I am living in San Francisco, should I invest in Sacramento?

[Loan Doan]

Hi Everyone,

Could any body please give me some advises for my first investment?

My husband and I are renting a studio in San Francisco and would like to invest on rental property. However, we found it is too expensive in the Bay area. Is it a silly idea to keep living in San Francisco and investing somewhere else? I would appreciate a lot if you could give me some idea on that!

[Dan H.]

Originally posted by @Sachin T.:

Thanks @Dan H.. Agreed, but what about period from 2005-2015, I think that 10 year timeframe prices moved down and then came back up, so those 10 years i would say were nearly flat to little negative ?

Using Case-Shiller home price index (reputable) numbers:

• First year with year over depreciation for San Francisco was 2008 (meaning market high was in 2007).
• San Francisco depreciated 27% between 2008 to 2011.
• Rose 72% between 2012 and 2017 and was even with 2008 market high price in 2013.  All appreciation since 2013 is in excess of the previous market high.

Total time from start of depreciation cycle to full recover was less than 6 years.   The San Francisco market (and the San Diego market) are up significantly compared to their pre Great Recession market high.  In addition, since 1984 there have only been 2 depreciation cycles for the San Francisco market greater than a year (1991 to 1994: -11%, and 2008 to 2011: -27%). 

Appreciation cycles:

• 1984 to 1990: 100%
• 1995 to 2001: 100% (purely coincidental to be equal to previous)
• 2002 to 2007: 59%
• 2012 to 2017: 72%

No matter how bad the timing of the purchase (even if purchased at the top of the market before the GR - The worst time to purchase in most of our lifetimes) you would have experience pretty good to great appreciation on a San Francisco purchase. 

There is no 10 year cycle in my life that San Francisco home price index has not risen.  I suspect 10 years from now the prices will be higher than today because it has always occurred.