Leaving San Francisco and California To Build Wealth
17 August 2007
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I love my home town of San Francisco. I was born and raised here and I have grown accustomed to the rich diversity and culture this beautiful city offers. However, during the past few months I have contemplated my future in this great city. My goal is to become financially free by the age of 38, and I plan to live a comfortable and luxurious lifestyle where I have tons of free time with my kids and enough money to do the things I’ve always wanted to do. After much research and deliberation, I’ve concluded that San Francisco, or California at that, is not the best place for me to reach my goals. As I wrote about in the Money Socket fundamentals of wealth building, most people think making more money will get them rich. However, whats more important than making money is saving money and ultimately investing more of it. By leaving San Francisco and the state of California, I can immediately save and invest a lot more money than I could by staying.
Overpriced Housing
It’s no secret that California has some of the most overpriced real estate in the world. Salaries do not match up with housing prices, investment properties yield about 5%, and homes in San Francisco are old and tiny. I currently live in a tiny one bedroom condo, which is worth about $390K. A typical single family home here in the San Francisco bay area is about $600k (in the very low end). If I were to stay here in the city, I figure I can save up for about 5-7 years then sell my condo and put everything into the down payment for a home, which may cost up to $800k at that time. I can then spend the rest of my life paying off the mortgage. I will be living dangerously close to, if not directly paycheck to paycheck. Not much is left for investing, especially when kids come in the picture. If I did stay in San Francisco, I would actually rent.
The Solution
I’ve come up with an easy solution to my problem. When I graduate in December, I’m leaving California. I’ve looked at many areas in the country, and with my girlfriend’s help I decided to move to Sugar Land, TX which is a suburb of Houston TX. I did not write much this week because I was there for three days looking at real estate and taking tons of notes about the area. I noticed that Sugar Land, 2006’s third best place to live in the US by CNNMoney, offers all the benefits of a major metropolitan area since its about 10 minutes from Houston, yet its a beautiful and quiet place to live in. Best of all, homes in the area run about $180K and up for a nice two story home, which is larger than anything I’ve ever lived in. If I sell my condo now, it will allow me to buy a house outright with no mortgage, thereby allowing me to invest 60-70% of my take home income from then on.
The Difference in Wealth
By investing up to 70% of my earned income versus maybe 5-15% if I stayed in California, the difference is staggering. Its tough to calculate the difference exactly since there are so many variables but I firmly believe that the difference is in the millions, after the next 30 years of compounding returns. Factors to look at here are salary differences, taxes, and local costs of living. However keeping all that in mind, a paid off house is what makes a world of difference. It opens up many opportunities and choices. If I see a great potential investment, I can always refinance, cash out some equity and invest without putting myself in any danger. If I’m living in a $700K or $800K house in California, I would already have tons of debt and cashing out more equity would put my family at risk.
Variables I looked At
- I looked at salaries and yes it is lower in TX. However, the bulk of my income is online and fully portable. Even if I didn’t own internet businesses, I would still go. The salary to housing cost relationship is much in favor of TX.
- Business potential. I plan to open retail shops in the Houston area as well. I noticed rent costs are extremely lower and since salaries are lower, my employee expenses will be as well.
- High property taxes in TX. TX property taxes are 3-4% while CA is 1-2%. This is a big difference however TX compensates by the fact that there is no state income tax.
- Lifestyle. I consumer minded individual will believe that the San Francisco bay area offers a better lifestyle than a place like Sugar Land TX. After all, its San Francisco, its cool to live here and its exclusive. So far I’ve noticed that many Sugar Land, TX residents have a higher disposable income than San Francisco residents. The whole city is cleaner and newer with upscale shopping centers. San Francisco bay area houses are not even comparable to the TX homes. Lifestyle also looks at comfort and freedom. Looking at these factors, I would say I am actually upgrading my lifestyle by moving.
- Weather is the downside. The Houston area has hurricanes and mild flooding at times. As I write, hurricane Erin just reached Houston and San Antonio. Its humid and hot in the summer. San Francisco is cold and foggy but some times its just beautiful out.
- People. So far people I’ve encountered in Sugar Land are very friendly. The city is rich in diversity and I didn’t notice any culture shock being that I’m from San Francisco.
