All Forum Posts by: Manch Hon

@Matt Mason Snapchat just hit 10B valuation. Not sure how much Tinder is worth now but it must be more than 1B. Oculus bought for 2B and Beats for 3B. Yeah, LA has a pretty vibrant tech scene. 

OK, we Californians are so full of ourselves. :)

WRONG!!! 

It has to be the way our wives are most comfortable with. 

You should know better Minh! I will let it slide this one time.

Impressive indeed. That is despite all the negatives people usually associate with California, and Bay Area in particular: high taxes, higher housing costs. Never say never, but I tend to look at it from the other side, which is to look at reasons why it's so successful and the odds those same factors stay in place. 

Have you read the "new" book by the black swan guy, "Antifragile"? An excerpt from a book review last year:

In his worldview, great success is only achieved by heuristic trial-and-error, not stability. At the Brooklyn launch of his book on Wednesday, Taleb declared that, “The only anti-fragile systems now are Silicon Valley and the New York restaurant industry.” Both entities are extremely innovative, and prone to high levels of failure and reward. The ability for individual disasters to benefit the overall quality of the collective qualifies them as anti-fragile.

So according to Taleb, not only is Silicon Valley resilient to external shocks, it actually strengthens. To me that is the highest order of network effect.  

Anyway, not meant to make this into a love letter to the Bay Area. Just want to say, when we see someone or some place successful, instead of dismissing it as dumb luck or something unlikely to continue, see if we can find deeper reasons why they are successful, and evaluate the odds accordingly. Not saying you are not doing that @J Scott. Just pointing out something that should be obvious to everyone.

No, I don't agree with that. Cashflow investors look at the same metrics: population growth, job growth, income growth, housing stock etc. All the same factors that underpin appreciation. Let's pick our favorite target, the Bay Area. If all the pre-IPO tech jobs went away, who will bid the 5k square feet lot in Palo Alto to 1.5M? 

Obviously just job growth and population growth are not enough to have high appreciation. You need some extra sauce. That extra sauce in Bay Area is limited land and anti-growth activism. Both will not change much, most likely forever. 

This is another way to say "you got what you paid for". Real estate in CA and NYC etc are expensive because there is higher chance your property will fetch you more in the future, whether via appreciation and/or cash flow. 

Appreciation is baked into the price, whether you want to "factor in" or not.

I often hear people say "Bay Area house price is crazy" and that "people are fools to pay that price". People who can afford 1M+ houses are most definitely not fools. I think people should stop and think from the other side. Maybe there is something in there. Maybe people aren't that crazy after all.

Well, since this is a chart on population and not housing prices and rental income, not sure how that's directly applicable to the topic at hand. Rent to income may actually make the 2% rule for what we know. 

Also note how much time you had before the steep decline in population kicked in. Can you not sell during that time? People like to quote Buffett on the forum. Even Buffett sold when he realized he made the wrong bet. 

No market is immune. Look at it this way. If any town went the way Detroit, Pittsburg or Rochester did you can count on worse occupancy rate, worse tenant quality, rent decreasing instead of rising at inflation rate etc etc. But how did you come up with your projected occupancy rate and rent numbers? You look at historical trend of your town of course. 

So you base part of your numbers on historical trend, but refuse to account for appreciation that is also in the same historical trend? Looks to me you are handicapping yourself for no good reason.

Real estate is a very slow moving target. Even if you had truck load of Detroit properties back in its heydays, you would still have *decades* to unwind before sh*t hits the fan. Just be open minded and keep your eyes and ears open. Writing has long been on the wall for Detroit. Decades long.

First of all I like all the talk about utility functions and expected values. I was a math major.

I don't know why people always heavily discount Silicon Valley as something very fragile and always on the cusp of falling over. But few people think the same about NYC... 

There is very strong network effect going on in the Bay Area. It's where tech people come to form companies and get money from investors. The ecosystem is not some cliche word but very real and very sticky. Boston is no backwater but Zuck couldn't get any VC money in Boston for Facebook. So he just packed up and came here. The rest is history.

I see the network effect getting stronger, not weaker. And the micro trend within Bay Area is that people actually flow to the most expensive parts of Bay Area.

Bay Area has always been an expensive place to do business. California taxes pretty heavily, on people as well as businesses. That has always been the case, and it has not slowed down people founding tech companies in Bay Area. In fact, the opposite is true. Tech companies are founded in the most expensive parts of the country: Seattle (where min wage is $15), Austin, Boston etc. Do you expect Google to move to Boise Idaho just to save some taxes? 

Inside Bay Area companies are mostly concentrated in the most expensive bits. Office space and housing is cheap in East Bay but still companies fight over each other to get into the "hot" areas like SOMA in SF and University Ave in PA. 

Things are expensive for a reason.

Hey I went to an open house in SF last year with exactly that! A realtor paired with a mortgage banker. First time I ever see that. And that's not even a good looking house. Needed extensive work inside and out. But it's in a hot section of SF (Bernal Heights for the fellow San Franciscans). I was looking for my first flip project and figured I didn't have the skills yet to tackle that one. 

No, I don't think it's a sign of anything. Certainly not a downturn.

I said it somewhere else, but I will say this again here. It's a folly to base arguments on experiences in the last housing bust. It was a 100-year flood scenario. It was literally the biggest housing bust this nation has ever seen, since the 1930s. We will NOT see that again in our lifetime, unless you expect to live to age 120. Just unload everything when you hit 90 and you will be fine. :)

As I like to say, "Last time was different." 

But seriously I am happy to see you guys @Amit M. @Account Closed pushing back on the cash flow religion. I used to belong to that cult when I first got started. But as my experience grew that math doesn't look that hot no more. Now I am a complete appreciation junkie, saving my down payments to buy rentals in the RBA. 

There is so much myth in the cash flowing investing religion, and BP is responsible to some degree. Every week in their podcast the hosts talk as if appreciation is some black magic. In fact that's how those old dudes in SF Chinatown came to own whole city blocks, and more.