New in San Diego, Any Insight Appreciated

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New in San Diego, Any Insight Appreciated

Jennifer Sarmiento
San Diego · Member since 2019 · 27 posts · 10 votes

Hello! My name is Jen. I learned about real estate investing just this year when we lived in Hawaii. We moved to San Diego over the summer because my husband retired from the Air Force & we have family in the area. I just have two basic questions, if anyone here may be so kind as to shed some light, I would appreciate any & all of your insight very much.

1) I am NEW to this, but understand that REI strategies may work or not work well in different markets and at different times. I was fascinated and eager to get into fix&flipping, but was advised not to do so in San Diego in 2020. That it was lucrative two years ago, not now. Also, I was advised wholesaling not so great here either. That buy&hold, Air B&B, cohousing and ADU's are among the top ways to invest in this market at this time. Would you agree or disagree? And, with my being brand new to this, should I consider starting my endeavors out of state instead? Where properties are not $600K, like in Arizona or Las Vegas? Should I get into virtual wholesaling? Should I invest in a turn-key rental in Indianapolis?

2) As I mentioned, my husband just retired from the military so we have our VA Loan benefit to use toward buying our first home. Before we learned about real estate investing, it was going to be an easy, straightforward process for us: find a house, get the loan, move in. But now that we are aware of real estate being a vessel to building wealth and time freedom for the family, I'm trying to figure out the best strategy in San Diego, if there is one to consider. I don't see or hear of many duplexes, where we could live in one and rent out the other. Should we try to find an off-market property and flip it while we live in it? Any suggestions or thoughts on my thoughts? Thank you in advance for your time and help!!

Also, when we first moved here, I met some local investors. Unfortunately, I could not afford the education they were offering. So I’m happy to start studying up all the resources in Bigger Pockets, and connecting with others out here more often. I’m going to make it happen in 2020, to survive living in California haha. Thanks for reading! 

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Aaron K.
Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
6y

It is a good thing you weren't able to afford the "education" as it was likely a ripoff. Being brand new to this flipping is probably a bit risky, and wholesaling is harder than you think it is, buy and hold is tried and true, and while returns will be lower in San Diego, if you can house hack with a VA loan you should do okay.

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  • Aaron K.
    Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
    6y

    It is a good thing you weren't able to afford the "education" as it was likely a ripoff. Being brand new to this flipping is probably a bit risky, and wholesaling is harder than you think it is, buy and hold is tried and true, and while returns will be lower in San Diego, if you can house hack with a VA loan you should do okay.

    3Reply
  • Kiera Underwood
    Real Estate Agent · Oklahoma City, OK · Member since 2019 · 956 posts · 600 votes
    6y

    @Jennifer Sarmiento If you can find a place where the numbers make sense.. i would house hack all the way. Do you have a certain timeline to use your VA loan? If it's substantial I'd consider doing something safe out of state right now, just because we're overdue for a crash. Then when things crash, use your VA loan to snag something a bit better priced at home!

    2Reply
  • Chris Clasby
    Lender · San Diego · Member since 2019 · 10 posts · 13 votes
    6y

    Hi Kiera, figured I'd offer my two cents.

    First, VA are sticklers about owner-occupying: can only have one out at a time, and can't purchase it as an investment. VA eligible investor clients can use their VA loan to acquire real estate with a fix-and-hold strategy: putting little down to aquire the property (usually a multi-family), and then refinancing to Conventional before moving to free up the VA eligibility and doing it again. Over the course of a two years or, you're sitting on a 3-5 home portfolio

    Of course, multi-family properties are at a premium, and if you find a deal you may not be in the most desirable neighborhood, but rents are high even for modest accommodation.

    One very nice development specific to San Diego right now is how relaxed the zoning laws have become with regard to Accessory Dwelling Units (ADU's). The City even offers up pre-approved plans (https://www.sandiegocounty.gov...) and they offer special accommodations regarding parking requirements, set backs, etc. when you're adding housing. So that's the move right now: but a lot with enough land to build an ADU and double the revenue.

    Does that help?

