Hello from San Diego, California
Indianapolis, IN · Member since 2014 · 13 posts · 9 votes
Greeting fellow BPs.
My name is Tommy Nguyen from San Diego, CA. Have been a long time lurker here but finally decided to post and participate.
A little bit about myself. Currently working as an engineer in a biotech company. I want to start investing in real estate as an exit strategy of the rat race (Rich Dad Poor Dad reference). After 4-5 months discussing with my wife, we want to start with a small multifamily in San Diego area where we can live in one unit and rent the other(s).
I'd love to network with other investors in the area to learn more about RE investing in general and learn more from your insights on San Diego market specifically. I don't know what I can offer in return but I definitely have the energy and appetite to learn the rope of RE investing and will definitely give back in one way or another.
I'm looking forward to hear from y'all.
I have a real example that is unfortunately for is not a 7 digit profit but is a 6 digit profit.
I purchased a SFR in 1992 near the market high at $167k. In depreciated into the low $140k. Today the SFR is worth ~$530k (it has not been appraised in a while). I realize inflation has changed the value of the dollars ($530k is worth a lot less than $530k was worth in 1992).
The point however is that a peak that resulted in close to 20% decline in value today looks like a bargain. If we are at a peak and decline (know one knows) I have a lot of confidence that in the long term the price will not only rebound but increase. Why do I have this confidence? 1) it always has. In the last 50 years there has been many years were values have declined but they have always rebound and increased. 2) supply n demand: San Diego has best climate in continental US and compares with the other best climates in the world. We have good jobs/economy. It is a very desirable location to live. As for supply it is constrained on west by ocean, on the south by Mexico, on the north by Camp Pendleton, and on the East by a quickly harsh climate.
The only people who have lost money in financed buy n hold residential real estate in San Diego in last 50 years are those that sold at the wrong time. Maybe they were over leveraged or could not stomach a decline. Maybe being a landlord was not something they wanted to do. Note purchasing at an unoptimal time such as my 1992 purchase would not result in loss and in fact if financed at 90% LTV (easy to do for owner occupied but in reality I put 20% down) would have cost maybe $20k (20% likely cost ~$36k). That $20k would have resulted in well over $450k of equity. I pulled out my equity in 2002 and in 2010 so my initial investment is no longer in that RE and the equity has been leveraged for other investments (those two refinances were used exclusively for other buy n hold RE investments but my more recent refinances have not yet been placed into RE investments).
So historically San Diego has always appreciated long term. San Diego is a very desirable locale with limited supply. The appreciation is significant when financed with high LTV. The rents appreciate with the value. The equity from appreciation and principle buy down can be leveraged (typically through refi or something like a HELOC) for further investments.
Good luck.
Why did you not check those other areas? How come you only checked Euclid. Euclid is only one segment of my investments. How come you investigated only 20% of my investment area. I am moving more of my focus to Lake county, which is east of Euclid to Painesville. Another factor that causes me to advise people to move to true Multifamily 5 units or more is that after 10 to 20 single family it begins to get pretty hands on. You have 10 to 20 mortgages, roofs, furnaces, water heaters, garages and roof for garage, sidewalk, yard, insurance, water bill, gas bill, RE taxes etc... RE commissions, lender and the list goes on and on. Imagine trying to become financially free will most likely cause you to own 75 to 100 single family. Again, no thank you. That is too much work. Who wants another day job. Eventually, 1000 front doors and less work owning 2 or three large complexes giving off $750,000-$1,000,000.00 a year with resident apartment managers, HVAC maintenance person and a helper or two and another larger management company overseeing all operations, that reports directly to me. The ultimate goal to not even need to visit complexes, working maybe 5 to 10 hours a week max. It is the lifestyle we are all after. Not just the money. Right?
