I live in San Diego currently and I’m new to investing. I would like to invest in multi family but looking in my area it seems way out of reach and really not even worth it. I’ve been looking at properties in St. Louis , MO and some in Tennessee and Ohio. I’m even willing to relocate my family (wife and two children) to one of these areas to get started. Does anyone have a same experience getting started or any tips ? Or is anyone here an investor in San Diego and if so how’d you get started?
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
6y
I'm in SD. Invest in Houston TX. Pick a place to invest, and learn all you can about the submarkets. Find a few knowledgeable multifamily brokers (if that's what your into) and you're off to the races.
Rental Property Investor · San Diego · Member since 2019 · 109 posts · 87 votes
6y
Hi @Michael K. Smith and welcome to BP. You're right that it's hard to find cash-flowing properties here in San Diego. This is primarily an appreciation market, but you can still find diamonds in the rough if you search well enough. It's unlikely that a property you find on one of the online sites (Zillow, Refin et al) will pencil out for cash flow though. However, you will find properties on there that need some rehab and/or freshening up that you could house hack with.
If you are set on finding a cash flowing property, you could find an off market deal from a wholesaler or work directly with a seller to make the numbers work. Good luck!
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
6y
I'm in SD. Invest in Houston TX. Pick a place to invest, and learn all you can about the submarkets. Find a few knowledgeable multifamily brokers (if that's what your into) and you're off to the races.
Rental Property Investor · San Diego, CA · Member since 2017 · 60 posts · 29 votes
6y
@Michael K. Smith - I live in San Diego and own 32 rental units (8 four family buildings) in St Louis. I highly recommend learning the specific neighborhoods before making any investments in the area. However, I'm a huge fan of the St Louis market. I would say that it's been hot lately (not making national news). Any good 4 fam lasts about 2 hours before receiving multiple offers...
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
6y
I see a couple of posts that indicate San Diego is poor for cash flow including by someone that should know otherwise. Cash flow is defined as revenue - expenses over the hold period. Few locations have achieved the actual cash flow achieved by San Diego RE.
There is a big difference between initial cash flow projection, projected cash flow, and actual cash flow. Initial cash flow projection is the cash flow estimated at purchase using best (should be conservative) estimates on revenue and expenses. This cash flow estimate is performed without accounting for any market or rent appreciation because on day 1 there is no appreciation (but there is potentially purchased below market value). San Diego traditionally does terrible on this cash flow projection but I will explain why later. Then there is projected cash flow. This should be cash flow projecting for appreciation (rent and market) but should be conservative on any appreciation estimate. I would use a number that is higher than I would use in the historically zero (meaning below the inflation rate) areas but less than has historically been achieved by San Diego RE. San Diego typically does better on this projection for long term holds than the zero appreciation markets. Then there is the actual cash flow achieved on a long term hold. This is where San Diego has traditionally excelled and been near top of nation. About 1.5 years ago I looked at rent appreciation for San Diego county SFHs. In the previous 3 years, the average SFR rent had increased $500/month. Any property purchased at the beginning of that 3 year window would have had their cash flow projections increase nearly $500/month (assuming mortgage is fixed and knowing property tax is basically fixed, so variables are maintenance/cap ex, vacancy, and insurance).
So why is the initial cash flow so poor? It is because the projected returns is built into the price. It is similar to purchasing a growth stock versus an established low growth stock. If they have the same profit today, the growth stock will cost you more to purchase because its profit is expected to increase at a faster rate than the low growth stock. In the case of San Diego RE, we have historically outstanding market and rent appreciation, basically fixed property tax, great climate, limited land, very low vacancy rates all to be factored into the cost. Basically San Diego RE has historically provided a high return at low risk and this is projected to continue and is reflected in the price.
The cash flow on my San Diego RE is outstanding. how outstanding? my highest purchase to rent ratio is ~3.5% ($375K purchase with ~$16k/month rent). I believe every one of our properties currently has monthly rent over 1% of purchase cost (if not quite, it certainly is very close). In addition, due to value adds and market appreciation, most of our properties have had all of our investment extracted (i.e. We have no money invested in most of our properties). This implies this great cash flow is achieved with very little of our money invested (we have 3 properties that have never been refinanced and 2 properties were the refinance did not result in extracting all of our investment (those two RE we have hardly any money still in), so 5 of our properties still have some of our investment).
Cash flow is not defined by the initial cash flow but is defined by the actual cash flow achieved over the holding period. Market price of the RE reflects both the perceived risk and reward/return associated with the purchase.
Rental Property Investor · San Diego, CA · Member since 2019 · 17 posts · 10 votes
6y
Have you looked a bit up North? Vista, Temecula or even Hemet? Depending on your budget and ideal neighborhood this may be an option. I am also in San Diego but have a unique vision. I own a home with a zone 4 lot that I am building my 4plex rental property on. Something like this may work for you if you are looking to stay in San Diego and are open to being creative.
Have you looked a bit up North? Vista, Temecula or even Hemet? Depending on your budget and ideal neighborhood this may be an option. I am also in San Diego but have a unique vision. I own a home with a zone 4 lot that I am building my 4plex rental property on. Something like this may work for you if you are looking to stay in San Diego and are open to being creative.
