Hello everybody, it's Sam and Sidney from the Financial Samurai podcast. And in this episode, we want to talk about how the most expensive cities in America could actually be the cheapest. And frankly, the most expensive cities in the world could actually be the cheapest in the world. So, what the heck are we talking about?

Well, Zillow came out with an interesting study that highlighted the top 50 cities in America and how much money you need to make to afford the "typical" house. We'll say typical house is the median house price. And at number one, at number one, can you all guess what city that is?

Do you know, Sidney? I know because I saw the chart, but if I hadn't peeked at it yet, my guess would be New York City. That would be my first guess. Right. So, argh, you are wrong. New York City is not the metro or the city that requires the highest income.

New York City comes in at one, two, three, four, five, six. Number six on the list of 50 requiring an income of $213,615. Number one on the list out of all the 50 is San Jose, California. What do you think about that? I would not have guessed that. I know the Bay Area is expensive, but I would have picked San Francisco above San Jose.

I was quite shocked to see such a difference in the pricing. Well, San Jose, you know, the Bay Area, it's home to Cupertino, Apple, Netflix, Meta, YouTube, Google. So, San Jose, yes, I can see how it's expensive, but I've always thought San Jose and San Francisco were almost like neck and neck, you know, plus or minus $20,000 in terms of income required to afford the typical home price.

And just to recap, Zillow's analysis assumes only a 10% down payment, and it uses the "Zillow Home Value Index" to account for each market's "typical home price." But with San Jose at $454,296, the income required to afford a typical home, that is a lot, $454,000, because at number two is San Francisco, our hometown, at only $339,864.

That's a huge spread. That's a huge spread. We're talking $126,000 more to live in San Jose, which is about 15 minutes to an hour south of San Francisco. That's a lot, and that actually makes me quite happy. You know why? Why? Because San Francisco is way better than San Jose, and sorry for folks listening from San Jose.

But come on now. I mean, the reason why San Francisco is an international city and the reason why people come from all over the world to Northern California is to come to San Francisco. They don't say, "I got to go to San Jose," right? Let's be honest here. I would agree with that.

Yeah. And I've been to San Jose many, many, many times before. It's warmer. It's nice. It's clean. It's kind of boring if you're in your 20s or 30s. What do you think? I haven't spent enough time down there, but just of what I've seen and heard, I would agree with you that San Francisco is a more exciting place to live and hang out.

Yeah. So here's an interesting anecdote. So our old house finally got tenants, and the four tenants all come from the San Jose, Palo Alto, Cupertino area. And they're all in their 20s. And I asked them, "So why are you all moving up here?" And they said, "Because it's really boring down there, and they want to experience the big city living and life." I think a lot of the big tech companies have seen this as well, which is why a lot of them were opening offices in San Francisco, pre-pandemic at least, because a lot of their employees wanted to stay up in the city.

Yeah, absolutely. So now a lot of, well, our tenants are reverse commuting. They're going an hour south by one of those tech buses, and one is going to Stanford University for her PhD. And so, yeah, the proof is in the pudding. We've literally got tenants who are doing this reverse commute.

And so a lot of people have made fun of my post in the past called, "Why Households Need to Earn $300,000 a Year to Live a Middle-Class Lifestyle in an Expensive City." If you look over at that post, you'll see tons and tons of comments saying how I'm out of touch with reality, I don't know what I'm talking about, how their reality is more real than my reality.

So guess what, folks? It's really nice to see some external validation from Zillow and other think tanks out there saying, "Hey, well, San Francisco, $339,864 to afford a typical home, and I've been saying $300,000, so I think the numbers are justified." Do you find that number shocking, $339,000 in San Francisco city?

I don't find it that shocking just because, I mean, I felt that the city has been expensive for a very, very long time. The biggest shock to me was what you've already mentioned, that San Jose came in first at such a huge spread above San Francisco. Yeah, and here's an interesting thing, because before San Francisco, I was living in Manhattan, and you got to differentiate between New York City and Manhattan, because Manhattan is like 30 to 50% more expensive than San Francisco.

New York, again, it's only number six on the list. Let me just read the top 10 cities and the income required. So San Jose, $454,000, San Francisco, $339,000, Los Angeles at number three, $279,000, San Diego, $273,000, Seattle, $213,000, New York, $213,000, Boston, $205,000, Riverside, California, $173,000, and then Denver, Colorado, $172,000.

