All Forum Posts by: Alex Price

There are so many nuances to that question.  I should add I use very conservative cap expense/maintenance estimates in my cash flow projections.  I actually do not view them as conservative but most investors would not use numbers like I use.  I typically allocate between $250/month to $350/month (depending on size, bathrooms, yard, etc.) to maintenance/cap ex estimates.  I have done enough rehabs to know they are not cheap. Slab leaks are expensive.  New roofs are expensive.  If I am too conservative in my estimates is means that I will have actual cash flow in excess of my estimates which I much prefer to the opposite.

Today initial cash flow on a retail SFR is negative. On a retail duplex to quad it varies from negative to slightly positive. Nothing to write home about. The initial cash flow was far better 5 years ago.

However, Rent Jungle states the average apartment rent (mostly one and two bedrooms) has appreciated $540 in the last 5 years. I suspect that non-apartment units have increased about the same percentage but the rents are 33% higher for SFR than for apartments (Source: Trulia SRF rent versus Rent Jungle Apartment rents). So if we use the same percentage, SFR rents have gone up $718 in the last 5 years which is probably a little less than the rents on my units have gone up.

So the units I purchased 5 years ago had positive cash flow projected at purchase (most of them would not reflect positive cash flow today and all would be less cash flow than projected 5 years ago) and the rents have gone up in San Diego for SFR on average over $700. So the cash flow has been awesome on an average SFR purchased 5 years ago; I suspect near tops in the nation (along with San Francisco and LA/OC). The average San Diego SFR purchased 5 years ago should have positive cash flow far in excess of the $700/month of rent increase.

Now for a different look... ROE: as indicated the SFR purchased 5 years ago had better cash flow than the SFR purchased today. This implies the property appreciation has been greater than great rent appreciation. So the ROE today on the retail purchases from 5 years ago is bad. ROE on retail purchases today is also bad. A retail SFR needs continued appreciation to provide a good ROI. Historically there has been very good long term property appreciation but in that long term appreciation there have been cycles of depreciation (usually less than 5 years). I think virtually no one is predicting the same property appreciation of the last 6 or 7 years.

However, I am predicting continued short term rent appreciation and long term property and rent appreciation. I have rational for each of my forecasts. So long term I expect San Diego RE to continue to have one of the best ROI in the US.