hillsborough..but not that Flintstones house that finally just sold lol)

            1. Didn’t know that house prices always go up in the US, regardless of fundamentals such as interest rates, rents, income and price paid.

  25. Sam-
    I’m a bit confused after running my own numbers for my locality when it comes to buying vs. renting. Current Median Price to Rent Ratio for my city is 14.1. I am paying rent at 900/month (for 1bd 1ba). If I used the 100X-150X rule, I shouldn’t buy more house than 135K max. Yet there are houses (3bd 1ba) for sale in which with a 20% down payment, I could have a mortgage be equal or less than my monthly rent (200K max house at 3.62% 30yr mortgage). It seems to me that if I could be building equity in a house, for the same monthly cost as renting, it’s a no-brainer to buy a house right? Especially if I can get into a larger house that would be easier to rent down the road.

  26. Hi, Sam: Wonderful post. I have done 1031 before for like-kind in bay area, however, recently we had enough fun with tenants and was thinking about 1031 exchange into REIT or some really passive real-estate investment. Do you know any good resources for that? The main point is we want to avoid the tax on capital gain. Thanks!

  27. Amazing content! I moved to Jefferson City, Missouri from Long Beach, CA in 2004! After graduating college in Missouri 2007 I became a Realtor. I now own my real estate brokerage and my wife and I have a real estate investment company.

    Our last rental was purchased on an online auction for $25,500. After the renovation we will have under $40,000 mortgage (Current Market value/appraisal $89,000). This will rent out between $750-800/Month. We only hire renters who do automatic bank draft payments. We own 5 single family residences that cashflow no less than $350/month.

    I want to get better about learning my margins and percentages but this is just a real example of what is happening in the real estate investment market in Jefferson City, MO located in the Midwest!

    I am hooked to financial samurai.
    Thanks Sam!

  28. Interesting article. Thanks again Sam for giving me something to think about.

    I’ve been considering renting out my current home (live in Oregon), and buying a new one. But by your BURL advice I should rent. My current home (less than 10% of my gross) would rent out for enough to cover the mortgage, and probably break even if I hired someone to manage it. But with rent rates always going up, as well as NW appreciation, I think it’s a reasonable LT hold. But not one that will get me rich.

    Regardless, strongly considering renting out current, and renting a home for family while investing in Midwest via crowdfunding. But being held back by the feeling that long term renting is a poor strategy as I’ll loose out on the likely equity I’d gain in a second property…..maybe short term rent while save up for a DP.


  29. Sam, just to be clear. In your personal example, you’re renting luxury and you also bought luxury. You’re choosing to live in the lesser of the two luxury properties that you own because it provides greater financial utility to do so.

  30. Great post.

    I think the buy utility, rent luxury rule applies well to vacations too.

    I live a pretty spartan lifestyle from day to day, because it saves money and helps me focus on creating stuff. But when I travel, especially internationally, I stay in luxury hotels and enjoy the comforts therein.

    Having only occasional exposure to luxury makes it more fresh and impactful, and saves a ton of money compared to surrounding ourselves with luxury 365 days a year, and avoids hedonic adaptation.

  31. Target Rent to Home Price for Outskirt NYC Regions? And do you factor in taxes and other expenses?

    My wife and I bought a 2 unit home in Union City NJ 2yrs ago. It’s 20 minute bus ride into manhattan w/ 24/7 independent bus companies available. The area is “up and coming” with a lot of luxury apartments being built but shops and area still have a ways to go. It is also a cheap alternative to surrounding neighborhoods and would expect prices to drop if other areas get cheaper etc. Think Downtown Jersey City 10 yrs ago…

    8.25 Purchase cost/Annual Gross Rent Ratio. Both apartments are 1k sqft and newly remodeled (3yr and 5yr’s ago) and combined rental income of 4,250/month or 51,000/annual gross, 20k/annual after-tax Net. There is a substantial disconnect between the purchase price on multiple unit homes and apartments. For example, a 2br apartment will cost 350-400k but a multi unit home w/ 2 2br apartments w/ basement, yard and no maintenance costs around $475-550k.

    How would you go about calculating what an appropriate ratio target is for this situation?

  32. Data may say one thing, but here in Orlando (while it is cheaper to buy still), the sorts of 100x monthly rental income just doesn’t exist anymore. The Orlando market fetches about $1-1.25 a square foot in rent. However, any home above 2200sqft starts to see a downward trend on square footage pricing.

    In my experience, if you bought a $250,000 home you’re likely paying $1500 month in mortgage and escrow. Not including depreciation. You’ll still come in cash flow positive from day one which is great, but it may only be $1-200/ month. However, getting a great steal just really isn’t that feasible anymore without a much larger cash investment. Heck, our distressed property inventory is just shy of 7%. Florida, on average, runs about 10% distressed inventory.

  33. That Hawaii house is awesome! +1 for the pool party.

    I’ve been looking to buy a rental in Pittsburgh and Charlotte for a while but I’ve chosen to focus on buying in the Bay Area recently since I’ve realized that I could afford a place where I live. Duplexes in the bay are looking pretty good ($800k for around $4000-5000 in rental income. Being a live in landlord qualifiers you for the interest write off.

    I like the idea of having a bunch of satellite homes for visiting and traveling but I found that I could qualify for a 10% down loan when buying a first home in the bay.

    I find this to be a hard decision. Have you seen duplexes or apartment complexes in the bay that you would buy for cash flow? You have more potential income opportunities with it buying multi family properties I believe rather than Single family homes. I’m interested in hearing whether you prefer multi family properties here or in the mid west.


    1. Hi Rob – I’m always for folks buying their primary residence first.

      Where can I find duplexes in the Bay Area for only $800K that spit out $4,000 – $5,000 a month in rental income? B/c I’m a buyer at 16X gross annual income for Bay Area property!

  34. One of your best post/response combinations! Now, if only I can figure out how to spread my nest egg out around several places . . . without scrambling it!

  35. BeSmartRich

    So what time is the pool party? :)

    Solid post. Yup. Many landlords in Toronto are not cash flow break-even but looking for capital gain. Rising interest rates started marching in and they would be in trouble soon…

  36. Hello! Love it. Reminds me of the adage: “buy where you want to rent, rent where you want to live”.
    So, how does this logic apply if you already own in the expensive luxury market? Does this rule of thumb indicate to sell and put it in reits / crowdfund invesment, and rent something small and flexible? :) My 2m property would return 4% as a rental…
    Attentively, -J

    1. You always want to keep at least one property in a luxury location. After that, if anything goes! I will always at least have one property in San Francisco. With my San Francisco proceeds from one sale, I’ll then try to build an income property portfolio equal to the value of my SF properties. I like balance.

  37. The biggest mystery of all is how you have mastered the art of typing/blog writing in bodies of water….(bathtubs and pools seeming to be your particular specialty. lol)

  38. FIRECracker

    Wow! Super thorough post, Sam. How do you find the time to be a Dad and still write to a consistent schedule? *hats off to you*.

    Your rule of “pay no more than 100X the monthly rent as the purchase price. ” or “the 1% rule” according to Paula Pant, is the rule I like to use as well when evaluating whether it makes sense to buy or own. As you said, it’s nearly impossible to find something that follows the rule in massive metropolitan cities like NY, SF, or Toronto. That’s why it makes more sense to rent in the bigger cities and own in other places where you can follow the 1% rule.

    The key take away of your article is this point: “If you can remove emotion, pride, and prejudice from the equation”

    The math is not challenging but removing the emotions from the decision is the most challenging part. It’s too easy to get caught up with FOMO and needing to own for the pride of ownership and fear of missing out, rather than owning based on what the math tells you.

    1. There definitely is A LOT of pride of ownership. I feel super proud of owning my own house and rental property whenever I drive by. But after my rental house reached 30X gross median rent…. I decided to make a change (post coming up!) I didn’t have any emotional attachment to the house anymore.

      As for writing thorough posts, just got to do it! I’m not happy unless it’s super thorough. But also, I have tons of time on my hands now that I regularly do 10pm – 3am baby duty shifts on top of waking up again at 6:15am. Lots of time to think and write between the necessary care.

  39. Todd Guthrie

    This is great. It is so obvious and stupid simple, yet I’ve never heard it condensed so succinctly.

    Desirable high-end real estate carries an ownership premium, just like that on the low-end carries a discount.
    Therefore if you must live in an expensive metropolitan area (because of work or family), then you should rent and let someone else bear that ownership premium, while investing your savings in a market with a higher rate of return.