Oh, and then surprisingly, Sacramento, $172,000, followed by Washington, D.C., at $166,000. So click over to the post. You can see the chart. It shows the top 50 city metro areas. And actually, the other surprise is Sacramento, rounding up, what, number 10 or so at $172,000, because for folks who live in San Francisco and San Jose, Sacramento is dirt cheap in comparison.

So what are some of the things these cities have in common, besides requiring a high income to afford a typical home? What I see is weather. Weather looks much nicer in the majority of the cities, except for maybe New York, Boston. Sacramento gets really, really hot during the summer, and then Washington, D.C.

Any kind of commonalities you see, Sydney? Nothing comes to mind. I agree with what you've said so far. Well, here's another commonality. The majority of these cities are all on the West Coast, and I have made an argument in the past to the gurr of people on the East Coast that the West Coast is a better lifestyle to live than the East Coast.

Now, I know, come on, y'all on the East Coast are like, "Come on, give me a break, West Coast. It's terrible. It's crappy." But I've lived on the East Coast for 10 years. New York City and Virginia, Northern Virginia. And then I've lived in San Francisco since 2001. So I have a pretty balanced outlook here, and I feel that once I was able to go snowboarding in like two feet of powder on a Saturday and come back and play tennis with my shirt off in 70-degree weather on a Sunday, I was sold.

And I felt that being able to enjoy the outdoors, the quality of life year-round, 12 months a year, was valuable, and as I get older, and time has become more precious because I have less of it, being able to spend 12 months outdoors and enjoy the city is more worthwhile than, let's say, sacrificing three to four months of really, really cold winters or extremely hot and muggy summers.

You know, Chicago. Chicago is one of the best value cities in America. It's a huge city, and it is cheaper. It requires a lower income to afford a typical home than the national medium of $106,000. So in Chicago, you only need $104,000. That's pretty good because there's a lot of opportunity in Chicago, but I just can't do the three months of really cold winter.

So what are your thoughts on weather, Sydney, and how much of an impact it has on quality of life? Well, I think weather does have a significant impact because if you look at the quality of life in places that are sunny, where people want to be outdoors, lifestyle is generally more balanced and people are happier.

Yeah, there's an interesting study about what makes people happy, and there are three components. One was the weather, warmer weather, right? Two was friends and family, and three is just more activity. So if you combine those three items, you know, places like California, several cities in California, Denver, Colorado is also really nice.

However, it gets really, really dry in Denver and Colorado Springs sometimes, and the cost of living in Denver is also quite high. It's about, looks like it requires $172,000 in income to afford the typical home. But weather is a big one, which is why I regret not moving to Honolulu, Hawaii pre-pandemic.

We have been looking at homes in the area three consecutive years. You remember all those open houses we saw one or two blocks away from the beach, and they were awesome. They were truly awesome. And since we left, well, my day job in 2012 and your day job in 2015, we've been thinking about relocating to Hawaii, but why do you think we never moved?

And do you have regrets that we did not move? I don't have regrets about it. I think moving has its challenges, and I think we were happy with our life here. We have, you know, networks established here, and I feel like we enjoy our freedom here as well. We are close enough to our parents, for example, we're not so close that we get bombarded with too much family stress, to be frank.

I think that's one thought that we had. Out of curiosity, does Honolulu show up on your list from Zillow? Well, it's interesting. I was looking for Honolulu, and it doesn't show up on the list. So obviously, that's a huge oversight by Zillow. But if it did show up on the list, I would put the required income to afford a typical home in Hawaii.

The median home price depends on who you ask. Zillow, it's like $780,000. According to another report, it's about $1.1 million, which sounds more about right based on all the homes that we've been looking at, and not just our homes. I mean, I'm talking to realtors locally on the ground and seeing what's out there.

I would say it requires about $250,000 plus to afford a typical home in Honolulu, Hawaii, and raise a family of up to four, so two kids, relatively comfortably. So yeah, okay, folks in Honolulu, don't bash me. But we're looking basically objectively at the cost of homes, and mortgage rates, and the cost of living, and anybody who's been to Honolulu knows that it's expensive.

But Honolulu is less expensive than San Francisco. Homes are about, similar homes are about 30% less expensive, or you get about 30% more home. So relocating to Honolulu, Hawaii would have saved us money. Isn't that funny? And so I do have regret not moving before the pandemic, because I heard Hawaii was amazing during the pandemic, because flights were really not allowed in, or people were encouraged not to come unless it was for like an emergency, right?

So you'd have the islands to yourself, the beaches to yourself, less crowds, less traffic. But of course, the problem with Honolulu is that the number one industry in Hawaii is tourism. So when you cut off visitors to Hawaii, then you cut off income, and it makes it much more difficult for businesses to make a profit and pay their employees.