    3Reply
  • Jennifer Sarmiento
    OP
    San Diego · Member since 2019 · 27 posts · 10 votes
    6y

    @Aaron K. Thank you! I would hope the education/club I was being sold on wasn’t a ripoff. I didn’t buy into it, but the group seemed very nice & helpful. The top advantage was once you joined, you had the invaluable expertise and guidance of the more seasoned local investors in the community. But I do value your opinion and would definitely think twice now if I meet up with them again. And, I appreciate your thoughts on these different strategies here with me being new, thanks so much! 

    @Kiera Underwood Hi Kiera, that sounds like an awesome game plan you gave me to think about. Much appreciated. There isn't a time limit on when we can use the VA Loan, but in San Diego there is a cap at $649K, I think? Which I hear will actually increase next year. But yes, while I would definitely feel more comfortable going the safe, out of state route, I'm eager to get started as soon as possible, here :) The whole investing in a turn-key @ Indianapolis thing was recommended to us by the local REIA in Honolulu. I just might revisit that idea. Thanks again!

    @Chris Clasby I'm grateful for your two cents! You're right, if we utilize the VA Loan, we would have to live in the property for at least one year. So your fix-and-hold strategy makes total sense. It's also interesting you mentioned multi-family because originally we thought to invest in a fourplex @ Las Vegas. But then we moved to San Diego instead, not many multi-family deals out here. About ADU's, yeah! I just learned about them. As practical as they sound, it's almost more for investors who already own properties and land, don't you think? Thank you again for your valuable insight & advice as a broker. I will surely keep all this in mind, so very helpful!

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  • Kiera Underwood
    Real Estate Agent · Oklahoma City, OK · Member since 2019 · 956 posts · 600 votes
    6y

    @Jennifer Sarmiento There are several markets to look into for buy and hold. Do you have a specific group that someone recommended in Indianapolis? Oklahoma City might be a market to consider. We're very steady even throughout the downturns, have approachable price points and if you buy right cash flow is pretty easily attainable! Regardless of the market you land on I'd just make sure to vet your providers. They make all the difference. 

    1Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    6y

    @Jennifer Sarmiento

    >while I would definitely feel more comfortable going the safe, out of state route, I'm eager to get started as soon as possible, here :) 

    I think most experienced investors would not classify the OOS option as the safe option.  The cheap option, but not the safe option.  Building/maintaining a trusted team is not easy and has risk.  The locals have knowledge that can only be gained by spending time.  You likely do not have enough time to obtain that same knowledge.  It is easy for an OOS investor to be taken advantage of.  The cash flow projections usually are bogus; it is not unusual to see cash flow projections that do not include any cap ex.  If you go OOS, familiarize yourself with the 50% rule.  If any cash flow projection deviates significantly from the 50% rule, scrutinize it thoroughly as it likely is missing or under representing expenses.

    There are a lot of areas in San Diego that have multiplexes (both illegal and legal).   They are not typically the higher class suburbs.  They are either urban (range of classes) or suburb working class areas (B- and below).

    My recommendation is to find areas that works for you and then look for a detached two unit (either a duplex or a SFH with a detached ADU). Use the VA loan to acquire realizing that it likely will be cash flow negative at purchase but each rent increase improves the cash flow. The last ~5 years, rents have gone up on average more than $100 per year. I see this trend continuing at least another year or two.

    Good luck

    2Reply
  • Chris Clasby
    Lender · San Diego · Member since 2019 · 10 posts · 13 votes
    6y

    @Jennifer Sarmiento Of course! Happy to help! So yeah on the VA situation you can actually refinance out of VA to free up the loan as quickly at 4 months. When you're putting down 0-5% you need a bit longer to renovate/build equity in the propert, so they're holding for a year typically.

