Will the Republican Tax Bill Hurt California Property Values?

The new GOP tax bill is complete and there have been many changes which don’t seem to favor constituents on the coasts (namely, CA).  Many people who live here see these changes to be hostile toward how things operate here in Silicon Valley and SoCal.  One of the big differences between the “heartland” and the coastal states are the costs of living.  With price-to-rent ratios being so much higher in CA you can imagine that many people living in CA don’t have an option to buy or prefer to rent.  I wrote a post detailing some of the best places to invest in setting up Passive Income based on price-to-rent ratios.

Rental unit vacancy in CA is 3.33% whereas in the general US it’s nearing 6%.  On top of that, the cost of renting as the percentage of the median household income is near 25% and in the general US it’s around 20%.  In CA, around 47% of households rent their residence. [1]  One may ask: “If rent is so high in CA then it’s probably better to buy, right?”.  Well that depends where you live.  With prices to high to buy in CA, it’s expected that you wouldn’t be able to cover the mortgage if you rented the place out.  Much of the time, in NorCal you can expect to see price-to-rent ratios hearing the low 20s.  Given that the median price for a home in many parts of CA is nearing 1 million dollars many have relied upon the 1 million dollar MID (Mortgage Interest Deduction).  This was instated in the Tax Reform Act Of 1986 [2].  With this deduction it’s common for prospective buyers to put down 20% on a 1.2 million dollar house and then write off the interest on a 1 million dollar loan.

Real estate prices are about as high as they were before the housing bubble in 2008 so buying a house in CA for over 1 million dollars is common.

The Housing Price Index in CA over time

The new GOP Tax Bill that was finalized recently removes the incentive to buy expensive housing.  It lowers the MID to $750,000 loans and below effective in 2018 (Other who already are taking advantage of the 1 million dollar MID are grandfathered in).

The GOP’s other aim was to lower the amount of taxes you could write off for your home as well as eliminate the state and local tax write off that many Californians have taken advantage of for years.  They have decided on just allowing you to deduct only $10,000 off of your state, local and property taxes.  This is seen as being a big hit to New York, Connecticut, California and New Jersey and may cause housing prices to fall in these areas.  As many say “It’s payback time”.

Overall, it will be more expensive to borrow money and fund expensive real estate ventures in the future.

Conversely, others have seen these tax incentives as bolstering a housing bubble and subsidizing the real estate sector.  With low interest rates and big incentives to own, there has been more development of luxury properties and artificial inflation of the prices in the market.  With prices usually starting low ($780,000) and ballooning all the way to $950,000, it’s entirely possible that the subsidizing of housing this expensive is detrimental to “real” value.  We may seen a slowing of this trend in the near future given this new tax bill.

Here is what a 2/2 is going for in San Francisco's Mission District (Bitcoin Money?)

Considering all of the changes imposed on expensive markets, it’s possible the lowering of the MID ceiling and state/local tax write-offs could contribute to prices being lower in 2018.  Also, with interest rates rising in the next few years, money won’t be as cheap as it once was.  A lowering of prices would be good for first time buyers possibly since the down payment would be lower.  I’m interested to see what happens to the real estate market in 2018.

What are you thoughts on the new GOP bill in reference to the housing market?  Any plans to buy in 2018?  Leave your comments below.

How do you start working as a Data Scientist?

You don’t need to graduate with a Ph.D to pursue career in data science. Earning skill in this area can prove to be a great investment for anyone who works in the technology space. Proficient understanding can put you into a position to make a big difference in a companies value. Over the years I’ve been able to produce multipliers of value to companies in need for data technologies.
I found that many self-help blogs were giving people large laundry lists of must-have skills and algorithms to memorize which can deter people who are looking to understand more about career path.  The aim here is to give you an idea of how I had gotten into the field and what has helped me sharpen my skills.
First of all, the term “Data Scientist” is still somewhat new and isn’t defined but I’ll do my best job in trying give advice on how to lead yourself into this direction.  Many of the professionals that fill these roles were being defined as being Machine Learning Engineers, Statisticians, Data Analysts and sometimes Computer Vision Specialists.  The reason why that employers have adopted this labeling is because there is more demand for software designers and developers who know statistics more than ever before.  With the rise of mobile, there is more data out there than people know what to do with.  Admittedly, some of this is hype but as we’ve seen before, there is an easing of the “hype bubble” which tends to bring things back to reality.  That being said, let’s get to why I started my path down this road, where I am now and how I started my journey.

Brief Bio

I’m currently working as a Data Scientist at a BioTech company, Vium (BTW We’re hiring).  This company specializes in accelerating In Vivo drug research (more about In Vivo drug development Here if you’re interested).  I’ve worked with other successful startups as a Data Scientist including Zite and Flipboard.  I also serve in Advisory roles for companies in other countries.
There are many advice blogs available to help you gain an understanding of the particular skill sets of a data scientist.  I’m aiming to give you my personal experience with getting into the field which may provide you with a more concrete representation of what to expect or how to prepare.

