Today’s guest column is written by Hannah Whittenly, a freelance writer and mother of two from Sacramento, Calif. She enjoys kayaking and reading books by

How can people afford to buy a home in the San Francisco Bay Area?

It’s very simple really.

Salary + Another Salary + Bank Of Mom & Dad = Housing Affordability.

The average person joining Facebook, Google, Apple, Uber, banking, consulting, law etc makes about $100,000 – $175,000 a year right out of college. In 8 years, when they are around 30 years old, they are making $200,000 – $350,000 a year all in. But wait, now each one of these folks shacks up with another person in a similar situation. You’ve now got a household income of $400,000 – $700,000 a year.

With a $400,000 – $700,000 a year household income, you can easily afford a $1,000,000 – $1,500,000 mortgage based on today’s interest rates (~4% for a 30-year fixed, ~3% for a 5/1 ARM according to LendingTree)

Now hold up. You’re saying average people don’t work at places like Facebook, Google, and Quora. Well, despite these tech, finance, consulting, and law firms employing tens of thousands of people, the average person who is willing to come to San Francisco and pay such a high cost of living does indeed work at companies that pay well, otherwise, they wouldn’t be here. Places like SF and NYC are the gravitational centers for gung-ho, highly motivated people.

Further, only about 20.5% of 18–35 year olds in San Francisco own homes and only 36% of the entire SF Bay Area population own property. Therefore, you only need 1/5th to 1/3rd of the population to be earning this type of money to afford a SF Bay Area home.

The debate on what percentage of people should be able to afford a SF Bay Area home is something different altogether.

Bank Of Mom & Dad Is Everywhere

Finally, if you secretly look behind the covers, the Bank of Mom & Dad is ubiquitous when it comes to first time homebuyers in expensive cities around the country. I’ve spoken to hundreds of agents and the estimate is roughly 35% of first time homebuyers get help in the form of a down payment or full payment from their parents. It’s the only logical way if your 25 years old annoying colleague making $120,000 a year suddenly tells everyone he just bought a $1,200,000 condo!

I’ve surveyed all my neighbors over the 10 years I lived in the Marina and now the three years I’ve lived in Golden Gate Heights, and practically every one of them got help from their parents. That’s the world we live in folks. The Baby Boomers are the wealthiest generation in history because they been able to save and invest the longest during the biggest boom in history.

Just be careful to not turn out like a couple of my deadbeat neighbors who are 20-something year old guys with no motivation to do anything because they get to live for free in a paid off, multi-million dollar home. To be gifted wealth instead of earning it is one of the worst curses ever!

Reducing Exposure To SF Real Estate

As for me, I decided to finally sell my San Francisco rental home I bought for $1.52M in 2005 for $2.74M, or 30X annual gross rent in mid-2017. I tried to sell the house in 2012 for $1.7M after the financial crisis, but thank goodness nobody wanted to buy it! I sold because I was paying $23,000 a year in property taxes, had PITA tenants, lots of maintenance issues, needed to remodel, and finally became a first time dad!

I’ve reinvested $500,000 of the proceeds in real estate crowdfunding through RealtyShares, based in San Francisco. There is so much opportunity to buy property across the country at much lower valuations (10–15X annual gross rent vs. 30X here in SF) and much higher net rental yields (8% – 12% vs. 2% – 3% in SF).

I believe San Francisco real estate is slowing due to the supply of new luxury condos, prices that have far outstripped wage growth, and the new tax policy for 2018 that caps income tax and property tax deduction to $10,000 and caps the mortgage interest deduction to new mortgages of $750,000. If you want to make money in real estate during the late innings, it’s best to follow BURL: Buy Utility, Rent Luxury.

Good luck everyone! Do not be in a rush to buy at current sky high prices in SF. Be picky. Run the numbers. Be patient. There’s always another deal to be had. I’m still long one rental in Pac Heights and my primary residence in Golden Gate Heights, just not that long anymore.


Sam, Financial Samurai