Home Buying in San Francisco>Question Details

Alison Hillm…, Other/Just Looking in San Francisco, CA

Is it better, as an investment, to buy a house or condominium or put your money in the stock market?

Asked by Alison Hillman, San Francisco, CA Wed Sep 12, 2012

Would you advise someone in their late 20s/30s to buy a house or rent for their entire life and put their savings in the stock market instead (with a sensible diversified portfolio)?

Help the community by answering this question:

Answers

12
BEST ANSWER
Hi Alison,

You're asking such a question in a fairly bias forum. Invariably, we're all going to encourage you to go toward owning real estate. That point aside, it's all really relative. AND, it's all about diversification. Not putting your eggs in one basket is key to a successful earnings future. In this market, particularly given how low interest rates are, there is no better time than now to get into the housing market. I think owning a balanced portfolio of liquid assets (i.e. stocks and bonds), and also buying a property in a well-located neighborhood is clutch. The power in real estate comes from the ability to leverage, which is how / why people are able to make so much money (if done properly and hedged correctly).

Good luck!
Dino Zuzic, MBA / TRI Coldwell Banker San Francisco
http://www.dinozuzic.com
1 vote Thank Flag Link Wed Sep 12, 2012
Hah! I appreciate your candidness Dino, very good point ;)
Flag Thu Sep 13, 2012
Hello Alison,

I hear that in San Francisco the price are climbing up a lot - and you could potentially
flip a condo for a large profit. A thought...

Overall, it is best to start from investing into investment real estate first - to create passive income.
It does not have to be where you live, it could be in another state, with the help of people who work/live there (property management).

The goal is to create passive income and re-invest it into paying off mortgages on your investment
properties, increasing the passive income flow further.

When you are financially free - you can buy yourself a "reward" - principal residence.

Hope this helps,

Irina Karan
Beachfront Realty, Inc.
IrinaKaran@gmail.com
1 vote Thank Flag Link Sat Sep 15, 2012
First of all you really need to compare what your total house payment (mortgage + taxes + insurance + hoa + average repairs) will be vs. rent. If they are close to being equal I would say buy. If renting is much lower cost, I would say keep renting. When you buy your also will have lot's of other costs you don't have when you rent (fixing plumbing, leaks, roof, landscaping, renovating the property, etc...). You also it turn get a bump when you buy with being able to write off the mortgage interest + property taxes AND you will get loan amortization principle pay down. So factor that into the equation too.

But San Francisco (like NYC) can be one of those few cities where it can make more sense to rent because the house prices are so high in San Francisco. Whereas inland cities like Sacramento it is a no brainer to buy vs. rent.
1 vote Thank Flag Link Thu Sep 13, 2012
Author Robert Kyosaki (Rich Dad, Poor Dad) suggest we look at investing on a cash flow basis: is whatever we invest in making money or losing money? What's the ROI? For almost sixty years most people who bought a home had a very good chance of seeing it appreciate (that would be inflation) as demand was out pacing supply, and any location where building is restricted, the values
tend to rise higher. Then comes 2008, and the it can't ever go down crowd got a lesson in Econ 100. If you're looking for a primary SFH, it's a question of your
needs, your wants, and you ability to afford them. Any profit you may make is secondary.
If you are looking for income property, the key word is income, and the only
guarantee is work unless you have so much money you don't mind paying others to manage for you.
Stocks offer you much more liquidity, and potential for higher income from dividends, appreciation or both, but the cost is risk. If you're a pack animal who
waits to see what the crowd does, then you buy high, not knowing that the smart
money just sold their shares to you on the way out. Is Apple a good deal at $700/sh? It is if it doubles again, but many of us can't afford that risk. Other stocks selling for $1.00 could be a bargain, but many may be a step away from
bankruptcy. The short answer is always education, not just taking advise from other people who have a vested interest is selling you one thing or another.

Good luck.
0 votes Thank Flag Link Sat Sep 29, 2012
The answer is... it depends...
It will depend on what is right for you.

Many people see real estate as an investment vehicle. They start with buying their first home, then investment property, and so on.

It could be an opportunity to invest in yourself. (Instead of investing in your landlord)
0 votes Thank Flag Link Mon Sep 17, 2012
Dear Alison,

I totally agree with Dino. You do need a balanced portfolio. However, it is important that you build equity and if you live in San Francisco, the time to buy is now. Interest rates are very low and prices are starting to move upward...... People pay a premium to live here thus real estate is always a wise investment in the long run.

Good luck,

Sally
0 votes Thank Flag Link Sun Sep 16, 2012
The ease of selling a condo unit is more dependent on what else is for sale in the building, since units are usually fairly similar. Single-family homes usually are more individual.

I am a advocate of home ownership as still the best investment despite the bubble. Hence, you know exactly where my statement is leading you.
0 votes Thank Flag Link Fri Sep 14, 2012
The answer to that question is going to be as different as the person you're talking with. No one has a magic 8 ball that can predict which sector is going to do better. Both real estate and the stock market are commonly used for investment purposes. Since I am not a financial advisor, I can only offer a common sense answer.