    Financial Samurai has created a life-changing investment and lifestyle theory in only four letter. I hereby nominate him for a Nobel Prize in economics.

    1. Ha! Appreciate it. I had an epiphany, and decided to change the acronym to BURL: Buy Utility, Rent Luxury! BURL is more memorable.

      I’m excited to implement BURL in the second half of my life. Arbitraging valuations and income opportunities is a no-brainer now!


  40. Your First Million

    I really like this BURL concept and it makes sense 100%. Here in Sacramento with today’s housing market and rental market, there are no properties out there that can be bought for 100X the monthly rental… and if there are any, they are going to be very run down in very high crime, drug ridden areas. Even in those areas 100X probably can’t be achieved.

    Renting is a great option in today’s market. We all know that real estate goes in cycles… and although over the long term real estate always appreciates… it does go through shorter term ups and downs. In most California markets we are definitely in a sellers market and prices are extremely high in comparison to median incomes. Renting while the market is high and waiting to buy until a cool down is a prudent move in my opinion. I have even been considering selling my home now while the market is hot, renting a place down the street, and then buying again during the next buyers market. Who said your house can’t be an asset? :)

    I really like the midwest for cash flow investing. You have to do a lot of research in the different markets first however. Many areas the population is actually rapidly decreasing… and has been over the past 20 years. I would warn to stay away from those markets. I do like places like Indianapolis and Kansas City… both which have seen a solid net gain of population over the last 10+ years and have good working class job markets.

  41. Thanks for the great informative article.
    From a pure appreciation potential in real estate prices which of the income tax free states
    offer the best option?
    I have been investing in RealtyShares platform and would like to invest in those states that
    are tax free (no hassles filing income tax returns in those states) and offer the best potential.

  42. These are the type of articles why I follow this site Sam! It both helps people to decide in probably their most important financial choice (buying your own home) and at the same time suggests great investment opportunities with detailed reasons behind it.

    If I think the article a bit further. Logically more and more people should realize the math behind this. This would narrow the difference between the profitability of buying/renting both in coastal cities and in the heartland (e.g. considering unchanged rental fees, property prices in LA, SF, NY should drop, in the heartland should rise). This sounds quite logical for me.
    What I don’t get: Who rents in Indiana nowadays? People with very low income (who would not be perfect tenants either)? Or people with no clear view where will they live in 2-3 years? Or people who are simply financially stupid…? I’m really interested to know. As you might be their landlord, you must know the answer :)

    1. There’s always a market for everyone. Nobody knows exactly what they want to do. The median homeownership duration is about 7 years. Life changes all the time!

      Maybe people in Indiana are thinking, “Screw this place! Life is short. I want to live in SF!” They don’t think about the opportunity they have to buy in Indiana and rent in SF.

      It’s hard to think ahead, which is why I like this post:

  43. So if I go back to the house I sold in Ft. Lauderdale when my job forced me to move. I had a great pool with solar power water heater, and 10 miles from the beach. I could have rented it for $3,500 / month = $42,000 per year. I ended up selling it (under corporate relocation package ) for $450,000. So that means it is 10.7X. So that is below the threshold, so hard to say either way whether it is better to sell or rent out. I guess having employer pay all the closing costs and taxes pushes selling a bit better. So I made the right decision then, but I miss that house (and unfortunately, while FL is the east coast, there are no jobs there).

      1. When I say $42,000 in rent, I meant raw rent, at $3,500 month (x 12). After principal, interest, insurance, taxes, and a property manager, it would be more like $300 – $500 per month, or only $4000 per year, not including maintenance or vacancies.

        I netted $185,000 on the house after paying the mortage off, which is much more than I put down 2 years earlier to buy it as a short sale. I didn’t really invest it since I had bought my current house at the time (before I sold mine) and I thought I might put the money into that mortgage. Tough to do that, since I only pay 3% (5 year arm). I thought market was going to crash, so I tried a bond fund, lost money, took losses at the end of 2016, and then put that into the stock market and have done OK. Too nervous to put more in, but overall, I increase the savings from my paycheck and my daughter’s 529 contribution (need to read your latest post on that).

        I visited that house many months later I could tell the new owners had put at least $30,000 into it. Sometimes I wish I had kept the house with its pool and fruit trees. But with an income of only $400 / month minus maintenance vs the $40k or so I made in less than 2 years by selling, and employer picking up the $30k or so in closing costs seemed to make it worth it. I just wish I had done a dollar cost averaging of the proceeds when I got it instead of leaving it in cash.

  44. Really really interesting reading, I’m from the UK and it’s often said how expensive London is, but my $1m flat with rental value of $32-$35k is still significantly cheaper to own than rent.

    Why? Because property tax is zero for the owner ($1k for the renter) and an owner with 25% down pays interest of less than 1.5%. In fact I think values would have to be above 40x the rental value to even contemplate selling and then I think primary residence tax considerations would still point to ownership.

    I think something has to give (be it prices downwards or very possibly rents upwards) in SF if mortgage rates are 3.5% and property tax is an additional 1.2% on top……

    1. Wow, there is ZERO ongoing annual property taxes in London? If so, that really is a big deal. But there is not mortgage interest deduction on your income right?

      When u say $1k property tax to the renter, are you saying renters pay the property tax instead?

      40x annual gross rental income before selling? Oh man, I would arbitrage that all day long by selling and redeploying.

      30x gross annual rent is my line in the sand before I must sell.

      Here’s an unpopular popular post that tries to make a point about wasteful govt spending: Renters Should Pay More Taxes

      1. Yes, owners pay no property tax at all. The occupier (so renter) pays the tax, but compared to the US it is very low, my bill is $1000 per year. I also think politically there would be huge obstacles to increasing this significantly.

        It’s correct that we can’t deduct mortgage interest payments out of income.

        Even if it was at 40x, I’m not convinced I’d be better off redeploying my money; I would lose access to my 1.2% borrowing; I would have to pay income tax at 45% on any rental income received; I would have to pay capital gains on any property sale, in the U.K your own residential property is CGT free.

        Also, if you rent out your property in the US, can you rent out another before paying tax on the rental income received? If I sold my flat And needed to pay my $35k rent, I would essentially need to earn $63k in rental income to cover this $35k rent due to the 45% tax rate.

        What are your thoughts, does it still make sense for me to sell up and buy in the Midwest, i suppose at 40x it probably would but at 30x doesn’t seem as clear cut?

        1. To me, it’s clear cut at 30X annual rent or higher, it’s time to sell and rent it use the proceeds to buy 10X annual rent properties, live in your place as you would, and have lots more cash flow from a pure financial optimization perspective.

          But in London, it’s hard to ever let go of a London property since it is a super star city that I think will continue to do well long term. So instead of sell it, just live in it and use your extra cash flow to not invest more in London at this point, but in much cheaper areas for cash flow generation.

          It depends on when you want to stop working or have an easier life. I never want to go back to working, so I’m trying to ensure working for someone never happens by continuously building my income streams.

          I like to read this post to remind me about all the bad times at work and what I no longer have to deal with: How To Deal With A Micromanager Without Killing Yourself First!

          When did you buy your property in London and how much are you up?

          1. 2 years ago, prices haven’t really moved in that time, the big increases were 2012-2015, I could have afforded to buy a little earlier but (incorrectly with hindsight) didn’t want to be too leveraged.

            However I am 29, and plan to live in London for at least 5 more years, in my career there is no better place to accumulate wealth and my flat will be fine for that time, I certainly agree I don’t want any additional exposure to London (or UK) property.

            How leveraged are the real estate trusts in the MidWest, I think it would only be worth selling up if I was able to maintain my 25:75 ratio.

      2. Yes, owners pay no property tax at all. The occupier (so renter) pays the tax, but compared to the US it is very low, my bill is $1000 per year. I also think politically there would be huge obstacles to increasing this significantly.

        It’s correct that we can’t deduct mortgage interest payments out of income.

        Even if it was at 40x, I’m not convinced I’d be better off redeploying my money; I would lose access to my 1.2% borrowing; I would have to pay income tax at 45% on any rental income received; I would have to pay capital gains on any property sale, in the U.K your own residential property is CGT free.

        Also, if you rent out your property in the US, can you rent out another before paying tax on the rental income received? If I sold my flat And needed to pay my $35k rent, I would essentially need to earn $63k in rental income to cover this $35k rent due to the 45% tax rate.

