BRRRR/land investing in SoCal
Most Popular Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votesRE is a hobby/passion for me so I normally hear about them just by having the passion.
SB13 was primarily about ADUs, but had the safe unit protection. I heard this directly from the state senator that wrote the bill. Pretty much every one there was thinking ADU laws. I was thinking differently. I was thinking this is going to raise the value of safe unpermitted units. Adding an ADU is typically a poor investment. The attendees were concentrating on the harder and more challenging value add. It was easy to purchase a quad with 3 safe unpermitted units. Less than 6 months, I was seeing value of unpermitted units increase in the comps. It lasted a couple/few years.
I think San Diego's previous extreme bonus density was easy to see potential ways to profit. The obvious is as the developer, but that is a lot of work/skill. Creative is realizing the value of finding a property that is an exceptional candidate for the old bonus density rules. Buy it at a good price based on current SFH comps and sell it to the developer who will make bucks on the development. Question would you rather but at $900k (3/1 in Claremont, you can find this effort easily as it got some, mostly bad, press) and sell for $1.5m with virtually no effort (they made well over $500k after closing and holding costs) or make a couple/few million building 17 ADUs and have the wrath of virtually everyone but especially the neighbors? I know what I would pick.
you are in San Diego. Are you aware that both the city of San Doego and unincorporated areas of the county allow condoizing certain ADUs by right? Can you think of a way this could be a sophisticated value add?
For CA do you understand how SB1079/AB1837 can benefit an OO buyer?
Some sampling secret sauce if you spend the effort to understand. I do not often provide even sampling of the secret sauce.
Good luck
15 Replies
- 6dDan 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
- 4dAssaf MaSan Diego, CA · Member since 2026 · 12 posts · 2 votesOP
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?
- 2dDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
RE is a hobby/passion for me so I normally hear about them just by having the passion.
SB13 was primarily about ADUs, but had the safe unit protection. I heard this directly from the state senator that wrote the bill. Pretty much every one there was thinking ADU laws. I was thinking differently. I was thinking this is going to raise the value of safe unpermitted units. Adding an ADU is typically a poor investment. The attendees were concentrating on the harder and more challenging value add. It was easy to purchase a quad with 3 safe unpermitted units. Less than 6 months, I was seeing value of unpermitted units increase in the comps. It lasted a couple/few years.
I think San Diego's previous extreme bonus density was easy to see potential ways to profit. The obvious is as the developer, but that is a lot of work/skill. Creative is realizing the value of finding a property that is an exceptional candidate for the old bonus density rules. Buy it at a good price based on current SFH comps and sell it to the developer who will make bucks on the development. Question would you rather but at $900k (3/1 in Claremont, you can find this effort easily as it got some, mostly bad, press) and sell for $1.5m with virtually no effort (they made well over $500k after closing and holding costs) or make a couple/few million building 17 ADUs and have the wrath of virtually everyone but especially the neighbors? I know what I would pick.
you are in San Diego. Are you aware that both the city of San Doego and unincorporated areas of the county allow condoizing certain ADUs by right? Can you think of a way this could be a sophisticated value add?
For CA do you understand how SB1079/AB1837 can benefit an OO buyer?
Some sampling secret sauce if you spend the effort to understand. I do not often provide even sampling of the secret sauce.
Good luck
- 6dStacy RaskinBusiness MemberLender · Member since 2022 · 1k+ posts · 497 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- 4dAssaf MaSan Diego, CA · Member since 2026 · 12 posts · 2 votesOP
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?
- 4dArman AhmedPro MemberReal Estate Agent · Columbus Cleveland Dayton, OH · Member since 2024 · 2k+ posts · 911 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.
- 3dAlfath AhmedBusiness MemberReal Estate Agent · Columbus, OH · Member since 2022 · 1k+ posts · 1k+ votes
@Assaf Ma You would need to first stop buying in California. Find a different market where it is landlord-friendly, your dollar goes much further, and where there is tech, job, and population growth.
