San Diego or Phoenix?

19 Replies

I'm about to sell my condo in downtown San Diego and should end up with around $130k after costs.  I plan on doing a 1031 exchange to buy more investment propertie(s).

I was planning on buying about 3 triplexes or quads in Phoenix for the cash flow. I really wasn't concerned about appreciation as most of the buildings are so cheap here ( sub $200k). I was planning on putting $42,500 down on each one, then saving the NOI and buying more in perpetuity.

Now I'm looking at all the short sale SFH, and full price duplexes in San Diego. They all seem to be around $425-500k (I would put the entire $130k down on one property). The reason that puts a monkey wrench in my original plan is I am much more familiar with the San Diego market, as I grew up there. Also the appreciation would be far higher than it would be in Phoenix. However if I was lucky I would be able to make around $12k a year NOI, while in Phoenix the number would be closer to $18k I'm guessing.

My short term goal is to eliminate any reason to work overtime at my job, while my long term goal is to do REI full time.

Thanks for any advice.

@Bud Dwyer  Is your condo you are selling a rental property or did you live in it? You may not have to do a 1031 exchange depending on that situation.

Originally posted by @Aaron R. :

@Bud Dwyer  Is your condo you are selling a rental property or did you live in it? You may not have to do a 1031 exchange depending on that situation.

It was a rental.

Hey Bud, well one problem you are going to run into in both markets is neither of them are going to cash flow for you. Your only bet would be hoping for appreciation (which is more likely in SD, but still should be a strategic move or you risk losing a lot since it's negative cash flow every month). So make sure you know which track you are wanting, and if it's cash flow, be sure you know how to run those numbers because they aren't going to look too great in either place. Phoenix was a great option about 4 years ago but prices have skyrocketed since.

Can you explain how they wouldn't cash flow?

My prospective numbers so far, for one quad I'm looking at is:

Listing price : $185k

Down payment $42,500

Mortgage : $8664 per year (@ %4.5)

Insurance : $1200

Taxes : $1600

Maintenance: $2000

Trash $600

Sewer/Water: $2200

Management: $2520 (%10)

Vacancy: $2016 (%8)

TOTAL Expenses: $19000

Total Rent per year : $25200

$6200 Cash Flow (Did I do it right?)

@Bud Dwyer Welcome to BP! Both areas are wise investments long term. San Diego is initially more challenging probably. The math looks about right and or allocate 50% for expenses on average. You could experience more expenses with turnover or larger items like roof or sewer line so these items should be inspected along with the rest when you are buying. Good luck with your search!

Hi Bud, I am a local realtor and real estate investor in North San Diego County. I was born and raised here, too. :) I am happy to connect if you need help with selling your property or locating a new one in the area. www.FineHomesSD.com or call/text 760-583-2226. ~Kara

@Bud Dwyer

Consider sending messages to other members which is my favorite part of the website.

i would do san diego since you are local and probably understand the geography much better.

@Bud Dwyer

Phoenix

I live in San Diego and invest in AZ 

Cash flow is way easier to attain in AZ and you will be able to build equity in multiple properties that way you can shed 1 and exchange up etc... 

your number look ok !

If you can add value to the duplexes in AZ, and if they are all near each other even better!

Originally posted by @Garrick Oconnell:

@Bud Dwyer

Phoenix

I live in San Diego and invest in AZ 

Cash flow is way easier to attain in AZ and you will be able to build equity in multiple properties that way you can shed 1 and exchange up etc... 

your number look ok !

If you can add value to the duplexes in AZ, and if they are all near each other even better!

I'm inclined to agree with you there.  the more I look in to it Phoenix seems to be an easier market to cash flow in.  With San Diego I would be hedging all my cash on appreciation.  In Phoenix I can get triplexes or quads for well under $200k.

Originally posted by @Bud Dwyer :

Can you explain how they wouldn't cash flow?

My prospective numbers so far, for one quad I'm looking at is:

Listing price : $185k

Down payment $42,500

Mortgage : $8664 per year (@ %4.5)

Insurance : $1200

Taxes : $1600

Maintenance: $2000

Trash $600

Sewer/Water: $2200

Management: $2520 (%10)

Vacancy: $2016 (%8)

TOTAL Expenses: $19000

Total Rent per year : $25200

$6200 Cash Flow (Did I do it right?)

Those numbers are very similar to the 4 plex I own in Phoenix, and it cash flows well. Of course I have seen similar buildings to the one I bought only a year ago on the MLS for $30-40,000 higher than what I paid.

@Bud Dwyer I should mention that I am a bit biased toward Phoenix since I live in Arizona and already invest there, but there are some other positives. Arizona is a very landlord friendly state compared to California. The taxes in AZ are dirt cheap, and I am saying that as a person from Kansas. The dry warm weather means that there will be a lot less maintenance issues than in a more wet environment.

Some of the downsides include much less appreciation, and very little actual multi-family housing stock is available, especially at a reasonable price. In fact, that is the reason why I am looking in Tucson for my next purchase rather than Phoenix, even though I believe Phoenix is a much better market.

@Bud Dwyer

have you considered keeping your SD condo and just cashing out some of the equity you have in it? if it is already rented out and hopefully cash flow positive then I wouldn't touch it, get some money out and  buy in Arizona.

Originally posted by @Sam Kassi :

@Bud Dwyer

have you considered keeping your SD condo and just cashing out some of the equity you have in it? if it is already rented out and hopefully cash flow positive then I wouldn't touch it, get some money out and  buy in Arizona.

 I was looking in to doing that, but the numbers made it seem like I would have an extra mortgage payment.  I would rather cash out the equity and buy more properties.

Bud -

What part of AZ are you finding tri/quad plexes for well under $200k? The only areas that I know of in the valley that offer those prices anymore are war zones.

The price for a multi-unit in a safe part of town is $300k+.

Originally posted by @Scott S. :

Bud -

What part of AZ are you finding tri/quad plexes for well under $200k? The only areas that I know of in the valley that offer those prices anymore are war zones.

The price for a multi-unit in a safe part of town is $300k+.

As long as war zones pay on time...

@Anthony G hit it on the head I think. For a long term rental landlord laws are a big concern. California tends to side with the renter where as Arizona can be more landlord friendly (I've lived in both states). Will you be able to evict a delinquent tenant in a reasonable amount of time? Do you have the power to increase rents with market? A few things to consider.

Originally posted by @Scott S. :

Bud -

What part of AZ are you finding tri/quad plexes for well under $200k? The only areas that I know of in the valley that offer those prices anymore are war zones.

The price for a multi-unit in a safe part of town is $300k+.

Not true Scott. Pop open the MLS, there are some slight value add Properties in Mesa, Chandler, and other parts of the East Valley. I'm in the market to buy a 4 plex soon.

Originally posted by @Scott S. :

Bud -

What part of AZ are you finding tri/quad plexes for well under $200k? The only areas that I know of in the valley that offer those prices anymore are war zones.

The price for a multi-unit in a safe part of town is $300k+.

 Perhaps we have different definitions of "War Zone". I admit, the properties that I am looking to buy and that I own are lower income, but they are not located in "War Zones" by any means.

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