San Diego fixer upper
Solana Beach, CA · Member since 2016 · 29 posts · 3 votes
Hi all I was considering buying a home in Encinitas with the idea of living in it, fixing it up a bit and at some point renting it out and moving on to another property. Anyone have any experience with rentals in this area and/or have any insight on the direction of the market in this overinflated and low inventory location?
It would be tough to make sense of the numbers doing that in Encinitas. Mortgage payments for a property costing $700K would be around $3K. Factor in property taxes and you are looking at negative cash flow.
I love Encinitas/Leucadia as I'm also looking for a property to buy as a primary there, but prices are crazy right now. Unless I find a deal, I'll wait a couple years for a price adjustment.
It would be tough to make sense of the numbers doing that in Encinitas. Mortgage payments for a property costing $700K would be around $3K. Factor in property taxes and you are looking at negative cash flow.
I love Encinitas/Leucadia as I'm also looking for a property to buy as a primary there, but prices are crazy right now. Unless I find a deal, I'll wait a couple years for a price adjustment.
I currently rent in Encinitas and would love to buy something for the same reason as you, Steven. There is no problem finding renters that will pay, but it is tough right now to find properties that will cash flow. I have a condo that is breaking even in La Costa that we bought 11/2012 and lived in, fixed up and rented out. HOA increases gobbled the potential income right up, but it has appreciated nicely.
We along with many others, we could be waiting quite a while as market plateaus. The question is will it drop or just stall for a bit in this area? Some even think it will continue to increase just at a slower rate.
Yeah I have worked the numbers every which way and I think I'm trying to justify the purchase because we finally got an offer accepted after trying for three years. The plus sides are the house has no HOA fees but Im unsure of the realistic proposition of renting without losing money. My goal would be to break even in the property and simply gain equity. My fear is not moving on a propert now and prices remain the same while interest rates rise. It's hard to see prices dropping with the inventory being so low with no surge increase in inventory that I can picture on the near horizon.
@Steven Ellis Escondido, Vista, San Marcos, Fallbrook -- Would be my suggestion for the mission you are seeking. Best of luck, Michael
@Account Closed I agree Mike those are areas that tend to have better investment opportunities but we are stuck to living in the encinitas area due to commutes in opposite directions. Encinitas is very overpriced but the question I ask myself is waiting going to make it more affordable?
@Wesley Raye that's great Wesley you at least were able to secure a property at that time. We just didn't have the money or the understanding of the market that we do now. I really don't know what's going to happen but my guess is that it will stall for the next couple of years in that encinitas area being that inventory is unlikely to increase....but I'm inexperienced in real estate and have been relying on common sense alone to make a decision.
@Steven Ellis Not advice. Albeit if it were me I would not buy in Encinitas right now for the strategy you are envisioning. As @Jason L. mentioned I'm in line with what his comments.
@Jason L. Yeah we keep thinking we will just wait a little longer but we've been saying that for 3-4 years and watched it climb. Do you think there is a realistic chance for the affordability of homes in that area to self correct?
@Account Closed thanks for the insight Mike. Do you think that buying a house in that area at that price would require more of a commitment to keep the home as you primary until you decided to sell?
@Steven Ellis Depends on your personal financial standings. Your Job or other income / investments may work just fine for the current P.I.T.I. (Principal, interest, Taxes & Insurance that are associated) and you may find yourself very happy purchasing a home in Encinitas and enjoy the long-term appreciation.
It depends on your definition of affordability and where in Encinitas you want to live. A couple years ago I was looking at a property in Encinitas Highlands that would have been in the low 700s. Off market property. Now, the seller would be asking 1.1-1.2M...and might get it. While the chance of me getting that same house for low 700s is probably all but gone, I do believe there will be a correction of some sort, but nothing like we saw in 2008. Maybe 10%? Who knows. I don't know. I know nothing.
@Jason L. @Account Closed
thanks for the feedback everyone. if there is anything you think of please reach out! goodnight.
@Steven Ellis and @Wesley Raye. As a Realtor in Encinitas I have watched the rise & fall & rise for 22 years. My crystal ball agrees with the 2 to 3 year window of appreciation but at a decreasing rate. That, followed with a year or 2 on a plateau then a small drop. Encinitas only went down 20% in the last recession. I would expect the same or less the next time due to smarter lending practices.
Encinitas is a buy & hold for the long term. Of course, anything cash flows with enough down payment but realistically, buy and live here and enjoy the city & the appreciation. Nothing detached under $700K available now and only 13 under $1M. 22 Pending and 107 sold in the last 6 months. That is a 3 week supply of homes and it is tough to build in Encinitas so I would expect it will not get better soon. Only 2 sold under $600K in the last 6 months. Here is a link to the last 6 months in Encinitas, detached. http://paragonmls.sandicor.com/publink/default.aspx?GUID=4b0077f9-2d57-4e9b-9f04-d6fdf76c20ab&Report=Yes Go to the upper left of the page under Views and use the dropdown to get the one line list or "CMA".
no one knows what the market will do short term but as an RE investor I can say in general duplex to quad make better rentals than SFR. it is tough to get positive cash flow on SFR with 25% down anywhere in San Diego. But there are a few duplexes/triplexes that cash flow fairly well in my area of expertise.
In general San Diego is an appreciation market. As indicated I do not try to predict where the market will be in the short term. However long term the market will be up. It always has been up long term in San Diego. So if you purchasing for the long term you will do fine. If you try to time the market you may do great or you may be very sorry.
Most SFR will never be as good a rental as a small multiplex. My suggestion with what you plan is to attempt to find a detached duplex and house hack or to purchase the SFR you desire but when it is time to move on you sell the SFR instead of renting it and use the money to purchase a more appropriate rental property. I give this advice even though I did not follow it myself. One of my units used to be my residence. It is by far my worse performing property. I should sell it and invest in a better rental property but I do not. My son is 14 and if he goes to college in San Diego I will give him the house in 3 years (he will start college at 17). So that is what I used to rationalize keeping my worse performing property.
