Investing Outside the Bay Area
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Rakuten: San Mateo having most job openings outside Japan, next closest is Toronto
samsung: US having 1100 opening, next is india with 26. in US, there's 114 jobs in california, next is texas with 81
Tencent: only offices outside China is Palo Alto and Seattle
It's clear that most tech companies are aware that all the talents are in Silicon Valley - and because of chicken and egg effects, all the talents come to and stay in Silicon Valley. And when one forms a network in silicon valley, she would be bombarded with job requests with silicon valley companies every day, and if she chooses a better job, it would be still in silicon valley.
https://www.estately.com/bay-area-home-affordability-transit...
Pittsburg/Bay Point $430,000
Blossom Hill $657,000
San Jose $680,000
And the largest job growth recently has been East Bay, around Pleasanton.
If you are young and starting out, making $110-140k, try living in east bay or san jose and rent a room for $1k - 1.5k, you should be able to save enough money for a down payment for a house soon enough. The stories I've heard for people that couldn't afford their rent, are people living in $3k apartments in SF.
First, I submit that $430,000 is still expensive. Instead of buying the median home in Pittsburg and commuting 60+ minutes on BART to downtown SF, I could add an h and buy a huge home in my favorite neighborhood in Pittsburgh PA for about the same price and have a chill bicycle commute: https://www.zillow.com/homes/for_sale/Pittsburgh-PA/pmf,pf_p... (Obvious and legitimate objections: fewer job options, snow.) This is just me trying to say, $430k for that arrangement does not strike me as "cheap" given alternatives in other metros.
I agree that with a tech salary it's possible to save up for a down payment and buy in the Bay Area. But the risk seems unacceptable to me. Paying ~$1M for a house is a big bet that the Bay Area housing market stays hot. I don't want my wealth to be so tied up in a hyperlocal bet like that. I see things going one of two ways (and this is probably over-simplistic).
Option 1: A $1M starter home is the new normal. Prices stay flat or keep rising over the long haul. In that case my investment is sound. But I don't want to live in that kind of place. Where will my kids' teachers live? How will I cope with the moral ickiness of living in a place where housing costs create extreme spatial segregation of the professional class from the service class?
Option 2: The vision painted above is unsustainable. Something has to give (maybe a big financial crash; maybe just state-mandated upzoning that quickly increases housing supply) and the value of my investment drops by a lot.
Either way, I'm planning to save up on the West Coast and use my nest egg back in the Rust Belt.
> For me, a house isn't an investment but it's a place where I house my family.
I really want to view the world this way :) I wish housing were a boring commodity that depreciates in value over time like a car. With prices being what they are, I am _forced_ to think of housing as an investment because of how much of my net worth will be tied up in it.
A house _is_ an investment, regardless of how someone wants to think about it.
Buying a house involves a significant opportunity cost over renting since it requires locking up capital (a down payment, or the entire value of the house if buying in cash) in an illiquid asset that could have been invested in liquid assets like stocks (that have historically performed better than real estate over longer time horizons for most housing markets, and often more than makes up for the fixed costs of renting once maintenance costs, taxes, and mortgage interest rates are taken into account, but that's only tangential to the point I'm trying to make).
Also, most people buy their houses on mortgages, so they're investing with 5-10x leverage over the down payment and paying interest for that leverage. This level of leverage would be considered outright insane for any other long term investment, but most people won't even think twice before locking a large majority of their net worth behind a down payment. This puts their financial well-being at the mercy of the whims of the local real estate market due to the 5-10x amplified gains/losses, and practically removes their ability to meaningfully diversify and de-risk their portfolio.
Now of course I'm not saying buying a house can never make sense financially or otherwise, just that refusing to think of it as an investment can be dangerous because it can blind you to the nuanced risk/reward calculations involved in one of the most impactful financial decisions you can make in your lifetime.
