Opportunity in Luxury Home prices in San Diego?
Hi All,
New to BP and my first post. I'm a relatively young buck (28) who has been focused on the equity markets to build my capital over the past few years. I've worked for a real estate private equity firm specializing in SFRs and worked for a hard money lender in the same space. So I've been around the industry but don't own any physical property at the moment. I'm looking to jump into the SD market with a house-hack type setup, but as we all know, finding good value in SD is quite difficult. I understand value is a subjective term, but from what I'm seeing we're basically speculating that current prices will continue to move higher. I think that's an aggressive assumption given the current point in the cycle, but I digress. Not too much cash flow positive properties in SD these days (or ever?).
Anyhow, an investment theme I've been watching is the dichotomy between entry level home prices and premium homes a.k.a "luxury homes". Since 2008 there has been a lack of housing supply that has been pushing entry level home prices ever higher. I assume this is where most RE investors are competing. However, due to limited land, rising labor costs, etc. home builders have been pumping supply in the premium home market while demand has been relatively stable. I've been reading articles lately that are showing the beginning of a supply glut in the premium home market (although the articles were mainly focused on east coast prices). My guess is that there is much less competition in the premium home space due to the higher capital requirements.
So ultimately my question is: do any local SD investors see any value in house-hacking a premium home, or even just renting it out completely like a normal LT rental? I'm seeing cap rates that are ~3.5% ($850K+) versus 1.5-2% cap rates in lower priced homes ($750K and below). My PE firm focused on properties in the $850 rent range in places like DFW, Cinci, Etc. so I'm not too familiar with the premium market, but it seems like there's better value in buying an SFR at 3.5% located west of the 5 and trying to house-hack it or LT rental. Any thoughts or advice would be appreciated.
P.S. I grew up in RB but just moved to Leucadia and I'm focused on coastal cities with strong demographics and long-term value appreciation (and maybe cash flow?).