What I can tell you is that if you do not yet own a home, owning the home you live in is always wise. first move. Compared with renting, you will get tax breaks on owning plus have greater control over your living environment. And the Bay Area is such a desirable place to live - I would recommend buying a first place to live in.

After that, I sincerely recommend consulting with a licensed financial planner who will help you develop a diversified and smart investment portfolio.

Best of luck. I think it's great that you are starting out so young!
0 votes Thank Flag Link Thu Sep 13, 2012
If you'd invested in real estate in San Francisco in 1/1/2000 your return on investment would be 32.3%. If you'd invested the same in fund that tracked the DOW the ROI would be 16.2%, a fund that tracked the S&P you'd be down 5% and the biggest loser, the NASDQ fund would eb down 30.2% - all figures are as of 2/1/2012.

So real estate is not only a better investment it porvides a place to live, shelter from the storm and a place to have freinds over.
0 votes Thank Flag Link Thu Sep 13, 2012
Jed: Your example is well meant, but compares unequal investments. If you simple ignored all professional advise, and sunk that same hunk of money into Chevron stock (I own it) you'd have watched it almost double while paying you a modest dividend as well. What will happen after the 2012
elections? No one can call the timing, but a far bigger crash is predicted by a growing number of experts. We may all find it far more challenging than 2008?
Flag Sat Sep 29, 2012
Jed Lane; Fog…, Real Estate Pro in San Francisco, CA
MVP'08
Contact
No, I wouldn't. I didn't do it, and I'm glad I didn't.

For one thing, I make too much money to live in a rental. Whether it's a good investment or not, I want to own my own home, and not be at the mercy of a landlord and neighboring tenants (if I choose apartment life).

But from a financial point of view, you don't INVEST money in the stock market, you SPECULATE that other people's actions will make the value of the stock go up. This is a critical point. You can invest money in a friend's business, but when you buy stock, you're not putting money into the company, you're (usually) buying from the inventory of the brokerage or another stock holder. Buying 100 shares of Amazon doesn't make the company more solvent, it doesn't give them more capital to work with.

You can speculate on real estate values, or you can invest in rental property and run it like a business.

Trying to make a hybrid decision - I'm buying my own home because it's a good investment - is a compromise. Better then to rent and invest separately. But life is short, and there's only so much sacrifice one should do for one's retirement - if all you do is live for your bank account, then is life really worth living?
0 votes Thank Flag Link Wed Sep 12, 2012
Couldn't agree more with Jim. Even though real estate on average has a lower return, being that real estate is so 'affordable' right now (when you look at financing below 4%), the numbers should tilt in real estate's favor at this point in time.

I, personally, would consider not buying properties cash- but taking advantage of the low rates and leveraging other people's money (extending the money you do have by putting 25% down and financing the rest). This in theory gives you 4 times the purchase power, assuming your DTI ratios are in check (positive cash flowing on your properties).

Sure, there is the argument that you will have these debts/payments for 30 years, but look at it this way: you buy a property for $160,000 cash, which gives you $1600/month rents, at 90% occupancy= 10.8% gross ROI. After expenses, say you knock 3% off= 7.8% ROI. The same property financed, 25% down would have a mortgage payment of roughly $600 at 4% interest= gross 27% ROI, knock of 3% and you got 24% ROI.

And at that point we're not even including appreciation- at the historical average rate of 6% you're looking at an appreciation of $195,000 after 10 years.

If you are just looking to buy and owner occupy, well then that will only give you 6% returns for appreciation and home owner tax deductions (and as Jim said, you get to live in it!)

But...That's just my opinion. If you have any other questions please feel free to contact me. Good luck!

Davey Cetina
Buyer’s Specialist | DRE# 01887446

Better Homes and Gardens Real Estate
2095 Rose St, Ste 100 | Berkeley, CA 94709
[t] 510.517.7238 | [f] 510.780.211
0 votes Thank Flag Link Wed Sep 12, 2012
Good question Ali. Numbers I've seen suggest a historical appreciation rate for stock portfolios at around 10% (long haul, averaging out the big ups and downs), while real estate figures are closer to 6%. However, you can't live in your stock portfolio! One thing that is certain, you will NEVER recover your spent rent payments. Current conditions suggest that we're poised at a low-point for real estate, so near-term gains should be much higher than the long-term historical rate. Put it all together and I think a 20 something would be well advised to buy real estate. And buy a lot of it. Spread your capital across several properties and the income from them could well carry you into your retirement years. As a retired military officer, I know lots of folks who purchased different homes at each duty station and ended up with a NICE portfolio of properties that will make them wealthy in their twilight years and leave a healthy estate for their children and grandchildren. Good for you for planning for your future! Best of luck...Jim
0 votes Thank Flag Link Wed Sep 12, 2012
Search Advice
Ask our community a question
Email me when…

Learn more

Copyright © 2014 Trulia, Inc. All rights reserved.   |  
Have a question? Visit our Help Center to find the answer