        What are your thoughts, does it still make sense for me to sell up and buy in the Midwest, i suppose at 40x it probably would but at 30x doesn’t seem as clear cut?

        1. Two years ago is tough b/c of what happened w/ Brexit and valuations. I hope things get better for you guys, but it seems like there’s going to be a lot of indigestion over the next 5 years.

          I don’t understand your rent question. Sorry.

          I wouldn’t sell since you just bought. Reconsider after 10-15 years.

      3. Terry Pratt

        Sam, looks like some MP across the pond read your “Renters should pay more tax” post and wrote it into law.

        Blasted limeys…

  45. Sam, I love the premise of the article but I am not convinced investing through crowd funded platforms like RealtyShares or Patch of Land is the solution. If you invest in Debt offerings on these platforms you are rarely offered more than 10% for 70% LTV with a developer having a decent track record. The Equity offerings have a lot of assumptions for 15-20% IRR which I am not sure can be believed.
    The better option is to actually buy houses like you mentioned in flyover country and develop a team for property management and repairs.

    Also what are your thoughts on doing a cashout refi for bay area properties to continue maintaining the leverage ?

    1. I’m not entirely convinced either, which is why I legged in $250,000 with RealtyShares in January 2017 and invested another $250,000 in June 2017. I’ve done as much research as I can, and met the CEO and VP of Finance multiple times. If I was fully convinced, I would allocate $2M on their platform and try and earn $200,000 – $350,000 a year in passive income. So I’ll probably continue investing $100,000 – $250,000 a quarter until I see something wrong. Never invest in anything all at once!

      I don’t want to buy individual properties and manage a team. That is the last thing I want to do at my current stage in life. Let me co-invest and have someone else deal with everything. Just pay me 10%+!

      I hate cashing out to buy more property. Taking on debt to take on debt is dangerous here.

      1. I visited realtyshares and fundrise sites today. There is a reason why folks prefer to see “tangible”. It could be a change in mindset. I mean, in India folks still prefer physical gold than buying GLD. Its the same mindset which makes one feel to keep cash under the bed vs. in banks…and now in bitcoins. Its not real, or at least does not appear to be. Anyone can declare some “issue”, and this intangible thing based on tangible is just…gone?

        The only limited supply that we have is time, and sought-after-land.

        Rest lies on any fund/company/REIT manager’s whims.

        All I know is this – People who bought horse farms outside cities in 80’s or earlier in US, have made their coming generations very rich.

        The same can be said about stocks – the problem is with very specific stocks. and many have disappeared since then.

        A tangible asset vs. something on paper on computer screen has a lot more credibility.

        1. Just don’t forget to run the numbers on what it costs to hold physical property every year. For my San Francisco rental house, I would have to pay over $500,000 in property tax alone just to keep it over 20 years.

          1. Yes, plus I think what FS is suggesting is a PASSIVE strategy. Buy a bunch of properties and renovation/mgmt team and you’ve got yourself a new full-full-time job.

            1. Let me ask you something –

              If John has 10 rental properties worth $40K each, and each earns him $400 per month, in class B (non luxury, painful tenants, sometimes vacant) areas. Fully occupied, $4000 monthly income on a $400K investment.

              If Joe has 1 rental property in class A (luxury, new construction, high demand, high quality tenants) worth $400K but his rent is $3000 per month i.e. $36000/$400K = 9% ROI.

              Who is better?

              Rent is NOT all about passive income. The word “passive” is very subjective if you are John or Joe.

  46. fresh engineer

    Hey Sam, I’m a new reader currently working in Hong Kong and I’d like to know your thought on the world’s most expensive housing market (given the median multiple of household income at 18.1). According to your post and my preference, is it rational to rent in HK and buy in other nearby countries?

    1. If I was in HK paying 18.1 at this point in the cycle, I’d rent and try and buy property in Kuala Lumpur, Malaysia. Prices have surged, but they are still so much cheaper. I was there a couple years ago.

      Study what happened to prices and rents in HK in 1997 and in 2008.

  47. I live in Denver. Not in high growth areas like SFO or NY.

    I have a “balanced” view on finance, at least the way I like to think based on where I am :-)

    I can see both sides – upper, and whats considered as lower in midwest.

    I just bought a property in April, and plan to buy another in July. I invest in location. Denver downtown condos are selling within $400Ks. Not in millions yet like SFO or Boston. But owning one, I am a strong believer in what can be rented easily, than in 100x rule when it comes to RE investing.


    1. What is your reason for buying in April 2017 when the market is so hot versus in the past? And why are you buying another in July so soon?

      What will real estate be as a percentage of your overall net worth?

      I’m assuming you are on the younger side… but I will still SLOW DOWN. What is the PRice to Rent ratio in Denver? Do the math!

      1. Hi Sam,

        In all honesty – loss of patience to sit on cash. The one I bought in April, already returns me 4+ % after taxes, property management, insurance. I could no longer take <1% on all cash saved. But I took a loan with 25% down, and still kept the cash because I wanted to buy a condo in downtown.

        The condo in downtown, that my instincts are sold upon, is supposedly coming this month, with completion expected in 2018.

        Nah, I am not on a younger side. Turning 48 soon. Perhaps younger in financial wisdom :-) RE will be over a third of my NW.

        I did that Personal Capital thing on Retirement Planning, it looked all good till I put in the expenses for my 2 kids – $20K pa for HS, and $60K pa for college – I went ahead and put $50K for their weddings, and it all messed up my plans :-)

        I got to work.


        1. CuriousOne,

          Would you be willing to share information on the Denver downtown condo? I’m really interested in Denver RE.


            1. Hi Derek,

              I decided against buying this.

              ~$500/sf just did not cut it.

              BURL is a good advise, but based on my experience:

              1. One should buy RE for long term (20+ years) in mind.
              2. Buy for yourself/family anytime, but as a rental – timing does matter in RE. If you are buying long term, try to buy in a buyer’s market, and just hold on.
              3. RE as a side business to flip, generate a ton of rentals, is not my cup of tea. It might have worked in last decade. This generation could be unique to what it has experienced in 2008. May not happen in next 50-100 years. So I take all so-called-success stories of last 10 years with a pinch of salt.
              4. To me, RE is lifelong investment. Not even close to investing in Index funds, let alone day trading. When one buys, one should buy as if its forever.
              5. BURL advise ONLY comes from folks in SFO, NY. Not from Memphis, or Indianapolis. So take such advise with a pinch of salt too.

              What is the best case scenario for someone to invest in RE?

              Buy ANYWHERE, Class-A in a Buyer’s market if you have the cash. One’s lifetime will give them 1-2 such opportunities. There is no dollar cost averaging in RE, so timing IS important.

              My 0.02.

  48. Hi Sam,

    Pretty insightful post. But it is *full* of assumptions, folks out there are pretty smart. If it were as simple as investing in “Utility” vs. “Luxury”. It is NOT.

    Few points:

    1. Investing in RE is akin to investing in stocks, or else choice would be too easy. Investing in RE in SJ is akin to investing in Growth Stocks (think AMZN) vs. investing in RE in TX could be same as investing in Dividend stocks (think AT&T). Do I want to invest in AMZN today which could double in 10 years and has a far less EPS, vs. T which would vacillate between $33-$40 for next 10 years but still yield me 5%? Do I invest in an SFO condo, which is worth $1M today but could become $2M in 10 years, vs. some unknown home in Pochita (made up name), TX worth $100K today, and will change to maybe $101K in 10 years.

    2. As a landloard, its NOT just about ROI. Its about – yes the 3 L’s – Location, Location, Location. Why? Because its about rentability! How easy is to rent a condo in SFO than it is to rent a house in Pochita, TX? If your house is empty most of the year in Pochita, you make Pochita as a landlord!

    3. There is a reason why ROI is low in SFO, than Pochita. The world map is the proof. Whats the rent for a condo in Beijing or Mumbai, for the cost of the house? Landlords pay such crazy prices because the their ROI is based on the price they pay+appreciation (refer to #1 above). They are betting on appreciation in hot markets. Is SFO undervalued compared to Shanghai or Mumbai? Is Boston? Of course, folks are attracted to opportunities, and they find it in these cities. They pay the price. The demand will go on and on, the land remains the same.

    4. Supply and Demand. If a house sold for $350K in San Jose in late 90’s is worth over $2M today (real case with my cousin), and rents for say $7000 today. It only tells that with time, house value appreciation as a landlord when no longer attractive will force that landlord to increase the rental price. Not everyone can rent for cheap in a market where house prices are not appreciating. Landlords allow for a cheaper rental ONLY because their house value is increasing over time.

