May 2014 Report
On January 1, 2012, you woke up to find $200,000 on your bedside table, which you decided to invest. Then, on May 2, 2014, you sold your investment. Below are approximate returns depending on where you placed your cash.
Assumptions:
Gold: you bought at $1566 per ounce and sold at $1300 per ounce: Bad timing.
Certificate of Deposit: 1% annual interest rate; interest taxed as ordinary income: It seemed like the safe thing to do in an uncertain world.
Stock purchases: Apple stock jumped 46% and the S&P 500 50%; plus an estimated dividend yield of 5%; profit taxed as long-term capital gains. (No transaction costs included in calculation.)
Home purchase: $200,000 down-payment on $1 million home; 35% home-price appreciation per Case-Shiller; 2% closing costs on purchase and 7% on sale deducted from gain. No capital gains tax due to the $250,000/$500,000 exclusion for sale of primary residence. The estimated $28,000 reduction in loan principal was not included in gain, as it pertains to monthly home payments made after initial investment.
It is assumed that the net monthly home cost – principal, interest, property taxes and insurance, after tax deductions and reduction in loan principal – at an estimated $3250/month, was comparable to cost of renting. This has generally been true in San Francisco due to high rents and low interest rates.
There are 3 big reasons why real estate dramatically outperformed the stock market, though both markets boomed: 1) leverage – 35% home-price appreciation equals 175% appreciation of your 20% cash down-payment (before closing costs); 2) big tax deductions subsidize home ownership costs, and 3) the capital gains exclusion on the sale of a primary residence.
Important: Timing is everything in investing. In this analysis, the chosen buy date was January 2, 2012 when the financial and housing markets were poised for big rebounds. Picking a different purchase date, such as January 2, 2008, would completely alter the results. *
White Hot Spring Market
The hotter the competition between buyers, the higher home prices are bid up. The great majority of SF home listings are selling quickly and for over – sometimes far over – asking price.
This link charts the trend over the past 2+ years.
Sales Price over List Price Trend
Current Buyer & Seller Dynamics
Since Paragon does so much business in San Francisco – our Van Ness branch represents more successful SF home-buyers than any other office – we surveyed our agents on what they were seeing in the market. This chart looks at buyers, and this link goes to our full survey report:
Paragon Agent Survey
New Housing Construction
A look at the ebb and flow of new housing development in the city – which is generally very inadequate to growing demand.
And this link looks at the “pipeline” of projects under construction or planned for future years:
New Homes Pipeline
Ranking San Francisco
On a lighter note, we recently collected rankings by dozens of “authorities” – some more reliable than others – regarding San Francisco. This link goes to the full list:
The Full Ranking Report
Apartment Building Market Report
We just issued our quarterly update on Bay Area residential investment real estate. This chart looks at current asking rents by neighborhood, and this link goes to the full report:
Paragon Apartment Update
Since opening our doors in 2004, the Paragon Community Fund has donated over $500,000 to local charities and social services. The San Francisco Bay Area isn’t just where we do business; it’s our home and our community.
* The investment analysis above is simply one scenario based on specific circumstances. It was performed in good faith, but may contain errors or assumptions you may disagree with, or may not apply to your specific tax situation. Investment and tax issues should be investigated with a qualified accountant or financial planner.