For myself, the right time to buy a house would likely have to be when I've saved up enough money that the upfront investment for the purchase of the house is about 30% of my net worth if I'm buying with cash, or less than 10% of my net worth if I'm buying with a mortgage, to counteract the extra exposure to real-estate from the 5-10x leverage. That may mean that the time to buy a house in the Bay Area may never come for me, but I'm perfectly fine with that because the alternative would compromise my ability to keep my investments reasonably liquid and diversified, which could prove to be disastrous in these uncertain financial times ahead of us.
You can never know when things are over-valued, but you can get a good sense when things are undervalued.
And since the housing market has both momentum (nearby sales affect comps, more inventory than sales, some substitutability) and adjusts slowly, there's time to buy after it bottoms.
Stock market timing doesn't work for many reasons, but a lot of those don't hold for the real estate market.
We bought a cheap (for the area, about 670k) condo just off of BART. It's a pure consumption expense in that I expect to get 1-2% appreciation/year while carrying a manageable debt load. It might go up a bit but that's not the point. We're right off a train line, not paying too much in interest, and building equity. Plus it's a great place to live, lots of young people moving in and we're doing a lot to improve it (lots of deferred maintenance we're working through). Worst-case scenario, we'll rent it our or sell if we move somewhere else; there will always be demand as it's a small, convenient unit in a renter-friendly building, just off of transit.
I share your negative view of the Option 1 dystopia. I have absolutely zero interest in living somewhere on the peninsula like Belmont, Atherton, or even most of San Mateo at this point, where you're basically walled off from anyone of lower socioeconomic class who's your age. Not sure "moral ickiness" is the world I'd choose (maybe just bland? do you really want all your neighbors to have the same job as you?) but it does indeed suck.
I think people who are banking on tons of appreciation buying today in the SFBA really need a reality check. There's just not much higher these prices can go. The common perception is that everyone in tech makes like $300k, which is so far from reality to be laughable.
It is still unclear how economical this sort of automation will be in other parts of the world though. If it does turn out big, Silicon Valley will have a first shot at it.
It may be that certain jobs get automated. But look at what Tesla is going through; they're using more people, not less, and basically admitted they screwed up trying to automate so much assembly work from day 1.
On the other hand, the electorate here (SF) seems to want to push minimum wages to $20/hr, so maybe you'll end up right.
Prices have doubled in the past 5 years. Because of Prop 13, if you've been an owner through this, you just stay where you are.
Then the whole question becomes making sure things don't change. I think it's just a bunch of lucky owners who bought here 20-30 years ago with no intention or ability to sell, and not much interest in building new stuff.
As far as stores of value, housing is a pretty bad one. It falls apart, is heavily taxed, and is relatively illiquid. I think you'd do a lot better with stocks, or bars of gold.
I hope you're right, but those are famous last words! Look at a city like Chicago, with huge sections that are just like you described, but where even well-maintained properties command a fraction of their peak value, and others are almost unsellable at any price. Oakland hasn't exactly experienced uninterrupted prosperity, so it's not an unreasonable risk to consider.
I think Oakland has something going for it, though. SF increasingly feels like a museum: the whole place is so preservation-focused and static. Whereas Oakland has always seen itself as a place where anyone can live and doesn't have its nose quite as high in the air about "preserving the character of the city".
I live in west oakland right next to the BART and the transformation of the city is pretty cool to watch. Tons of vacant lots are being built out into usable real estate and places with broken windows are getting rehabbed into usable commercial space. It's neat to watch this on-the-ground transformation take place. And I'm happy we're building because, as I keep saying, if you want affordable housing, "just build luxury units today and wait 20 years". The BA's problem is that there's been all but zero development and now such a huge surge of people moving here, it's pushing the lower income tiers further and further out as Googlers making $250k are competing with teachers to live in whatever they can find.
I don't buy into the "let's blame everything on tech" narrative though. Between prop 13, rent control, zoning, and a lot of other regulatory action, the SFBA has made this problem more extreme than it is in other areas. There are plenty of regions--DC comes to mind--that went through huge waves of gentrification without nearly the price swings we're seeing here in SF.
