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Cathy Fitzwilliam
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BRRRR in San Diego for new investor

Cathy Fitzwilliam
Pro Member
Posted Jan 15 2023, 11:26

I am a new investor. I own 50% of one property and am interested in the BRRRR strategy. When I run the numbers on properties in San Diego, they do not cashflow positive, even if I had the funds to invest. I am looking for advice for newbies. Should I be looking for financing first or for a real estate agent? Is San Diego too tough of a market to start out in? Should I be looking at markets with a lower entry cost? Ideally, I would like to use the BRRRR strategy with a small multifamily to start. My partner is a contractor.

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Nathan A.
  • New to Real Estate
  • Sunnyvale CA and Maplewood, NJ
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Nathan A.
  • New to Real Estate
  • Sunnyvale CA and Maplewood, NJ
Replied Jan 15 2023, 12:44

It will be tough to find cash flow in San Diego. If you can rehab your way into a house-hack of a small multifamily and live on site, I think that would allow you to improve your cash flow by getting a short-term rental license even though the city is making it harder to do STRs. Another option that might help a little is medium-term rentals. David Greene discusses San Diego on this recent podcast episode if you haven't heard it already.

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Dan Heuschele
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  • Investor
  • Poway, CA
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Dan Heuschele
Pro Member
  • Investor
  • Poway, CA
Replied Jan 15 2023, 13:40

I do not believe it matters if you start with mortgage broker or RE agent.  In either case if they are rockstar, they will have rockstar referrals. 

San Diego is a competitive RE market with decades of near top of nation appreciation and rent growth.  This outlook is reflected in the prices resulting in poor initial cash flow but historically great long term cash flow. 

If you are looking for property in San Diego that is going to have good initial cash flow, you are going to either have to identify an obscure value add or expect to spend a lot of time and effort to find good off market purchase (most off market offers are not great). 

I believe San Diego is a great RE market but the reality is it is very competitive and most purchases have negative initial cash flow. This negative initial cash flow improves quickly. San Diego SFH rad average rent increase of $600/month last year (source Core Logic). You can see how initial negative cash flow improves quickly.

However, it is also important to have realistic expectations for San Diego RE.  Realize the competitive market makes it a challenging market for beginners. 

Good luck

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Twana Rasoul
  • Real Estate Agent
  • San Diego, CA
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Twana Rasoul
  • Real Estate Agent
  • San Diego, CA
Replied Jan 15 2023, 17:49

@Cathy Fitzwilliam Initial cashflow is not easy in San Diego, the higher rates make it that much more difficult but it is certainly possible with value add deals.  

Everything I've purchased personally, including a recent 4-unit purchased last month, has been heavily cashflow negative initially and it usually takes a good amount of work to get it to cashflow or break even within a relatively short period of time....6-12 month approximately.

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Steve Meyers
  • Real Estate Agent
  • San Diego, CA
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Steve Meyers
  • Real Estate Agent
  • San Diego, CA
Replied Jan 15 2023, 19:30

@Cathy Fitzwilliam to Dan and Twana's point San Diego is a hard market to initially cash flow in. The higher interest rates make it that much harder. What some of my clients have done in the past is look for more creative rental avenues to be able to charge a premium on rent such as the traveling nursing niche like furnished finder. A lot were doing air bnb up until the new rules came in place for the city of San Diego but you can still find a property outside the city that you can potentially do STR with to cash flow. Putting a long term tenant in a property here that you are BRRRRing won't cash flow unless you plan on leaving a good amount in the deal to do so, but that defeats the purpose of the BRRRR. You'll definitely get the long term appreciation in the San Diego market since our supply levels remain low which helps to insulate our market here, but it will be hard to cash flow on immediately unless you use one of the above strategies I mentioned. Hope that helps

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Nicholas Coulter
  • Real Estate Agent
  • Southern California
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Nicholas Coulter
  • Real Estate Agent
  • Southern California
Replied Jan 16 2023, 17:23
Quote from @Cathy Fitzwilliam:

I am a new investor. I own 50% of one property and am interested in the BRRRR strategy. When I run the numbers on properties in San Diego, they do not cashflow positive, even if I had the funds to invest. I am looking for advice for newbies. Should I be looking for financing first or for a real estate agent? Is San Diego too tough of a market to start out in? Should I be looking at markets with a lower entry cost? Ideally, I would like to use the BRRRR strategy with a small multifamily to start. My partner is a contractor.


 I always suggest finding an investor friendly real estate agent as they can be your gateway to all other connections! Let me know if you want to connect I am both an Agent and an Investor in the SD area. 

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Kenny Simpson
Lender
  • Lender
  • San Diego, CA
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Kenny Simpson
Lender
  • Lender
  • San Diego, CA
Replied Jan 17 2023, 07:58

Hi Cathy,

A great strategy is BRRR or 1031 your way up to a bigger building that will ultimately make you cash flow. If you are doing this as a side hustle and don't really need cash flow that is very helpful. Real estate is always a longer run way to wealth building and cash flow. Does NOT mean you will NOT cashflow right away but most of the time in San Diego you are buying to ADD value, raise rents and finding other opportunities to raise your cashflow like; add AC, laundry, storage, etc. San Diego has many options like STR's to cash flow more since we have 35 Million visitors are year to SD. Just make sure you understand laws, zoning and you are eligible for lic.

Reach out if you would like to chat more :)

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Cathy Fitzwilliam
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Cathy Fitzwilliam
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Replied Jan 26 2023, 19:34

Thank you for the advice.  It confirms what I was thinking as well.  I will continue to search for off-market deals.  I am hoping for a house-hack with a multi-family home which my partner and I will renovate.

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Alex Bekeza
Lender
  • Lender
  • Los Angeles, CA
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Alex Bekeza
Lender
  • Lender
  • Los Angeles, CA
Replied May 8 2023, 09:27

@Cathy Fitzwilliam There are some great real estate meetups in San Diego that are full of local pros and out of state investors.  There you'll meet local agents, mortgage pros, and other investors who can give insights into markets you might not be familiar with. 

You should visit Beers and Deals in Little Italy hosted by @Rich Somers as well as Ales & Assets hosted by @Mel Adams.

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Edward Dean
  • Real Estate Agent
  • San Diego
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Edward Dean
  • Real Estate Agent
  • San Diego
Replied May 10 2023, 10:49

Hi Cathy,

San Diego is a great market to invest in and there are tons of people doing it but yes you may have trouble seeing positive cashflow in the beginning. You should talk with lenders to get an idea of what you can actually afford though it doesn't really matter if you talk with an agent first since most agents will have lender recommendations. Finding creative ways to value add could be a good avenue to get you in the door, especially if your partner is a contractor. If you can't find an existing multifamily to pencil out try to identify something that you could add an ADU to or a larger single family home you can split into more than one unit using ADU rules. It can be more capital intensive up front and take a little more time than a traditional BRRRR but it gets you started.

Best of luck with the search.

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Dené Sellers
  • Real Estate Agent
  • Oceanside, CA
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Dené Sellers
  • Real Estate Agent
  • Oceanside, CA
Replied May 10 2023, 11:37

@Cathy, if you need help finding a property, I would be happy to help! I have lived her for 45 years, and I am a licensed Broker.