Connect with an investor agent. Have him connect you with his team of lenders, contractors, property managers. Look at off-market deals and buy them 80-85% of its true-value in turnkey shape or buy them at 75% of ARV for BRRRR/Flip deals.
Make sure to watch out for location, condition (Roof, HVAC, hot water tank, electrical, foundation, and sewer scope), and rentability.
When you re-finance, make sure deal cashflows and breaks even.
ReafCo | Ahmed Group 55 Reviews - Englewood, NJ · Member since 2018 · 464 posts · 87 votes2d
hey assaf, i buy at tax deed auctions in florida so i'm coming at this from a different angle, but the whole brrrr math problem you're describing really comes down to how deep your acquisition discount is. dan's right that socal's gotten tough with current rates - the refi leg just doesn't work when you're buying near retail. if you're open to out of state, florida tax deed sales can get you properties at 40-60% of market value which makes the whole strategy work even with higher rates now. the tradeoff is you need to be comfortable buying sight-unseen at auction and having the cash or hard money ready to close fast. might be worth looking at as an alternative to the traditional mls brrrr path.
- 1dAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
Assaf, with up to $500K available, I'd be careful about defining success as "getting 90%+ of my capital back on the refinance." That can happen in a great BRRRR, but I wouldn't make it the requirement that forces the deal.
In Southern California, I'd work backward from the refinance first. Start with a conservative ARV, realistic post-rehab rent, taxes, insurance, rehab, holding costs, refinance LTV, and what the property looks like if the appraisal comes in lower than expected. If the stabilized rental is weak after the refinance, pulling most of the cash back out doesn't make it a good deal.
I’ve personally done 20 BRRRRs, and the refinance piece is where a lot of the strategy succeeds or breaks down. The question is not just how much equity you create, but how much of that equity the lender will actually let you access while the property still cash flows afterward.
With $500K, I’d also compare one larger deal versus two sequential deals based on downside protection. Two smaller deals can diversify execution risk, but they also mean two sets of closing costs, contractors, financing, and management. One larger deal can be simpler, but concentrates the risk.
For out-of-state investing, I wouldn’t start with “which state is best?” I’d first define the buy box: target cash flow, rent-to-price relationship, rehab tolerance, property taxes, insurance, management quality, and refinance assumptions. Then compare markets against that.
On land, I’d treat it as a completely different strategy. You remove tenant and rehab risk, but you pick up zoning, access, utilities, entitlement, holding-period, and exit-liquidity risk. Raw land can look simple until you discover that the value depends on something you can’t actually build or subdivide.
From the tax side, BRRRR rentals can bring depreciation and potentially cost segregation once placed in service, while land itself is not depreciable. So I'd compare the strategies on both operating return and after-tax return, not just appreciation potential.
Feel free to DM me, I'd be happy to send over a few resources that might help with BRRRR underwriting, refinance planning, and comparing SoCal versus out-of-state deals.
INVESTOR FRIENDLY CPA®5241 Reviews - 1dStuart UdisPro MemberAttorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
Is this $500,000 you can afford to keep invested in real estate, or is it capital you'll need to get back? I ask because you seem focused on recovering 90% of it through the BRRRR process.
If you can use the $500,000 as down payment capital and qualify for financing on top of it, you have far better options. Most investors buy in distant markets because they’ve bought into the idea that more doors automatically means success, or because those are the only markets where they can afford to buy. Either way, they often end up in inexpensive markets with low barriers to entry. It's rarely a sustainable business model.
With $500,000 in liquidity, good credit, and access to financing, you have better options. Particularly if you have patient capital. Also, I would not view land investing as less risky merely because there's no renovation process. Land use and zoning is highly localized and understanding the entitlement processes is no easy feat. Furthermore, most land in the US is not developable....even the by-right land. That's because property values in most of this country do not support today's cost of vertical construction. This makes the truly developable land highly competitive and those who understand the entitlement process are going to get their hands on the best dirt or alternatively know how to generate real value through entitlements.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.