Phil Shell loves the Bay Area and its real estate market. He’s built his career here as an agent over the past eight years, but even he hasn’t figured out how to buy the house he really wants in the area.
Currently, he rents an apartment in South San Francisco. Instead of waiting until he finally saved up enough money to buy property locally, he just bought a house in Las Vegas. But he’s not moving there.
“I can’t afford a $2 million condo where I’m in my business [in San Francisco]. That way I have a little summer house, a place where I can go jump in the pool…where I can get my things out of my storage unit in San Francisco,” Shell said. “I am delighted to spend the low season and weekends there, to host friends and family and have accommodation space.”
Shell even got a realtor’s license in Nevada so he could help his friends and clients do the same. He said especially for people working in tech who are now able to work remotely, not only is it a good investment, a way to build equity and a nice place to visit, but it can also be a great way to save money as the state misses an income tax. The idea is that eventually buyers can use those funds to buy something closer to home.
This trend has increased over the past five years, said Carl Medford, a HomeLight agent.
“As prices started to rise and rise in the Bay Area, it became increasingly difficult for individuals to buy a home,” Medford said. “We started advising them that a great strategy would be to start buying properties out of state or in a more affordable part of the state instead of at least getting into the market so they could start to build equity, and once they had sufficient equity. this property, transfer it to [their own] Bay Area property.
In a recent HomeLight surveyagents estimated that using this tactic of buying your “second” home as your first property in the Pacific Rim “can help save about $177,000 on the cost of a home.”
For many Compass clients, real estate agent John Townsend, buying a second home is simply a safer investment right now. Few buyers can guarantee they’ll be in the Bay Area for five to seven years, the minimum time Townsend said it would take to make money on property, but they can still keep a home secondary as an investment property much longer than this. If they live primarily in a rental in San Francisco, have a major life change like a new job or a baby, they can still move without the pitfalls of a mortgage. In the meantime, they can continue to rent or Airbnb the second home indefinitely.
Townsend himself ran into this conundrum. He owned a home in the Richmond district of San Francisco for 10 years until recently. His family sold the house and planned to save up and move to Marin County and, in the meantime, move into a rental at the Presidio.
It turned out that it wasn’t so temporary, as the family fell in love with the neighborhood. Now they’re looking to buy a second home instead, as they want to own real estate and have a place to get away from it all, but don’t see themselves leaving the Presidio anytime soon. They made a few offers, but the right deal didn’t happen, Townsend said. They always keep an eye on the market and plan to buy whenever the place and time are right.
Townsend said he’s seen many clients do the same, keeping their rental in San Francisco while buying a home in places like Tahoe or the Sonoma/Napa area. “We are not talking about low prices here either. We’re talking $2-3 million, but that still doesn’t get them the house they want to live in for the rest of their life in San Francisco,” Townsend said. “They use it for personal enjoyment, but they’re very keen on building fairness in general.”
Many of those people use the property as a vacation rental to generate extra income, which subsidizes the mortgage, Townsend said, while also using the home themselves when they choose.
The second home market has already come under scrutiny in recent years, with towns in the Lake Tahoe region enacting a moratorium on short-term rentals amid a local housing crisis.
Sometimes these second homes can even be a little further away. Realtor Marcus Grogans recently had a client who wanted to buy a condo in the Bay Area. He said they had seen dozens of condos, but his friend finally decided he couldn’t buy anything because, for the places he wanted, he would end up being “house poor” – he could maybe -be paying the mortgage in practice, but that would significantly alter his lifestyle.
Grogans knew his client had lived in Houston before and liked the city, so he encouraged him to buy there instead. Grogans helps him find, ideally, a building with two to four apartments, where he will live part-time with a roommate while renting the other apartments. The idea is that with the roommate’s portion of the rent plus the income from the other units, they will generate a return after about a year, can refinance, and then use that equity plus their income to offset the purchase of their dream apartment. . in San Francisco.
“Real estate remains one of the safest bets, especially when you go to these metropolises. You may not be able to afford it in San Francisco, but you can afford it in Austin or Miami or the ‘one of those places,” Grogans said. “If all goes according to plan, he’ll own in the Bay Area next year.”
Others don’t use their new property themselves at all – their first real estate purchase is an investment property, as they can’t afford anything locally. Daniel Flores has lived in San Francisco for 15 years and he always dreamed of buying a house here, but he never felt like he could afford the house he wanted in the area. A few years ago he decided he wasn’t going to be able to ‘save his way to a house’, especially with prices continuing to rise, but he had recently met someone who was flipping houses.
The flips were in Kokomo, Indiana, and Flores decided to invest in renovation projects there. Flores thought it would be a good way for him to learn how to flip houses and hopefully make money faster than with traditional savings or stocks. He invested about $40,000, he said, and in four months he said he doubled that investment. He did it twice more with the same partner in Indiana, each time making a good profit that he could factor into his next investment. He was still a full-time realtor, but now he felt he could start doing projects like this on his own locally, all with the intention of one day buying a house for his family in San Francis.
He started with a duplex in San Rafael, remodeling it and renting out the units. A few months later it was valued at more than when he bought it, so he refinanced and used the profits to fund a new project in south San Francisco. He’s added another property since then in Marin County, and all the units are rented out and he’s earning a small profit. The problem now is that because interest rates have more than doubled since his initial purchases, he doesn’t want to refinance properties just yet to buy his home in San Francisco just yet. It doesn’t seem like the right time.
“[The properties] are fully rented and the mortgages are paid, but I still can’t buy in San Francisco in the neighborhood I want to live in now with such high interest rates. I can’t refinance, so I’m kind of stuck,” Flores said.
He will wait a bit for the market and see what happens. For now, he, his wife and child will continue to live in their rent-controlled two-bedroom apartment in Russian Hill.
Medford said he often recommends buying in Austin for buyers who work in tech, but he’s also seen a surge in people interested in Tennessee and the Carolinas. He said while many people follow his advice and buy out-of-state property, some choose to continue saving for a down payment.
“The wealth of a person who actually owns a property is 44 times that of those who rent,” he said. ” It’s a vicious circle. They want to be able to buy a property, and unfortunately they would try to save up to get a down payment and it gets eaten up by the ever-increasing rents in the Bay Area as the value of these properties go up.
“Those who wait usually end up being overpriced,” he said.
Comments are closed.