Value adds such as this could allow the extraction of much/all of the initial investment. I do not know if you have done this before, but the first one is likely to provide some learning opportunities. I believe value add is the least rare path to an initial good ROI. Unfortunately, value adds have a lot of competition so finding good ones is not trivial. So congrats on your find.
Because finding good value add RE is proving elusive for us lately, we are considering a similar path but making use of the ADU rules. Purchase a large property with a fairly large SFR (at least 2400') in a higher class area (class B+ and above) and place a 1200' ADU. We are trying to optimize the value of the land which is why we are attempting this in high class areas (Poway, Encinitas, RB, etc.). Our initial cash flow projections are not great but cash flow projections on class A property typically is no where what class C RE projects. So it likely will start near cash neutral and it is a large investment for cash neutral (we anticipate over $1M). So it is not without risk.
Unfortunately, we had a fire a month ago that destroyed 2 units that we are going to address first (the hazardous waste people just finished Monday).
What neighborhoods in STL did you invest in if you don't mind me asking ?
I've been looking in the West End. My father in law has lived there for years and has been relaying information to me about the market out there. I was told the west end is up in coming and right now is the time to get in. I've also been speaking with a few realtors out there.
Did you first visit before investing?
Ive even thought about moving out there into a multifamily and using FHA loan but I'm looking for an area that I will feel good about moving my family too.
My favorite neighborhoods for investment are Southwest Gardens and North Hampton. Specifically, my North Hampton assets perform the best as the purchase price is much lower than Tower Grove South or Central West End, but the rents are not significantly lower. I do also have a property in Tower Grove south next to Grand Ave (lots of cool restaurants in walking distance)...doesn't perform as well as the others, but likely best suited for appreciation.
Rental Property Investor · San Diego, CA · Member since 2017 · 60 posts · 29 votes
6y
Sorry...in regards to your other question, yes, I visited the area first. I made a couple trips, looked at tons of places, drove the neighborhoods, went to local restaurants, studied crime and census data, and asked local investors via BP.
Dan if your reason for the 2,400 SF main house is to maximize the 1,200 SF ADU...there is no need...The 50% of the main unit rule is only for attached ADUs. The County has specifically published an example (page 3) of a detached building where you would be allowed a full 1,200 SF ADU even if that is more than 50% of the 'main' dwelling.
Investor · Leawood, KS · Member since 2017 · 178 posts · 108 votes
6y
Hey! I got tagged in this post bc I live In SD and invest in multifamily out of state. We have a breakfast meetup this Thursday morning in mission valley with like minded ppl.
Feel free to reach me directly at six one nine- seven nine seven- six two one three
Sorry I don’t check BP much but would like to more
I live in San Diego currently and I’m new to investing. I would like to invest in multi family but looking in my area it seems way out of reach and really not even worth it. I’ve been looking at properties in St. Louis , MO and some in Tennessee and Ohio. I’m even willing to relocate my family (wife and two children) to one of these areas to get started. Does anyone have a same experience getting started or any tips ? Or is anyone here an investor in San Diego and if so how’d you get started?
Michael, I love your drive. Keep it up. First, before you make that decision with the family. I would start to listen to a podcast, youtube, and read books. I can give you some recommendations. I would recommend if you can invest passively through syndication invest passively to gain knowledge about how syndications are operated. I hope this helps!
Thank you for the tips. What recommendations do you have? I'm all ears. Also, I will definitely look into investing passively to gain more knowledge about how syndications are operated. This is the first time I'm hearing about that.
I live in San Diego currently and I’m new to investing. I would like to invest in multi family but looking in my area it seems way out of reach and really not even worth it. I’ve been looking at properties in St. Louis , MO and some in Tennessee and Ohio. I’m even willing to relocate my family (wife and two children) to one of these areas to get started. Does anyone have a same experience getting started or any tips ? Or is anyone here an investor in San Diego and if so how’d you get started?
Welcome to the forums Michale. Saw that Ohio was on your short list so I figured you'd get some value out of reading The Ultimate Guide to Grading Cleveland Neighborhoods. In addition to Cleveland, Ohio there are many other turnkey markets out there that investors from high cost markets like yourself invest in. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors
Cincinnati, Ohio
Dayton, Ohio
Toledo, Ohio
Youngstown, Ohio
Cincinnati, Ohio
Memphis, Tennessee
Birmingham, Alabama
Kansas City, Missouri
Saint Louis, Missouri
Indianapolis, Indiana
Detroit, Michigan
Erie, Pennsylvania
Louisville, Kentucky
Milwaukee, Wisconsin
Jackson, Mississippi
Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.
One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.
Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
Make sure your property manager is a licensed real estate brokerage.
Google Clayton Morris and/or Morris Invest for a cautionary tale of what not to do when buying turnkey real estate
Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.
Thank you for the tips. What recommendations do you have? I'm all ears. Also, I will definitely look into investing passively to gain more knowledge about how syndications are operated. This is the first time I'm hearing about that.
Do you invest in Charlotte?
Yes, I invest in the southeast. I focus heavily on the Carolinas as I have lived in Charlotte NC for 13+ years.