San Diego real estate

[Vick Sal]

I live in San Diego. The property prices are sky rocket high but still people are buying? Is this a good time to invest. I’m thinking to buy and hold the property. Any advice will be very much appreciated.

[Dan H.]

Buying in San Diego right now requires either a value add play or a long term outlook.

Retail purchases with high LTV loans are cash flow negative. Due to high rents, the 50% rule is conservative, but you want cash flow projections to be conservative. How bad is the cash flow? If I project with the 50% rule, many San Diego markets have initial negative cash flow of 50% of the rent. As stated I do believe 50% rule is conservative, but I want cash flow projections to be conservative.

I looked at 2 properties last week and was prepared to offer on one (someone beat me to it).  The one that I was going to offer on had a current rent projection ratio of 0.45% of purchase price.  This would be so cash flow negative that it would likely loose far over $1K/month (probably over $2K/month).  I had a value add in mind that probably would project it to a 0.75% property and slight initial positive cash.  

I suspect that the purchaser either was going to owner occupy it or had a similar value add in mind.

San Diego always has and is likely to continue to have strong appreciation.  This means both property and rent appreciation.  A long term hold will benefit from both and is likely to out product most markets.  The question is how long will it take?  I suspect it is likely to take at least 5 years for this market to produce a better return than less inflated markets.

Good luck