Congratulations to all the tech IPO millionaires out there! Perhaps you are one of the lucky employees at Uber, Lyft, Airbnb, Palantir, Slack, Pinterest, Zoom and a whole bunch of other tech companies that have successfully gone public and made thousands of people millionaires. Let's look at where should tech IPO millionaire buy property.
As we've learned from the first dotcom bubble collapse in 2000, it's always a good idea to diversify your winnings and buy real assets such as real estate to make your wealth last.
After a soft 2H2018 due to a decline in the S&P 500 and various tech company share prices, San Francisco real estate is heating up again thanks to a flood of tech IPOs, more inventory, and declining mortgage rates. In 2021, big city real estate is hot. And if you are one of the many tech IPO millionaires, you should be looking to buy property either in the San Francisco Bay Area to live in, or in the heartland for investment purposes.
Buying San Francisco property over the long term has shown to be a proven winner. Big city real estate is back. The key question is where to buy in San Francisco for a primary residence and where to buy property for investment purposes. See: Why Do So Many People Want To Live And Work In San Francisco?
As someone who has lived in San Francisco since 2001 and owns three San Francisco properties and 18 commercial real estate projects in the heartland of America via real estate crowdfunding, let me share with you where I think you should own.
Where Should Tech IPO Millionaires Buy Property?
If you are looking to buy your first primary residence in San Francisco, the best place to buy is in Golden Gate Heights. Tech IPO millionaires are flocking to the west side of San Francisco to buy single family homes with ocean views.
The north end of San Francisco is too expensive at $1,200 – $2,000 a square foot. You'll need to spend at least $2.5M – $3M to buy a mediocre single family home on a busy street.
The south east portion of San Francisco is too industrial. It might be closer to downtown, but you won't feel like you're living in a residential neighborhood with a friendly vibe.
Why The West Side Of San Francisco Is The Best Area To Buy Property For Tech IPO Millionaires
1) An undiscovered gem. After surveying ~200 people over six months and only about 10% of them have ever heard of Golden Gate Heights. Yet 95% of them know the location of top-notch UCSF Medical and the hot Inner Sunset. Of the 200 or so people who have never heard of Golden Gate Heights, 50 of them included real estate agents, which was absolutely baffling since that's their job.
The key is to discover a neighborhood before it gets super hot, like Noe Valley did back in the mid-2000s. Now, Noe Valley is extremely expensive and crowded.
Too often real estate buyers congregate around a certain set of areas. In San Francisco, they are: Pacific Heights, Cow Hollow, Marina, Cole Valley, Presidio Heights, Lower Haight, Hayes Valley, SOMA, and Noe Valley. If one can look outside of these neighborhoods (there are 50+ neighborhoods in SF), one will be amazed at how much more they can get.
2) Homes with amazing views GGH is a wonderful neighborhood because it has many homes with ocean view properties. The greater the ocean view, the greater the value. Homes in every major city in the world trade at massive premiums when they have ocean views. Because GGH has not really been discovered yet in SF as of 2019, GGH homes do not yet trade at massive premiums.
3) Good local schools. Some of the best public schools in SF are near Golden Gate Heights and the Inner Sunset because there are more families on the western side of SF. Schools such as Clarendon, Alice Fong Yu, Stepping Stone Preschool, Lincoln HS, Sunset Elementary School are some of the best. Further, you are close to private schools such as St. Ignatius HS, Urban HS, and SF Day School.
4) Undiscovered neighborhood. There are areas in each city where plenty of people have never heard of. Once everybody has heard of the area, it's too late because you'll be trying to outbid every Dick and Nancy when that unique property that comes up. Take a realtor map and circle some neighborhoods that look nice, but you've never visited before.
5) Peaceful and quiet neighborhood. Practically all the properties in Golden Gate Heights consists of single family homes instead of condos. As a result, the neighborhood is family friendly and much less dense than other areas of San Francisco if you like more peace and quiet. Single family homes hold their value much better during a downturn and appreciate much quicker during an upturn.
