San Diego rental property investing

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San Diego rental property investing

Coleman Cox
San Diego · Member since 2019 · 16 posts · 8 votes

Hi All,

I recently moved back to San Diego after about 10 years in the Bay Area of California; happy to be home! I was born and raised in Point Loma so am familiar with San Diego, but am trying to get up to speed on the current investing environment.

What are the areas that make the most sense for cash flow investing? Has anyone been able to make a house-hack strategy work in San Diego? What was the approach and what areas do the numbers tend to pencil? Would love to hear any insights and connect with other investors in the area. Thanks!

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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
6y
Originally posted by @Aaron K.:

San Diego doesn't really cash flow for the most part, so if it is cash flow you are looking for you may need to look out of the area.

 I still see posts that indicate San Diego does not have good cash flow.  All these posts are from people who have not invested in San Diego RE.  

Cash flow is defined as the cash flow over the hold period.  It is not the initial cash flow or the projected cash flow.  Historically San Diego has produced outstanding cash flow.  This is due to historically outstanding market rent appreciation. 

San Diego SFR average Rents have increased over $600 over the last 5 years (source Zillow). I expect rents for 2019 will increase 8%.

The market with higher rent appreciation will always eventually have better cash flow than a market with lower rent appreciation.  It is in the math.  

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

    San Diego doesn't really cash flow for the most part, so if it is cash flow you are looking for you may need to look out of the area.

    0Reply
  • Twana RasoulBusiness Member
    Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
    6y

    @Coleman Cox house hacking extremely viable in many areas of San Diego. Doing it myself. Let me know if you ever want to chat.

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

    San Diego doesn't really cash flow for the most part, so if it is cash flow you are looking for you may need to look out of the area.

     I still see posts that indicate San Diego does not have good cash flow.  All these posts are from people who have not invested in San Diego RE.  

    Cash flow is defined as the cash flow over the hold period.  It is not the initial cash flow or the projected cash flow.  Historically San Diego has produced outstanding cash flow.  This is due to historically outstanding market rent appreciation. 

    San Diego SFR average Rents have increased over $600 over the last 5 years (source Zillow). I expect rents for 2019 will increase 8%.

    The market with higher rent appreciation will always eventually have better cash flow than a market with lower rent appreciation.  It is in the math.  

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

    @Dan H. completely agree which is why I like CA investing, however when people say cash flow on here they mean immediate cash flow just like they hear about on the podcast.  I consider a market like San Diego more of a rental growth market than a cash flow or appreciation market. Although both parts will come in time.

    1Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    6y
    Originally posted by @Aaron K.:

    @Dan H. completely agree which is why I like CA investing, however when people say cash flow on here they mean immediate cash flow just like they hear about on the podcast.  I consider a market like San Diego more of a rental growth market than a cash flow or appreciation market. Although both parts will come in time.

     I do not believe most people have the wrong definition of cash flow.  I think most people do not realize that rent appreciation leads to actual cash flow.  They calculate the initial cash flow and, even though they know cash flow is the cash flow over the hold period, use that as the cash flow.  Some of these people do so because they do not want to depend on appreciation.  They think depending on appreciation makes it not investing but speculation.

    They have no issue speculating that their rent rates will not decline or vacancy rates increase significantly.  Both of these happened in various markets during the Great Recession.  Look at Detroit that is still recovering.

    For me, the primary thing that makes it investing, whether we are using the term for RE, stocks, bonds, futures, mineral rights, commodities, etc., is that the investor performs research to form their opinion.  The research is more extensive than just using past trends. 

    Using my research, I am forecasting an 8% market rent increase for my market for 2019.  In my pro forma I would use a much more conservative estimate.

    Good luck

    1Reply
  • Coleman Cox
    OP
    San Diego · Member since 2019 · 16 posts · 8 votes
    6y

    @Twana Rasoul

    Thanks! I’d love to connect and hear your approach.

    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    6y

    I guess some SD house hacking could put you in positive cash flow out of the gate. Nothing really new, single dudes have been renting rooms to offset expenses for decades. Also consider for the future what it would take to add the ADU or two now with the new Calif law. These lastest options might really get one into significant positive cash flow the quickest. Perhaps also consider what you can get for off street car parking rentals. I have done this with classics and still to this day rent a residential parking space ( gated carport) for my business last 10 years. Basically turn this pad into a cash flow center inch to inch.