First Steps

I graduated with a B.S. in Information Technology and a friend informed me that I could get paid while completing the Masters Program in Computer Science if I became a Teacher Assistant.  This is exactly what I did.  Upon applying for this program I was told that I needed to go back and complete a large list of prerequisite classes (data structures, Calc 1 and 2, Discrete Math).  After completing the base level courses for CS.  I was admitted into the Master level classes.  At this point I started searching for an advisor.  I ended up falling under one of our Computational Geometry professors.  I then started projects under this professor and he advised me on techniques and approaches.

Init(‘Machine Learning’)

One of the projects that I was working during my Masters work focused on building a recommender system for a music player we called SmartPlayer.  I worked with Signal processing and Machine Learning to develop a content filtering recommender system using features extracted from audio.  The main focus of the project was in machine learning and recommender systems.  I found that upon completion of this project, I had a deeper understanding on how machine learning but still lacked some of the core concepts that machine learning practitioners were experts at.

My first job as a Machine Learning Engineer

I moved to Silicon Valley after completing my masters in CS and started looking for a job.  I started working for a Sales Software company in San Mateo as my first job.  I found that my programming skills were good enough to start in a “Machine Learning Engineer” role for this smaller startup company.  I mainly worked with Django and Python in this role but was the only person on-site which had any substantial experience with Machine Learning.  While working there I took the Stanford Introduction to Machine Learning Course on Coursera.   This was, by far, one of the best courses I’ve taken on the subject and I would highly recommend it to anyone who works in this field (https://www.coursera.org/learn/machine-learning).   This class helped me gain a better understanding and a more broad view of machine learning and statistical optimization. This course also helped me understand how machine learning applied.  This was helpful in getting me past intro machine learning questions in interviews.  I would consider this model building prep.  I found that this class was instrument in helping me get my next job as a Software Engineer for Zite.
I participated in Kaggle Competitions (Kaggle.com) which helped me in improve my skills in feature engineering and instrumentation of models.  Since I was coming from a Computer Science background, I found it easy to start using the Pandas/Python/Scikit-learn/Numpy tool set.

Recommender Systems 

Zite was my second startup gig and at this point, I was convinced that Machine Learning and statistical skills were extremely valuable in the valley.  This role focused on build recommender systems for a news reader app called Zite (RIP).  At this point in around 2012-2013 the Data Scientist buzz word was being thrown about Meetup attendees and invoked at conferences.  I read some essential recommender system and matrix factorization papers (Netflix Problem) to get my beak wet.  I would recommend these if you’re expecting to specialize in recommender systems:
These two papers have pretty much the same language stated in other complementary papers coming out these days in recommender systems and they’re easy to understand.
I found that a majority of my time was spent getting data and writing clue code for the recommenders that we already had.  We actually had an easier time improving the core recommender by using different types of rating data rather than changing the algorithm itself.  That being said, implementing and evaluating new recommenders was always fun and rewarding.  I found that stretching your abilities as a Data Scientist by implementing new algorithms from scratch was a great way to improve your skills.
Usually when you work at smaller companies, most of your precious “Modeling/Machine Learning” time is eaten up by writing a Twitter scraper or some other thing to help you create features.  Unless you have a good Data Infrastructure team on hand, it’s going to be hard convincing your founders that someone else should do this since you’re the one consuming the data.

Data Products?

After the acquisition of Zite into Flipboard I began working in a Data Products team.  Data Products are terms used to describe a more “project orientated” view of algorithms and how to apply them to data in order to meet a business need.  In this role it was advantageous to know how to develop these data products “end-to-end”.  By that I mean,
1. Understanding business needs
2. Coming up with a strategy
3. Developing algorithms which consume data and produce a model
4. Deploy this model in a production environment
5. Test the model in production
6. Measure results over weeks of model performance observations
Almost always, after the project was completed there was a statistical significance test that was ran (usually a T-Test, or Chi-squared test).  In this situation (news reader application) we were ensuring that users read more articles or clicked on more ads.  It was pretty rare to get huge jumps in improvement over the baseline here since the product was so mature.  If you plan to start working for a large(r) company like this you will definitely need to know how to run a T-Test and other significance tests.

There Are Many Other Data Career Paths

There are other ways to get into the Data Science field.  From talking to other people in my field I have found that many transition from a Math, Physics or CS into a data science role.  I feel that getting someone anecdotal account can be useful especially when you have so much information out there on the subject which isn’t as concrete as one might want.

Real Estate Investment Hacks using Price-to-Rent Ratios

I’ve been wanting to get into real estate investments for quite a while after pushing in heavy on stock  investments.  There is something that seems more gratifying about owning a piece of property.  So what are the best places to invest in real estate?  There are many ways to go about answering this question but most of those boil down to figuring out where you could service the cheapest mortgage for the highest yield (rent).  The best proxy for this, by city, is Price-to-Rent ratios.

