All Forum Posts by: Dan H.

 How did you calculate an expected cap ex of $100/month?   I do not believe there is a location in the country that expected cap expense is below $150/month for sfr.  I have never seen a cap expense that used expected life and expected current cost even as low as $150/month for sfr.  The lowest I have ever seen was almost $150 for 2 BR apartment units but I could imagine slightly lower for apartment units (maybe slightly higher than $100/month for small apartment units in a locale with cheap labor).  

So did you calculate the $100/month estimate or is that what you have experienced so far?   If it is what you have experienced so far how long of a duration have you been tracking and over how many units?

I do not believe appreciation and cash flow are mutually exclusive but areas where appreciation is believed to be most likely reflect the appreciation odds in the price making cash flow more challenging.  Who wants to sell a house today that cash flows significantly and is expected to appreciate 10% or more this year.  That is why locales like So Cal can sell for the values they do because the appreciation is perceived as so likely. 

I want to see the reference showing me a locale has experienced 200% market appreciation in 3 or 4 years (I would be interested in investing in such a market). You can look up the market appreciation in San Diego in last 4 years. I think it will be in the 70% range with one year significantly over 20% and the lowest being 8%. So the $1m asset would have a worth of $1.7m on average in San Diego (statistical average). Some locales slightly better and some a little worse. In practice $1m properties, if sfr, are seldom LTR and typically STR. My family's STR property has rent over $150k annually and is worth maybe $1.2m (by the way purchased for $375k). So on a $1m sfr in San Diego STR would be the best investment strategy.

I agree your quote seems high.  

However your ducting is 30 years old and likely done.  For 900' I would not replace the ducting.  I would go mini split.  They have been popular in Europe a long time.  They would have no issues with 900' (I have a 1400' unit on minisplit as it had no attic).  So far the mini splits outlast the window style AC which do not last very long (I am buying better units than I used to but the old window units did not last 5 years).  The mini splits look nicer.  The outside part of unit is also small.  Saving new duct makes labor less. 

The one thing is if their filters are not cleaned when they should be the cost to clean when disassembly is needed is high so make sure they are examined annually.  

I hope to add mini splits to two of my units in the next year (from no ac and no attic).  

Good luck.  

My advice is different than all your previous advice.  In my units with decent/nice landscaping I have in the ad listing unit availability as a tenant that wants and is willing to maintain the landscaping as many rentals do not have decent/nice landscaping.   Some tenants want to live in a place with a decent/nice landscaping. 

I could evict the tenant for not maintaining the landscaping and would if the tenant was not worth keeping.  But if the tenant is otherwise good I keep them and charge them at move out for new landscaping.  Similar to anything else that they did not adequately maintain.  They are sometimes surprised to lose hundreds of dollars due to killing off grass.  Sod is expensive to purchase and lay.   The property is not being returned in the condition it was rented to them due to their negligence.  So of course they will be charged for returning the landscaping to a similar condition as when they moved in.  

If you take the advice of no/minimal landscaping your unit will be like most other units and will not look nice.   My units are all above average for their locale.  I target the upper end of tenants in those locales.  Part of the attraction is the attractiveness of the units which includes the landscaping.  Also having landscaping helps in appraisals for refinance or when it comes time to sell.  

I would have property manager talk to tenant so that they are fully aware that maintaining the landscape is the tenant's responsibility.  If they fail to maintain the landscaping they should not be surprised when they get charged for replacing the landscaping if they destroy it.  

Good luck

Like all of San Diego the initial cash flow is weak unless using STR. The profits are in the appreciation (rent and property appreciation). The only people to lose money in San Diego RE are those that were over leveraged and had to sell when the prices were depressed. This long-term, great track record, appreciation is built into the pricing.

My wife also went to high School in Escondido (San Pascal).  Her neighborhood was and still is nice.

 I agree the return based on initial cash flow is not great but San Diego RE in current market is not primary a cash flow investment but a rent and property appreciation market.  There appears to also be an opportunity for sweat equity in this property but I have only seen the property exterior. 

The RE is in an area that I would place as a C area and not near the coast (Escondido).   In B area near the coast the market rent would be above $2k for a 3/2 with 2 car garage.  

I am ok with C area but the property appeared that it would invite tenant issues.  I am more about land lording on auto pilot.   So it did not match what I was looking for.   I think it will sell for less than the current asking price (my guess is $725k) which would increase the calculated initial cash flow.  

@Nick Foster replied with a STR. STRs should cash flow but they are high effort and regulations could impact that cash flow significantly so there is a certain risk. I am not saying to not take the risk but to be aware (the family has a STR duplex 1 block from the beach that it has owned since 1999 that has done very well).

But here is a LTR recently on market (MLS in the last week) that would cash flow if self managed (not much but this is San Diego). Triplex with each unit being 3/2, total SF 3521', each with a 2 car garage and complex has a laundry room. Unit price $255K (total $775K). Placing 20% down and achieving traditional financing would result in $620K loan. At 4 3/8% payment would be ~$3100. Market rent for 3/2 with 2 car garage not recently rehabbed where this unit is located is ~$2000 (~$2300 to $2400 post rehab). Property tax at 1.25% (slightly conservative) for ~$800/month.

Costs:

loan: $3100

Tax: $800

Insurance:  ~$150

Cap expense: 3 * $250 = $750

Maintenance: $250

Vacancy: 5% of $2000 * 3 = $300 (this is very conservative compared to what I actually have)

Misc: $100 (this unit does not require a gardener but I am unsure of how laundry room is powered and other utilities)

Total: $5400

Rents: $6K

Laundry room: $150

Total: $6.15K

Self managed cash flow: $750

Note with property management at 10% it would be virtually cash neutral ($150 positive cash flow).

Note I have less than 5% vacancy.  I consider my cap expense numbers to be slightly conservative but many consider them to be very conservative.  I do not really know what would make up the misc cost so suspect I am conservative there.  The loan, tax, insurance are based off units that I currently own and are fairly accurate.  The laundry room is also based on a laundry room that I have in a duplex (it does ~$100/month so triplex should do ~$150/month).

Again I realize this does not cash flow like many locales but what do you think the market rent will be a year from now?  I suspect $6.3K.  What do you think the appreciation will be?  I personally do not try to predict the short term appreciation but I am confident that the long term appreciation will be greater than inflation and greater than most other locales.

The reason I passed on this RE was the tightness of the land versus structure.  It screamed parking issues and potentially tenant issues.  It had an apartment feel rather than a triplex feel.

 In San Diego that close to 1% would be very good.  I would buy most San Diego duplex to quad at 1% rent to price ratio.  I know it seems strange to most other locales that 1% is such a value but that is the state of San Diego RE.  

I like Escondido more than San Marcos or Vista.  Have you been to Cruising Grand?  If not look it up.   Talk about packed there literally is no parking and people come from all over.  I recommend any San Diegan to go to Cruising Grand at least once.  It reminds me a little bit of Highland Ave of the 1970s but more organized and controlled.  Too bad National City did not leverage cruising Highland Ave like Escondido.  It was perceived as only a problem without forward thinkers considering how it could benefit the city.

There are at least half a dozen upscale apartment complexes from started to recently completed.   The old part of the city always had a nice vibe with cared for homes with character.  I do admit that as you go to more away from old Escondido the quality of the neighborhoods vary significantly.  There are new nice homes just a few blocks from old run down homes.

 Then I add one to my list: see a doctor.  Take care of the depression and yourself before trying to invest in RE.  RE often involves work, stress, long hours before it provides the dividends for the sacrifices.  It is virtually certain there will be hard and stressful times.  On my recent vacation my partner called me early when only a few of the things had gone wrong.  She was in near tears with no depression issues.  There were the RE items I listed in the earlier post but in addition a pet had gotten some fast growing tumors and would need to be euthanized.  It was unfortunate that so many things went bad all at once when I was on vacation but given enough time there will be real tough periods.  You need to be mentally able to deal with those periods. 

Take care of yourself first then think about RE investing.  

Good luck