    On the ADU side it's not necessarily just for people who already have the land: there are actually a good amount of small SFR properties built in the post-WWII boom on larger lots (6k sqft+) where you can easily add units that are still 750 sqft properties so don't attract attention from the meat of the market. Even better if their under developed for the zoning: I have one client in particular who purchased a 10k sqft lot in late 2017 for $450k with a dinky SFR on it, and did preliminary plans showing 6 units (from a draftsman, not an architect), and flipped it for $750k a year later. They're out there! San Diego is definitely a hot market, but there are still a lot of little projects which are too small for the bigger flipping operations but where there is money to be made.

    1Reply
  • Jennifer Sarmiento
    OP
    San Diego · Member since 2019 · 27 posts · 10 votes
    6y

    @Kiera Underwood I don’t recall the specific group in Indianapolis, but I would definitely trust the investor who was going to help us before we moved. He was already helping others attain turn-key rentals there, a few of whom we had spoken to directly about their experiences. I think the hardest part in general was having issues with property management. I would absolutely consider Oklahoma City, my aunt used to live there. Do you have investments in the area? 

    0Reply
  • Jennifer Sarmiento
    OP
    San Diego · Member since 2019 · 27 posts · 10 votes
    6y

    @Dan H. Hi Dan, thank you for your thorough advice. You do make valid points about out of state investing, this was my exact hesitation when going for the deals in Indianapolis. Yes they were cheap!  Being new, I was told it was an easy path to get my feet wet & own property in a growing market. But I feel like I would have to get on a bus tour with them to see the properties and areas in person. And you’re right, I may not have enough time to ever really know like a local would. I also wonder though, does that really matter? If the numbers work? I am familiar with the 50% rule, I suppose it would just take thorough research and a trusted team, as mentioned by Kiera above. 

    I appreciate your recommendation! Thank you, I will keep my eye out for a duplex around here. When I attempted to search online during the summer, there weren't many options. I'll have to attend the local REIA meetings to find a good deal :) thanks again!!

    0Reply
  • Jennifer Sarmiento
    OP
    San Diego · Member since 2019 · 27 posts · 10 votes
    6y

    @Chris Clasby Wow great examples, thanks for sharing that! Yes I'm hearing more & more about ADU's for the win. From all the amazing advice I've gotten, it seems the consensus is whether we find a duplex or SFR w/ADU, I think we'd be on the right track in San Diego. I still need to learn all the benefits of the VA Loan, I wasn't aware we could refinance after only 4 months. But yeah, I could see not doing that here, and not for our first investment. Thanks again Chris, have a good day!

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    6y
    Originally posted by @Jennifer Sarmiento:

    @Dan H. Hi Dan, thank you for your thorough advice. You do make valid points about out of state investing, this was my exact hesitation when going for the deals in Indianapolis. Yes they were cheap!  Being new, I was told it was an easy path to get my feet wet & own property in a growing market. But I feel like I would have to get on a bus tour with them to see the properties and areas in person. And you’re right, I may not have enough time to ever really know like a local would. I also wonder though, does that really matter? If the numbers work? I am familiar with the 50% rule, I suppose it would just take thorough research and a trusted team, as mentioned by Kiera above. 

    I appreciate your recommendation! Thank you, I will keep my eye out for a duplex around here. When I attempted to search online during the summer, there weren't many options. I'll have to attend the local REIA meetings to find a good deal :) thanks again!!

    >I also wonder though, does that really matter? If the numbers work? 

    Without the local knowledge your numbers could not be accurate.  Trusting someone else's numbers is full of risk.  There are many areas that there is a large difference from block to block.  The unit 1 block away geographically seems like a good comp, but it could be a different class neighborhood with a much higher rent/value.

    Therefore, I think it is important for an investor to have a knowledge of the area similar to the local RE investor.  It will help with projections and making a sound offer.  Many OOS investors overpay for the RE.  There is a few reasons for this such as buying from a turnkey provider that is making a large profit on the sale and because of less familiarity with the market.

