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Avid Najdahmadi
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Best areas for SFH investment property

Avid Najdahmadi
Posted Oct 1 2021, 20:36

Hi,

I am relatively new to San Diego (1.5 years) and I moved here for a biotech job, first high paying job after university:D. Planing to buy a SFH to rent out and create cashflow. Any suggestion on what locations are best, in terms of (1) cash flow, (2) appreciation and (3) tenants? I am particularly looking into Mira Mesa since its closer to my work in Sorrento Valley and seems like a very decent place. Any help or suggestions will be greatly appreciated!

Thanks

San Diego, California

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Replied Oct 2 2021, 18:48

If your looking at MiraMesa price point also consider Clairemont and/or UTC (condos).  Some of this will depend on who your trying to get as room mates.....meaning maybe grad students near your age (for instance), or anyone.  If you want the biggest "house" bang for your buck perhaps you look towards santee along the 52 freeway....but your room-mates may be different (life stage) people.....A better question might be.....who do you want to live with?

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Jordan Graham
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Jordan Graham
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Replied Oct 7 2021, 22:22

Hey Avid,

What price point are you thinking? The average home price in Mira Mesa is around $850,000 so I will assume you are comfortable with those prices. Also how long are you wanting your commute to be? If you are wanting to stay within a 30 minute drive of Sorrento Valley I would suggest looking into Mira Mesa, Oceanside, Clairemont, San Carlos, Allied Gardens, and La Mesa.

I would be happy to send you the spreadsheet I use to analyze deals if you would like.


-Jordan G.

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Lance Trezona#1 San Diego Real Estate Forum Contributor
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Lance Trezona#1 San Diego Real Estate Forum Contributor
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Replied Oct 19 2021, 17:54

Cash Flow is going to be the hardest to find, Appreciation all day long on properties in SoCal, and Tenants will be totally dependent on how well you screen them. @Jordan Graham gave you some very good places to look into, I personally like the La Mesa / College Area and Barrio Logan for investment purposes. Are you planning on Househacking the SFR and renting out by the room? That would be your best bet for cash flow.

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Replied Oct 20 2021, 08:46

La Mesa/San Carlos/Lake Murray area I think are really good options if you can afford it.  Low crime, great schools, and our tenants have been very stable.  

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Jordan Graham
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Jordan Graham
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Replied Nov 1 2021, 20:48

@Lance Trezona Thanks for the shoutout! I actually just closed on a turnkey 4 bed 2 bath near Lake Murray (La Mesa) for $730,000. Our PITI is $3,400 and we think we will be able to rent it for a minimum of $3,100 once we move out. We are converting the garage into a Junior ADU and will be able to get somewhere around $1,800 for that unit so we should be grossing around $4,900 a month in rental income. That gives us $1,500 a month in cash flow, give or take! Cash flow exists here, you just have to get creative.

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Dan Heuschele
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Dan Heuschele
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Replied Nov 1 2021, 21:31
Originally posted by @Jordan Graham:

@Lance Trezona Thanks for the shoutout! I actually just closed on a turnkey 4 bed 2 bath near Lake Murray (La Mesa) for $730,000. Our PITI is $3,400 and we think we will be able to rent it for a minimum of $3,100 once we move out. We are converting the garage into a Junior ADU and will be able to get somewhere around $1,800 for that unit so we should be grossing around $4,900 a month in rental income. That gives us $1,500 a month in cash flow, give or take! Cash flow exists here, you just have to get creative.

 San Diego does not allow renting a JADU as a separate unit unless the primary unit is owner occupied.  You need to be sure you know the current regulations.   I do not expect this regulation to change in the near term.  

Good luck

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Lance Trezona#1 San Diego Real Estate Forum Contributor
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Lance Trezona#1 San Diego Real Estate Forum Contributor
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Replied Nov 2 2021, 07:14

@Jordan Graham congrats on the purchase. Would love to know the numbers once you move out and rent the property to tenants. @Dan Heuschele I did not know that, but you can rent it out if there is no separate unit number, even if it's not owner-occupied?