Swanny
Why did you not check those other areas? How come you only checked Euclid. Euclid is only one segment of my investments. How come you investigated only 20% of my investment area. I am moving more of my focus to Lake county, which is east of Euclid to Painesville. Another factor that causes me to advise people to move to true Multifamily 5 units or more is that after 10 to 20 single family it begins to get pretty hands on. You have 10 to 20 mortgages, roofs, furnaces, water heaters, garages and roof for garage, sidewalk, yard, insurance, water bill, gas bill, RE taxes etc... RE commissions, lender and the list goes on and on. Imagine trying to become financially free will most likely cause you to own 75 to 100 single family. Again, no thank you. That is too much work. Who wants another day job. Eventually, 1000 front doors and less work owning 2 or three large complexes giving off $750,000-$1,000,000.00 a year with resident apartment managers, HVAC maintenance person and a helper or two and another larger management company overseeing all operations, that reports directly to me. The ultimate goal to not even need to visit complexes, working maybe 5 to 10 hours a week max. It is the lifestyle we are all after. Not just the money. Right?
Swanny
My friend, even though I was a geography major at the best school in the world for that major and worked as district cooordinator ( west coast) with the largest market research firm in the world for 10 years after that...I am not here to check your other locations. Apparently Lakeshore is considered part of formal Euclid still so I did take a gander. I know a declining market area when I see it. If you are interested in my total opinion, that area has been on decline since the mid 90s.
I @Matt R.
Look at Painesville the last 5 years. Since, you always seem to speak up when I post, maybe you should explain exactly what you have. I have divulged basically everything I have and you talk a lot, but not much numbers wise of what you own etc.,, it seems you work figures, not related to what you have or what you have.
Think about it Matt.
Swanny
I have a real example that is unfortunately for is not a 7 digit profit but is a 6 digit profit.
I purchased a SFR in 1992 near the market high at $167k. In depreciated into the low $140k. Today the SFR is worth ~$530k (it has not been appraised in a while). I realize inflation has changed the value of the dollars ($530k is worth a lot less than $530k was worth in 1992).
The point however is that a peak that resulted in close to 20% decline in value today looks like a bargain. If we are at a peak and decline (know one knows) I have a lot of confidence that in the long term the price will not only rebound but increase. Why do I have this confidence? 1) it always has. In the last 50 years there has been many years were values have declined but they have always rebound and increased. 2) supply n demand: San Diego has best climate in continental US and compares with the other best climates in the world. We have good jobs/economy. It is a very desirable location to live. As for supply it is constrained on west by ocean, on the south by Mexico, on the north by Camp Pendleton, and on the East by a quickly harsh climate.
The only people who have lost money in financed buy n hold residential real estate in San Diego in last 50 years are those that sold at the wrong time. Maybe they were over leveraged or could not stomach a decline. Maybe being a landlord was not something they wanted to do. Note purchasing at an unoptimal time such as my 1992 purchase would not result in loss and in fact if financed at 90% LTV (easy to do for owner occupied but in reality I put 20% down) would have cost maybe $20k (20% likely cost ~$36k). That $20k would have resulted in well over $450k of equity. I pulled out my equity in 2002 and in 2010 so my initial investment is no longer in that RE and the equity has been leveraged for other investments (those two refinances were used exclusively for other buy n hold RE investments but my more recent refinances have not yet been placed into RE investments).
So historically San Diego has always appreciated long term. San Diego is a very desirable locale with limited supply. The appreciation is significant when financed with high LTV. The rents appreciate with the value. The equity from appreciation and principle buy down can be leveraged (typically through refi or something like a HELOC) for further investments.
Good luck.
Welcome to the site @Tommy Nguyen
I @Matt R.
Look at Painesville the last 5 years. Since, you always seem to speak up when I post, maybe you should explain exactly what you have. I have divulged basically everything I have and you talk a lot, but not much numbers wise of what you own etc.,, it seems you work figures, not related to what you have or what you have.
Think about it Matt.
Any past responses center around your take that SD is going tubes soon. I would disagree with that generally speaking, especially for longterm buy and hold and share the location fundamental numbers to explain why. I think it is great it you can make 6 figure cash flow 2000 miles away still.
Completely unrelated;
I have done 4 flip/semi holds all residential. My last purchase was a foreclosure March 2015 and last sale in spring 2016. I continue to look for residential and make a few offers. Also, looking for commercial in LA and invest in NNN health care facility reits.
Goodl luck!
Don't get me wrong guys,
I live in San Diego and would never leave. However, right now with literally no cash flow, unless you put 50% or more down, I will wait until the next downturn and scoop up single family again. I am also seriously considering selling my personal residence and taking the $200,000 tax free and renting at about $2,500-$3,000 a month. I pay nearly $2,000.00 a month to my lender on 27 more years and my mortgage has about $300,000 and my house is valued at the most ever $510,000.
A wise extremely financially free investor friend of mine once told me, never take advice from people that have less than you or have not achieved what you want to achieve. My goals are, 100 front doors by this summer. 200 front doors by 2020. 400 doors by 2025. 800 front doors by 2030. That would put me at 65 years old. I know. I know. Pretty high goals. However by writing them down here, sharing them with others, and keeping my eye on the prize it WILL happen. Thank you for reading!! Again PM me if you want advice. I love this stuff!!
"Whatever the mind can conceive and believe it will achieve." Napolean Hill (Think and Grow Rich)
Swanny
@Michael Swan you seem to be doing very well with your RE investments and you are knowledgeable about various RE investment strategies so you are likely making sound investment decisions.
However, historically San Diego has out performed better cash flow locales.
I personally know RE investors in San Diego that have lost money in RE investing but everyone of them invested outside San Diego. I personally do not know any RE investors that have lost money on financed San Diego buy n hold but it would be possible if they had to sell at a market decline.
There are many ways to make money investing in RE. History tells us how things have occurred but does not necessarily indicate the future. The best RE investment going forward will not be known until it is in the past. However, it is unnecessary to have the best investment; it is sufficient to have good investments.
San Diego financed buy n hold has historically been a good investment. Will the future be different? I have about the same RE equity as you indicated in your post and my family has a little more than double what you indicate and all except one SFR (lakefront in Alabama) is in San Diego county. So I am expecting San Diego to perform long term similar to how it has historically performed.
Good luck.
What is the value of one of your 5 units or more in San Diego? How much do they go per unit? I am interested. How much would it cost minimum down payment? What kind of cash flow would I get? In 2011-2012 I was putting down average $34,000 on a $120,000 2br 1ba condo and was getting after all expenses and reserves etc... $5,000-$6,000 a year cash flow. Can you get that for me now? If so, I am in. I have traded in that $5,000-$6,000 cash flow for anywhere from $12,000-$24,000 cash flow. I would need to get some incredible returns to turn away from the mailbox money I am getting right now and don't forget the forced appreciation at the same time. Let me know.
Thank you,
Swanny
Welcome to Bigger Pockets @Tommy Nguyen
Like you, I am living in California (Los Angeles), but I focus on investing out of state for the 3x cash flow and reasonable cost of real estate. Good luck finding a small multifamily that is around the 1% rule and not in a war zone. Hope it's out there for you.
If you have any questions about out of state investing and in Florida specifically, connect with me and good luck on your journey!
- Brad
I do not see that big a difference between profit achieved via appreciation vs cash flow. Trulia shows San Diego residential real estate rose 10% last year. If I placed 20% down on a cash neutral property a year ago I made 50% profit. Current median price is $522k. If my purchase was median i would have made ~$50k on a single tenant at a cost of about $100k. this is a good return on investment.
I realize that it is possible to also have a good return on investment in better cash flow areas but historically there are few locales that have had the ROI of San Diego financed buy n hold including the last year. Last year there were those who thought San Diego RE was over priced but it continues to appreciate. Trying to predict the market high is as difficult as trying to predict the stock market high.
So I am content holding my San Diego buy and hold RE with its smaller cash flow but great history of property and rent appreciation.
Hi @Dan H.