    Even if you can get a good purchase with a sound cash flow projection in a zero appreciation market (appreciation rate is historically not greater than inflation), the cash flow is not likely to ever increase in inflation adjusted dollars.  $200 cash flow today will be the equivalent of $200 cash flow 50 years from now.  It is a tough way to make enough money to make a difference.  Assume you can find 10 of these properties over the next few years (I claim not an easy task).  You have $24K/year cash flow (total for all 10).  In 50 years you will still have the equivalent of $24k/year.  Assume you can find 25 of these over the next decade you have $60k/year cash flow.  In 50 years it will still be $60K/year.  Because they are zero appreciating markets, the market value of the RE is the same after 50 years of ownership as when purchased (when adjusted for inflation).

    Now assume you purchase a cash neutral San Diego RE with average rent ($2700 according to Zillow).  Lets assume rent appreciates 4% faster than inflation per year (recent times have done better than this) and lets assume it is cash neutral at purchase (It will likely be cash negative at purchase but I am using cash neutral just to make the calc easy).  The cash flow from this single unit would be $19.2K/year in 50 years (virtually the same as 10 zero appreciation units).  Ok so lets say that instead of cash neutral it is initially cash negative $100/month.  That may affect the cash flow <$2k so ~$17K/year cash flow.  What do you think has happened to the market value of the San Diego property?  Do you think it has also risen faster than inflation?

    Lots to ponder, but I suspect because you know the 50% rule, you will not find an RE in the zero appreciation market that meets your return objective.

    Good luck

    2Reply
  • Ricardo Gomez
    San Diego, CA · Member since 2018 · 210 posts · 67 votes
    6y

    Hello Jennifer,

    Welcome to BiggerPockets. Best of luck on your endeavors.

    Sincerely,

    1Reply
  • Jennifer Sarmiento
    OP
    San Diego · Member since 2019 · 27 posts · 10 votes
    6y

    @Dan H. Brilliant advice!! Thank you for explaining this to me. I understand more clearly why San Diego properties can be much more lucrative for the long term. It’s definitely the appreciation game out here, so yes lots to think about but your insight is very valuable to my decision-making. Thank you very, very much! 

    Also, I just read your bio. No wonder you are awesome at giving advice with all your experience in this. Congrats on your success! Are you still looking for multiplexes in Escondido & Rancho Bernardo? In case I come across anything, I could let you know? I would love to find a duplex or multi-family myself, when we are ready to invest by the end of next year. 

    0Reply
  • Jennifer Sarmiento
    OP
    San Diego · Member since 2019 · 27 posts · 10 votes
    6y

    @Ricardo Gomez Thanks Ricardo! Best of luck in yours as well. Happy holidays! 

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    6y
    Originally posted by @Jennifer Sarmiento:

    @Dan H. Brilliant advice!! Thank you for explaining this to me. I understand more clearly why San Diego properties can be much more lucrative for the long term. It’s definitely the appreciation game out here, so yes lots to think about but your insight is very valuable to my decision-making. Thank you very, very much! 

    Also, I just read your bio. No wonder you are awesome at giving advice with all your experience in this. Congrats on your success! Are you still looking for multiplexes in Escondido & Rancho Bernardo? In case I come across anything, I could let you know? I would love to find a duplex or multi-family myself, when we are ready to invest by the end of next year. 

    We are always looking for smart purchases but we do not have much time to pursue like we should and therefore have not purchased in two years.  We are always interested in looking at any good purchases and continue to look in Poway, RB, Escondido, etc.)

    We recently had a fire take out two units (initial repair time was estimated at 6 months but is now estimated at 8 months). We have insurance but the rebuild is taking quite a bit of our time. Prior to the fire, we had started looking into a purchase in a higher class area where we could add a 1200' ADU. If we could purchase a large lot SFH in Poway, rural RB, Encinitas, or similar area and add a 1200' ADU all in at $1M we would in effect have two SFH at an average of $500K which is not cheap but these would be in high B class area (maybe even low A class). The initial cash flow would not be good, just like most San Diego purchases, but we should be able to fill with high class tenants. It would be something new for us (if you read our profile you know we have local STRs, local LTRs, have had OOS STRs and LTR, and have done quite a few BRRRR). I think in a few years it has a good chance of having provided a good return, plus it would be something new and a learning experience. We likely will not start/restart prior to the fire units being occupied (another ~6 months).