P.S. I'm from Chicago.
I'm as YIMBY as they come, but I have to bristle at these words coming from tech people - to the marginalized communities on the ground, it's a human tragedy. We can at least recognize that, even if it's the best available option, this kind of transformation is not without downside.
And this: http://www.jchs.harvard.edu/research-areas/affordability
There's a lot of conflation going on here. For one, cost-burdened households are up everywhere in the country, not just here -- housing being unaffordable is a national phenomenon, not just due to "techies". Second, the Bay Area does this to itself: developer impact fees, "preserve everything at all costs" mentality, insistence on using union labor for everything, aggressive rent control, height limits, etc.
I'm not just making this up. Both of the above are rigorously-researched publications backed up by extensive study and review, not just random bullshit someone made up. My wife is an architect who deals with this stuff daily. Housing affordability is nowhere near being a priority in this region. If it was, prop 13 would be repealed, it wouldn't take 2-3 years to get an ADU permitted, the review process would be easier, environmental restrictions would be looser, and we wouldn't use union labor for everything.
Bottom line: time to get honest about where the priorities are. Affordability is nowhere close to the top.
We can still talk about the issue in a way that empathizes with the tragedy of poor communities losing their homes, and avoids framing gentrification as an unmitigated good.
We might not see eye-to-eye on this issue. I think it's about 90% the fault of those who've lived here for decades and 10% the fault of new people like me (7 years here so far).
I think this is reflective of a more general problem with policymaking in the Bay Area, namely, people do what feels good, and ignore what actually works. I'm somewhere in the middle politically but this puts me way right of most bay area people. And what upsets me is that people just think they can make up their own outcomes here. There are certain issues like rent control, where every mainstream economist agrees it makes the problem worse (stifles development and divides an area into a two-tiered systems of "haves" and "have nots" for the controlled units) and yet we just ignore them here, preferring to vote with our hearts, or as you put it "empathize".
I'm trying to empathize but I'm also trying to solve the problem, you know?
Really no middle ground here, huh?
Have you seen what $680k will buy you in San Jose?
These are not at all practical suggestions. The outlook for a 20 something engineer in the Bay Area is absolutely brutal. The people who got in 10 years ago are doing ok so long as the housing market keeps up. But there's nothing left here for anyone trying to start a life.
As I mentioned, the biggest job growth recently have been in east bay. You'll likely have good chances finding jobs closeby.
> $680k will buy you in San Jose
Google is heavily investing in downtown San Jose, buying up lands. There's also the transbay joinup of BART and caltrain.
Looking at trendlines and extrapolating is a pretty good way to see the future.
A major, major confounding issue is simply not having the money. Of course you'll see a trend of fewer people buying homes if home prices are so high that fewer people can afford them.
I think if you work in tech, silicon valley is pretty unique in that there are so many really desirable employers within a short distance. I'd be comfortable buying a house here even if it meant that it makes it really expensive if I want a job more than 15 miles out.
I'm not sure why maximizing income in the Bay Area is worthwhile. The pay here, while much higher in nominal terms, seems to level off well below my level of comfort for standard of living (and my parents who got me accustomed to it were in much less lucrative fields).
I stay becuase I like the work and the company, because why not take this opportunity while I'm young? But it's an indulgent youthful adventure, not a sustainable long-term plan.
so, assuming you are a medium density type and can stomach an apartment with reasonable soundproofing, you are spending $3000/month on rent here, for a reasonably okay 1 bedroom apartment. (if you are willing to take a hit in quality, you can get more bedrooms or even a bad single family home for about that price)
So you move to a second-tier city and you get the same thing for $1500/month. Now, I don't make twice here what I would in a second-tier city, but I do make rather more than an extra $1500 a month.
But a similar unit in condo form would require a $200k downpayment (save $2000/mo for 9 years) and then $5500/mo through the 30-year mortgage term. That's assuming prices stay flat for 9 years, which would be extraordinary. I don't see any part of my company's SWE job ladder supporting those numbers. But if I want to try, I can't allow my lifestyle to inflate at all under future raises. They all need to be shoveled into that gaping hole.