My Plans
In summary, I’m definitely moving next year. What it comes down to is my financial future, my future family’s future and reaching my goals. I will be much wealthier if I move, and 30 years from now I can choose to come back to San Francisco if I want to. By that time I can buy a home here outright. If I stay here and not move, I’ll be working my whole life to pay off my house, and I’m scared to even think about what I will do come retirement time. I know that by moving I am building wealth and working hard to later have my money work for me. I will be able to retire younger and have less financial stress in life. That being said, my condo is going on the market next week as I move back in with my parents for the time being. Hopefully it sells soon and I can start house shopping in TX.
I know this type of situation does not apply to everyone, but if any of you who are living in overpriced areas are getting excited after reading this, listen to me. You have one life to live and there is no turning back time. If you want to build wealth by moving to a lower priced area, do it. Don’t be afraid to think and travel out of the box. Most people die within 10 miles of where they were born. Explore the world, and build wealth along the way.
[...] Money Socket is planning on moving to Sugar Land, Texas. I can’t find anything to argue with in his analysis, except about the culture. Texas is a [...]
Interestingly, we moved to San Francisco to build wealth. My wife is in the military so her housing allowance increased significantly by moving out here. If we move to a place of lower cost of living, that goes down. That housing allowance doesn’t make up for the cost in buying a home, but, as you say, renting is so much better.
We rent and with the extra income, since salaries are much higher here, we’re able to save much more money than we could with our smaller salaries and smaller rent. At some point we will move to a lower cost of living place, but if you are able to control your costs, living in high cost area can certainly pay off.
[...] Comments Lazy Man and Money on The Savvy Renter and The Slave HomeownerLazy Man and Money on Leaving San Francisco and California To Build Wealthbrip blap » Blog Archive » The Linkling Ultimatum on Leaving San Francisco and [...]
Hey - I just started reading your blog here… As a fellow investor (a bit more experience than you (about 5 years now), although I’m only 30), it seems like you’ve definitely got the right idea and the passion to follow through… Kudos to you for that…
One thing I’d mention to you though - I’ve been researching the Houston area for about 8 months now, and have noticed some pretty interesting stuff about the area… While I was searching for multi-family properties (100+ units), the same research applies to any size property… For one, you’ve picked what I found to be one of the best suburban markets of Houston (sugar land).. Clear lake was another… When you’re buying down there, be extra careful of where you buy since there are some pretty decent vacancy rates in most parts of the city… Especially the southwest - just inside the city limits from sugar land (all along Bissonet, and the Braeswood area).. Not to mention that there is a high crime rate in those areas as well…
And, your assessment of being only 10 minutes from Houston is a bit far-fetched… If you’ve never experienced the traffic down there, prepare yourself… I don’t think I’ll ever get used to the fact that it takes an hour just to get from Hobby airport (south/central Houston) to Memorial (West Houston) due to the extreme traffic on the highways in that city… yikes… And it seems like there is traffic there at all times of the day…
Lazy, thanks for the comment. I’m a big fan of your site by the way. Yes I agree that if one were to work a high salary job, combined with renting in the bay area, it may be a better choice. What added to my decision was also the fact that I would live more comfortably with the nicer homes, neighborhoods and schools. Most my my business is also internet based so its portable.
Hi Doug,
Thanks for the comment, I appreciate the insight. To be honest I haven’t looked at specific investment properties just yet outside of the MLS and loopnet. I’ve been focusing on my residence as well as some business opportunities. I know what area you are referring to in the Southwest bordering fort bend county. Even our agent was telling us not to buy anything there. The homes had metal bars on the windows, that reminded me too much of San Francisco.
You’re right about the traffic. I only considered Sugar land to the parts of Houston I went to such as the galleria area, the southwest and downtown (perhaps 20 min) with no traffic. I didn’t experience much traffic on highway 59 from sugar land to Houston, but I did notice some on the beltway.
I’ll continue researching, one thing that has me on alert these days is the extreme weather patterns there. I guess its not as bad as an unpredictable quake. Thanks for commenting!
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[...] a plan to leave San Francisco in order to set myself up for a brighter future. I wrote about my move to the Houston suburb of Sugar Land, TX before. The other day I was happy to stumble upon someone who talked about the exact same thing. It [...]
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[...] some areas of the US you have relatively high rents and low home values. I wrote a while ago that I’ve decided to leave San Francisco to build wealth. I’m moving to Sugar land, TX which is a nice suburb of Houston. There, a $150,000 home would [...]
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