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Comment by endisneigh | Hacker News Reader

I don't really buy this. if you're going to be at a hot startup for 4 years and can easily afford a house the way the SF bay market has been for the past 2 decades is such that you would've made money in any 4 year period just buying and selling. covid might be the single exception.

I think the issue is more that sf people are rich for the country but not rich for the bay area so they just rent.

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Opportunity cost. Housing in the Bay Area goes up an average of about 7%/year, roughly inline with the S&P 500. Google stock has increased 13x in the last 11 years, for an average annualized return of about 25%. If you were at AirBnB or Stripe your return is about 100x, making over 100%/year.

With leverage the computation gets a bit more complex, but basically you're paying 4.5% interest on 7% appreciation, and not needing to pay rent, so you may get 4-5% real returns. Lever up 5x with a 20% down payment and you get about 25% returns - competitive with Google, but in the same ballpark, and you've taken on the risk of foreclosure or being underwater if there's a housing bust (which happen periodically in the Bay Area and take prices down 10-40%).

The stock is a lot more liquid, you can take it anywhere, you can sell it whenever you want, you can move in with a girlfriend and keep it. If you haven't made a conscious decision to stay in the Bay Area, the stock performs much better.

>but basically you're paying 4.5% interest on 7% appreciation, and not needing to pay rent, so you may get 4-5% real returns.

And it's down to 2.5% interest or even lower for 30 year fixed for some people.

Low rates just mean you pay more to the seller for the asset, and financing costs less. If rates were 5%, you’d pay less for the asset but more in financing costs. The monthly payment probably wouldn’t change substantially. You’d have substantially higher price risk buying at low interest rates.

Sort of how a bond’s value moves inverse to yields.

I'm comparing it to historical returns over the last decade, though. Mortgage rates were about 4.5% in 2010, so that's the figure I'm using.

I honestly don't know what the next decade will bring. I would personally bet on high inflation, so that 2.5% mortgage rate will likely be a negative real interest rate. (Hence, I bought.) Stock returns may or may not equal the previous decade's, as well.

And you realistically have access to a 2x-3x lever on margin anyway.

Being long on a leveraged ETF is... possible... but unless you know what you are doing it is highly risky. No, the problem isn't the drift causing losses. When the price tanks 33% in a day on a 3x leveraged ETF you lose everything.

"Just" buying and selling also has a higher bar now than ever before -- Median sales prices are around $1.5M for peninsula / SF locations. Even on extremely generous tech salaries, it'll take some time to build up enough savings to get a loan.

I completely agree, my point though is if you are legit rich, even for the bay area, it makes no sense to ever rent. someone with a net worth upwards of 20M isn't going to save any money renting even if they stay a paltry 5 years (though covid and WFH might change things of course, but this pattern has held up decently for the past couple decades).

Or as explained above it doesn't make sense to buy since it is cheaper to rent.

from my experience, prior to covid, it really hasn't been if you're capable of buying.

look at the 2012 to 2016 period for example of rent vs purchase. if you just bought an average condo and sold it you basically could've ended up staying for free vs. renting.

You're neglecting to mention opportunity cost. That money could've been invested in stocks, crypto, etc. and you would've made out a lot better (and avoided the headaches that come with owning property)

And for the same cash commitment you could have bought 2 - 3 multifamily homes in sane real estate markets that produce $60k - $80k (or more!) net income (rents less management and taxes). You would have diversified your portfolio, lived "free" (i.e. the net is likely about the same as or more than total annual rent in a decent home in the bay area), appreciated somewhat, and positioned yourself for handsome tax deferrals or savings due to depreciation and other strategies.

Are you picking the bay area as an extreme example?

As an example if you invested in tech stocks only from 2012 to 2016 you would have had enough money to buy 3 condos.

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