…And Where You Should Buy Instead
I live and work in the San Francisco Bay Area. So it follows that I would recommend investing in real estate in the area, right? Wrong! When people ask me about investing in real estate here, I advise them against it – for a couple of reasons. Would you believe, I lived in rental accommodation myself for 20 years precisely for those reasons? Read on to know more about my experiences with real estate in the SF bay area and why I advise clients the way I do.
Why San Francisco Bay Area is not the best bet for investors.
Here’s a fact that really amazes a lot of people: I lived in a rented property in Marin County for close to 20 years. So the guy who buys and sells all this property, who owns hundreds of homes and helps others buy thousands more, lives in rented accommodation? It does sound strange. But it was the logical, financially sensible choice to make. For one, the numbers didn’t make sense if I were to buy. Secondly, the laws are not really in favor of the investors.
Now I usually advise people to buy homes in large metropolitan areas where we have a lot of economic activity and job diversity, because this is where people are looking to rent homes. This is where they are willing to shell out top dollar to rent quality homes. I typically recommend buying in the Sunbelt states. While the San Francisco Bay Area ticks all of these boxes, the ratio between property prices and rents does not make sense. At one point I was living in a million-dollar home, but I was paying just about $3000 in rent. And now that same home would fetch maybe four million dollars but the rent in relation to that valuation is still peanuts!
Further, the laws governing rental accommodation tend to favor the tenant in California. So I would much rather be a tenant than a landlord here. This is the other reason why I would still advise investors not to invest in property in the San Francisco Bay Area.
Rent, don’t buy in the San Francisco Bay Area.
Back in the day, we were buying a lot of homes in Phoenix. This was a hot market for people looking to invest in real estate. At the time, we could buy good quality single-family homes for just about $150,000. This same home would then fetch rent in the area of $1100. This is the sort of rent that would help to generate positive cash flows for the investor. The ratio of value of the home to rent is favorable for the landlord. Now, even Phoenix is not a great idea, the reasons for which I’ve shared in previous videos and podcasts.
So to summarize, San Francisco Bay Area doesn’t make sense for investors because real estate is really expensive in the area. It is out of reach for a great many people looking to invest. Also important is the fact that homes there do not fetch rents that are commensurate with the value of the homes. If a four-million-dollar home only fetches about $7000 in rent, that is not great. While 7K is a lot in absolute terms, it is peanuts relative to the property value.
So, where should you invest if the San Francisco Bay Area is not advisable? We are here to tell you precisely that. Check out my videos or reach out to us and know more about our Remote Control Retirement Riches formula.