My friends own a flat in downtown San Francisco, about a 30 second walk from the 4th and King station. They're waiting till the middle of this year to sell because of the expectation of many new millionaires seeking property after the Lyft, Uber, slack, and other IPOs.
I hope your friend is prepared to hang on through mid /next/ year, since that's when the employee lockup expires, assuming this company even exists at that point.
Banks will loan against asset values. Getting a mortgage for $5m if you own $25m in stock is a no brainer for any underwriter, even if you can't technically sell it for 180 days.
Typically a bank mortgage would be secured by the property, not by other assets of the purchaser. Some (but not all) stocks / options might be restricted from being pledged/liened/hypothecated/etc, so they might not be available for “Loan me $5 million (to buy a house), secured by these shares.”
But because the bank is in the business of making mortgages against property, it won’t consider the shares as security in most cases. It may consider them as positive evidence in favor of one’s ability to service a mortgage, much like it would consider your income as evidence of ability to service the mortgage. It doesn’t have recourse against your income in event of a default.
(California is a no-recourse stage; talk to a real estate lawyer or similar professional if you are curious on the precise application to your situation, HN.)
A loan is nothing like a sale because you still take on all the asset risk. At most, a non recourse loan gives a slight hedge which isn't selling either. (You don't realize capital gains when you take loans or hedge a security)
Some market standoff agreements might prohibit using stock as collateral, but plenty don't. I chatted with an ibank willing to lend me money against locked out shares to buy a home with.
At least when I was in that situation, people were absolutely willing to loan me money, but I consulted a securities lawyer and they said the terms of the lockup agreement prohibited any loan against the value, hedge, agreement to sell, collateralizing, or anything that might in any way look like a sale or attempt to offset the risk, full stop.
So yes, ibanks will loan you money, because they don't care if you violate the lockup agreement. This should probably not be surprising, and it's buyer beware if you do.
If it's something like this one (https://blog.wealthfront.com/post-ipo-dilemma-hedging-stock/), where you have clauses like " enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Common Stock or such other securities" exist, I agree using as loan collateral is pushing the limits, if not past it.
Many companies have much simpler language. Mine was just "will not sell or otherwise dispose of shares", which permits not only loans, but more powerful techniques like hedging.
There wasn’t much of a real estate price change in that area when Okta IPOed or GitHub was acquired (both a couple blocks away from Lyft/4th and King).
I read one theory a while back that suggested that a lot of people in SF are doing exactly this, which may ironically lead to an oversupply of inventory after the string of IPOs this year and cause house prices to dip.
A LOT of people are talking about and planning on this exact strategy. It’s for that reason that I agree with you - I think it’s going to look a lot like that NYE a year after Uber had the $300 surge price fares and all the drivers started counting all their money in advance - “Oh man I’m gonna make so much when prices shoot up at New Year’s again!” Then of course there was a ton of driver supply and prices didn’t go anywhere.
Everyone is talking about the “easy money” of selling a home as soon as “all those new millionaires are willing to pay top dollar for a new home”.
The problem with this plan is threefold: First, the basic supply and demand rules. Second, all the people selling homes are going to need to live somewhere else, right? So they too are going to have to pay an inflated price for a new home, which will eliminate any gains (the exception is if you own a home in SF and are planning on either leaving town or majorly downsizing). Third, just because someone is newly wealthy doesn’t mean they suddenly decide that paying 20, 30, 40% more for a home is rational. Many folks will keep renting or stay in their current homes if there’s a sudden rush to buy.
I wouldn’t be surprised if prices tick down a bit in 6-12 months from the oversupply before continuing on their regular scheduled steady march upward :)
Disagree. Smart money is probably already out. There’s no guarantee you can accurately define when the top is. Fortunes are lost when people think they can.
Yield curve inversion, IPOs Of profitless companies, longest economic stretch without a recession. The cycle has to end at some point. I’m not saying when the recession will happen, I’m saying it will eventually arrive.
If house prices double between now and then and then drop by 30% it is profitable to buy now. As much as I hope house prices fall below where they currently are some time in the future, I wouldn’t count on it.
