Hey BP, currently residing in San Diego, Ca. Evaluating investing in multifamily & single-family homes in San Diego, however, from podcasts and seminars I have started attending, many investors mention San Diego is not the best market for this. Have experienced investors found the same? My husband is active duty military so we won't likely live in San Diego forever, therefore also considering MidWest and DFW to invest in as well. Would love thoughts and things to consider. Thanks all!
See the agents BiggerPockets members work with in San Diego, CA.
See agentsMy family and I have been investing in San Diego a long time through many ups and downs. I can tell you that it has been a great place to invest even though the initial cash flow is behind most other locales. I literally no of no one who has lost money on long term buy n hold in San Diego (I know quite a few that have lost money on OOS RE). I have invested a couple times at near market highs and those properties depreciated in the short-term (implied by invested near market high) but today look to be outstanding investments. I would compare our ROI with any pure cash flow market and I would not expect it to even be close. If you want to hear all the advantages of San Diego RE you can PM me but suffice to say it has historically produced very good returns and this is verifiable fact (anyone can verify this).
However, you do not know whether you plan to stay in San Diego. If your not staying in San Diego there is little advantage to investing here and you can look for a market that may still have more appreciation left in this appreciation cycle than San Diego likely has left. I would not go for the best cash flow locales as they typically are the best cash flow locale because they have little historical appreciation so the market dictates a price that produces cash flow. I would look for a market with solid cash flow but that is likely to appreciate and has a history of appreciation (do your research but maybe the Pacific Northwest has cities that meet this criteria).
If you do decide to invest in San Diego I would suggest looking into a owner occupied (house hacking) detached duplex to quad financed via a VA loan. The VA loan is a great benefit that you should try to leverage regardless of where you invest (does require owner occupied). I have some multiplex properties that are virtually impossible to tell that they are not SFR (I use "virtually" because they are on single water meter so if you realize that some units do not have water meters you can determine that they are not SFR). This option provides 1) a low entry point into an expensive market due to the VA loan 2) A SFR feel for you and your family ideally with a yard 3) Small multiplex are the best cash flow options currently in San Diego (SFR are real hard to find cash flow). This implies that the other units will likely be subsidizing your home payment. 4) Purchase of a property in a locale that historically has incredible long-term appreciation.
Good luck
Well it's all about the numbers. If you know these two equations-
https://www.biggerpockets.com/renewsblog/2013/01/1...
-run those on any property you find in San Diego and you'll find out pretty quickly that you're going to be in the negative. Dallas will give you positive cash flow but it will be more on the minimal side. The midwest can work. And a few other cities. So just run numbers all over the place and compare what you find and use that as the basis for your decision.
I'm in LA and have always invested out-of-state for the cash flow reason. Reach out anytime if I can be of any help!
My family and I have been investing in San Diego a long time through many ups and downs. I can tell you that it has been a great place to invest even though the initial cash flow is behind most other locales. I literally no of no one who has lost money on long term buy n hold in San Diego (I know quite a few that have lost money on OOS RE). I have invested a couple times at near market highs and those properties depreciated in the short-term (implied by invested near market high) but today look to be outstanding investments. I would compare our ROI with any pure cash flow market and I would not expect it to even be close. If you want to hear all the advantages of San Diego RE you can PM me but suffice to say it has historically produced very good returns and this is verifiable fact (anyone can verify this).
However, you do not know whether you plan to stay in San Diego. If your not staying in San Diego there is little advantage to investing here and you can look for a market that may still have more appreciation left in this appreciation cycle than San Diego likely has left. I would not go for the best cash flow locales as they typically are the best cash flow locale because they have little historical appreciation so the market dictates a price that produces cash flow. I would look for a market with solid cash flow but that is likely to appreciate and has a history of appreciation (do your research but maybe the Pacific Northwest has cities that meet this criteria).
If you do decide to invest in San Diego I would suggest looking into a owner occupied (house hacking) detached duplex to quad financed via a VA loan. The VA loan is a great benefit that you should try to leverage regardless of where you invest (does require owner occupied). I have some multiplex properties that are virtually impossible to tell that they are not SFR (I use "virtually" because they are on single water meter so if you realize that some units do not have water meters you can determine that they are not SFR). This option provides 1) a low entry point into an expensive market due to the VA loan 2) A SFR feel for you and your family ideally with a yard 3) Small multiplex are the best cash flow options currently in San Diego (SFR are real hard to find cash flow). This implies that the other units will likely be subsidizing your home payment. 4) Purchase of a property in a locale that historically has incredible long-term appreciation.