What is the value of one of your 5 units or more true Multifamily in Escondido? Do you have a lot of equity tied up in your single family (which includes duplexes, triplexes, and Quads). I'm interested.
What would it cost per unit at this time for me to buy? What would be the minimum down payment? What kind of cash flow would I get in my pocket every month? In 2011-2012, I was investing $34,000 down and getting $400-$500 a month in my pocket every month.
I have traded that cash flow in for $1,000-$2,000 cash flow and have forced appreciation an average of $50,000 an apartment complex so far and I have 6 apartment complexes and $120,000 cash flow per year in NE Ohio and I just manage the property manager. I managed all 10 single family I purchased here in Santee and Lakeside. Each of these had HOA fees, furnaces, water heaters, etc.. and tenants that I personally was managing. I learned a lot and hardly ever had vacancies.
So, in the last 12 months, my apartment complex appreciation has risen about 10% too. Plus, I still have one condo left in San Diego. But, that little 2br 1ba I purchased in 2011 only cash flows $6,000 a year. It has appreciated 100%. I can't wait to 1031 exchange that one for another $12,000-$24,000 cash flow per year and force appreciation in Ohio too.
Forced appreciation means, every dollar I increase the NOI (total money coming in minus expenses, not including debt service or Cap ex fixed expenses) the value of the property increases 10$ or exponentially. I just find a neglected 10-20 unit apartment complex in a solid c class neighborhood, which average family income out there would be about $40,000-$50,000 charging rents about $100.00 under current market rents, purchase, start servicing current tenants better, kick out slow or late or non payers and the ones that move bump up to $15.00 under market rents. Current good tenants, just take care of them for a few months, showing them you care. Offer incentives to sign a new one year lease at $35-$50 higher rent, after cleaning up the place.
The beauty of it all is that we are not at the mercy of comps.
Thus, I still expect to force appreciation another 10-20% in the next few years and cash flow much higher than San Diego.
I learned all of this from reading Multifamily Millionaire by David Lindahl and religiously listening to Lifestyles Unlimited Inc. in Texas podcasts and attending their 2 day in Houston in spring of 2015. Traded in my first complex for a 10 unit in Ohio in May of 2015. Currently at 87 front doors, including one rental 2br 1ba condo in Santee. The rest are in NE Ohio. I am soooooooo excited to trade in that condo and eclipse 100 front doors and 7 apartment complexes soon. Then 200, 400, 800, deferrring taxes until I die and then hopefully my son does the same on his way to 5,000 front doors after we are long gone, pushing up daisies!!!!
Swanny
@Michael Swan I understand what you are doing and suspect you will do well with your strategy. I have read many of your past posts and the posts on this thread.
I posted earlier in this thread some of the info you seek including my expected cash flow (not nearly what your out of state is), my ideal LTV (70%, but not quite achieved), etc.
I refer to historical returns. It seems like you are trying to time the RE market with the belief that San Diego appreciation is near a peak. It is not easy to time the market. Those that do often miss the most significant market increases.
So you have 1031 exchanged various San Diego properties into better cash flow locales because you believe San Diego may be at a peak. You invest in properties that have opportunity for rent appreciation (i.e. either has gotten behind market market or needed a little TLC to maximize rents or both).
So you increase the rents and seeing it is MF the value increases and therefore your equity has increased. So you have a quick equity increase with good cash flow which is very good. But then what? Your markets are not in traditional appreciating markets. Is your profit going to be solely the cash flow (which would not be bad) or are you going to 1031 exchange these properties for other properties that provide the opportunity for rent increases?
For San Diego there is significantly less cash flow available but the same opportunity to purchase MF and raise rents for the initial equity increase. But while your recent purchases cash flow well they traditionally do not have much market appreciation based solely on rising values (and you have already raised rents to market). While in San Diego the cash flow is significantly less but historically there is the property appreciation. The rents typically appreciate similar to the property values.
Different paths that ideally both provide profit. We will not know for a decade or so which was the better path but hopefully both paths provide good ROI.
Between my family and I we have been in buy n hold since the 1970s. We have tried out of state but not out of state MFs (so we have not tried your path). We currently only have one out of state unit (SFR that is lake front in Alabama). Our RE are, except for the one SFR, all in San Diego county (Mission Beach, Pt Loma, Bonita, Claremont, Poway, and Escondido).
Good luck
Hi @Dan H.
That is great Dan,
It sounds like your family has done very well!! To answer you question about what happens after ai reposition and take all money invested out or 1031 exchange for more front doors are my two options. I don't know if Ohio will be my next phase of acquisitions after I 1031 exchange my last condo in Santee. The key is every 4 to 7 years refinance or 1031 exchange for more doors and greater opportunity to receive more cash flow and reposition product to force appreciation. I may move money back to San Diego too someday. I may move money to Texas, where LUI has a stronghold and many opportunities too, giving me a little geographic diversity.
The ultimate goal, before my demise will be over 800 front doors and $750,000-$1,000,000 cash flow per year. 15 million in Equity or net worth and approximately $50,000,000 in total value of all RE. Your family must have more total RE than our 5.5 million-6 million in RE and $2,500.000-$3,000,000 in net worth. Most of this we have achieved since 2011. You have many more years than my family has been investing.
Congratulations on you and your family's success and multigenerational wealth!!
Swanny
I figured that you realized that you would need to continue to leverage out to continue to make the significant equity increase that you have been making. I do not know if the refinance option without exchange will get you what you desire because the property already has provided the forced equity and the market is not a high appreciating market. The 1031 exchange will work but finding, purchasing, rehabbing, etc. involves some work (as does our self management).
Versus in San Diego, if market appreciation continues like it historically has (not guaranteed but I see nothing to indicate is will not appreciate long-term), the equity will continue to increase long-term just by holding. When the LTV is significantly deviated from 70%, the property is refinanced pulling out the equity from market appreciation to either invest in RE, invest in another asset class, or to simply enjoy.
Two different paths ((forced appreciation + cash flow) versus (forced appreciation + market appreciation)) that hopefully both provide good ROI.
Greeting fellow BPs.
My name is Tommy Nguyen from San Diego, CA. Have been a long time lurker here but finally decided to post and participate.
A little bit about myself. Currently working as an engineer in a biotech company. I want to start investing in real estate as an exit strategy of the rat race (Rich Dad Poor Dad reference). After 4-5 months discussing with my wife, we want to start with a small multifamily in San Diego area where we can live in one unit and rent the other(s).
I'd love to network with other investors in the area to learn more about RE investing in general and learn more from your insights on San Diego market specifically. I don't know what I can offer in return but I definitely have the energy and appetite to learn the rope of RE investing and will definitely give back in one way or another.
I'm looking forward to hear from y'all.
Welcome and I would recommend growing your portfolio with your W2 income before exiting your job. This way you won't have qualifying problems and when you have one full year of investments not only will your knowledge increase but so will your Schedule E income. Good luck and keep posting and lurking.
@James Wise thanks for the welcome, James
@Shaun Weekes thanks for the advice, Shaun. I don't plan to quit the job just yet, unless RE cashflow can replace and exceed that, which probably takes at least 5 years or so.
Welcome to Bigger Pockets @Tommy Nguyen
Like you, I am living in California (Los Angeles), but I focus on investing out of state for the 3x cash flow and reasonable cost of real estate. Good luck finding a small multifamily that is around the 1% rule and not in a war zone. Hope it's out there for you.
If you have any questions about out of state investing and in Florida specifically, connect with me and good luck on your journey!
- Brad
As I'm starting to look at listings through my agent, finding a good deal is really difficult at the moment, even though we know it's out there. I'm trying to be patient and using BP calculator on these listings to familiarize myself with numbers. That way i can recognize a deal down the road.
Btw, what's the 1% rule you just mentioned?