Historic Price-to-Rent index values

The price-to-rent index is a nominal index which represents the trending cost of buying vs. renting a property.

I’ve been curious about figuring out where I could buy an investment property and charge enough rent to cover my mortgage/HOA/expenses and then some.  I know that I could get some data from Zillow on home prices, rent prices and price-to-rent ratios for cities across the country.  I figured I’d start there to find the best locations for investment rather than take someone’s word for it.

Zillow Research

I grabbed my data from the  Zillow Research page.  It contains a bunch of csv with all of the housing data that you could possibly want.  Thanks Zillow!

I downloaded the Price-to-Rent ratio csv by city,


The median price of a 3-bedroom by city csv,


and the median rental price 3-bedroom csv.


I figured that this would be good enough to start.

Which cities have the lowest Price-to-Rent ratios?

There are many parts of the country that have super low price-to-rent ratios.  Though, they all have their catches and quirks.  Some of them are only good for vacation rentals and others are in high-risk areas in the inner cities.  There are other things to take into account like environmental risk.

Price-to-rent ratios

  • Price-to-Rent Ratio

I found the lowest price-to-rent ratios to be somewhat interesting.  You can see that there are poorer areas where the ratios are really low.  Detroit, for example, has just about the lowest price-to-rent ratios in the country.  That’s mostly due to a mass exodus from the area.  You could buy a place here for dirt cheap and rent it out for much more than the mortgage but you’re taking a significant risk.  First of all, the place probably is filled with used tires/trash and getting it into good condition to rent out would require further investment.  There is a chance that someone could squat in the property.  Also, there is inner city Memphis where crime is the highest according to Trulia.  I’d rather not.

On the other end of the spectrum in price-to-rent ratios you have a place like the Hamptons.  Bridgehampton, NY is sought after by many people and it’s very expensive to buy a place there.  Most of them are over two million dollars.   While the cost to buy is high, the rent is even higher.  It’s not uncommon to see places in the Hamptons rent for $60,000 a month.

Okay, so we have a super expensive place to invest and a place that is potentially dangerous and high risk, as far as investment is concerned.

What about Lauderhill, FL?  I looked at this area (I’m originally from this part of FL) and most of the people here are retired.  Perhaps, there are a group of people who don’t wish to own in that area and would rather rent.   I’m not sure that I would feel comfortable rising the rent on the elderly.  I’ll pass.

Where to look now?

We looked at the city of Memphis and found that there was high crime in the area.  What about other surrounding  areas of Memphis?

I’ve found some more low price-to-rent ratios.  Why don’t we compare the cost of renting vs buying there.

  • Waterford, MS     5.82
  • Horn Lake, MS    7.30
  • Memphis, TN      7.49
  • Lamar, MS            7.59
  • Red Banks, MS   7.90
  • Byhalia, MS         7.91
  • Southaven, MS  8.10

House in SouthHaven, MS

Let’s say that you bought this place for $202,000.  Your mortgage payment would be $771 a month with tax and insurance it would probably be more around $1000 a month.  How much could you rent this property out for?

Wow, $1650 is pretty high rent considering that the price to buy is relatively cheap.  Theoretically, you would make $650 dollars on top of what you pay for the mortgage, taxes and insurance.  Take into account things like maintenance/repairs and management costs, this still seems like a decent investment especially if you expect the prices of homes to go up in the area (more analysis on that later).

Property in Waterville, NH

This property is located near the Waterville Valley Ski Resort.  It’s a fair price for the area and properties in Waterville have a very low price-to-rent ratio at 1.87.  This is the lowest price to rent ratios in the country according to the data at Zillow Research.  It’s possible to rent out a property like this for $350 dollars a day or $10k dollars a month.

Potentially $10k a month yield

You should be aware of the fact that this rental property would most likely only go for $10k a month during prime-time ski seasons.  If it’s not a good year for snow then you would have lots of vacancies.  Actually, you could expect to lose 10% of yields due to vacancies. In general, most real estate professionals will tell you to expect to lose 5% for vacancies in a regular market.  There are some advantages to making all of your yields during the 4 or 5 months a year.  You won’t need to rent it out all that often and that would bring lower maintenance costs.  Also, it’s free for you to visit during the times it’s available.  Having a vacation property would be nice.

Exciting opportunities throughout the country!

There are definitely some great opportunities to purchase some high yield assets.  Property appreciation rates are going up as well.  For instance, Portland has currently a 14.7% home asset appreciation rate.  This is most likely because people are sick of paying high rents in San Francisco and have decided to take their down payments somewhere else.  Why not get more for your money in an appreciating market? Tech is getting bigger there as well.  I’m happy to hear your thoughts on real estate opportunities in this country and abroad.  Do you happen to have any real estate or wealth building hacks?