Note, a lot of companies pay more. according to paysa, the mean Facebook SWE makes like $230k in Sunnyvale (the closest location to mountain view that paysa has information on facebook for.)
Trulia claims that the median 1 bedroom in mountain view is $860K, which is higher than I thought; (santa clara, where I live, it's $622K) 20% of that is $172K... so four and a half years of living off your base salary would be required (three and a half if you commute in from santa clara) I mean, depending on your tax bracket, of course.
And all this is looking at the median, and in the comment I'm responding to, you were talking about the best SWE jobs at your company. I can tell you that it's not at all unusual for individual contributors who are pretty good but not famous or anything to do rather better than the paysa numbers, salary wise.
All that said, I personally don't plan on buying at these prices; (and I'm a sysadmin and have no degree; I'm gonna make maybe 15-20% less than a SWE with a degree at my level) I think right now, landlords are willing to lose money on the actual rent in order to make money on the appreciation. I dunno if this is a good idea long-term, just 'cause if this is the new normal, if housing prices keep rising, I might actually price myself out of desirable metros, and be forced to move to a second-tier city, which I would find unpleasant... but I see no reason to hurry to those second tier cities. Certainly, rent seems to be limited by what people can pay, and as someone SWE-ajacent, I make more than most people, even here in the bay area, so something would have to go wrong with my career to the point where I wasn't making more money than most people locally for me to get priced out of the local rental market.
I mean, if there were smaller, cheaper places available, I'd drop a quarter-million on a "plan b" just so I could continue to live around here if my own career went south... but I probably have much stronger social reasons to stay than you do.
Some of my friends and I have been considering investing in real-estate in a second tier city, just to hedge against the case where real-estate continues to climb globally, but paying half what a house costs here seems high for that. A buddy of mine has been talking about Cleveland (one of his value functions is functional public transit) Cleveland is a lot more than half cheaper than the bay area... but I don't think I'd want to live there.
While there's definitely a lot of wiggle room in negotiating equity compensation or earning bonus, the base salary range feels pretty narrow.
IMO, there's a 10X difference currently between tech startups in SF and tech startups in LA or New York; I've worked with teams inside and outside silicon valley. The calibur of talent/progress difference is just insane.
In other words, they have little incentives to set up offices in other US locations which are not lower cost than their home base and have too few talent at the level they cannot get elsewhere.
The needs of many startups could be different from them.
Rather odd choice of Texas cities in my opinion. If you're going to go with Texas, I'd think Dallas and Austin are more obvious choices for technical people.
My financial services firm is slowly moving everyone from NYC to Texas and Florida, for obvious reasons.
Why?
Dallas is too expensive, and imho the only good thing about Dallas is the Stars and Mark Cuban. Austin is good but also small and saturated but also Austin is 2.5 hours away from Houston and 1 hour from San Antonio, so it's not hard to poach talent if needed.
San Antonio has a similar military–industrial complex to SV with it being a major area for bases for the Air Force. It also has the infrastructure scaffold from when ATT was headquartered there. They've got 5-6 F500s headquartered there. So, there's plenty of engineering talent for all types.
Houston is #2 in the USA for F500 HQs following NYC with 19 based here. [0] Houston is massive, 11k sq miles for the metro area. There is plenty of space and Cost of Living is low. You have a major DOD/NASA source of engineering talent plus all the F500s. You've also got massive medial research with the largest medical center in the world while UTMB-Galveston runs one of the most important labs in the country for biocon. It's a major shipping port(s) and the port of Houston is #2 in trade. However, I will yield that the traffic sucks and parts are worst than LA; It's very hot during the summers, particularly August; and, that hurricanes suck. We also don't have earthquakes.
Overall with Texas is you've got the Texas Triangle, it's also a safe bet infrastructure wise because the state has it's own power grid. There's tons of link points for data/bandwith.
