According to the US Census Bureau, only 37 percent of Americans have lived in their homes for more than 10 years, with a median duration of 8.7 years (see chart below).
I was considering selling a San Francisco house I bought in 2005 in 2012, but couldn’t find any buyers! As a result, I refinanced the mortgage before negotiating a large severance, lowered my payment by 30%, and left Corporate America for good. Further, home prices have skyrocketed since!
It is nuts how low interest rates have gone and I encourage everybody to refinance their mortgage if they haven’t done so in the past six months. At least check online or call your mortgage broker.
Rental Market Sizzle
The rental market in SF is crazy right now, making it extremely difficult to even get a call back for any desirable property. Out of curiosity, I submitted an application for one two bedroom, one bathroom condo with no parking for $2,600 a month and didn’t hear a peep back.
With a 798 credit score and income multiple times the monthly rent, I was discouraged when the property manager didn’t even respond to my e-mail! You begin asking yourself what’s wrong with you, where in reality, there’s just too many qualified candidates looking to rent right now and it’s nothing personal.
I strongly believe the property market will be higher five years from now and I don’t want to kick myself for selling too soon. Besides the financial reasons of homeownership, the main reason why I didn’t sell is because I enjoy my home. It’s big enough to grow into, small enough where maintenance is not a bear, and located in a neighbor that I like. Sure, it would be great if it had an outdoor hot tub and a killer view of the Bay, but that’s another $1.5 million+!
Finally, if I am going to spend 50% more time in my house, the value I get from my mortgage payments goes up by 50%. One can do an analysis of how much it costs a month for one to live in their homes, much like an hourly wage for salaried employees. It’s a no-brainer for me to keep on owning.
Future House Selling Plans
My plan is to sell the house in three to five years, invest the proceeds in a yield producing asset and move to Hawaii. That means I’ll have owned my home for ~15 years when I do sell. Now that I think about it more, 15 years is not a very long time compared to the duration of homeownership by my grandparents.
They held one of their properties for 40-something years! In that time period, its value went up by 20X and the mortgage was paid off within the first 20 years. Lots of bad things happened in the past 40 years and the property still went up by 2000%! Talk about resiliency and the power of inflation.
The secret to property wealth creation is to just hold on for as long as possible. A 20+ year holding period smooths out all the volatility. If I have the energy in three to five years, perhaps I’ll just rent my house out instead. By then, rents should be up even further while my payments get cheaper and cheaper.
If I don’t have the energy, then I’ll just sell, knowing that in 10 years I’ll be kicking myself!
Update 2018: I ended up renting out my house in 2014 for $8,800 a month and buying a new house with panoramic ocean views in a new neighborhood. After three years, I became absolutely tired of dealing with tenants, especially after becoming a father. Therefore, I put the house on the private market and got an offer for $2,600,000 within 10 days!
I had originally tried to sell the house for $1,700,000 back in 2012 with no luck. I countered with $2,800,000 and we finally settled on $2,740,000. I can’t believe by simply holding for five more years I was able to make another $1,000,000. I feel like I won the lottery!
I used $500,000 of the $1,800,000 in proceeds after paying off my mortgage and fees and invested it in real estate crowdfunding. My goal is to earn the same amount of cash flow as my rental ($60,000/year), but with $2,240,000 less exposure. Check out Fundrise for all your real estate crowdfunding needs. They’re one of the largest real estate crowdsourcing companies on the market.
Wealth Building Recommendations
Shop Around For A Mortgage: LendingTree Mortgage offers some of the lowest refinance rates today because they have a huge network of lenders to pull from. If you’re looking to buy a new home, get a HELOC, or refinance your existing mortgage, consider using LendingTree to get multiple offer comparisons in a matter of minutes. When banks compete, you win.
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, take a look at Fundrise, one of the largest real estate crowdsourcing companies today.
Real estate is a key component of a diversified portfolio. Real estate crowdsourcing allows you to be more flexible in your real estate investments by investing 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 over 10% in the Midwest if you’re looking for strictly investing income returns. Sign up and take a look at all the residential and commercial investment opportunities around the country Fundrise has to offer. It’s free to look.
Updated for 2019 and beyond.