Quora: Will house prices go down in the Bay Area?

Financial Samurai’s answer:

Prices are already going down. House prices are determined by rents and rents have softened due to the large construction of luxury condos. I know this first hand because I’ve been a SF landlord since 2005, and most recently tried to find renters in May 2017 and December 2017.

For my 4 bedroom, 3 bathroom rental house in May 2017, I was receiving $9,000 a month. After 45 days on the market, the best two offers I got were for $7,500 a month = 16.7% decline. Instead of trying to rent it out for much less, I sold the house for $2,740,000 = 30X annual gross rent. I wanted to hold it forever, so my kids would have something to manage or somewhere to live just in case, but I just couldn’t take being a landlord anymore.

For my 2 bedroom, 2 bathroom condo rental, my previous tenants found the new tenants for me so I kept the rent flat at $4,200/month. In retrospect, I should have tried to raise the rent to $4,300 or $4,400 to cover the rising HOA and property taxes, but I didn’t want to risk losing them (landlord mentality now vs let’s raise the rent). The only “benefit” I got was not losing a month or more worth of rent looking for another tenant.

Here’s a more detailed chart highlighting the rents. They are down from the highs, but they have stabilized in SF and other cities (except for Chicago!). Property taxes in Illinois is top 3 in the nation, and you will freeze your buns of steel off for four months a year. Not a surprise.

I ended up reinvesting $500,000 of my SF rental house sale proceeds in June 2017 in much cheaper real estate in the heartland through real estate crowdfunding. The prices in non-coastal cities are closer to 10X - 15X annual gross rent (from 30X annual gross rent), and yields/potential returns are 8% - 15% vs. -5% to +2.5% in SF. In other words, for 1/5 the amount of risk exposure I’m taking, I can earn the same amount of income.

Buyers of SF real estate and coastal real estate should be pickier now. But knowing how people lose their heads bidding on properties, I suspect there will continue to be huge overbids at peak prices. Remember, leverage is your friend on the way up, and your mortal enemy on the way down.

If you only have your primary residence, then keep on holding and enjoying life. If you have two or more properties, you might want to consider selling because there are plenty of better money making opportunities out there.


BA house prices have not been tied to rents. Renters are forced to commute farther. meanwhile house prices go up in bidding wars. As far as buying elsewhere, I have been invested in Sacramento for almost 20 years rents still going up.

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$9K down to $7.5K… He’s definitely talking about the upper end there.

Yes, sell your desirable Bay Area coastal home and settle for some crowdfunded properties in the middle of nowhere. Has he even been to those places and looked at those houses??? What an idiot! :rofl:

If SF real estate is on the way down, what makes him think that those middle-of-nowhere cities are safe? So is he hiding the rest of his proceeds under the mattress to ride out the next financial meltdown? IDIOT!!! :rofl::rofl::rofl:

I think Sam has over 10m networth. I won’t call him an idiot just yet. :smile:

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Ok I just finished reading his post about selling that home. Basically he is an unqualified landlord. He should have hired a property manager to do his job. He would rather spend time playing with his son than tending after that property. Good grief. Yes, he will regret his decision 20 years down the road for sure… :rofl:

Selling the house seems wise, not sure about the crowdfunding part. He is betting he would have his cake (capital appreciation of heartland property) and eat it (high rental yield) too because of the new tax law.

The buyer has stretched his finance and overpaid… no lack of such panic buyer in current market… only need 1 :rofl:

I have to wonder how his house can accommodate 5-6 adults? He is renting his house like a multi-family, no wonder so many issues. Btw, I always rejected such rental application, unrelated adults, no way. Family of four, a couple with two school going kids is what I always rent to for my rental SFH in SV.

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Buyer might have overpaid but will end up winning if he can hold on to it long enough. Seller definitely killed one of his golden goose.

Stupid to rent out $3m houses. Never get a decent return even at $9k… would need $30k to make sense…

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Sam seems to promote RealtyShares a lot. Has anyone tried investing via this platform?

He gets a cut if you land on realtyshares thru his links.

Oh… I inadvertently did… shame on me!!! :rofl:

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Sam makes most of his networth from his business, and real estate he bought easily on. Most of his later investment is pretty crappy. For example his return on stocks is nothing like ours.

Indeed he gets a cut. He also gets a cut through Personal Capital.
I’ve invested in realty shares. One investment in Seattle Student Housing was repaid very quick - 2 year term was repaid in 6 months. Another one in Tiburon is in a bit of a limbo because the flipper has some financial troubles and is taking longer to pay interest. So it’s a mixed bag.


Care to elaborate on your experience?

Thanks for sharing. So will you recommend relatyshares as an investment vehicle over stocks and direct RE holding / REITs?

Not at all!

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You have to really read the fine print in RealtyShares and decide what you areas/types of investments you want to invest in - first lien debt/second/equity/preferred equity. For me it made some sense to diversify and not put everything into stocks/bonds/direct RE. I have less than 5% of my investments in RealtyShares if that’s any indication.
If you hold RealtyShares investments in some Roth iras ( like millenium which have annual fees ) then you can shield the returns from tax too. I do not do this - fees are bit high.

Wow! Bragging already. Anyone has higher than 200% gain? terri? Stock portfolio or single stock (AMZN)?
Annual return of stock portfolio
2017 - manch won hands down with 200% gain. distant 2nd ~40% (wuqijun, meguro, me)
2018 - we shall see

Notice I didn’t say mine. :wink: