Should I invest in San Diego, CA?

Question

Hi everyone! I live in San Diego (out east in Ramona), and I'm curious what you all would say about investing here. I'm a newbie, and I keep hearing to invest locally when you first start out.

I also keep hearing how tough the market is here. I need to have at least moderate cash-flow. I'll be doing a 1031 exchange, so I have a big chunk to put down, and was thinking of looking for a 3-4 multi-family. Would you recommend that focus on certain areas on SD, or maybe lookin more at the Inland Empire, like Riverside or Ontario?

Thank you in advance! ~Rose

Dan H. · Answer

Historically San Diego RE has been a great investment.   However, RE is more challenging than in recent times.

However it is my view there are only a few paths in San Diego RE at this moment 1) patience. I am thinking years of patience. San Diego has historically out performed virtually all other markets. Over the long term I believe this will continue. However, other markets have the same issue contrary to the posts from OOS agents. I am not that patient. 2) value adds. For the most part these require work and have risk but there are few markets that do better than San Diego via value adds. My last purchase is up over $500k above my costs in 2.5 years. 3) alternate rent models (rent by room, STR, MTR). These require work. Pay a pm and the profit is significantly reduced 4) path of progress. It is getting a little late to leverage the Chula Vista bay front development. However Brown Field upgrades is in its infancy.

You can achieve cash flow by minimizing leverage.   However, historically the San Diego return is via appreciation.   Leverage magnifies the return from appreciation.   Lower leverage equates to lower return.   Low leverage is a conservative approach that will be reflected in the returns achieved.

Good luck

Jimmy Lieu · Answer

Hey Rose, welcome to BP! You’re right that San Diego can be a tough market to cash flow in, especially with current prices and rates, even on small multifamily properties. It’s definitely doable, but the numbers can get tight unless you have a huge down payment or find a value-add opportunity. If your main goal is moderate cash flow and long-term stability, you might want to look beyond SD into more affordable, landlord-friendly markets where your 1031 funds go further. For example, I moved from Portland to Columbus, Ohio back in 2020 to invest and now own 10+ rentals here. Columbus has been growing fast with strong job and population growth, plus major companies like Intel, Amazon, Google, and Honda developing here. You can still find solid properties in the $120K–180K range that hit the 1% rule and cash flow from day one while offering great appreciation potential. It’s a market that’s been working well for both local and out-of-state investors. Happy to connect and answer any questions you have!

Jason Wray · Answer

Rose,

Having a good chunk of change allows you a lot more options in some cases you are your own bank.  When you buy a property "All Cash" you can immediately get 80% LTV plus any renovation or repair costs back same month.  Similar to a refinance its called "Delayed Financing" you may already know but just wanted to add it in case it helps.

You can also buy a property that cannot pass an inspection/appraisal and considered "subject to" which also allows you to bid with a higher offer accepted.  You can use funds to renovate or once you own it pull out a Heloc or again Delayed financing to speed up the ARV and BRRRR if you plan on buying more quickly.

Sand Diego is a tough market unless you are buying a 2-4 units where you can earn more cash based on more doors/units.  That allows you to collect more rents with only one tax/insurance bill versus 2-4 separate tax/ins plus maintenance.   If you are open to "Out of State" your options quadruple due to a higher purchase to cash flow ration in multiple states vs California.

Even Oregon is a better bang for the buck on the upper Coastline where you can buy a home on the cliff with a private beach for under $2M.  Good news is since you reside in CA you can buy it as a Vacation Home/Second Home and put less down, still rent it out or refinance it down the road on a cost efficient and growing coastal market.

Indiana and Ohio are also states that are on popping up as top states for investment property purchases and solid rents.  You can still buy a duplex just outside of Carmel around Indianapolis for under $200K with rents between $1400-$1600 per door low taxes and lower insurances.  You can find those closer to upcoming development or a few Universities for student dorm rentals which is where a lot of co-living seems to be on the rise for higher rents.  SD is great but the Sale prices, Taxes and in some cases HOA's destroy your Cashflow/NOI.

If you’re looking in Oregon I would reach out to a realtor on this BP forum @AJ Wong

Indiana - Reach out to Beau Matlock with the Matlock Group usually send out a nice NOI weekly Hotlist to all investors.

Hope that helps a little, if you ever have any questions feel free to reach out I enjoy talking REI and know SD and surrounding neighborhoods and ARV potentials.

Rose Cole · Answer

Yes, it is looking like I'm going to have to look out of state. I'll check out Columbus. Thank you for your help 😊🙏🏼

Corby Goade · Answer

Generally speaking, it is better to invest locally- you'll have relationships with vendors and contractors, you can meet with them and touch and see the quality of their work, etc.

However, there are pros and cons to your market- it's very tenant friendly and properties are expensive.

On the upside, ostensibly there is demand for rentals and appreciation has generally been reliable and reasonable.

We invest in Idaho, which is only a 90 minute flight from there- aggressive appreciation, basically zero vacancy and probably the most landlord friendly state in the country. Happy to connect you with resources there if you like.

Best of luck!

Alex Olson · Answer

Is there any consideration to an Out of state market like KC? A lot of investors from California have looked yo Kansas City as more cash flow and landlord friendly.

Rose Cole · Answer

Hey there, Jason. Thank you so much for your help. I had never heard of Delayed Financing. I wish I had that option. I spoke to a CPA who specializes is real estate, and it turns out that you can’t refinance after a 1031 exchange for at least a year, or even two years, or I could have to pay capital gains tax. That is a very interesting idea to take out a HELOC though. I just looked it up and it looks like I can do that within a few months of closing. I do like the idea of getting a 2-4 unit building. That's what I've been looking for. I am so intimidated about investing out of state right out of the gate, but it does seem to make sense. Thank you for the agent recommendations . 😊🙏🏼

Dan H. · Answer

I am concerned for your financial health:

- I believe RE is more challenging than in recent times.

- I believe the highest cash flow markets have the highest risk.

- I fear a rushed purchase has additional risk.

- make sure you have a good 1031 intermediary.

- I believe the local market is challenging, especially with your goal of immediate cash flow, and not local (out of state) is higher risk and effort.

Where is your current property that you are selling located?  what is the asset type!   Is there a way to extract equity to help your situation?  Maybe PM me the details.

You probably saw I am down the hill in poway.

Please be careful in your choices.

Rose Cole · Answer

@Dan H. Thank you for your help, Dan! I live here in SD, and I didn't even know that those huge projects were being developed down in the South Bay. I'm definitely going to look down in those area.

I get it about being patient down here in SD. I unfortunately do t have that luxury, as my business is changing and I have to replace my salary very quickly here. That's why I'm selling my place and doing a 1031 exchange. I'm going to have to find something within the 45 day period after it sells. It feels like a lot of pressure.

Thank you again for your help. 😊🙏🏼

Should I invest in San Diego, CA?

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