    1Reply
  • Siobhan Kelly-Roberts
    Investor · Los Angeles, CA · Member since 2017 · 110 posts · 52 votes
    6y

    My market is Memphis, which is mostly renters, and the average property prices aren't very high. So definitely a great opportunity for cash flow, if you're looking to invest outside of California. I actually know California-based buyers who invest in Memphis.

    If you message me, I'm happy to give you more info.

    1Reply
  • Koleton Daley
    American Fork, UT · Member since 2017 · 175 posts · 76 votes
    6y

    We own property in Memphis as well!! It’s a great market to own property in!! Mainly section 8 tenants but still really good people. We did have a bad experience with CrestCore and wouldn’t recommend them to anyone looking to have them help you own property in Memphis. In our opinion, Crestcore is one of the most dishonest groups in Memphis and a bunch of owners are upset with them on BP as well as on the  Better Business Bureau’s Website

    0Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    6y

    You can’t use “it will eventually cashflow” to define it as cashflowing. Otherwise every single property is cashflowing. Since you will eventually pay the property off and then it will cashflow. 

    It’s usually stated as such..”I want to buy a cashflowing property...” I.E. one that IS cashflowing not one that WILL cashflow. 

    I personally don’t care about the cashflow. Luckily, If a property makes or loses $200 per month just doesn’t affect me. I look at the “profit” (this means including the capital pay down) and the expected expenses are low  (this means buying slanted tile roofs, stucco siding, desert landscaping, less than 20 year old houses, in a landlocked valley where it doesn’t snow.)

    But at least pretend to know what they mean when they say cashflowing. 

    2Reply
  • Sam Josh
    Sunnyvale , CA · Member since 2017 · 373 posts · 362 votes
    6y

    @Dan Heuschele

    100% agree. CA investing is about total return over the life of the investment and those are often big relative to any other market in the country after you account for appreciation. With all due respect BP forum experts discount that aspect but that said the investing discussions are not focused on CA or NYC which have different dynamics all together.

    0Reply
  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    6y

    You don't buy in San Diego for day 1 cash flow.  You buy hoping that appreciation and rent growth will save you

    (not saying that's a bad plan or a good plan.  Just is what it is)

    0Reply
  • Christina Labowicz
    Real Estate Consultant · San Diego, CA · Member since 2016 · 75 posts · 42 votes
    6y

    @Coleman Cox the amount you have to put as the downpayment depends on the strategy you would use. You can put as little as 3.5% down on owner occupied SFR or 2-4 unit, buying SFR to own and rent to friends is better than paying rent, but its very difficult to find a cash flowing 2-4 unit property at that rate and you'll definitely be sacrificing on the neighborhood you live in. If you have 25-35% down then you can find something in a C class area that you don't need to owner occupy and can rent in the neighborhood of your choice while you have a mortgage paying itself off and putting change in your pocket for your next deal.

    I tell new investors these are their main options:

    1. Owner occupy turnkey SFR, better than renting

    2. Value-add SFR, lending can cover the cost of the repairs and gain some equity

    3. 2-4 unit owner occupy - sacrifice where you live but can throw all your savings into a deal and eventually it will cash flow for you when you step out of it

    4. 2-4 Unit 25%+ down - most ideal, yes we can definitely find cash flowing deals with 25% down

    1Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    6y
    Originally posted by @Christina Labowicz:

    @Coleman Cox the amount you have to put as the downpayment depends on the strategy you would use. You can put as little as 3.5% down on owner occupied SFR or 2-4 unit, buying SFR to own and rent to friends is better than paying rent, but its very difficult to find a cash flowing 2-4 unit property at that rate and you'll definitely be sacrificing on the neighborhood you live in. If you have 25-35% down then you can find something in a C class area that you don't need to owner occupy and can rent in the neighborhood of your choice while you have a mortgage paying itself off and putting change in your pocket for your next deal.

    I tell new investors these are their main options:

    1. Owner occupy turnkey SFR, better than renting

    2. Value-add SFR, lending can cover the cost of the repairs and gain some equity

    3. 2-4 unit owner occupy - sacrifice where you live but can throw all your savings into a deal and eventually it will cash flow for you when you step out of it

    4. 2-4 Unit 25%+ down - most ideal, yes we can definitely find cash flowing deals with 25% down

     Item #4. Can you post an asking price with current rents example that is currently on the market that has positive cash flow?  I suspect you are using aggressive numbers or are using a projected rent rather than actual rent or both to project positive cash flo

    It is my belief that a realistic pro forma using current rents will show all 1 to 4 units on the market (MLS: retail purchases) are initially cash flow negative or at best near neutral.

    Thanks

    0Reply
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