    5. In the end, Owning a house is a better value proposition than renting. Be it luxury markets or utility markets. Utility markets attract a different segment of tenants, and trust me – you dont want to handle them.

    My 0.02.

    1. Thanks for your thoughts. Investing is full of assumptions indeed. Check out the conclusion of the article. The last two paragraphs. It refers to what you’re talking about.

      How is your real estate portfolio structured between growth and income? And what are you doing now with your properties?

  49. I am in the middle of the Midwest… Own 7 units. Was thinking about selling out and packing up to the beach. But maybe I can just rent. A Lot to think about for sure. Great post.

  50. Great Post FS! I’ve been thinking about this for a very long time, whether to rent out
    my primary residence since my wife and I are now empty nesters, but, unfortunately, for
    the time being the sentimental value far exceeds the economic gains. Perhaps, when
    we retire our perspectives will change.

    How were you able to “let go” when you first rented out your big home? I certainly know
    how you felt when those 5 guys destroyed your property.

    1. Hi Dick, it was easier for us to let go because we had found our new current primary residence. So maybe that’s the secret, to find a new place first and then rent out your place.

      The other thing I told myself was that everything is fixable. It just cost time and money. So if you have enough of the deposit, then all is good. And I realize that after the first turn over when I thought the house looked bad but then after spending time cleaning and fixing stuff it looked great.

      Finally, as I write in my post, I wasn’t willing to pay market rent from my current residence. Therefore, after 9 1/2 years I thought it was a good time to move and get market rent and explore something new. Life gets boring after a while and it’s fun to move around sometimes.


  51. Interesting stuff! Right now I just have a couple of REITs in my IRA accounts. I don’t feel comfortable acquiring a rental property and then managing it, or tacking on another mortgage. Having said that though, maybe when I downsize at retirement, I can rent out my primary residence. At least it’ll give me something to do too :-)

  52. Adriana @MoneyJourney

    A few years back, my family did the opposite: we moved into a bigger home and rented the small one (instead of selling).
    Now that I think about it, the choice was OK for the time being. But nowadays, your approach seems like a much better idea!

    1. Did you like the bigger home? I didn’t due to the maintenance. It’s NORMAL and more common to move from smaller home to bigger home. That’s what lifestyle inflation is all about.

      I bought 50% too big of a home for the two of us for 9.5 years. I would have been happy with 1,600 sqft, so I rented out a room. Economic waste doesn’t feel good.

      1. Adriana @MoneyJourney

        At the time, sure. An upgrade felt good. Although I didn’t fully understand it back then (was just a kid), our family did experience economic waste, like you said. Our new home was about 40% bigger, but the expenses exceeded our expectations. Until may parents figured out a solution, the heating bill alone was enough to put an ugly dent into the family budget.

        Knowing how much house you actually need is always a good idea. Otherwise, experience taught me there are certain expenses that could turn out to be more than one can handle :D

  53. Hi Sam, totally love this post. I wonder how much this ratio has to do with the possibility that the better to rent markets have home prices will appreciate more over say Raymondville Tx. If your 6.2M in TX appreciates 0% in the next 5 years, but 6.2M Hawaii appreciates 30%… 1M in cash flow for 5 years and 0 appreciation = 5M net vs 1.8M appreciation (w/ 30% increase – probably high)… Ahead by 3M+ in Tx… Wow. Just answered my own question.

    Maybe it is people’s perceptions, job markets, etc that creates this disparity, but the numbers don’t lie. Mind blown. Even if you think you may have higher vacancies on the 62 rentals and need to hire a staff to handle the payments, repairs, collections, etc., even if you’re off by 50% vacancies and costs you would still be ahead with the utility purchase.

    1. It’s true, once you start buying property trading at 20X, 25X, 30X multiples, you are speculating b/c the fundamentals don’t justify the price since you can get a risk free 2.5% return in 10-year treasury bonds. Speculation makes us rich and poor.

      But long term fundamentally, an asset’s value is based on EARNINGS. It always has. And principal appreciation is great, but only if you one day sell.

  54. Duncan's Dividends

    I am a landlord in Chicago and honestly would like to get out of it. I break even, job moved me to Phoenix, and don’t like the worry of if my tenants will be around later and if they will damage the place. I love real estate, but I’m more comfortable with REITs instead since they are actively managed property and I don’t have to worry about anything breaking. Love the article though, thanks for an always superb read.

    1. Seems like EVERYBODY hates being a landlord and property owner in Chicago and Illinois w/ the budget issues. I don’t blame you guys.

      SF and California is pretty bad too. Prop tax keeps going up. Hawaii, on the other hand, seems great. 0.3% prop tax rate!

      1. Hi Sam –

        Excellent point re: Chicago and Illinois. The problem, or at least public sentiment, has amplified in the last 24 hours following the state income tax increase passed last week (by the State Assembly overriding the governor’s veto). A number of Illinois citizens who were ignorant, or at least indifferent, on the income tax increase got a slap across the face when viewing their paychecks yesterday. I knew it was coming and it still hurt.

        BD M

  55. Your Midwest example almost matches my scenario completely. I live in Ohio and look for the properties around $100k to rent out. My last one was a duplex that I got for $98k and it was already rent-ready. I still put a few grand in it, but it gives me over $1,500 in rent every month.

    I used to be naive about the properties in other areas, but there’s a crazy difference between the West Coast and the Midwest. My properties don’t appreciate like those on the coast, but the cash flow is excellent.

    Any chance you can find some living quarters for me in your $6.2M pad in Hawaii? ;-)

    — Jim

    1. The difference really is crazy, but so is the capital appreciation. I just don’t know if the spread is warranted now given technology and valuations, so I’m derisking and diversifying.

      Yes, got 2,000 sqft for you on one floor with panoramic ocean and sunset views no problem! Just $7,000 a month in rent :)

  56. Great post Sam. Always learn something new from your posts! My knowledge in the real estate arena is the most lagging, because I know it’s another job I have to take on. Reading your renter nightmare post really nailed the peg in the coffin for me. I know it’s a feasible means of increasing income and net worth, but it’s stressful to think about for some reason. I think it’s the leverage + the illiquid nature of investing in hard real estate (not including the crowd funded real estate stuff).

  57. I really like this way of thinking… To me, having equity in my primary residence is a huge missed opportunity to be generating income elsewhere–either from real estate or even bonds/dividend stocks.

    That being said, sometimes it still works out better to buy rather than rent. For instance, in LA, we currently pay $1,800 per month in rent, which is very low, but I don’t like spending much of my income on rent. We put in an offer on a $600,000 property that has a primary 3/2 house, as well as a separate 2/1 house on the back of the lot (very common in the area). Given the tax benefits and the rental savings, this house will actually save us about $10,000 per year, which is about the most I could expect to earn from investing the down payment money instead. That’s before any rental from the 2/1 house (at least $1,500 per month), and before any appreciation in the property. And if I decided to rent “luxury” (which I would consider anything on the West Side within 30 minutes of my work, I would expect to pay $2,500 per month in rent, minimum–probably closer to $4,000 for a nice-ish condo.

    I still don’t know if we’re going to get this property, but I wanted to highlight that it’s important to carefully analyze every situation individually, rather than follow blanket rules of thumb. This is exactly what Sam was doing here–challenging the mindset that it’s always better to own rather than rent–well done!

  58. Hey Sam, this is bar far one of your best articles to date! Really nice work here. Quick question, can you provide a link for that interactive zillow chart showing price to rent ratio? I found the raw data from Zillow and am playing with that but I’d also love to toy with that interactive chart from your article. Thanks man, keep up the good work!

  59. Midwest (detroit suburb) real estate investor. I have a hard time investing in anything else but real estate due to the math! I’m still fairly young so it’s typical to have higher risk in my asset allocation, but I can’t find any reason not to invest 100% in rentals (other than my company match 401k). The capital appreciation has been incredible in this market over the last 5 years, I would say average 50% appreciation; I have a few rentals that have doubled in value with some sweat equity. My Price/Rent ratios are well below the 9x; I’ve got one at 4x, been there 3 years and never missed a payment. I’ve been feeling like prices are too high to make any purchases the last year or so, but I guess in comparison it’s still a great time to buy in the midwest!

  60. Counting Quarters

    Great interesting read. Where we are we could turn around and rent our $200k home out for $300 more a month than the mortgage tomorrow. But the home has also appreciated in value by about $45,000 since we purchased it two years ago. After we finish remodeling the master bath and the kitchen we are not sure if we should take the profits and run or rent it out for an even higher rate. What do you think?