The streets in Golden Gate Heights are very clean as you have fewer vagrants who are willing to trek up the hill to cause a ruckus, tag public utilities, or break into homes. Many homes are fully detached compared to homes that share walls in many other areas of San Francisco.
At the same time, Golden Gate Heights is just a 10 minute walk away from all the restaurants, bars, and shops in the red hot Inner Sunset on 10th/9th and Irving St. There are over 50 restaurants within that five block circle.
6) Good local transportation. Transportation is convenient with the 6 Bus, 66 Bus or N-Judah train both going downtown. There is also the 91 bus the brings residents along 19th avenue, through the Presidio north, along Fisherman's Wharf, and back into downtown for one big circle.
Further, the invention of ridesharing by Uber and Lyft have made transportation extremely inexpensive. It used to cost $25 – $30 to take a tax from GGH to downtown San Francisco. Now, you can hop in an UberPool for just $5. They even have express pools now for even cheaper.
7) Good location. Besides being close to Irving Street, UCSF, Cole Valley, and the Haight, residents in Golden Gate Heights can easily drive down 19th Avenue, which then turns into 280. Getting to SFO airport takes only 17 minutes, and it's easy to drive to Burlingame, San Mateo, San Carlos, and Palo Alto.
8) Relatively inexpensive. At an average price per square foot of $800 – $850, Golden Gate Heights is an absolute steal compared to other neighborhoods in San Francisco.
There is no major international city I can think of where one can buy a single family home with ocean views for under $1,000/sft. I have researched properties in Hong Kong, Singapore, New York City, London, and Mumbai and everything is way over $1,000/sqft.
The majority of prime real estate in San Francisco is closer to $1,200-$1,500 per square foot. But even at $1,500/sqft, that's still cheaper than the $2,000 – $3,000 per square foot in places like Hong Kong, London, and Manhattan.
I see the average Golden Gate Heights view home reaching well over $1,300/sqft by 2025 if not much sooner as long as the economy remains stable.
I'm also slowly seeing wealthy Chinese buyers start competing for homes in Golden Gate Heights, but the hoard has not come yet.
Best Place To Invest Your Millions
Investing in real estate is a slightly different story. San Francisco cap rates (net rental yields) are only about 3%. In contrast, real estate in the Midwest and South have cap rates of 8% – 12%. For tech IPO millionaires, you may want to invest to make a greater return.
The best way to invest in non-coastal city real estate where valuations are much cheaper and cap rates are much higher is through real estate crowdfunding sites like Fundrise (for non-accredited investors) and CrowdStreet (mostly for accredited investors).
The great thing about real estate crowdfunding is that instead of putting down a 20% downpayment amounting to over $300,000 for a median priced San Francisco home, you can invest as little as $1,000 – $10,000 in various real estate crowdfunding projects or eREITs.
Follow The Demographic Trends
Investing in the heartland of America is a long-term no brainer in my opinion. There is a steady migration away from expensive coastal cities to cities such as Austin, Dallas, Salt Lake, and more. Even Google announced in 2019 they are investing $13 billion in new data centers and office buildings to hire thousands of new employees.
I've personally invested $810,000 in real estate crowdfunding with a target IRR of 12% – 15%. It's great to earn passive income. Just remember to do your research and only invest in real estate projects that have reputable sponsors in locations with strong local economies.
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. Tech IPO millionaires should appreciate leveraging technology to invest in real estate.
To be able to own your primary residence in San Francisco with an ocean view, while also earning good passive real estate income without having to be a landlord is a good combination.
Congrats for diversifying your tech windfall!
About the Author:
Sam worked in investment banking for 13 years at GS and CS. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $250,000 a year in passive income. He spends most of his time playing tennis and taking care of his family. Financial Samurai was started in 2009 and is one of the most trusted personal finance sites on the web with over 1.5 million pageviews a month.