    We also continue to look for the duplex to quad that has the obvious value add (i.e. rehab) that we can do a BRRRR so that little of our investment is trapped in the RE (this is mostly what we have done previously - BTW without market appreciation we never can get 100% of our investment out via BRRRR primarily due to the LTV being low and the refi appraisal being low (recognize this if you are planning on BRRRR)).

    Good luck

    1Reply
  • Alyssa Dyer
    Rental Property Investor · Oklahoma City, OK · Member since 2017 · 1k+ posts · 694 votes
    6y

    @Jennifer Sarmiento that sounds like an incredible resource then. I'm excited to hear how things go as you dig inti IN, keep us in the loop!! I do have several renatls in OKC (: I live and work here, so I might be a bit biased haha! 

    1Reply
  • Jennifer Sarmiento
    OP
    San Diego · Member since 2019 · 27 posts · 10 votes
    6y

    @Dan H. Wow sorry to hear about the fire. SFH w/ ADU potential seems to be a very popular investment strategy in San Diego. I wish you luck in this, and I'll keep you in mind if I come across something in those areas 6 months down the road. I'm definitely going to BRRRR! And Air B&B, somehow some way. I'm excited to get started. Would you say you prefer investing in/managing STR or LTR? Just curious.

    0Reply
  • Jennifer Sarmiento
    OP
    San Diego · Member since 2019 · 27 posts · 10 votes
    6y

    @Alyssa Dyer Thanks Alyssa! You own rentals there? How’s the market in OKC? 

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    6y
    Originally posted by @Jennifer Sarmiento:

    @Dan H. Wow sorry to hear about the fire. SFH w/ ADU potential seems to be a very popular investment strategy in San Diego. I wish you luck in this, and I'll keep you in mind if I come across something in those areas 6 months down the road. I'm definitely going to BRRRR! And Air B&B, somehow some way. I'm excited to get started. Would you say you prefer investing in/managing STR or LTR? Just curious.

    We use professional management on the STRs due to the amount of time required. In CA STRs are at risk of having anti STR regulations imposed. I will be surprised if in 3 years non-owner occupied STRs are allowed. STR PM is real expensive especially for RE that is not with real high rent. Our STR PM fees are very high but due to the high rent is not as high a percent as less expensive STRs (our duplex rent is ~$16k/month). If you go the STR route, you must be prepared for anti STR regulations as well as either significant time commitment or very costly PM fees. I will say STR PM deal with a lot, often at inopportune times such as the 3AM call for noise violations (so I am not implying they do not deserve their high fees).

    We self manage the LTRs (Pt Loma is a hybrid and outlier to our LTRs).  With processes, the LTRs do not take much time except if something goes wrong such as a fire (2 units 2 months ago), major slab leak that requires vacating the units (again 2 units), etc.  

    We have done a few BRRRR and our experience is that without an assist from market appreciation, it is real difficult to extract all of the investment due to both low LTV and very conservative/low refi appraisals. My own belief is that refi appraisals come in nearly 20% below what it could be appraised at if it had an offer at the appraised amount. You must anticipate for these low refi appraisals.

    Good luck

    1Reply
  • Zach Hoereth
    Rental Property Investor · Indianapolis, IN · Member since 2017 · 96 posts · 140 votes
    6y

    @Jennifer Sarmiento lucky for you most of the education on BP is free or close to it! There is quite a bit to unpack in your 2 questions, but here are some things to consider. Don't fall victim to some of these "mentors" or self proclaimed "coaches". There are so many resources out there you can leverage before needing someone that you must pay for their guidance. The VA loan can be a great option getting into your first property and your idea of doing a live in flip is fantastic... but you are in a market where prices are incredibly steep.That does not mean that there are not deals to be had you will just have to search a bit harder.

    If you are considering out of state investing make sure you educate yourself on the market. Call vendors, ask for recommendations, talk to others who are investing in that market, and build your team. You will need to have boots on the ground that you can trust so that you are able to find great opportunities. You mentioned turn-key properties in Indianapolis.. be careful with these because you will see a suppression in your returns. Someone has already solved the problem. That said, it doesn't mean that you cannot solve a similar problem on a different property and reap greater returns. Turn-key providers are no smarter than you... they have just taken initiative to solve a problem. Keep an open mind! 

    Perhaps you and your husband need to sit down and figure out what goals the two of you would like to reach financially within the next few years. From there, you can then decide which route may be best fit moving forward. Hope this helps! 

    Cheers,

    2Reply
  • Jennifer Sarmiento
    OP
    San Diego · Member since 2019 · 27 posts · 10 votes
    6y

    @Zach Hoereth Hi Zach, awesome thanks so much for your insight & advice! Turn-key properties in Indianapolis - I see you’re from there, what do you mean someone has already solved the problem? I greatly appreciate these things you have given me to consider. 

    0Reply
  • Jennifer Sarmiento
    OP
    San Diego · Member since 2019 · 27 posts · 10 votes
    6y

    @Dan H. Thanks again Dan! Again, I feel I’m learning so much here from you already. Very much appreciated. 

    0Reply
  • Zach Hoereth
    Rental Property Investor · Indianapolis, IN · Member since 2017 · 96 posts · 140 votes
    6y
    Originally posted by @Jennifer Sarmiento:

    @Zach Hoereth Hi Zach, awesome thanks so much for your insight & advice! Turn-key properties in Indianapolis - I see you’re from there, what do you mean someone has already solved the problem? I greatly appreciate these things you have given me to consider. 

    Turnkey means that the value has already been added to the property. This is why you will see lower returns. For example if you buy a property for 50k and spend 50k on renovation your all in will be at 100k. You have the property reappraised and it is now worth 150k. This would be an example of a true value add deal. When you purchase a turnkey property there is not much upside outside of just the cash-flow. Hope this helps! 

    Cheers,

    1Reply
  • Jennifer Sarmiento
    OP
    San Diego · Member since 2019 · 27 posts · 10 votes
    6y

    @Zach Hoereth I see, thanks for clarifying that. Yes, I learned that investing in a turnkey property would generate some cash flow, but that an investor should do it over & over again for it to be worthwhile. Right? I see your point though if my goal is to build a bigger empire :) 

    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    6y
    Originally posted by @Jennifer Sarmiento:

    Hello! My name is Jen. I learned about real estate investing just this year when we lived in Hawaii. We moved to San Diego over the summer because my husband retired from the Air Force & we have family in the area. I just have two basic questions, if anyone here may be so kind as to shed some light, I would appreciate any & all of your insight very much.

    1) I am NEW to this, but understand that REI strategies may work or not work well in different markets and at different times. I was fascinated and eager to get into fix&flipping, but was advised not to do so in San Diego in 2020. That it was lucrative two years ago, not now. Also, I was advised wholesaling not so great here either. That buy&hold, Air B&B, cohousing and ADU's are among the top ways to invest in this market at this time. Would you agree or disagree? And, with my being brand new to this, should I consider starting my endeavors out of state instead? Where properties are not $600K, like in Arizona or Las Vegas? Should I get into virtual wholesaling? Should I invest in a turn-key rental in Indianapolis?

    2) As I mentioned, my husband just retired from the military so we have our VA Loan benefit to use toward buying our first home. Before we learned about real estate investing, it was going to be an easy, straightforward process for us: find a house, get the loan, move in. But now that we are aware of real estate being a vessel to building wealth and time freedom for the family, I'm trying to figure out the best strategy in San Diego, if there is one to consider. I don't see or hear of many duplexes, where we could live in one and rent out the other. Should we try to find an off-market property and flip it while we live in it? Any suggestions or thoughts on my thoughts? Thank you in advance for your time and help!!

    Also, when we first moved here, I met some local investors. Unfortunately, I could not afford the education they were offering. So I’m happy to start studying up all the resources in Bigger Pockets, and connecting with others out here more often. I’m going to make it happen in 2020, to survive living in California haha. Thanks for reading! 

     Welcome to the site Jennifer.

    1Reply
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