[0] https://en.wikipedia.org/wiki/List_of_companies_in_Houston
- cost of living in the SFBA
- cost of living somewhere other than SFBA but generally "equivalent" in the sense that living there wouldn't be seen as a negative
- a average-ish amount of VC funds that must be invested in a company before capital is returned.
- average amount of capital raise that goes to salary
- what amount of salary is due to cost of living.
It is getting a little bit convoluted, but that would allow you to approximate how much VC money is going to SFBA landlords due to the chokehold on housing supply.
We're seeing a shade of this in the Amazon HQ2 process, but if you have actual physical mobility as an organization over different real estate markets and political jurisdictions it will shift the balance of power in terms of rents and taxation. I don't think it applies to small companies for various reasons, but the motive is there.
Moving from a hub like that has the implicit cost that you may have to move back at some point to find work, or accept the lesser options and negotiating position.
I was talking to someone recently - with all the “tech” going into the Reno area, housing is getting more and more expensive. The average salary is still in the mid 30k range, however.
Biggest non-housing difference was no state income tax, so save 7-10%, then pretty much all car/gas/insurance were about half. Food was a bit cheaper but not enough to make a big difference. We didn't go out much since restaurants weren't good but thats not really a far comparison.
Where do you live in NE California? I love it up there (and SE Oregon)
There’s an opportunity cost of inventing things that actually make people’s lives considerably better.
The valley was the place where this would happen, now that culture and spirit is slowly dying.
Mostly because you can’t take those kinds of risks. Just the living expensive would kill you. VC money needs a quick buck so that kills those ideas in their infancy too.
Innovation is hard!
I don't have the perception that the Bay Area startup scene is dying, but it's perhaps true that the Bay Area startup scene is dying. Basically, you can't raise a $3M seed round on "I went to (Stanford|Ivy League|other top college) and have an idea for a mobile app" anymore, nor can you raise follow-on rounds off anything but revenue growth. That means that the days where a couple 20-somethings could found a company, hire 10 people, and code by day while partying late into the night are gone.
Good riddance, IMHO.
The startup scene is still healthy, but is very different demographically. Some observations:
Average founders skew older - it's more 30- and 40-somethings that worked for a big tech company and cashed out a million or so in stock options, or had a previous startup exit. (The exception is crypto, which is largely financed through ICO now.)
B2B is ascendant over B2C, and many startups are financing the company with pre-sales from paying customers.
Team sizes are smaller, and many companies are using outsourced labor where they either open an office abroad for engineering, or they use Upwork etc. to find contractors.
Startups in general have gotten cheaper and leaner and are more focused on doing the work rather than living the dream.
I know several startups doing Berlin offices. Also, contracting work seems pretty easy to come by over here.
When I look at the bay now, I see a bunch of FANG drones measuring their RSU dicks. People caring more about buying a home and whining about NIMBYs than making cool shit with cool tech. Of course most startups are stodgy B2B and not moon shot B2C, you can't build B2C when your experience is so separate from a normal person's. But another JIRA/GitHub/Slack integration? Ooh, that's the good stuff we can relate to.
Maybe the bay got old, but I don't believe that when I see fresh grads falling over themselves to work at a FANG. Whatever happened, there's not much serendipity left. There will be a tipping point where enough cool stuff is coming out of Detroit/Atlanta/wherever that an investor would be a fool to fixate on the bay.
I do think new startups face significant headwinds now, but they're not the ones you mention. I'm not worried about FANG drones, for example - the majority of people in Silicon Valley have always been employees of big companies, and often quite self-satisfied ones (do you remember how arrogant Netscape, Sun, and Cisco were when Google was still in the garage?).