Good luck
Thanks Dan. We plan to invest in San Diego no question. We are currently looking at house hacking potentials and single family homes to occupy for at least one year and put renters in. Are there specific neighborhoods that you currently only invest in for your small multiplex units? Would love to hear more about how you have leveraged San Diego to build your portfolio.
Thanks!
Thanks Dan. We plan to invest in San Diego no question. We are currently looking at house hacking potentials and single family homes to occupy for at least one year and put renters in. Are there specific neighborhoods that you currently only invest in for your small multiplex units? Would love to hear more about how you have leveraged San Diego to build your portfolio.
Thanks!
The San Diego market is mostly an appreciation market (property and rent appreciation) but this is more so for class A and B areas. They do not cash flow using LTR but a lot of A and B areas have a lot of STR. San Diego city is in the process of formalizing their STR legislation. The current proposals are only STR friendly if the property is owner occupied. No one knows what will be the final legislation but any plan of a non-owner occupied STR would be risky.
Even if you use the house hacking method I suggested you look into, because you do not know if you would be staying in San Diego long term, the STR route is very risky and therefore I would not recommend it but you can look into the proposed legislation and decide if it is a risk you want to take on. I will say my family's STR has been a Homerun in every way. It produces over far over 6 figures of rent annually for a little duplex that probably could be rebuilt from scratch for less than it brings in from rent in a year. The issue is the risk of new legislation.
So assume LTR is the route. Going with class A or B areas will likely result in negative cash flow on day one. If you can support this the hassles should be less than lower class areas and the returns in a few years down the road could be great. It definitely requires a long term perspective and able to supplement the cap expenses in the short term.
Most of my rentals are in working class areas (Class C with some that may be B-) and small multiplex (duplex to quad). It is still possible to get cash flowing RE in this class. I have 2 offers that have been accepted and we are in the inspection phase at this time of RE that cash flows. Class C areas require more thorough tenant screening than class A or B areas. However, if you get good tenants they can cash flow on day one using conservative cap expense estimates and not require much time. The unit rent is likely to go up in the short term increasing the cash flow. This weekend I sent 3 tenants notice of $100/month rent increases ($100 * 3 * 12 = $3600 increase in annual cash flow). The San Diego working class units have great historical long-term appreciation (both rent and property).
So for you I would look for a nice detached duplex to quad ideally with each unit having a private yard in a nicer part of a working class neighborhood that has a unit that you could be comfortable living in. I would use the VA loan to purchase it and live in the nicest of the units. I would refer to myself as the property manager. If the tenants ever ask if you are the owner indicate you are part of the ownership group. The tenants would be paying down your mortgage. When it is time to move from San Diego you would rent the unit you are living in ideally producing cash flow that easily can pay for a good PM and still leave some cash flow to go into your pocket. In addition, ideally the unit and rent continue to appreciate increasing your net worth. However, even it the market stays flat you have the equity gained from the principle pay down (generally ~$125/month at start of loan per $100K borrowed (using 4.75%): $400K loan produces ~$500 principle pay down on the first loan payment (so ~$6K for the year)). When you need to access the equity you can refinance the RE.
Good luck
Hey BP, currently residing in San Diego, Ca. Evaluating investing in multifamily & single-family homes in San Diego, however, from podcasts and seminars I have started attending, many investors mention San Diego is not the best market for this. Have experienced investors found the same? My husband is active duty military so we won't likely live in San Diego forever, therefore also considering MidWest and DFW to invest in as well. Would love thoughts and things to consider. Thanks all!
You are correct SD is not the best market for SFR total profits. Since 2000 sfr total profits (cash flow + equity) LA is #1 nationally and San Diego is #3 just behind San Fran.
Good luck with your search!
Hey BP, currently residing in San Diego, Ca. Evaluating investing in multifamily & single-family homes in San Diego, however, from podcasts and seminars I have started attending, many investors mention San Diego is not the best market for this. Have experienced investors found the same? My husband is active duty military so we won't likely live in San Diego forever, therefore also considering MidWest and DFW to invest in as well. Would love thoughts and things to consider. Thanks all!
Whoever told you that San Diego was a bad place to invest was wrong.