    1. Depends where do you live and what is the Median Cost to Rent ratio? I don’t know your income and net worth figures, age, etc so it’s hard for me to say. Are you willing to move locations? Can you telecommute? Etc.

      I’d keep living in your place if you like it, and redeploy capital where the Price to Median Rent is below 9.6X. What is your current PtoMR now?

  61. Not sure the math is right on your rent vs buy analysis… I think the opportunity cost you use is skewing the results.

    I ran the numbers and I get a total actual cost of ownership of about $148K per year. But in the process you gain about $38K in equity due to loan paydown in year 1. So the net impact on your net worth would be -$110K to buy, assuming no appreciation. As you showed, the impact on your net worth to rent is -$108K per year. But that doesn’t capture the full picture because as a home owner you can deduct the property taxes and mortgage interest, which you can’t do as a renter. So it might be more expensive in to own in terms of budgeting, but it’s better for your net worth – especially if housing continues to appreciate. I guess if you’re short SF real estate, renting might be smarter for now. In this example, you put down about $740K as a down payment, so for every 1% increase in property values, you get a cash on cash return of 3.5-4%, which easily beats the 2.5% opportunity cost you used. So in my opinion, it really comes down to your perspective on SF real estate… if you’re long, buy real estate, if you’re short, be a renter for now and buy after prices correct.

    1. It’s true, I’ve simplified the cost equation for an SF renter and homeowner in my example b/c everybody has different income and tax structures. So many variables. The higher your marginal tax bracket, the more advantageous it is to own. Generally best for those paying a 33% or higher federal income tax bracket or higher to own.

      But yes, renters are short, primary homeowners are neutral, and multi-property owners are long. I’ve been SUPER long SF real estate since 2003 with massive leverage. Even selling one property still means I’m long. I think it’s wise to redeploy capital to the heartland and the south.

  62. Renters in SF

    Thanks – nice post. I wonder if you could also address the issue of rent control?

    Specifically, my partner and I pay ~$1900 / month for a rent-controlled apartment in San Francisco. Would it ever make sense to buy here?

    1. Having a rent controlled apartment in SF makes the argument even stronger for renting in SF and employing all your real estate desired investments to Utility cities for stronger returns.

      The problem with rent control for renters are two fold:

      1) Over the past ….. forever, anybody who stayed in a rent controlled apartment in SF and decided not to buy lost out big time on capital appreciation

      2) The quality of a rent controlled apartment is probably not as good as other apartments, and it becomes less good as you get older and wealthier. So it’s a lifestyle decision you need to make.

      For renters, the key is to mobilize capital efficiently and not just let it sit in a savings account and get nothing or worse, spend.


      Buy Real Estate For Lifestyle, Income, Or Capital Appreciation? (This post is a good discussion for first time homebuyers)

      Buy Real Estate As Young As You Possibly Can

  63. Fun in the Sun

    I have always rented my primary residence, and own a lot of investment property. I don’t understand why more people don’t do it, it is so profitable, even within the same city. The numbers you quote above are averages/medians, so within each city there can be enormous variance.

    I am in Chicago, where I can buy>rehab>rent a property in a B-Class neighborhood that rents at about 72x the purchase and rehab price. That’s nice and profitable. However I don’t want to live in a B-Class neighborhood. Hipsters are nice and all, but I prefer living in a luxury downtown high rise with all the amenities. These rent for 160x the an apartment I am moving into. The owners just bought the property, and are renting it out (I have on clue why, but will happily enjoy those savings).

    As you get higher end, the multipliers get even more insane. I see very large condos in nice buildings renting for 200x.

    I am more than happy being a “low class” renter, and banking the difference. So many people buy just so they can go home at Thanksgiving a Homeowner, rather than actually doing the math.

    1. They just bought and rent out the place bc they believe in capital appreciation and they probably have excess cash flow, so no need for more cash flow at the moment.

      The key is to really bank the difference and invest to more than make up the difference. The problem is a lot of renters don’t do this due to a lack of discipline and knowledge. Forced savings does help.

    2. Charleston.C

      assuming people bought and rent out because of capital appreciation and no need for cash flow is a possible explanation, assuming the investor is acting rationally. But we all know not all investors are not rational, presenting opportunities for those of us who are rational, which I am grateful for!

  64. Spot on from the Midwest perspective. I am a real estate investor in Indianapolis. My average rental home costs about 105k. My average monthly rent that I get is $1050 per month. Ratio of about 8X. On my last deal, my 13 year old son was by my side every step of the way, from looking at the property to closing a 2 year lease with tenants within a week after closing on the purchase of the house. He’s a sharp kid and saw all the finciancials as I’m teaching him. His comment was “dad, why doesn’t everyone own rental properties?” That is a good question from a young unbiased mind!

    1. That is awesome. I would be buying at an 8X multiple ALL DAY LONG. Just imagine the empire you will build at a 8X multiple over the next 10-20 years. Your son will be pumped as will you.

  65. I like the concept. Our primary residence is relatively cheap so we’re doing well on the buy utility side. Our rental duplex isn’t that great, though. The value is probably around 20x annual rent. I’m not doing a great job there and probably should sell it to capture the gain. I hate paying taxes, though.
    Honolulu sounds great. We’ll visit for sure.

    1. I think you will be surprised at what your primary residence can now rent in the current market. That was my epiphany when I was STUCK in 2007 thinking I might only be able to get $6,000 a month. Then I realized ….. holy moly, people are willing to pay $8,500 a month. Time to rent it out!

  66. You make me want to rent out my primary residence and buy a smaller place! I have debated the numbers. Even if I pay off my $1.2 million home I am looking at approximately $20k in taxes. That is pretty nuts and I am not sure I want to be paying that much in property taxes for a view in retirement. So for now I will sit tight, hope for some appreciation and maybe sell in 5 to 10 years when I am ready to pull the part time or full time retirement cord!

    Great post and good points.

      1. North of San Francisco. I think it comes out to like $18,500. It was high as is and then we got hit with a supplementary payment due to appreciation of the home price. Blah….

        1. that is nothing. move to illinois. 1.2 million home is about 40k/yr in property taxes. Be thankful you only pay 20k/yr and have nice weather

          1. Ah man…. how amazing to see that everything is relative!

            I hate property taxes, especially if I don’t feel the city is properly managing the budget, and if the public schools aren’t run well.

            I pay $22,000 a year in property taxes for my rental house. It hurts.

            In Hawaii, the property taxes are 1/4th that of SF.

            1. Be grateful for what you have – it could be worse. In Michigan, the school property tax rate on rental property is 4X the rate on owner-occupied primary residences.

    1. Well actually, if you follow BURL, you’d SELL your property if its your Price to Income ratio is closer to 20X since you are in the Bay Area, and simply rent and use those proceeds and buy elsewhere.

      But, you’ve got to live somewhere, so something to consider for future real estate investments.

      1. My Price to Income ratio is 3 x (so not bad) but I hate sitting on a 900K loan. It makes me itch. Still the spot is pretty sweet with sunset views every night. I like the idea of BURL and in the future will likely follow it. I am a fan of the ability to be mobile without any hassle (i.e. selling homes).

  67. On the lower end of the market (400-500K) – I almost feel it is not worth to sell your house, but to rent it if you want to move. If I sell a 450K house, I will immediately lose $25K in commissions. This makes me absolutely sick. I would rather take that $25K and put it towards a second property.

    In Northern NJ, near NYC is gaining great prices, out further west, the prices are still down from 2005-2007 period, I think there will be good opportunities there as well for rentals, vacation properties, etc.

  68. I like this post. My brother owns a few rental properties in the Twin Cities and has always lived in a modest home.

    The market for multi-family rental properties right now is super quick though; just one in the area that fits my general criteria, and it’s slightly above my price range too. I haven’t looked at renting out single family homes but may take that into consideration.

    Overall I think that the Twin Cities have definitely gotten a bit more expensive over the years I’ve lived up here. I wonder how much longer it’ll make sense to be a landlord up here…

    1. It does seem like the property market in every major city seems hot nowadays, which is kind of worrisome. That said, the structural shift is when coastal city money comes to buy midland/south real estate. That’s where you will see an uptick and more “Stay out of my city California or NYC residents!”

      1. Incidentally, this is now. The traditional escape valves from California were Seattle and Portland, and they’re now approaching SF-level valuations (kind of…), and are almost as bad as SF in terms of homelessness, nanny state regulations, etc.