So I do have regrets because the time to move to Hawaii was during the pandemic, and we just couldn't do it because we had our baby daughter, and we weren't about to move and change doctors and change environments after having a baby. And now that we have moved within San Francisco, do you see yourself staying here for another 10 years?

See us all staying here? Well, we better, because I definitely don't want to be moving for a while after we spent so much money on this house. Ha ha ha, I have you recorded saying that now. I will put this in my files. Well, I guarantee you that I don't want to move, and I'm going to do my darndest not to move for at least eight years.

And eight years, why that is because that's when our son will be 14, 14 and a half, and be eligible for the ninth grade. And his current school only goes through the eighth grade, so we have to reapply for high school. And so when we reapply for high school, I think that is the time when we apply to schools in Honolulu, Hawaii, because God willing, I hope my parents will still be around.

And I think that's a perfect time, because I'll be in my 50s, right, ooh, 53, and you'll have just turned 50, so we're getting up there. And so... I won't be 50. What are you talking about? Okay. Okay, you'll be... 38. Either way, we're going to get older, and I think it's good to move to states and cities that are matching of your stage in life.

And so for Honolulu, Hawaii, I think it's a little bit too early to try to make your fortune in your 20s and 30s there, because income is about 30 to 60 to 70% lower compared to the mainland. But in our 50s, I am pretty sure in our 50s, we're going to enjoy living in Honolulu, Hawaii.

What do you think? I think so. It's obviously a much slower pace of life, and I think by that time, we'll be more welcoming of that, and it'll be a great goal to have. And I'm glad it's not so soon after we made this big move. I mean, ideally, how long would you like to live in our current house?

I wouldn't put a date on it. I just don't... I want it to be so far in the future that I don't even have to think about moving. Okay, well, eight years is going to come quicker than we think, I think, because every single parent I talk to says, "Wow, the kids grow up quick, days are long, the years are short.

They're going to be out of the house before you know it." Yeah. So it might be harder. It still might be harder to move than we realize, because we will have even deeper roots here. But who knows? We'll see. We'll see. I guess at the very least, what we're going to do once our daughter is five, when she's really strong enough and sleeping well and can hold all of her memories or most of her memories is that we just spend one or two or three months in Honolulu, Hawaii.

We do the summer camps there. I'm sure there's cool summer camps like boogie boarding camp or surfing camp or hiking camp. I mean, how cool would that be? Or learning about Polynesian culture, local Hawaiian culture. I mean, that's so important, at least for me, because I'm part Hawaiian. So that is a good opportunity to try before you buy.

And I don't think we have to relocate there. But if we love it so much after many, many years of staying there for two, three months a year, I think it makes it easier. Right? It's just kind of like moving to our current home. We visited this home over 10 times, maybe 15, 20 times, actually probably more than 20 times over an 18-month period when we first saw it.

And then so when we finally got here and we finally moved in, it felt like destiny. It felt totally fine. What do you think? Right, right. Yeah, no, I completely agree with that. And in terms of talking about cities and relocating way down the road, are there any other cities outside of Hawaii that you would consider?

You know, I would consider Taipei, Taiwan to get really good at Mandarin. I used to live there for four years and it really helped with my Mandarin in terms of accent, in terms of speaking more fluently. Language immersion is the best when you're in that country. So Taipei, Taiwan is not the prettiest or cleanest city.

It's kind of chaotic and it's very hot and humid during the summer, but it's also really friendly people and some of the best food in the world. So Taipei, Taiwan would probably be number one on my list. China, you know, I lived there for six months during college. It's probably completely changed since I last been back.

Well, I was last back probably eight to ten years ago, but I don't have any roots there. What about in the US? In the US, I love San Diego. San Diego is kind of like Hawaii. It's great for if you're 50 plus, slower pace, warmer weather, 68 degrees all year round.

But if I'm going to do San Diego, I might as well just go to Hawaii. I love Honolulu, Hawaii. I've been going back every year for 46 years. How about you? Moving within the US is definitely easier for me to think about than moving abroad. But I do like the idea of utilizing our kids' time off during the summer to travel abroad or just to a different part of the US and stay there for a longer duration while we work remotely.

I think that would be fun. Something where we get to enjoy a new environment, but still have our home to come back to. I like that kind of blend. You don't want to permanently relocate somewhere. It's harder for me to mentally get over that hurdle. Yeah. Well, I'll make it get over it in the future.

