Newbie looking for advice on how to start my REI journey!!!
San Dimas, CA · Member since 2016 · 3 posts · 1 vote
Newbie looking for advice on how to start my REI journey!!!
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I have an ex residence in San Diego as one of my rental. It is by far my worse performing rental. Homes are purchased to be a nice home for your family which is not the same criteria as makes a good buy n hold property. I have a reason that I keep my ex-residence and that is that I expect to give it to my son when he graduates from college ((he just turned 14 but starts college in 3 years). If he goes to college in San Diego he can live in the unit as he goes to school. My point is I suspect you can find a better buy n hold than your current residence.
I am very pro San Diego investing. Historically it has had outstanding ROI on financed buy n hold property. Historically better than the markets that rely primarily on cash flow. Run the numbers and it will be apparent that appreciation will result in better ROI than just cash flow. Ideally you find a market that has both good appreciation and cash flow but there is a reason why this is difficult. Investors price expected appreciation into what they are willing to purchase a property for. So if a market will have good appreciation while having good cash flow then it is out performing the expectations as conveyed in the purchase price. There are markets were this does happen but they typically do not have the long term appreciation of San Diego.
Unfortunately the recent interest rate hikes have hurt cash flow in marginal cash flow areas like San Diego. I suspect there may be a slight dip of rates in the new year but then I expect further increase. Traditionally I have little problem finding cash flow multiplexes using my cap expense numbers (~$250 unit/month attached, ~$300 unit/month detached for small typical size rentals (2/2 or 3/1)) but the numbers are tighter than any time since I have been a fairly active RE investor (I have been fairly active since 2010 but my first unit was the ex-resident and was a rental since 2003).
Research cap expense when you purchase. Do not look at a full rehabbed unit and think that the cap expenses are small because there are not any near term cap expenditures expected. In reality they are simply further duration away. The best plan is to calculate the monthly theoretical cap expense and use it to determine cash flow. This levels the cap expense rather than making it back heavy when the rehab has gotten old and needs a new rehab. I have a unit in need of a $30k foundation cap expense. If I used actual cap expense cost as my cap expense I would have shown little cap expense for many months then a $30k hit. How would I deal with that in terms of calculated cash flow. Would I revise going backwards or show no cash flow for the next many months to when the cap expense has been covered? Ditto kitchen rehab, new windows, new plumbing, near roof, new HVAC, new stucco/siding, etc.
I suggest you attend some REI meet ups. There is an almost monthly one in San Diego put on by some BP members that is educational and a good opportunity to network.
Final suggestion is in my market area there is large difference on small multi family properties between asking price and selling price. Do not use listings as the comps. Used sold properties only even if you must go back further in time than desired. There is a huge price difference in listing prices versus where the multiplexes sell. This difference is not as substantial in SFR because those are purchased as homes which do not need to be a decent investments because they not an investment but primarily a home.
Good luck
5 Replies
- 9yUmar JavaidPro MemberBiggerPockets Support · São Paulo, São Paulo · Member since 2015 · 548 posts · 79 votes
Welcome to BP!
- Professional · Carlsbad, CA · Member since 2012 · 12k+ posts · 1k+ votes9y
Welcome to Bigger Pockets. Make sure to listen to the podcasts. They are very informative, and contain ample information. https://www.biggerpockets.com/blogs/
- Rental Property Investor · Phoenix, AZ · Member since 2013 · 919 posts · 911 votes9y
@Hector Valles Welcome. I am a Cali Native (San Diego) that moved to AZ in 2010. Best thing I ever could have done. Prices in Cali are high and that does not take into the account that Cali is very tenant friendly. AZ, IMHO, is the way to go. Much lower entry point and properties still cashflow (but not as well as they did a couple of years ago).
If you want to stay in Cali with your investment, you may want to look for newer properties in Apple Valley, Victorville, Hesperia, or even Bakersfield and Porterville. They would be close enough for you to self manage (if that is what you want to do) and give you a decent price entry point that doesn't break the bank.
Another possible option is partnering with someone on a long term buy and hold. Usually needs to be a family member that has capital or credit to assist. They need to bring SOMETHING to the table other than a 'heartbeat'. LOL. If not a family member, form a LLC that has a well written 'exit strategy', timeframe of the investment, and possible contingencies.
I owned a property in Bakersfield that I got via divorce. It was an 'albatross' on day 1, but I ended up making $120k about 6 years later. After all, they are not making more land in Cali, but they are making more people! LOL.
PM me if you want to talk more about your situation.
Kind Regards,
AG
I have an ex residence in San Diego as one of my rental. It is by far my worse performing rental. Homes are purchased to be a nice home for your family which is not the same criteria as makes a good buy n hold property. I have a reason that I keep my ex-residence and that is that I expect to give it to my son when he graduates from college ((he just turned 14 but starts college in 3 years). If he goes to college in San Diego he can live in the unit as he goes to school. My point is I suspect you can find a better buy n hold than your current residence.
I am very pro San Diego investing. Historically it has had outstanding ROI on financed buy n hold property. Historically better than the markets that rely primarily on cash flow. Run the numbers and it will be apparent that appreciation will result in better ROI than just cash flow. Ideally you find a market that has both good appreciation and cash flow but there is a reason why this is difficult. Investors price expected appreciation into what they are willing to purchase a property for. So if a market will have good appreciation while having good cash flow then it is out performing the expectations as conveyed in the purchase price. There are markets were this does happen but they typically do not have the long term appreciation of San Diego.
Unfortunately the recent interest rate hikes have hurt cash flow in marginal cash flow areas like San Diego. I suspect there may be a slight dip of rates in the new year but then I expect further increase. Traditionally I have little problem finding cash flow multiplexes using my cap expense numbers (~$250 unit/month attached, ~$300 unit/month detached for small typical size rentals (2/2 or 3/1)) but the numbers are tighter than any time since I have been a fairly active RE investor (I have been fairly active since 2010 but my first unit was the ex-resident and was a rental since 2003).
Research cap expense when you purchase. Do not look at a full rehabbed unit and think that the cap expenses are small because there are not any near term cap expenditures expected. In reality they are simply further duration away. The best plan is to calculate the monthly theoretical cap expense and use it to determine cash flow. This levels the cap expense rather than making it back heavy when the rehab has gotten old and needs a new rehab. I have a unit in need of a $30k foundation cap expense. If I used actual cap expense cost as my cap expense I would have shown little cap expense for many months then a $30k hit. How would I deal with that in terms of calculated cash flow. Would I revise going backwards or show no cash flow for the next many months to when the cap expense has been covered? Ditto kitchen rehab, new windows, new plumbing, near roof, new HVAC, new stucco/siding, etc.
I suggest you attend some REI meet ups. There is an almost monthly one in San Diego put on by some BP members that is educational and a good opportunity to network.
Final suggestion is in my market area there is large difference on small multi family properties between asking price and selling price. Do not use listings as the comps. Used sold properties only even if you must go back further in time than desired. There is a huge price difference in listing prices versus where the multiplexes sell. This difference is not as substantial in SFR because those are purchased as homes which do not need to be a decent investments because they not an investment but primarily a home.
Good luck
- San Diego, CA · Member since 2016 · 46 posts · 13 votes9yDan Heuschele you it right in the money about SD market. I don't see SFR cash flowing. They are good for buy and hold for appreciation. I ran numbers on dozens of SFHs around here and none of them works out well. I am now looking into multi family but those are still pretty expensive.
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