        Meanwhile, Idaho and Utah are having massive surges of Californians, Seattlites, and Portlanders coming in, and there’s growing backlash.

  69. Great post. I was wondering your thoughts on this as I’ve seen you comment to Brian from Rental Mindset asking how he would have done investing in SF instead in the Midwest. I assumed you were saying that the appreciation in SF would have surpassed return in rentals out in the Midwest. I live in NYC and I will say the appreciation is tempting especially in areas where you would assume will gentrify next. However it is still speculative and I don’t have the capital to make a play on rentals here. I’ve even considered selling our co-op when we outgrow it and go back to renting, but once again would feel like I’m missing out on the appreciation here. I bought an investment property in Kansas City, MO and it’s been going okay. $200 seems low for property taxes even in the Midwest. I think my house there has taxes just slightly under $1000. I might consider crowdfunding but prefer to invest more directly so I can take advantage of leverage, tax benefits, etc.

    1. If you bank on principal appreciation by paying a high valuation, then it’s absolutely speculation. And speculators have been handsomely rewarded in the coastal cities. But I think with the current massive valuation gap, and technology narrowing the ability to deploy capital efficiently, it’s wise to diversify.

      I’d ALWAYS be long at least one property in NYC. Never sell that puppy!

      How did you directly buy in KS, MO?

      1. It’s going to be tough to keep my co-op once we outgrow it since you’re not allowed to sublet. I guess we could always upgrade to a bigger one but the prices are a bit too high.

        As for the property in MO, I was on the Biggerpockets forums. Saw a couple people mentioned they had a good experience with a provider and I contacted them to learn more details. Originally, I was going to buy a turnkey property but the provider I worked with had a hybrid take on it. I bought a foreclosure where he acted as the realtor, he managed the renovation (taking a fee), and his company is now acting as property manager. Because I bought low and forced appreciation with the renovation, the property appraised for about $11,000 over what I paid.

  70. The Luxe Strategist

    I look at apartments in Brooklyn sometimes, but you won’t get away with anything less than $750,000 for an 800-sq foot 2 bedroom, and that doesn’t include that pesky maintenance fee, either. I crunched the numbers and decided I don’t value owning in NYC so much that I’d be willing to pay an extra $1,200 a month to buy a place. The only thing is, I told my SO that we have to invest the money that would be going to the down payment.

    Just yesterday I was looking at houses in Cincinnati. Found a place for $90,000! I could buy that right now! We have a friend there, and she’s pretty happy. Going to visit her soon and scope the city out for geo-arbitrage purposes.

    1. Good point re: Brooklyn prices. I lived in downtown Brooklyn (Brooklyn Heights / Cobble Hill / Fort Greene areas) for 7 years, and it’s quite expensive to own. If you’re able to acquire a decent property at a solid entry point, then you’ll likely do well in the long run.

      I recently reviewed buildings I lived in 5 years ago in Brooklyn (in some instances the same exact units), and rents are 30-40 percent higher.

      On Sam’s comment re: Queens, it also depends on the neighborhood (as with any market). I have friends and former colleagues who invested in Astoria and Forest Hills, among other areas, from 2010-2012 who are seeing stable rent increases as well the last few years.

  71. Charleston.C

    Yes to buying utility, renting luxury. The other benefit in renting luxury, is the short term commitment to the luxury itself. If someone’s financial standing changes, they can adjust the level of luxuriousness based on affordability and need, something you can’t easily do once you have purchased the luxury itself.

    I can’t speak for the west coast, but on the east coast there are abundance of smaller cities and suburban towns between major cities. So to take advantage of utility real estate investment being based in Boston myself, I don’t need to look much further than Worcester MA, Providence RI, Nashua NH etc. to get a sub 9.6x utility classification. It is not difficult to find houses worth $3000/mo in rent, asking between $250,000-300,000.

    1. Not only is it easier to adjust your commitment to luxury if your financials change, it’s also easier to adjust if you simply change your mind and realize, “WTF do I need a 6,500 sqft mansion overlooking the ocean when I feel no better living in a 2/2 condo overlooking the water for 1/3rd the price?!”

      This happens A LOT with the people who think their lives are much happier living in a very large and expensive place to maintain.

  72. Sam,
    Love your posts, but this time, your midwest numbers are way off. I live in the chicago suburbs and have a 4 unit rental property in an adjacent suburb. Property taxes on my home (purchased in 2011 for 905k and recently re-appraised this year for same price of 905k) have increased from 25k/yr in 2011 to 31k/year in 2016. our 4 unit rental (worth 450k) has hung in at 8k/year property tax rate consistently. Illinois is a disaster, and that is the reason that chicago is the only major city in the US that has had a net effux of residents over the past 4 years. The general assembly yesterday just overrode the governor’s veto and instituted a 50% IL state income tax increase which will likely not sway people to turn around and return to illinois. I agree the midwest has reasonable areas for investment, but IL is doing everything it can to bury itself. cheers. keep up the good work.

      1. I’m not from Raymondville, but I’m somewhat familiar with the area.

        Please use caution when using Zillow’s (hindsight) view from 30,000 feet. I don’t know Raymondville’s particulars but I know a bit about that the Coastal Bend and Rio Grande Valley’s economy. Here are the economic drivers that can move those rents up AND cause them to sharply decline (perhaps ahead of Zillow’s data).

        1) Oil and Gas. Many of the jobs and businesses in that area are in oil production or services, e.g. Victoria’s small businesses are still hurting. Need a cheap house, a tricked out used truck or gun collection? There’s a fire sale after every oil bust. Blue Collar guys make BANK working the oil fields – until they suddenly are out of a job. US production has gotten very efficient and a lot of folks tell me that we’ve leveled out and adjusted to this new normal. USG just opened up a big chunk of the arctic, so oil may not come back up for some time – maybe a really long time.

        2) Border Traffic. Mexican Migration, Shoppers, Cheap Labor and Wealthy MX Investors looking for safe places to put money (cash for homes or owner financed homes, commercial real estate development, boutiques, etc.). Border crossings (legal and especially illegal) are way down. Planned developments are on hold. The booming RGV is beginning to slow and some wealthy investors are beginning to sell and take money off the table. The open border drove down wages and socialized costs while allowing for fat private profits. It’ll take a little while for the dust to settle on the industries that built up around those conditions (including construction and contracting). Look at the RE boom in McAllen (last 5-10 years) to see what I mean.

        3) Ranching and Agriculture. Droughts have a big impact. The famous and enormous King Ranch moved their cattle to Colorado for the last few years and haven’t moved back (yet). I’m sure they’re doing well, but if the cattle are out of state, perhaps they don’t need as many ranch hands, equipment, services etc. in TX.

        All this isn’t to say Zillow isn’t right, maybe it is. But maybe it is lagging and painting a very incomplete picture. Buying in Raymondville raises red flags for me.

        One more thing…

        I’m looking high and low for a rental property in Houston that will put me in the black right away AND be in a safe, non-scary neighborhood in somewhat desirable part of the city. Houston is on the Zillow chart as having 96.6% of homes that rent for more than they cost to own. This does NOT match my experience, I would’ve expected to see Houston at the bottom of that chart. Also, if you drill down and look at Houston home price histories, they are a roller coaster – mostly driven by oil and gas prices.

        Just so we’re clear, I’m not talking about the trendy Heights neighborhoods, downtown or even right next to downtown. I’m shopping in the hood! It is hard to find a good price on a home that won’t be a maintenance money pit and will attract adequate rent. Plus, the lack of zoning laws means that new inventory can pop up overnight (for good or ill).

        My take-away on flood-prone Houston thus far is: it is doable there, but unless you’re going to live in it or list it as an STR, the return is such that you’d might as well put your money in an annuity. It is either that or wait for another dip : ) There are a lot of young folks in >$350k townhouses looking for roommates.

        Your larger point (RLBU) stands and I’m right there with you!!

        1. Awesome color!! This is why I love writing these articles and having such a large, intelligent community!

          You are absolutely right about doing due diligence, especially if you are investing from out of town. You start with a top down valuation screen and go from there. Places are cheap for a reason too!

          One of the reasons why I like RE crowdfunding is bc you invest with a local sponsor who is supposedly an expert in the area. Nothing is a guarantee, but having a long track record helps a lot.