We'll see. We'll see. I still have you on record that we're staying here for a long time. Yeah. Eight years. Eight years. It sounds about right. Are you sure you didn't say 10? No. I said until high school. Yeah. But going back to actually the original point of this podcast, how expensive cities are actually the cheapest.

It's all about the opportunities. Expensive cities are expensive for a reason. And that reason is more high-paying jobs, better growth opportunities for your career, and for maybe investment opportunities as well. So one of the reasons why I couldn't pull the trigger, I didn't feel like it was right to move to Hawaii was because the homes, yeah, are 30% or so cheaper, but that's still a lot of money, right?

The median home price in Honolulu now is about $1.1 million. And for some reason, any home you want to buy seems to always be more than the median home price. So it's probably more like $2 million or $2.5 million or $3 million home in Hawaii. And that's still cheaper than San Francisco by, let's say, 500 grand to a million.

But the problem is, and this is probably simply because I didn't feel we had enough money, and that is if we bought a home in Honolulu and we got into financial difficulty, some accident, some medical mishap, something wrong, there would be fewer, much fewer opportunities to earn income that paid as much as mainland income.

And so this was pre-pandemic. Maybe it's easier now because there's more from home opportunities, telecommuting opportunities are more ubiquitous now. But back then, I just felt, "Oh, the best job I could get might pay like 50 to 60, 70, 80 grand, but if you own a very expensive home, that's not going to cut it." Whereas here in San Francisco, it's much easier to find full-time work that pays six figures, multiple six figures, or part-time consulting work that pays six figures.

What are your thoughts on that logic? I can agree with you that big cities tend to have a lot more job opportunities. That doesn't mean they're less competitive. I would think they're more competitive. However, you have a greater chance to build larger and deeper networks in areas where there's more people, especially if your industry is focused on an area where there's a lot of people.

Yeah. The network effects are huge in bigger cities. But you're right. You're absolutely right on the competition. I applied to every single tech job I could in 2012, Airbnb, I think Uber was just starting, Google, Facebook, Apple, didn't get anywhere because I just went through the online channels. I didn't have any connections, but now I have connections and I feel now I might be able to get a job at one of those places if I wanted one, maybe.

But the network effect is huge. Just for example, next week, Ben Miller, the CEO of Fundrise, he's coming to town to visit San Francisco. He's got some business and we're going to go grab a beer. That's cool. Awesome. That builds a relationship. I've been speaking to him for years, but we've never met in person.

Having these relationships helps in terms of business, in terms of job opportunities, consulting opportunities. I know a lot of people from my days consulting at Personal Capital, now Empower, a lot of VCs, a lot of business CEOs. It's really cool to be in a bigger city because of that.

If you're a normal person, you're a helpful person, you're a thoughtful person, you can gain a lot more opportunities. That fear of losing all that and going to Honolulu where I don't have a deep network and not being able to earn income to support the expenses, to cover those expenses was pretty difficult.

For those of you thinking about building wealth, focus, I would say, on opportunities in big expensive cities. They're expensive for a reason because the income opportunities are more. If you want, once you've built your wealth, you can always relocate to a lower cost area of the country. You might discover that you might have made enough or so much that you don't really need to move to a lower cost area of the country or the world to save money because the income upside is so much greater.

That's my main point. It's like playing offense to build wealth because income is unlimited, the upside is unlimited versus playing defense by saving your way to wealth. You can only save so much. You can only cut your expenses. It's kind of like using 25 times your expenses to say that you're financially independent versus using 20 times your income.

It's much harder to do 20 times your income, but it also keeps you more honest about saving and investing more money as your income grows versus with expenses, you can just slash it to ramen noodle budget prices and you can say, "Oh, I'm financially independent." It's a different way of thinking, but again, I am also biased because my entire post-college career has been living in the two most expensive cities in America, New York City and now San Francisco.

Take my experience for what it is. If you're looking for more wealth building opportunities, I would say don't let the cost scare you off. Try it out. Come to a big expensive city for two, three years. See if you can get some opportunities. You can gain some momentum, build a network of friends.

Who knows? You might be able to reach critical takeoff and if you don't, you can always go back. All right, everybody. That's it for this episode regarding living in expensive cities and how they could actually be cheaper because you could make a lot more money to afford all the things you want to buy.

It's not like a Honda Accord is going to cost less in Pittsburgh, Pennsylvania versus San Francisco, California. The pricing is pretty much the same wherever you go in America. If you enjoyed this podcast, we'd appreciate a positive review. Your reviews and shares keep us going and if there are no reviews and no shares, it's cool too because we'll just chill and do other things.

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