Hello Bigger Pockets!
My name is Tim, a new member of the community. I eagerly want to learn as much as I can from all of you as I begin learning the ins and outs of real estate investing.
Unfortunately, I am realizing that I made a poor decision when I purchased my first property. I purchased a 2 bed/2 bath condo in my area with the intent to live in it for a bit before ultimately renting it out as my first investment property. Now, looking deeper into potential expenses, it looks more and more like my purchase will be cash flow negative on a monthly basis.
My question for you all is this - have any of you been in the situation? Have you thought that you had a decent rental property, and then came to realize that you probably will not be cash flow positive based on what you can charge in rent? What did you do? Should I abandon ship and sell the property once it is time for me to move out of it?
I learned a valuable lesson here and realize now how poor my initial analysis was. Looking for some advice, tips, or motivation!
Thanks!
Tim
@Tim L. thanks for your service
Most of the responses are from people in very different markets than San Diego. As has already been mentioned, any retail purchase of SFR in San Diego will be cash flow negative yet many investors purchase them. Are they making a poor investment?
Virtually any purchase of RE in San Diego has produced outstanding return regardless of when it was purchased if it was held at least 10 years. How? Both market and rent Appreciation!
About a year ago I looked at rent and market appreciation on the average San Diego SFR. Average rent had risen ~$500/month over the previous 3 years. In addition, the average San Diego SFR had appreciated $152k in the previous 5 years.
There are multiple ways to make money on buy n hold RE. Cash flow is one of the slowest methods.
So the decision to sell should not be based solely on the cash flow. Is it likely to produce a good return? Is it free of landlord headaches? The decision to sell likely needs to be based on more than its projected cash flow.
Good luck
San Diego, isnt a cashflow area and the term investor really applies here. The negative cashflow in the long run is probably smaller than the average appreciation over the course of 20 years. I use 20 years because any expectation less than 5 is not an investment, but really speculation that the rents or values will increase. If you need the money, (since the military traditionally doesnt pay well), then you may need to cut bait just for living purposes. However, if you can put it into your budget that this is just a longer term hold and that over the course of time, value and cashflow will come to you, then your investment will pan out. You may have purchased with a VA loan financing it 100% which means that, of course will have negative cashflow in San Diego. @Kat He has the right idea in short term living, however you as the owner need to understand your HOA bylaws and what are the plus's and minus's in that choice. I'd love to be in that conversation with Kat and you if you make that choice, or would be happy for any offline convo.
>isnt a cashflow area and the term investor really applies here.
How long have you invested in RE in San Diego?
I know of zero San Diego RE investors that have been invested at least 5 years who are not cash flow positive if they have not taken significant cash out. I go to a few RE meetups, I associate with quite a few San Diego RE investors so I am referring to more than a handful of San Diego RE investors that each have achieved positive cash flow.
The numbers from June 2018 (so basically year old numbers) show that the average SFR rent had increased of $500/month over the previous 3 years. This was average, so a vast majority did not have any value add. This implies an average SFR purchase from 3 years prior would have had to be on the order of at least $500/month negative to not to have cash flow (excluding for a refinance that extracted money).
There is a big difference between initial cash flow and actual cash flow. Actual cash flow is determined by the cash flow over the entire holding period. San Diego's long term cash flow is outstanding. Buy n hold is a long term play. The cash flow needs to be evaluated over the long term.
Good luck
I second this and 100% agree with Dan! Im starting to look into San Diego to expand my portfolio. I see similarities with Los Angeles Market where I play. The way i see it, these markets ( Los Angeles, SD, SF) all have high barriers of entry. Yes, these areas are unique markets where initial cash flow can be difficult at first (unless you put a larger down payment).... but the long term appreciation in equity and rent wins the game compared to other areas where most invest looking for initial cashflows. I, for one, have been spoiled by the appreciation in equity and rent gains over the past 10yrs... not sure I would invest OOS for this very reason. I personally see your issues as short term sacrifice... just gotta find ways to make it work. Try contacting property managers in the area to see if theres ways to get higher rent. And if you still can’t and would rather get rid of it... I’d be happy to take a look at your property and maybe acquire it from you .... and maybe I’d let you rent it back from me with a yearly rent increase. LOL. Good luck.