  73. Thanks for the insightful article as always. What does one do if they are currently renting in NYC? I am financially comfortable to pull the trigger, but as you alluded to, it is considerably more expensive on a CF basis to go the purchase route relative to renting….I have no idea what the right play is.

    1. If you plan to live in NYC for the next 10 years, I’d get NEUTRAL NYC real estate by buying your primary residence. NYC is an economic powerhouse that should hold and continue to grow in value over the long run, although the high end is soft now.

      If not, then continue renting b/c it is a relatively great deal and accumulate higher income generating properties elsewhere, along with investing in the S&P 500, bonds, etc as you are doing now.

      Just know we are at ALL-TIME HIGHS and real estate and stocks move in cycles. NYC is softening, so take your time and really run the numbers.

      Related: Real Estate Or Stocks?

      Buy Real Estate As Young As You Possibly Can

      The Proper Asset Allocation Of Stocks And Bonds By Age

      1. My rent in NYC is covered by passive cash flow from outside NYC. I will soon buy, but only because my mortgage and all closing costs will also be covered from passive cash flow. For $2.2m, I can get about $2.8-$3m apt and not pay anything after the downpayment as my other properties will cash flow and pay for it. Also, those properties will have mortgage pay down as well. Tax benefits are also much better.

        The issue with buying in NYC, since the prices are so high, is, do you have stable income for 30 yrs to pay this if you mortgage or are you buying cash?

        Buying a $2m, 1 bdrm and paying $10k per month – important to make sure this is done with significant cushion as jobs making $1m+ tend to be unstable.

  74. Long time reader, first time poster. How easy is it to invest in property in the midwest through realtyshares? How soon do you get some of your investments back? Im afraid my property in the inland empire of southern California will crash along with my stocks. Thank you for all you do Sam!

    1. Abel @

      Robert – there are a lot of real estate crowd funding platforms that help facilitate passive investing in RE. However most of them require the investor to be an “accredited investor” which means you either make $200k annually (or $300k as a couple) or have a net worth of over $1M excluding your primary residence.

      Sam – I think it would be helpful to discuss with readers what it means to be an accredited investor, the benefits, and private placement memorandums that allow them to generate higher than average returns due to their accreditation status!

    2. Hi Robert,

      It depends on if you invest in debt or equity. I would give a project at least 3 months before expecting some type of income because it takes time to rehab, optimize, and find new tenants. Debt is faster, equity is slower as the returns for equity are often added on the backend when there’s an exit.

      But some deals say they will pay X income in the meantime before a potential Y sale. Case by case, so it’s worth exploring and reading all the documentation about the sponsor and each deal.

      Related: Real Estate Crowdfunding Returns


  75. WOW this is such a great analysis. When I was reading your post, I kept thinking about the Bigger Pocket podcasts and the housing market in DC. It’s almost impossible to meet the 1% rule in DC unless you go really further out (like far away from the Metro system). But the appreciation rate in the city is definitely desirable.

    One thing I noticed about the rental market in DC is that it can be super profitable to buy a utility house with lots of bedrooms and rent the rooms out individually to professionals. The job market in DC is healthy, so you always have young professionals with a stable income looking for a place to stay. Of course it could be more headache managing a bunch of people, but that’s how a lot of people do it here.

    1. Cool. Yeah, I guess I had a utility house in SF, but managing five guys was a headache. But, that was the only way I could get the $8,500+/month. But when you have to pay $22,000 a year in property taxes and deal with maintenance and hassles, it becomes a PITA.

  76. High Income Parents

    I’m like you in that we value the other aspects of owning luxury beyond financial gain so our primary residence would be better off rented. At least some better than expected capital appreciation is a possibility since the land we bought is in a scarce area with higher demand.
    The instability associated with that is something we didn’t want to chance raising a family so we bought luxury but we also buy utility with our rental properties.
    Down here in San Antonio there are plenty of opportunities to find utility and with the stable military market here, 100x rent or better is available for investors.
    Maybe once the kids are gone Mrs. HIP and I will rent in some of the more luxurious places around the world. Have a luxurious and relaxing weekend.

    Tom @ HIP

    1. I think it’s great that you can not only buy luxury to live in at a relatively low price, but also buy utility to earn solid rental yields. We just don’t have that in the coastal cities. Just high valuations with the hopes of further principal appreciation. So far it’s been great. But things do change, as I think the world will change as people realize…

      Hmmm, I don’t HAVE to spend $3,500/month to live in a one bedroom when I can work out of San Antonio and pay $2,500 for a nice house to raise my family and still make $150,000 a year!

      1. High Income Parents

        If the driverless car or more efficient forms of cheap transportation become the standard I would think a normalization of real estate prices could occur.
        I don’t know how many years we are away from this becoming a reality but I would think more people would be willing to live inland and work and play near the coasts.
        If I could hop in the driverless car to sleep the night and wake up in the parking lot of a national park or a San Diego beach, that would make living where I live even better.
        I’m sure some people will always place a premium on living with a view of the Golden Gate out their patio window though.

        Tom @ HIP

        1. Indeed. The self-driving and cheaper ride sharing car movement is one of the deep derivative thinking examples in the post:

          In 10 years, it seems an inevitability self-driving cars will be mainstream, as well electric cars. Hence, I want to continue buying ocean view properties on the west side of SF and sell overpriced north and east side properties that have nothing special except closer proximity to downtown.

  77. Awesome post! And it’s so true. Luckily there are still some cities where you can find high quality rentals in and around the city. I’ve thought about purchasing some properties in Chatanooga since it’s a transitioning market. Any thoughts?

  78. Sam,

    Enjoyed the post. A lot of people do not think about opportunity cost in this vein, and to be honest I didn’t either. It’s hard to shy away from coastal cities for me as I am an ocean guy, but from a strictly financial point of view it makes sense looking into the Heartland. However when you post videos like that, it makes it that much more difficult to not want a mansion overlooking the sea. Please buy that so I can live vicariously.

    1. Ha! I never want to live in a mansion. Way too much maintenance to deal with. Larger place, more things can leak and break!

      But I will live vicariously through just watching videos and continue to live in my simple home :)

  79. Great post, as always. Two thoughts for consideration:

    [1] Taxes make a big difference for a primary residence, given that mortgage interest and property taxes are tax deductible and thus essentially paid with pre-tax earnings.

    For example, you write: “Obviously, renting for “only” $108,000 a year versus owning for $178,500 a year is a financially cheaper option, not to mention the benefits of less maintenance stress.” But is that true if most of the $178k is tax deductible? At a 40% or 50% marginal tax rate, the result could flip or at least be more comparable.

    Seems to me like tax deductions provide a strong nudge in the direction of ownership, all else being equal. In other words, the break-even point is quite a bit higher for renting to be preferred.

    [2] It’s not just the annual cost that matters, but the expected cost over the foreseeable future. One benefit of owning is that most costs stay fixed, whereas rent increases over time. Especially in the luxury locations, this allows residents to lock in their claim on living in a particular area. This seems to be another factor nudging towards ownership over renting.

    Thanks again for the great posts. Have a great day!

    1. Abel @

      DeForest love your considerations.

      However, on the topic of tax deductions/benefits when you take into account that if you rent where you live and own what you rent out, your rentals will typically generate a tax loss due to depreciation therefore paying NO taxes on your cash flow until you have to recapture.

      Something to consider!

    2. Hi DeForest,

      Thanks for the response. This post is not so much a rent vs buy debate if you have no property. This post is more focused on rent vs buy if you already own your primary residence or your primary residence and a rental and trying to figure out how to optimize your cashflow and lifestyle. But the lines of thinking are similar.

      The higher your income tax rate, the more benefit you have of owning. HOWEVER, after about $300,000 in income… you start losing your benefit due to mortgage deduction phaseouts and AMT.

      My goal is to encourage people to run the numbers and see what else is out there.


      1. Thanks for the reply! All fair points. I am just thinking on the margin about whether to own or rent the primary residence — perhaps the tax issues aren’t as relevant for high income and/or those with rental properties — but I think they are meaningful drivers for mid-level income and those with just 1 property or few rentals.

        In any case, great insights with the article. Keep up the terrific work!

    3. DeForest,
      Taxes do make a difference but in Sam’s example of the $2.7M house, less than half of the expenses are deductible for a couple of reasons.

      1. You can only deduct the interest expense on the first $1M of your mortgage. So if you have a $2M mortgage, you can only deduct half of the interest expense.