Good luck.
I understand your dilemma as Bay Area is in the same situation. We bought a few years ago and have a great ride of appreciation. It is hard for out-of-state people to know the power of appreciation of CA and I still scratch my head on how much it has appreciated. However, if I were to do it again, I would look into buying a duplex/triplex, live in one and rent out the other for better cash flow.
@Dan H. @Jen L. Dan your son is a lucky guy! House hacking a multi unit was my first choice but we couldn't find anything in encinitas area that looked like a good deal. My goal with the home would be to live in it 5 years and then hopefully rent it with the idea of breaking even to gain equity. This isn't the smartest investment I could make but I feel it would be better than doing nothing. The other option like you said would be selling it if the market is doing well enough. Thanks for the insight! I'm getting the impression that if you're going to buy a sfh in that area rental is not ideal and may even put you in the red unless your willing to stay in the property until the market is ripe for selling
@Dan H. @Jen L. Dan your son is a lucky guy! House hacking a multi unit was my first choice but we couldn't find anything in encinitas area that looked like a good deal. My goal with the home would be to live in it 5 years and then hopefully rent it with the idea of breaking even to gain equity. This isn't the smartest investment I could make but I feel it would be better than doing nothing. The other option like you said would be selling it if the market is doing well enough. Thanks for the insight! I'm getting the impression that if you're going to buy a sfh in that area rental is not ideal and may even put you in the red unless your willing to stay in the property until the market is ripe for selling
I like Encinitas and may end up moving there in the future but I do not know its RE investments like I know my area of expertise.
In my area of expertise the difference in price of duplex to quad that is listed versus those that sell is huge. You must use sold units as comps and ignore the units listed. The difference is way larger than for SFR that are typically purchased by the people who are going to reside in the property. Duplex to quads are typically purchased by RE investors. They will not purchase the property unless it makes financial sense which is not necessarily the case for those who are purchasing to live in their purchase. I do not know if Encinitas is the same as my area of expertise but I suspect it is.
Therefore to determine if there is any duplex to quad that looked like a good deal do not look at the current listings; look at the most recently sold. Were they good deals? If so then you need to be patient yet quick to leap. Between now and spring is the best time to purchase RE investments (not including the recent interest rate increases - ugh!).
I was planning on purchasing another multiplex in the next 1 to 4 months but with the interest rates rising I am going to need to re-evaluate.
Good luck
Bottom line is I have done this many times but stopped about 10 years ago when I moved to Carmel Valley with my daughters and stopped buying & moving so much so my daughters could stay in the same school district but now that my kids are older I am considering renting my home out for about $6,000 per month (payments are $2,500) and getting a 2-4 unit in a more urban area with an FHA loan.
IF you have a chance to buy and can afford it i'd go for it.
Thanks for passing along the knowledge Dan, all those things were helpful as well as the listing of the most recent sales in Encinitas bc I was wondering what some of those houses sold for.
Curtis I do check all those boxes you mentioned. The most compelling reason for me not to buy would be my rent in Solana Beach is very cheap, I got very lucky! However the tax breaks would be great! What do you mean by that you get 250k tax free (i'm not married)? I understand the general interest and property tax write offs but I would be writing off much less than 250k.
If it where me I would do the commute to Oceanside (or inland Cardiff). I know you said you didn't want to commute in either direction but you will get much more appreciation in the long run. The rental community there is strong. Oceanside is cheaper and they are doing the Mission Ave Improvements, beach restroom projects, etc. In the next 5 years they will have a nice landscaped downtown with public art, high end stores, nice facilities.
@Jackson Carr I agree I think the potential upside on those areas is better especially in the short term but it's hard to find properties without HOA fees attached which I was really trying to avoid. Oceanside has less hoa fees i've found but unfortunately prob a little too far of a commute to be sustainable. thanks for the input jackson.
@Steven Ellis @Wesley Raye, What @Curtis Gabhart meant was that if you live there for 2 of the most recent 5 years AND the property increases in value, when you sell it, as a single person you would not have to pay capital gains or income taxes on up to $250,000 of profit. If you are married, you each get a $250,000 allowance (exemption) so if you are fortunate to make a $500,000 profit on your investment and want to "cash out," you can do this without paying income taxes.
Disclaimer - I am neither a tax adviser nor accountant. Please consult your CPA
So Wesley, if you sell in then next 3 years, you qualify for the exemption. If you wait longer to sell, you will likely want to do a 1031 exchange.
HI there, sorry to be so tardy to the party -
I am a realtor and resident of Encinitas, I have lived here for 47 years on and off and I have witnessed the growth first hand.
Recently I was a partner on a rehab/flip in Village Park, we procured the house for a fair price, applied a modest budget to the rehab, created an attractive home for most buyers and made a healthy profit - This is a very desirable neighborhood with amenities and a great school district. There is a community fee (HOA) but it is nominal at an of ~$22/mo
I ran the numbers on the above project and we would have made money as a rental or a sale - I estimated a rental price of $3,000-3,5000/mo - at least breaking even as a fix-n-hold
I am a big fan of Encinitas, and if you have the budget I think this is still a great community to invest in - The property values throughout San Diego remain on the rise and as people within San Diego and beyond realize the charm in North County the desirability and value will remain on the rise -
And if I think back to the last crash, Encinitas didn't depreciate much, it may have stabilized, but it did not fall with the crash.
And to reinforce some of the comments above, there are so many benefits to home owners, tax benefits, credits to owner occupants and landlords who have occupied there properties etc.