Thanks very much for the posts! I think the overwhelming majority of you folks say we should sell.
I agree, we are in a bubble. However, what are your thoughts that the bubble bursting will not be as dire as in 2009 because lending standards have become more stringent? In addition, a third of all transactions in SF are all cash - if prices go down, owners are less likely to sell. (Incidentally, a house very similar to mine in a less desirable street just sold for $2.5MM!! - all cash).
If we have another recession, I'm fairly certain my rental will remain at $2MM. Like I said before, property in my particular neighborhood did not go down during the 2009 recession. For whatever reason, it is a hot hot neighborhood in SF. But, if I invested the equity in say, index funds, I'm certain the $1MM equity I would buy in index funds would go down. Similarly, buying 4 rental properties at $250K each in a town like Vegas - I'm sure I'd get more rent income, but I'm very certain the FMV of those homes would go down in a recession.
As for our financials, yes, a lot is tied up in this rental. Our net worth (we are a married couple) is $2.6MM. Clearly $1MM of that is our rental home. The rest is the equity in our current home (do I even count that?!?), 401K and index funds. We are both in our late 30s.
I feel like I'm just being super greedy in holding onto this house. I just feel in my bones that SF is becoming the new Manhattan. I'm probably wrong, but VCs, private equity, hedge funds, etc. - all the traditional NYC wealth builder occupations - are slowly migrating to SF. And of course, all the tech money makes a huge difference.
Incidentally, all prospective tenants that have applied for our rental are all senior level techies who make much more money than we do. They just don't have enough to buy into the SF market - crazy. The pricepoint has definitely provided us with great renters. Never late with payments, etc. In fact, I think our renters are very scared we will evict them (I understand the tenant laws in SF quite well), so they never complain, pay well in advance of the rental due date, etc.
Thanks for all your wisdom - like I said, we're novices in all of this. Part of me really wants to get rid of the house. Part of me also wants to hold - not only for appreciation - but for the ability to pass onto our 2 children so they will have a safety net in SF. I feel like it's becoming so expensive here, my kids will never be able to buy unless they are VCs, private equity, etc.