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Dan Heuschele
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Dan Heuschele
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Replied Nov 2 2021, 10:12
Originally posted by @Lance Trezona:

@Jordan Graham congrats on the purchase. Would love to know the numbers once you move out and rent the property to tenants. @Dan Heuschele I did not know that, but you can rent it out if there is no separate unit number, even if it's not owner-occupied?

A JADU cannot be legally rented out as a separate unit without owner occupancy regardless of address designation. An ADU can be rented out without owner occupancy.

Make sure you know the regulations. 
make sure you understand the value as set by an appraiser for your ADU/JADU prior to building. most ADUs add less value than their hands off costs. This means they are usually the opposite of a value add, they are a value subtract (new term).

Good luck

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Lance Trezona#1 San Diego Real Estate Forum Contributor
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Lance Trezona#1 San Diego Real Estate Forum Contributor
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Replied Nov 2 2021, 10:42

@Dan Heuschele Thank you for the info. 

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Adit S.
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Adit S.
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Replied Nov 7 2021, 21:06

1. Cash Flow - Contrary to popular belief, it's possible in SD if you find assets that have room to add value. ADUs are a blessing and as Dan mentioned, most places can support a JADU as well if you're living there. If you're open to it - scoop up a discounted place that needs some work and has room to add an ADU or 2.

2. Appreciation - If you check out the community plan for each area in San Diego (In SD, we have a city planning commission and each community/area has it's own community planning group) you can get a sense of what direction an area is headed. Some might argue that buying strictly for appreciation or guess where the path of progress may be is highly speculative, however, in San Diego, there are clear indicators in some areas that a massive upswing is inevitable. Become familiar with those areas and you'll see what I'm talking about. 

3. Tenants - there's something interesting going on in San Diego right now. I help a local developer manage around 40 doors in all types of areas (From North Park to Southeast San Diego) I've noticed that there's a shift happening in a lot of areas - we are seeing more people escape the beaches and downtown and move to places like Linda Vista. I leased up a software professional from Lake Murray (affluent) to City Heights (blue-collar) area - people are going where the rents are lower and we're seeing more socio-economic diversity in the lower-priced/blue-collar area. That being said, I think you can find great tenants in any area and any demographic if you focus on matching the right people with the right home. We've leased to people with shaky credit or background because they seemed genuine and felt excited about the space and had zero issues. We've also leased to people with excellent credit and income and they ended up causing us headaches. I am a firm believer that personality and compatibility with the home are huge when screening tenants. 

Really hope that's helpful and can't wait to hear more about your journey!

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Avid Najdahmadi
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Avid Najdahmadi
Replied Nov 13 2021, 11:55

Thank you everyone for the messages and all the help!! I am looking into buying a place, and eventually renting it out to a family.  Preferable 3 Br, 2Bth.  @Robert Comstock and @Lance Trezona so there will be no housemate, or different tenants, just a family.

@Jordan Graham thanks very much for the location suggestions.  I actually screened outLa mesa and ocean side because I figured the tenants in Mira Mesa will be more reliable. Having said that, I do not have a background in this field, so I may be wrong.  

@Jordan Graham, thanks for that interesting example of change and adding ADU. TBH i started thinking formy first purchase, I avoid making big changes since its a new field to me. Just buying a nice clean place with low intrest rates of right now and renting it out as is. Maybe only minor changes like adding AC, etc. What do you think about this approach?

@Adit S. What an interesting point to point break down. Given that if a good screening happens, and I rent out in Mira Mesa to a good family, I think appreciation and Tenants will be checked off.

Now my actual question is cash flow.  Is it even possible in this market? Let me add in some numbers.  I am targeting a 900K house, clean alomst rent ready condition, in Mira Mesa or a good area, with 675K loan at 3.1% interest rate. Adding principal, interest, insurance and taxes, I am looking at $3900 payment a month, and this is not considering cap ex maintenance, management, which brings it up to $4300 roughly.  

Now the house, bought for 900k in Mira mesa or any area in san Diego in general rent-out for more that $4300 right away? Or is it a number that can happen after a couple years of appreciation and rent going up?

Thanks everyone, this is super helpful

Avid

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Mark Frattini
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Mark Frattini
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Replied Nov 30 2021, 12:06

Hello @Avid Najdahmadi,

Stick with Mira Mesa. It has good schools, central location and is close to your work. Hard to put a specific price on having a short commute but it's HUGE. Mira Mesa is also in the path of progress. It sits between Scripps Ranch and Sorrento/La Jolla (bookends) has highly rated schools and lots of money is being invested in the surrounding area with new businesses & restaurants etc. You shouldn't have any problem finding a tenant when you are ready to move onto the next property. Look for a house that needs a little bit of work so you can force some appreciation. Know how to find properties that meet your criteria in the MLS.

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Dan Nutter
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Dan Nutter
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Replied Dec 17 2021, 11:51
Originally posted by @Avid Najdahmadi:

Thank you everyone for the messages and all the help!! I am looking into buying a place, and eventually renting it out to a family.  Preferable 3 Br, 2Bth.  @Robert Comstock and @Lance Trezona so there will be no housemate, or different tenants, just a family.

Now my actual question is cash flow.  Is it even possible in this market? Let me add in some numbers.  I am targeting a 900K house, clean alomst rent ready condition, in Mira Mesa or a good area, with 675K loan at 3.1% interest rate. Adding principal, interest, insurance and taxes, I am looking at $3900 payment a month, and this is not considering cap ex maintenance, management, which brings it up to $4300 roughly.  

Now the house, bought for 900k in Mira mesa or any area in san Diego in general rent-out for more that $4300 right away? Or is it a number that can happen after a couple years of appreciation and rent going up?

Thanks everyone, this is super helpful

Avid

Hi Avid, though I'm not an expert in rental prices, I do own a few properties throughout San Diego County (Encinitas to City Heights). I think it would be hard to hit that $4,300 mark right away, but give it a couple of years and I'm sure we'll be there. Though nobody can predict where the San Diego market is headed, it's extremely likely both home values and rents will continue their upward trajectory for the foreseeable future.

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Replied Dec 17 2021, 12:20

For the deals Im looking at, the "easiest"  way to make them cash flow is value add.  You also may want to give some consideration to zoning if in San Diego proper.  My agent @Maxwell Ventura has some content online that discusses the zoning consideration.  This info was very useful for me to hone in on my target area.

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Michael Swan
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Michael Swan
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Replied Dec 17 2021, 15:27

Hi @Avid Najdahmadi

Just put a lot more down and it will cash flow.  I have lived in Mira Mesa since 1978 and I love Mira Mesa.  If you put 40% or more down and you keep about $15,000 in reserves after fixing it up, you should be good.

When you want to make some real money, contact me.  I have transitioned to Multifamily.  I have run a quite a few deals and invested as a passive a couple apartment complexes now and am financially free after 10 years of investing!!

Swanny

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Dan Heuschele
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Dan Heuschele
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Replied Dec 17 2021, 23:48
Originally posted by @Avid Najdahmadi:

Thank you everyone for the messages and all the help!! I am looking into buying a place, and eventually renting it out to a family.  Preferable 3 Br, 2Bth.  @Robert Comstock and @Lance Trezona so there will be no housemate, or different tenants, just a family.

@Jordan Graham thanks very much for the location suggestions.  I actually screened outLa mesa and ocean side because I figured the tenants in Mira Mesa will be more reliable. Having said that, I do not have a background in this field, so I may be wrong.  

@Jordan Graham, thanks for that interesting example of change and adding ADU. TBH i started thinking formy first purchase, I avoid making big changes since its a new field to me. Just buying a nice clean place with low intrest rates of right now and renting it out as is. Maybe only minor changes like adding AC, etc. What do you think about this approach?

@Adit S. What an interesting point to point break down. Given that if a good screening happens, and I rent out in Mira Mesa to a good family, I think appreciation and Tenants will be checked off.

Now my actual question is cash flow.  Is it even possible in this market? Let me add in some numbers.  I am targeting a 900K house, clean alomst rent ready condition, in Mira Mesa or a good area, with 675K loan at 3.1% interest rate. Adding principal, interest, insurance and taxes, I am looking at $3900 payment a month, and this is not considering cap ex maintenance, management, which brings it up to $4300 roughly.  