      2. Under AMT, you lose the deduction on your property tax so some people get no tax benefit from their property taxes.

      Brian Chong, CPA, CFP

  80. Excellent read Sam! Not that I expected any less! My family and I live in Seattle and we own two homes. Zillow’s graph is pretty dead on. Although people here (and in large metropolitan city with a large wealth gap) complain about rent being too high – being a landlord isn’t exactly like hitting the jackpot or cruising on easy.

    We are lucky enough to actually make a profit from AirBnB but it is a short term rental and there’s a lot of activity required to maintain it as a vacation rental.

    I really enjoy reading your blog, it’s a breath of fresh air. There’s so much talk of being debt free etc (from the Dave Ramsey clan) that they forget the power of optimizing your money. Renting is debt free but it’s also asset free.

    It’s easier to pinch pennies in places like NY and SF. A 10% yoy could mean 100K! And I think urban hubs are rare (stable growth long-term) and you’re right about the lifestyle. Having grown up in SF, my God the food…boy did I take the Japanese food for granted!!!

    1. “Renting is debt free but it’s also asset free.”

      Nicely put, Lily! Renting might be cheaper than owning and stress-free, but you’re not building any equity from it (maybe besides the ROI from the difference between monthly rent and mortgage if you choose to invest it). I’m all for owning if someone’s not in consumer debt and has a stable income. Owning a house can ruin our financial health if we’re drowning in debt. When I got married, one of my parents’ biggest wishes was for Mr. FAF and me to own a house asap so that they can feel relieved about their daughter’s future haha.

    2. Charleston.C

      renting is debt free, but is only asset free if you dont invest.

      you can rent your residence, while buying real estate to be rented out to others to allow you to capitalize on the “utility factor” Sam is referencing.

      1. In NYC, buying incurs building and maintenance costs that in many cases outstrip rent. Even if I put 20% down on a 2BR where I live (Queens) for something nice, the mortgage plus maintenance plus taxes would likely cost me $1100 or more over what I pay not to rent a perfectly good 1BR with me able to invest the difference monthly. I might not end up with a paid off place in the end, but I should end up on a pile of cash which will afford me options of what to do later. Only time will tell if I’m right or not.

        1. Charleston.C

          But you can always extend further than Queens right? How’s upstate New York or Connecticut?

          1. Couldn’t tell you though its still somewhat expensive in the surrouding areas. The mentioned locations wouldn’t work for me because my job is in Manhattan, I live right near multiple public transportation options and both friends and family are close and my life costs 50% as much as it did when I lived in Manhattan even paying rent (for now). I believe my building also has preferential rent…not controlled or stabilized, but very small incremental increases that even small raises keep ahead of. I’m in a good spot, but buying here is likely not the right decision for me since I can invest the rest and let it compound.

            1. My job takes me to upstate NY once or twice per week. Broome County has an aging population. People move there from NYC and then find out that the public transportation is limited. The taxes are very high and causing many homeowners to sell and move. Some move to Pa and many head south to NC or SC.

            2. Charleston.C

              Right which is why you buy in area very far outside of Manhattan to take advantage of the “utility factor” and rent near manhattan.

        2. Queens, I’ve always wondered why everybody doesn’t buy up ALL of Queens. So cheap compared to everywhere else in NYC!

          JK, I firmly believe you will NOT come out ahead in 30 years time renting versus buying in Queens. That said, the NYC high end is very slow now, and that will put downward pressure on lower priced properties over the next 2-3 years.

          1. You may very well be right, but I moved here less than 3 years ago and missed the lower prices of yesterday. Of course it’s much cheaper than compared to Manhattan. I can’t say the prices are appreciating rapidly in the last 2 years. I suppose time will tell. It doesn’t pay to buy a 1BR unless your intent is to rent it later. A 2BR is more flexible in terms of selling but I can either max tax deferred or take a while off from that to save for a down payment Which would you do?

    3. Awesome you guys own two homes in Seattle, where prices are en fuego! So much cheaper than SF too, which makes me wonder whether it has the capacity to reach the same level. Perhaps, with Amazon, Nike, and Starbucks and other mega corporations doing well.

      I never got into Airbnb b/c of the rules and b/c of the hassles. I have a hard enough time dealing with one renter a year, I can’t deal w/ 30X renters a year. Maybe I can outsource it.. but nah. Online income is my cup of tea.

      Related: A Housing Expense Guideline For Financial Independence

    4. Really love this comment Lily. The graphs here are pretty spot on based on the research I’ve done.

      And you’re totally right, being a landlord ain’t that great. It’s hard work, constant phone calls and texts. But buying a home and renting out the extra rooms and eventually turning it into a rental can be very powerful. You eliminate your housing costs to invest other places.

    5. Terry Pratt

      Renting is like carrying a permanent debt albatross around your neck; it never goes away until you do.

  81. Brad -

    I feel like real estate prices here in Charleston SC are expensive until I read these posts mentioned west coast rates. It’s crazy. Perhaps at some point you should sell everything out west and come east to enjoy a much lower cost of living.

    1. The east coast is humid and miserable in summer and cold and miserable in the winter. As a East to West Coast transplant, I’ll never go back east.

      1. Brad -

        Here is Charleston it is disgustingly hot June through August for sure. The rest of the year it is very pleasant though. Not unusual for us to have fantastic high-60 or low-70 days in the winter. No snow or ice here. Just wish the summers weren’t so humid.

        1. I lived on the East Coast for 10 years as well (Washington DC/NOVA, Williamsburg, VA for The College of William & Mary, and New York City). Although LOVELY during the Fall, it was pretty harsh for at least half the year.

          If it’s freezing for 3-4 months a year, there better be a sweet mountain to ski/snowboard off. But there really isn’t compared to Colorado, Utah, and Lake Tahoe.

          NYC is the best city on Earth for 4 months a year. Wish I had a pad there!

          I promise you, once you experience a year of West Coast living, it is VERY hard to go back, especially if more friends and family come out.

          Related: West Coast Living: Yes It Really Is Much Better

          1. multimillionaire

            I beg to differ. I have been in CA for decades. If you figure in the CA state income tax which is the highest in the US, perhaps the equation could change. If I retire in a few years, I would definitely move to a state that has no income tax. Furthermore, the continuous erosion of our second amendment right in CA is another reason I will move out of CA. Better weather aside, even with the best tax management strategy, there is zero reason to pay 13.3% income tax. And I rest my case.

            1. Randall C Wall

              That is exactly true.. Taxes are a huge deal that the article didn’t really consider. At 13% you are eating up a lot of liquidity. I think I would prefer to have a corporation from a state with no state taxes purchase my real estate and of course have residency there so that I wasn’t hit personally either..

          2. multimillionaire

            I beg to differ. I have been in CA for decades. If you figure in the CA state income tax which is the highest in the US, perhaps the equation could change. If I retire in a few years, I would definitely move to a state that has no income tax. Furthermore, the continuous erosion of our second amendment right in CA is another reason I will move out of CA. Better weather aside, even with the best tax management strategy, there is zero reason to pay 13.3% income tax. And I rest my case.

            1. And that is why there’s a market. People are free to choose wherever they want to live. For West Coast, I’m including Hawaii, where property tax is 0.3% vs. 1.2% in CA, and sales tax is 4.8% vs. 9% in CA. State income tax is slightly lower, but not by much.

              Which no income tax state are you considering?

              Related: Which States Are Best For Retirement?

          3. I have to agree with Sam here. I’ve lived on either the east coast or in Europe all of my life (lived in Europe for 12 years), but have family out on the west coast. Quality of life west of the Mississippi is unquestionably better if you control for everything else (ie. NYC at $500k/year is better than SoCal at $50k/year).

            There’s a lot more to the western US than Cali. Washington, Oregon, Colorado, Utah, Arizona… Great food, great weather, great outdoor activities…

            Unfortunately, even though she agrees with me, my wife’s entire extended family is in the east (her father teaches at William & Mary) as is her career (Fed Govt), so it doesn’t look like we’ll be making the move out west anytime soon.

            1. Choosing where to live is more complicated than just an economic decision. I pay over 50% marginal tax rate in NYC, but it doesn’t even cross my mind to move to Delaware, for ex. I’ve lived in the midwest and wouldn’t move back if someone paid me to live there.

              That being said, I have been buying real estate in the south and midwest and arbitraging the cap rates so I can stay in NYC, yet enjoy cash flow.

          4. New England skiing is actually preferable to Colorado, etc. for serious skiers. We have plenty of nice solid ice, which is exactly what you want when you get good. Powder can’t support the forces Ted Ligety style turns produce.

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