@ duanemark: As you may recall one of the most noteworthy events where San Francisco properties significantly depreciated occurred after the October 17, 1989 Loma Prieta 6.9 magnitude earthquake. Yes there were some pocket neighborhoods like Pacific Heights, Presidio Heights, Jordan Park, Laurel Heights, Lone Mountain, Sea Cliff, West Portal, Telegraph Hill and Nob Hill that historically did not decline in price even when the properties suffer structural damage. However, those are some of the most highly affluent neighborhoods.
Conversely as you may know San Francisco renters pose numerous headaches due to potential litigation and the highly bias pro-renter jury pool. I've known families that had to rebuild their income properties and later rented it out only to experience considerable grief due to renters.
I truly appreciate the comments from a fellow San Francisco resident! I did not live in San Francisco after the Loma Prieta earthquake. Your information is very helpful. I do think an earthquake is my biggest risk. However, my property is located in a highly affluent neighborhood - probably one of the most affluent neighborhoods in San Francisco. My property is probably one of the "cheapest" SFHs in the neighborhood. Therefore, I am not too concerned about a huge decline in value. But again, I acknowledge an earthquake is my biggest issue. I'm willing to take that risk.
As for potential litigation from a renter - I am not afraid of litigation because, I happen to be a litigator! Though laws are certainly pro-tenant (almost ridiculously so), I understand them. Also, my tenant pool is pretty affluent - I think (perhaps wrongfully so) that they are less litigous because they are not as "desperate" as other tenants in SF. My tenants could simply move out and find another place because they have the financial security to do so. Also, we have an umbrella policy. Therefore, I'm not too concerned about liability. Litigation does not scare me - I do it every day!
Poorman - thank you so much for your very thoughtful commentary! I, too, have valued my ROI based on the $220K we plunked down for purchase. I really appreciate your analysis - I happen to agree with you on all fronts. I especially appreciate your thought that if I sold now, I'd be losing 10% just to eliminate the risk of a 10% downturn. I never thought of it that way, but it makes sense to me.
My final thought is this - I understand the idea that based on the total value of the property, I'm not getting a lot of cash flow. However, even if I were to pull my equity into, say, an index fund, I would not be "cashing out" on any of the increase in yearly value - I would simply reinvest in the fund. Thus, I'd be in the same situation as if I kept my equity in my house. I hope that makes sense. Perhaps unlike most on this board, I'm not interested in retiring by the time I turn 40. Thus, I'm not really interested in using the cash flow for my own expenditures.
Again, I really appreciate this board! I am always interested in discussing real estate investments, and this board provides a wonderful vehicle to do so.