Now the house, bought for 900k in Mira mesa or any area in san Diego in general rent-out for more that $4300 right away? Or is it a number that can happen after a couple years of appreciation and rent going up?

Thanks everyone, this is super helpful

Avid

 >I am targeting a 900K house, clean alomst rent ready condition, in Mira Mesa or a good area, with 675K loan at 3.1% interest rate. Adding principal, interest, insurance and taxes, I am looking at $3900 payment a month, and this is not considering cap ex maintenance, management, which brings it up to $4300 roughly.

First your numbers on expenses are way off. If PITI is $3900 and rent is $4300, the PM fees all inclusive alone will consume your expense allocation. You are likely at least $400
per month low (cap ex/maintenance, miscellaneous) on your expense allocation. 

Now about renting for $4300/month.  A $900k house better rent for more than $4300/month otherwise you need to find a different sub market.  by the way I have apartment units that rent for almost that amount.  

Good luck

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Patrick Bavaro
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Patrick Bavaro
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Replied Dec 23 2021, 15:49

@Avid Najdahmadi have you considered OOS? I don't live in Cali, but I also live in a high priced area near Miami. Very competitive market so I've moved my SFH purchases to some other parts of Florida that have people flocking to them from other states such as Ocala and Cape Coral.

Currently, I’m in the process of building a new build 4/3 out in Cape Coral FL. Total all in cost was right about $265k, only required 10% down, rents right now at about $2300, and post construction appraisals are around $340k-$410k depending on the location. It’s a win win win all around for me. Let me know if you’d like to connect. Just message me. Good luck!

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Rob Massopust
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Rob Massopust
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Replied Dec 23 2021, 16:14

Not sure how big the house is, if there is an HOA or how many in your household so going to make some assumptions and I think there are others answers that are good.

My 2 cents to the mix would be 

The ADU is the only way so far [SB 9 and 10 not withstanding] - You should be able to take the SFR and do an attached JADU up to 500 sq ft, then you can [lot size permitting and every city has its own code so do some research] another detached or even attached regular ADU - and as long as you live there as owner occupied you can live in the SFR part, rent out the ADU and JADU- the twist we do is to rent out 30+ days as a furnished rental. Much better tenants [corporate, nurse, insurance etc] and you are in compliance with state laws of short term rentals not being allowed in ADU etc] This way you can probably pay most of your mortgage. ie: we get $2500+ per month for a small 1 bed in Orange County as a monthly furnished rental.

By converting the JADU or even ADU you save considerable time, permits and cost overall.

Do the project in stages and deterimine your next step.

You can sell in 2 years as owner or hold for rental and do 1031 etc - have to check with accountant on if an adu conversion can be non owner and as a rental. 

good luck, keep us posted

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Peter Mckernan
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Peter Mckernan
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Replied Dec 23 2021, 17:24

@Avid Najdahmadi cashflow can still be had in CA, and you just need to find value add properties, or it the ADU craze as mentioned below. The JADU as @Dan Heuschele mentioned cannot be used/rented if it is non-owner occupied, that may change down the road but not right now. The ADU also is something to be mindful of when building, costs have gone up for construction and the timeline to get permits approved take sometimes 10 months (my experience right now). For the rent verse build ratio can be at the 1% rule if you do it right, the refinance as Dan mentioned is the tricky thing. Make sure you pull comps that are in that market that have ADUs on the property with good sale prices. A great example of this is LA and LA county, they have a lot more since people jumped on that wagon a long time ago and they are building like crazy which means great comps for it to get the BRRRR value you are looking for when done.

You can also buy something that is a 2/1 or 2/2 and has room to bump to a 3/1 or 3/2. You will have to permit it, do construction then rent it for more than the 2/1-2/2 model. Just think outside the box, nothing crazy, this is something Brandon Turner talked about on the podcast all the time to grab that value that some people are not looking at when they see the house. 

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Replied Dec 23 2021, 18:48

Insurance company recommendation