BRRRR/land investing in SoCal
6 Replies
- 3dDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
San Diego used to be a great BRRRR market. It is easy to add value. I recently added a half bathroom in high value San Diego market (ARV >$2000 psf) out of existing space and comps showed it added $50k of value. Try getting that value add in cheap markets.
I used "used to". Virtually all the local BRRRR from 2015 to 2022 have pivoted because after the high LTV refi the property typically will bleed cash. The difference is the mortgage rate combined with low rent versus value. It is not uncommon to have 0.5% monthly rent ratio after a high LTV refinance when possibly a 1% ratio is not cash positive when allocating for vacancy and sustained expenses. It is y opinion that it is a rare San Diego property that is a good brrrr opportunity. The last 2 purchases that I intended to brrrr, I never did the refi because my initial rate was so much below the rate I could obtain after I had completed the stabilization including rehabs. I did well on both (up over $1m on each) but my ROI will forever be impacted from not extracting value after the value add.
Have you heard the term sophisticated value add? They typically leverage an ordinance, regulation, or law for the value add rather than a rehab. Because I do not typically give out the secret sauce, I will point out 2 that the opportunity has passed.
1) sb13 protected safe illegal units for 5 years. A subsequent bill extended the protection. Basically the state does not desire safe units to be removed. After sb13 was passed but before it was showing in the comps (in 2020) I purchased a quad where every foot was built under permit, but it is only a SFH. I purchased this quad in n San Diego county for $620k. Needless to say today it has a value near $2m.
2) my initial protege identified a property that was near ideal for the San Diego bonus density. It had current use value less than $900k, but he sold it to a developer for $1.5m. The developer used the law to place 17 ADUs on the lot. This effort and others like it resulted in the city of San Diego greatly reducing the bonus density regulations, My protege went in with his sister. It is hard to imagine an easier way to make $0.5m (split, so $250k each) as all they did was basically sell under a different use than the existing comps (which valued the property at less than $900k. I suspect you can find this easy as it is cul de sac in Claremont that the developer had significant bad press, unhappy neighbors, etc. my protege simply sold the property noting its highest value use.
There are still opportunities similar to these for people who have the intuition to foresee the sophisticated value adds.
For meet ups, have you tried meetup.com?
Good luck
- 22hAssaf MaSan Diego, CA · Member since 2026 · 8 posts · 1 voteOP
Thanks, Dan. On the value add plays like SB13 or the bonus density deal, how does someone find those opportunities before they're obvious? Are you tracking pending law and zoning changes yourself, or is that mostly relationships with people who see it coming?
- 3dStacy RaskinBusiness MemberLender · Member since 2022 · 1k+ posts · 494 votes
It's feasible to make money in Southern California but it will come from finding a property that needs some kind of improvement in an up and coming area. In the Los Angeles area, on the East Side it went from areas like Silver Lake to Echo Park. Those areas become less affordable so now it has moved out to other areas where some kind of upside can be found because of being adjacent to an area where people want to live but can't afford. Also, seeing what local and state level laws can apply around real estate value add ons such as ADUs can be helpful. If doing a BRRRR, it's finding areas that are up and coming where people who can pay the rent will live there but it's not completely gentrified yet so the prices for real estate still have some room for upside.
In the San Diego area, I had a client buying in similar up and coming areas a couple of years ago.
For meet ups, looking at Facebook pages that focus on the areas you are interested in besides the events section here might be helpful.
Bright Skyline518 Reviews- 22hAssaf MaSan Diego, CA · Member since 2026 · 8 posts · 1 voteOP
Thanks, that's a useful way to think about it. Since you're on the lending side, curious what you're seeing on the refinance leg specifically. Dan mentioned the high LTV refi is what kills a lot of these deals now, rent doesn't cover the new payment even when the rehab worked. Are there loan programs or structures you'd point someone to that hold up better in this rate environment, or is that just the current reality everyone's stuck with?
- 16hArman AhmedPro MemberReal Estate Agent · Columbus Cleveland Dayton, OH · Member since 2024 · 2k+ posts · 904 votes
Quote from @Assaf Ma:
Hi, I'm new here, from San Diego. New to BRRRR, but not to buy-and-hold investing.
I'm planning to put up to $500k into my first deal, or maybe split it into two sequential deals to reduce risk. But I'm not seeing much I can get for ~$250k around San Diego (open to all of SoCal though).
Bigger question: is BRRRR even feasible here at all, even putting the full $500k into one property, in a way where rehab raises ARV enough to get 90%+ of the money back on refinance? Or do SoCal prices, mortgage rates, and taxes rule that out?
If it's not feasible here, does it make more sense to do the first deal out of state? If so, which states would you look at?
Also interested in land investing since it skips rehab risk. Is that feasible to make money on in SoCal?
Last thing: any San Diego networking or municipal RE events worth attending beyond what's in the events section? Trying to find what's not listed.
Thanks!
I'd definitely run the numbers on a few out-of-state markets before putting the full $500K into a SoCal BRRRR. The Midwest is worth a look because the lower purchase prices can give you more room for the rehab and refinance strategy. I work in those markets and have seen some interesting off-market opportunities, so happy to share a few if you want to compare the numbers.
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