It's only a bad place to invest if you like cash flow. If you don't care about cash flow, San Diego is great!
Hey BP, currently residing in San Diego, Ca. Evaluating investing in multifamily & single-family homes in San Diego, however, from podcasts and seminars I have started attending, many investors mention San Diego is not the best market for this. Have experienced investors found the same? My husband is active duty military so we won't likely live in San Diego forever, therefore also considering MidWest and DFW to invest in as well. Would love thoughts and things to consider. Thanks all!
You are correct SD is not the best market for SFR total profits. Since 2000 sfr total profits (cash flow + equity) LA is #1 nationally and San Diego is #3 just behind San Fran.
Good luck with your search!
As @Matt R. indicates San Diego has historically been a great place for buy n hold (especially financed buy n hold). However, I would suspect San Diego is in the bottom 10% on day 1 cash flow and likely bottom 5% day 1 cash flow if not including locations with rent control (San Diego does not have rent control). However, the property and rent appreciation has made it a very good location for financed buy n hold RE.
So is the property still likely to appreciate? In the short-term I make no claim but in the long term I am confident saying it will appreciate better than most other locales. Why do I have this confidence? History show this for at least 60 years. There have been nothing fundamentally changed to alter this. It still has a great climate. It still has limited supply. It still has heavy demand. The fundamentals are unchanged.
Is the rent likely to appreciate? In the short-term I am confident saying it will. Why? Because rent appreciation lags property appreciation. It has in every appreciation cycle my family has been invested in. Supply is not meeting demand. In addition, every study shows San Diego county rents are expected to appreciate. Minimum wage is increasing. All these point to continued short-term rent appreciation. Will rents appreciate long-term? I am confident that they will. Why? Pretty much look at the reasons I was confident of long term property appreciation.
Prop 13 adds another factor that increases the long term cash flow outlook.
So when a San Diego RE is evaluated for purchase if you only look at initial cash flow you are leaving out some significant variables. If you want to ignore those variables then San Diego will not pencil out to be a good RE investment locale which is fine (less competition for me). Go invest in markets with great cash flow but many of which have minimal appreciation. I can understand that decision even if history indicates that San Diego will be the better investment (past performance does not necessarily indicate future performance).
The verifiable facts are that San Diego has been a very good long term buy n hold locale (especially for financed buy n hold) and that there are indicators indicating it will continue to be a good long term buy n hold locale.
Hi @Liz Boer, I think @Dan H. has some great advice. In fact, it's exactly what my wife and I did! We bought a duplex in La Mesa that was really 2 detached houses using the VA loan. There was a common courtyard area in between them so we put a fence up and now it's just as Dan said, 2 separate houses, with the exception of one water meter. The smaller unit was listed as a 2/1, but the garage had been converted to a 3rd bedroom so that helped a lot with cash flow. If you can find the hidden potential in a property that may be the key. I will admit that we had luck play a role as well. Since we were new we made some mistakes, but fortunately the interest rates dropped and we were able to lower our payments and then we didn't realize how much rent we could actually get here in San Diego. We do pay about $1100/mo towards the mortgage while we live here, but after we leave and rent both units we should be able to cash flow about $400/mo, including repairs, CapEx, etc.
One more thing I'll mention is make sure, if you are going to self-manage, that you pick up a book (I'd recommend Brandon Turner's book on managing rental properties), or find some other way to educate yourself on managing rentals. Otherwise, if you plan to hire a property management company, I work for a full service management company and I'd love to help you out there as well.
Good luck and feel free to PM me if you have any other questions!
I am not sure that this was meant for me (no reference) but I would expect to have positive cash flow in working class areas of San Diego county (B- to C- areas) on duplex to quad. You can also find positive cash flow on STR but typically it has to be off market.
For duplex to quad do not use the MLS listing prices. Make sure your comps use sold prices.
The units I am currently in inspection phase (offer accepted) are duplexes at $442K that have current rent of $3150 but market rent is higher. One is a nice property in a fairly nice locale (maybe B- locale: does not look like a rental neighborhood) and decent size (just over 2000'). The other is probably a more value add play as the property has significant deferred cap expense and maintenance and is in an OK area (C class area). The one with deferred maintenance is 2305', so nice size units. Both duplexes have detached units with their own yard (the units in both look SFR). BTW I passed on these properties at $400K about 2 years ago; I should have purchased them then but I had other projects going.
