San Diego Multifamily

4 Replies

Looking for advice regarding multifamily investments in San Diego.  I am currently selling 3 condos in SD that I want to roll into a multifamily unit in the $2 million price point.  What are the pros and cons on 2-4 unit vs 5+ commercial?  Looks like I could acquire 2 4plexes or one large commercial unit.

A little about me.  I work up in Alaska for about half the year,  my wife is a loan officer for a bank down here.  Her family has a pretty heavy real estate background.  We have owned the 3 rentals for over 10 years and are tired of the dismal appreciation.  We are ready to get into something a little more lucrative and exciting.  Cash flowing is important as will as having a stable investment.  

Thanks in advance

You have experienced abysmal appreciation in San Diego in the last 5 or 6 years? Or are you referring to purchase that was completed in 2006 to 2010 in which case you purchased in the midst of the worst housing depreciation cycle in over 50 years? I am just perplexed at the dismal appreciation part of the post as San Diego has great historical appreciation and great recent appreciation. Case Stiller listed San Diego as the #3 appreciation market for 2017 (Way behind Seattle and just behind Las Vegas). It has been high on the annual list of appreciation for at least the last 5 years and is high on the list for total buy n hold ROI for this century. My point is that any abysmal appreciation achieved in san Diego likely has more to do with the timing than the appreciation of San Diego RE which is regularly near the top for appreciation for the year.

There is a recent forum thread Help me understand the advantage of multi's.  It answers your question on the pros and cons with a lot of fact and opinion on both sides.  When I run the numbers I believe I can produce a better return with quads than any other buy n hold option but I believe MF (5+) scale easier and there is economy in volume.  There are posts in that thread that indicate MF 5+ provide a better return than duplex to quad but it is not what my numbers indicate to me for San Diego.  I do agree with most of the advantages listed in that thread for the 5+ and will likely transition there eventually to take a less active RE role.

Good luck

@Josh Buchan Hey Josh.

I agree with what @Dan Heuschele said. I also don't understand if you've bought in the last 8 or so years in SD how you've seen bad appreciation. From what I know and hear, it's been great.

Read that thread he mentioned, but in my opinion the short is:

2-4 UNIT MF - Slower scale, less ROI and cashflow, but superior exit strategy.

5+ MF - Faster scale, better across the board in numbers (usually), harder to finance hence harder exit strategy.

If you play the long game and want cash flow / ROI, go big.

@Dan Heuschele Maybe @Josh Buchan means "over 10 years" as in 12 years?  If you bought close to the peak and got hammered on the downturn then I could see how you bled a ton of cash and the appreciation (even back over 2006 highs) wouldn't have erased the cash-flow losses.  I could see how someone could (especially with condo fees) get back to break-even and just "want out" after the ride.  

But here's what I would say for whatever my little opinion is worth.  I believe in "dirt" long-term in San Diego.  If I was buying here I'd probably buy SFRs.  I'd take it on the chin when it came to monthly cash-flow and be really happy I did in about 15-20 years (regardless of the cycle).  So while I invest in apartments, I don't invest in them here locally.  

Where I invest I can nudge rents up to "force  appreciation" even if the value of the dirt is stagnant.  I know rents have risen in San Diego but they haven't (from what I've seen) kept pace with appreciation.  So as much as you'd want to nudge rents up on a commercial multifamily you probably can't nudge them at a rate higher than the appreciation of the dirt.

Then again, cards on the table, I'm not in real estate because I wanted something a little more "exciting".  I like boring and predictable.  The bank also likes that I can boring, and predictably, pay the mortgage each month :-)

Hi @Andrew Johnson - what markets are you investing in and what size units are your favorite? Thx

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