@Tim L.
You haven’t shared any water sewer trash numbers with us or if you are including those in your projected rent flow. If your numbers are super tight or close to being positive back charging those actual costs to your tenant may flip you on the positive side.
I’ve started to recently do that with my properties in Salt Lake City and im Expecting it to make a tremendous difference on the balance books at the end of the year. For example one of my cheaper units is it 1500 a month per side . Back charging that Equates to over $100 total. That’s an additional $1200 a year on the $36,000 revenue stream. That’s a significant amount of money when you start doing that with more than one property.
I may have missed it in the earlier discussion, but first...how long have you owned this property? It's VERY important actually, as you'll glean from what's below...
IMHO, if you own property close enough to the Pacific Ocean to enjoy any of the coastal climate that we enjoy, unless it's the absolute last option, don't sell for a loss. You're active duty now and very young...you've DECADES for this investment to pay out, and the coastal SoCal market has shown an overall continuous climb in spite of the occasional dip with the markets. A market climb that btw has far beaten most other investment vehicles.
On top of this, when you DO decide to terminate your service, you'll still have access to the VA loan program for your next owner-occupied home, just not as a first-time-buyer...slightly different terms but still a nearly unbeatable program.
After watching home prices and rent rates and correlating neighborhoods for over a year, I bought my only property, a duplex, in Los Angeles (West Adams) for $560k on the VA loan as a "house hack" (before Mr. Turner et al. had coined the term).
It would've been cash flow negative if I wasn't living here at the time in 2014. I got "lucky" where I bought (I stuck to my criteria for neighborhood etc...) and if I were to move today, I could cash flow after mortgage, but before expenses, to about $2000/month AFTER having refinanced once with a cash out to pay for solar and mini-splits (HVAC).
If I've learned anything, (correct me if I'm wrong folks?) it's that the western coastal markets ARE exactly as the prior members have posted...these are long-term, buy-and-hold, get-rich-slow, appreciation markets where short-term, quit-my-job-now-using-the-cash-flow-from-my-rental-properties, FIRE strategies work only in the rarest of the rare scenarios. But the appreciation in a good market can be used as a tool to get into other immediate cash-flow properties.
If your current place is
you'll almost certainly come out well ahead in a few years. When you're 30-35 years old, I suspect you won't regret having a rental condo in San Diego. Or second worst-case, in a few years, if for whatever reasons, you've lost interest in keeping it at least you can sell it for a profit of some kind and repurpose the profit.
My immediate next step would be to look into the market history for your neighborhood, surrounding areas, both sales and rental rates. Then check the city planning commission and such to find if there're any plans in your area that might add even faster to the value. That will give you a clearer idea of where your property value is headed...
I know I've kinda reiterated what other members who are buying in western coastal areas have written, but I hope this helps rather than clouds your thoughts. It's a decision you'll have to make based upon your overall strategy; make money right now or wait a bit, let the market grow and cash out etc...using that as a vehicle for other investments, or hold it for later cash flow.
Since you will be in SD for 2 more years, just live there and enjoy the ride. It's better than living on Base I assume, right? Also, housing allowance is paying most or all of your mortgage right now I assume. If you are dipping into your regular income, then that can be a bummer, but welcome to the expensive SD housing market. It's not cheap to own or rent. In a year, take a look at the rents and re-evaluate. Do that again the following year. You have a tax write off now which you may not be taking into consideration regarding the current "Negative cash flow" (not sure what you meant here...making a payment in general, going over the housing allowance). Don't panic and sell now just because your living expenses seem a little high. It always the hurt the most the first year, and then as rents and income go up you start to realize you made a good decision a few years. Hang on an enjoy the ride.
@Shawn Couch @Jason Dante @Alvin Uy @Robert Comstock and everyone else - Thanks for the reinforcement! I was a bit concerned looking at local rents and seeing that my mortgage payment + HOA dues would not be covered by the typical rent in the area. I am so new to the real estate investment would that I think this may have cast a shadow on the bigger picture here... the future! Thank you for the reinforcement!