Areas to invest around San Diego for rental properties

13 Replies

Hello, I am based out of San Diego and getting into real estate investments. I am looking at building my portfolio in rental properties. I am thinking of buying properties in the range of 50k - 70k. Which areas around San Diego will be good areas for me to start looking at that provide positive cash flow? Any inputs and guidance is very much appreciated Thanks, Manav

@Manav Wadhwa I honestly do not know the San Diego market very well, but what I do know is that there are investors flying here to Cleveland FROM San Diego and LA to pick up rental properties. From what I understand, you can't buy a tent under a bridge for $50k in Southern California. But here in Cleveland, for 50-70k, you could pick up a really nice turnkey rental that brings in $1,000-$1,200 a month in rent.

I say your first step then is to look outside of SoCal...

Originally posted by @Manav Wadhwa :
@Peter Ledger - that’s correct. Southern California is expensive. Thanks a lot for your input 😊

 Of Course! Message me if you want to look into the Cleveland market. I love showing off this city to folks from out of state.

Originally posted by @Manav Wadhwa :
Hello,

I am based out of San Diego and getting into real estate investments. I am looking at building my portfolio in rental properties. I am thinking of buying properties in the range of 50k - 70k. Which areas around San Diego will be good areas for me to start looking at that provide positive cash flow?

Any inputs and guidance is very much appreciated

Thanks, Manav

 Hi Manav, I live in Carlsbad. The best areas around San Diego to purchase $50-$70k rental properties will be Kansas City, Ohio, Indiana. Now, some of these areas are not exactly driving distance but there are good deals there :)

Originally posted by @Sharad M. :

Hi Manav, I live in Carlsbad. The best areas around San Diego to purchase $50-$70k rental properties will be Kansas City, Ohio, Indiana. Now, some of these areas are not exactly driving distance but there are good deals there :)

Haha! I second this one, unfortunately. Those actually might be the closest places to SD to get a $50-70k rental.

Do you have $50K to $70K to invest or are you looking for properties that cost less than $70K?

If you have $50K to $70K to invest you can do great with high LTV owner occupied homes (house hack). It would even leave you money for an unexpected major expense. I would choose working class areas because starting out you would not want negative cash flow.

If you are hoping for a purchase cost of less than $70K in San Diego, then you options are limited.

One option is raw land that is not zoned for development and hope that the housing crisis results in the land later get zoned for development.  One reason that you cannot purchase a home for less than $70K is the break ground cost in San Diego is around $100K.  That is permits, surveys, etc. necessary to just start the construction process cost ~$100k.

Another option is to invest with a syndicate.  Research the syndicate to find one with an outstanding track record.

Another option is invest in RE notes.  Again do your research.

Another option is invest in a publicly traded REIT. Maybe consider a REIT that concentrates on assisted living due to the aging population.

Final option I can think of, and which in my view is the worse option (low ROI, high risk, possibly the most work), is to invest in a 0 appreciation, low cost Midwest RE.

Less than $70K purchases anywhere (including the Midwest) are only available in 0 appreciation markets.  This implies that your cash flow will never increase which in effect means it is depreciating at ~CPI.  For example, lets assume you have a team in some no where town in a Midwest state that you can purchase for $70K and lets say after realistic costs (using the 50% rule) that it cash flows $100/month.  Lets say you own it 20 years.  historically in 20 years it will still cash flow $100/month.  That $100/month has closer to the $50 purchasing power of today's money.  Historically you go to sell it and you need to put in a little money to get it ready to sell and you sell it for ~$70K which has closer to the purchase power of $35K.  That is the reality of the 0 appreciation markets as there is a reason that the property can be purchased for $70K.

Did you know the average San Diego SFR has experienced more dollars of appreciation in the last 5 years than the average Midwest property has achieved in cash flow in the last 50 years?

I am not anti Midwest investing. I believe if you live in the Midwest then start your investing in the Midwest. Coastal So Cal investors investing in 0 appreciation markets (lowest cost Midwest markets) for cash flow does not make any sense to me and not just because of the poor historical ROI of the low cost Midwest markets.

Good luck

$50-70k rentals even the midwest are in my opinion too low a price to pay for an out of state investor, unless you are talking about a pre-rehab.  Go a little higher to target a stable tenant base, and look for rents $850 and above.

@Dan Heuschele - thank you for such an insightful view. Your inputs are very valid. 

You aptly helped articulate goals for my investment better (even to myself) - generation of positive cash flow from rentals, and overall appreciation of property/properties. 

The reason I am looking for homes in range of 50K - 70K allows me to  buy multiple properties with limited cash. Investing 50-70K in a single property will restrict my ability to invest in multiple properties. Currently I am looking at financial institutions as my source for OPM. I don't have contacts/understanding of working with a syndicate or other forms of raising money. 

Considering this view, what will be your advice on where to start? 

@Larry F. - agreed, having a stable tenant base is important. I can look for a slightly higher range to fetch rents that allow me get a stable tenant base. Considering mid west is being recommended as an area with very low appreciation, which other areas can I focus to invest in? 

Originally posted by @Manav Wadhwa :

@Dan Heuschele - thank you for such an insightful view. Your inputs are very valid. 

You aptly helped articulate goals for my investment better (even to myself) - generation of positive cash flow from rentals, and overall appreciation of property/properties. 

The reason I am looking for homes in range of 50K - 70K allows me to  buy multiple properties with limited cash. Investing 50-70K in a single property will restrict my ability to invest in multiple properties. Currently I am looking at financial institutions as my source for OPM. I don't have contacts/understanding of working with a syndicate or other forms of raising money. 

Considering this view, what will be your advice on where to start? 

 I do not know your age or current home situation but I recommend newbies start by house hacking a detached duplex.  Note being a landlord is not fully passive even if using a PM.  

There are high LTV options for owner occupied that would allow you to purchase with the $50k to $70k. The issue is high LTV means poor cash flow in San Diego.

I also do not know how passive of an investment you seek or how handy you are. But I recommend newbies look for easy value add such as in need of a rehab. Live in the worse unit and rent better unit. Rehab the unit you are occupying and after rehab rent the rehabbed unit at top of market because it is freshly rehabbed then move to other unit and then rehab that unit. After both units are rehabbed but while still owner occupied (owner occupied loans are superior to investor loans) refinance the property. Ideally you get out virtually all of your investment and have a property that has at least a small amount of cash flow. If you accomplish this you now would have an income stream for as long as you own that and little or no financial cost. This property is in San Diego where appreciation (rent and property) has historically produced outstanding ROI.

At this point you can repeat the process.  

This process definitely is not passive.  Rehabbing unit’s, even using contractors, takes time.  Being a landlord, even with use of a PM, is not passive.  If you want a more passive RE investment look into REITs, syndicates, or notes.  

Good luck