@Tommy Nguyen1% rule is were the monthly rent is 1% of purchase price (or ARV if repairs are necessary). It is not possible in San Diego and with current interest rates is not necessary to achieve cash flow.
I have only purchased once in San Diego meeting the 1% rule and it was in 2012. I purchased a duplex for $302k that had rents of $1900 and $1300 for a total of $3200/month. It is perhaps my best RE investment but the family has a far better one (a duplex).
The family's best purchase was purchased from someone that was renting long term and the units were immediately converted to short term vacation rental for high season and long term rental in the off season. Today each unit is rented short-term rental all year. The high rent is $425/night (think July 4) with 4 night minimum per unit (it is a duplex). Needless to say it cash flows nicely even after paying management fees. The purchase was $360K (It was purchased around year 2000) and is worth close to $2M today. So it was far better than the 1% rule mostly because it was converted to short-term rentals. It was around 1% when rented as a long term rental by previous owner.
Neither of these purchases exist in today's market in San Diego. The 1% rule may be achievable in traditionally non-appreciating markets but not in San Diego.
Good luck
@Dan H. thanks for the quick reply. There's always something new to learn everyday. With current price in San Diego, the rent is at best around .75% of the purchase price.
If you don't mind me asking, what is your plan in investing San Diego market today? Keep looking for deals that are at 70% of ARV to buy and hold? I know that you mentioned in your previous posts not trying to time the market, but at the current high price, how do you hedge against market correction?
Thanks for your insight.
Following the advice of most of the people commenting on here you will wait and wait and wait for positive cash flow opportunities in San Diego. Find a hard working RE agent that specializes in off market opportunities, knows wholesalers, short sales specialty agents, probate specialist, etc. who will turn you on to off market deals that will provide a good combination of buying under market and building sweat equity through your efforts. Don't follow the pack and understand up front ....it's not going to be easy. Most of the country and especially California are in a very frothy market. But just think that SD duplex a year ago was 500K and now its 560K. That 60K is real appreciation which is why you want to get your heels into strong performing So. Cal market. Plus you plan on living in one of the units. The tax benefits are huge to get you out of the realm of being a renter. I like your strategy, time to go hunt.
Welcome @Tommy Nguyen to BP. I agree with many members here that it is very difficult to find good deals in SD right now. I have one rental property in Vista right now and thinking if I should be selling it and invest out of state. As @Dan H. has said, holding a property long term in SD will give you nice appreciation. I bought my property in 2000 and still holding on through the market down turn. Sure enough the value has come back near its peak. I also am interested in what @Michael Swan has done with his investment. There's are many different paths and I'm still searching for mine. Good luck Tommy!
@Dan H. thanks for the quick reply. ...
If you don't mind me asking, what is your plan in investing San Diego market today? Keep looking for deals that are at 70% of ARV to buy and hold? I know that you mentioned in your previous posts not trying to time the market, but at the current high price, how do you hedge against market correction?
Thanks for your insight.
I recently refinanced 6 units and was all set to purchase one or two multiplexes this spring when the interest rates rose substantially. That significantly worsened cash flow. So I continue to look for Properties with forced equity opportunities that are not cash negative but there is not a lot to tempt me to purchase. So my money from the recent refinances are currently in other investment classes waiting for the right RE opportunity.
I will add that I am spoiled on real estate ROI and therefore do not purchase many properties that cash flow and have some minimal opportunity for forced appreciation. If I cannot get $40k to $50k of forced appreciation I have been not pulling the trigger. If I were at a different place in my life I would easily jump at $10k of forced appreciation.
Good luck
@Tommy Nguyen The 1% rule was quoted in The Rich Dad Poor Dad set of books (and perhaps far before those) as a way to quickly figure if your property would cashflow. Essentially, 1% of the purchase price needs to be the monthly income of the property for positive cashflow.
Example: A $500,000 property must generate $5000/month (or 1%) for it to be a worthy investment.
In some markets this is easy to reach, in others (most of California) it is closer to .5%