Also, significant B2C startups usually come out of nowhere, from small teams that were toiling away in obscurity for years beforehand. Do you remember 2007-2010? I was part of the Web 2.0 boomlet, folded up my startup in '08, and proceeded to watch most of my peer companies die over the next 2 years. But while we were all folding up our social networks, AirBnB (founded '06, household name '11), DropBox ('07, '10), Uber ('08, '10), Instagram ('08, '12), WhatsApp ('07, '11), and Thumbtack ('07, '13) were continuing to work on their startups, many of them breaking a lot of common wisdom about what made for a successful startup. When the time was right these services exploded, but we had to go through a huge startup drought from 08-10 in the process.
The factors I'm more worried about are: 1) The average American consumer not having money, which makes B2C business models other than [advertisement, pyramid scheme, extortion, selling personal data] impractical 2) Attention being so focused on politics and tribalism that consumers are too fearful to try anything new and 3) Moore's Law disappearing. I'm not terribly worried about this last one because we can still get another factor of 10-100X out of better programming languages, OSes, and frameworks, and GPUs/TPUs continue to increase in power.
Source for the first part: https://venturebeat.com/2018/01/08/vcs-invested-the-most-cap...
I’m saying the tiny 2 person startup working out of a shared apartment in Soma has some serious headwinds nowadays to hiring and growing in SF these days.
If you have reached the age of 30, you should already own your home. If not, buy a home immediately. NOW. If you can't afford anything decent close to your place of employment, quit your job and move somewhere where homes are more affordable. Your future happiness depends on it.
Now, one could argue we’re at the peak of the current business cycle and asset prices are overly inflated. And there might be merit to that. In that case, look for real estate bargains where you’ll have equity on day one (short sales, foreclosures, assets priced below their fair market value).
That's only true if the value of your portfolio or salary aren't increasing faster than the market.
I've personally teared up in housing about every other year. It would have been much more difficult to do this is I owned rather than rented.
What does this mean? Moved? Every two years? Sounds horrible. Don't you have any hobbies to fill your time?
Yes, moved every two years. Not ideal, but couldn't have afforded the places I moved into two years earlier and moving produces high quality of life gain.
Maybe it's years living in substandard student housing, or years in "not-in-the-US" housing, or even a couple of years being effectively homeless, but anytime I get more situated than living out of one suitcase and one computer bag, I find moving to be a burden that (generally) outweighs what you call the quality-of-life gain. That's me, and I'm probably inertia oriented in everything except the companies I start/assist/work-for. I love tuning the business to be better. But I often just go home, maybe to a dump or dive, and open a can of tuna fish for dinner. (My kids don't seem to understand that either - so I'm guessing this isn't normal)
EDIT: My (now) ex-wife lives in a nice house, with a fair number of upgrades, in a nice neighborhood. And my kids get to live there too - nice schools too. So, that's nice. But I don't think it is anything I would have ever invested in or developed for myself without her prodding. (Which might be why she divorced me, but I suspect it was probably slightly more complicated than that. But, still, it probably should have been enough!)
It’s ridiculous to say that happiness depends on home ownership, and equally ridiculous to pick an arbitrary age like 30 to serve as a benchmark.
Becoming intensely in debt (thereby forcing myself to work more) by buying into a ridiculously overpriced housing market, locking me to a single physical location that is destroying itself through disgustingly selfish infrastructure planning is not my idea of an advantage, financially or psychologically. I've never lived or visited anywhere in my life that has screwed itself up as much as the Bay Area has - they'll be lucky to be growing as well as Gary, Indiana at the rate things are going. The prices are not justified by wage increases (wages aren't matching price increases) or increasing population (the bay area is now starting to lose population), and combined with the idiotic local and federal politics + trade war economics, have nowhere to go but down.
On the contrary, I contend anyone that depends on the current prices for survival is a bag holder making an extremely risky bet. The evidence is already there that the bet is not going to pay off. My advice: unless you're very wealthy and don't care, or your plan is to go underwater in the world's most expensive retirement community, get out, now. If things go south, liquidity will be far more important for your financial and psychological soundness than debt on a sinking asset in a shrinking regional economy will be.
Don't buy a house because you feel like it's what you are supposed to do!