I show PITI at $2227. Add your own vacancy (I use 5% but I have always done better), maintenance, and cap expense estimates to get projected cash flow (I have my numbers but especially cap expense is all over the place but I use what I believe to be real numbers but many people find way high - I hope they are correct). Principle pay down starts at $417/month (4.75%, 0 pts; I can get 4.5 at 1 point but payoff is over 5 years).
San Diego RE is not great on day 1 cash flow. However appreciation (rent and property) hopefully will make this a better investment than reflected by the day 1 cash flow. We will be raising rents of some of the units upon purchase. Also I believe that both properties are ~$30K below market. I believe the one with the deferred maintenance/cap expense has a value add of $25K to $30K ($40K to $50K rehab to obtain $65K to $80k equity increase). Add the under market and the value add and it should do fine even if there is a small amount of short-term market depreciation. The other one has less value add opportunity but the location made me go for it even with less value add opportunity (so it is ~$30K below market and cash flowing but not in bad enough condition to expect a rehab would return the type of profit I expect from a rehab: I typically want at least 50% return on the rehab investment. Rehabs are work and take time. If there is no equity increase beyond the investment in the rehab then consider the benefits of the rehab. How long would the rent increase take to pay off the rehab? Likely too long.
If you want to know the exact part of San Diego that these RE are in look at my profile but I really think all the working class areas of San Diego should be similar.
Hopefully this gives you an idea of what is a realistic day 1 cash flow (not great), what type of below market deals can be found (there are better ones that people find than these but these are the ones available to me right now), and an example of an easy value add (versus more complicated value add like adding units or reconfiguring existing units into either more units or add BR to exiting units).
Good luck
@Liz Boer I think if you're looking at San Diego's viability it mostly goes back to your goals. A lot of people here (I'd posit the majority) are looking for "Cash-flow to replace a W2!" You'll have a smaller subset that is focused on "building wealth" and believe that that is done through equity, appreciation, etc. Now that latter group (personal opinion) is a little biased because of the last 7-8 year worth of appreciation. I doubt they would be super-stoked if I had bought in 2006, bled for 4 years and been making most of it back over the last 3-4 years. So keep in mind that perspective and timing have a lot to do with you perception of a market. The irony is that the inverse group in investors (those investing in Memphis, Akron, etc. for W2-replacing cash-flow have seldom gone through the inevitable bad tenant. They are usually new(er) investors and haven't had the (again, inevitable) $5K turnover that just destroyed 4 years worth of that $100 per month positive cash-flow.
I do think one of the things that does make California interesting for long-term investors is Prop 13. Sure, initial probably taxes are high (not compared to Texas but generally, they're on the higher side) but they're pretty much stuck where they are. If you're looking at investing for retirement and that's 20 years down the road it's hard to discount long-term appreciation, rent growth, relatively mild weather, and proportionally lower property taxes. You don't get the proportional depreciation you do other places, your cash-on-cash return numbers don't look so hot, and you could bleed some cash (especially during any hiccups in occupancy) in the near-term, etc. so there's no free lunch. The latter really does kill the investment goal of "I want to replace my W2 income in 5 years!" Not to mention if you can afford to live in San Diego it's going to take a heck of a nest-egg to create enough positive cash-flow to make San Diego livable. Some of these goals are easier to achieve if you choose to live in the great states of Ohio or Indiana.
And, as an incredibly minor aside, you do lose some of your ability to diversify. There's a fairly common thought/belief that it's safer to have 100 small checks a month than 10 big ones. I can't really argue with the premise (although getting those other 90 checks does create some logistical headaches) but I can argue it would likely to be easier to buy 100 doors in Akron than it would be to buy 10 doors in Del Mar. Net result, you also have to decide which investment mantras you really want to embrace.
Net result, you really do have to put some thought into goals, timelines, etc.
"Real estate investing" can mean so many things, depending on who you talk to. Most people simply mean "making money related to real estate." There are definitely lots of ways to do this in and around San Diego. Just for fun, I did an in Oceanside last summer. We had some fun and made some money but I think a better, long-term strategy for that home could have been as an Airbnb rental or even a house hack. The floorplan could have worked well.
I know a few people in Southern Cal and in Hawaii that make a pretty decent living with Airbnb and VRBO nightly rentals. There have been some great podcasts recently as well -
Whatever you do... Have fun!... and keep this community posted with your .