All Forum Posts by: Dan H.

David did a good job describing forced appreciation but left out one possibility. As long as interest rates stay low you may be able to refinance to get some/all of your initial investment out of the property (Brandon Turner's BRRR). Some loans have seasoning requirements and most refinances limit to 70% LTV.

Only 2 of my properties have any of my initial investment left in the property (one has an absurd low interest loan and the other has not yet appreciated enough to warrant refinancing). 

So it is similar to the flippers but instead of selling for a profit you keep the property, refinancing it hopefully to extract your investment (to invest elsewhere: leverage) and keep 30% equity while renting and having tenant pay down your mortgage. 

Good luck

 I am not a fan of newbies investing out of state but I feel this is some of the best advice for doing so. 

I will add if considering using a turnkey provider read some of the horror stories on BP.  in general the TK charge a premium for their properties sometimes with appraisals that only TK companies can sell at.  TK properties typical have few palatable exit options. 

I compare San Diego RE to a growth stock that has a history of long term appreciation going back over 50 years that does not pay dividends.  It will not provide good cash flow in the near term but has a good chance to have good long term appreciation. 

Versus a value stock that pays a dividend.  The short term cash flow will be better but it does not have many indicators that it will appreciate well (otherwise it would be a growth stock).  

You live in San Diego.  You likely are aware of both the property and rent historical appreciation.  You likely understand the supply vs demand.  You likely have seen or heard about the various reports that indicate there is anticipated to be a continuing housing shortage and continued increases of property n rent are anticipated.  

What you may not know is that appreciation locales have produced better ROI than cash flow locales for financed buy n hold. That San Diego is near the top of the list in terms of ROI for virtually any long term duration you choose (example #3 since 2000). In the last 5 years the worse year for appreciation was 8%. This implies if you house hack with 10% down, the worst year in the last 5 years produced an 80% return on your investment.

I recommend all new RE investors start local and self managed.  This is not to imply that it is not possible to succeed investing out of state with a PM but I think you will have a better chance of success if buying local n self managed.  

Good luck

Question is have you always thought San Diego to be over priced because I know many investors who hold this belief but have always held this belief? We know that San Diego historically has produced far better ROI on financed buy n hold than virtually any other locale. Just curious if your view is new (and maybe correct but I do not think so) or if this is a long held view that so far has been incorrect going back over 50 years.

Simple fact is that for long term financed buy n hold few locales have produced better ROI than San Diego using virtually any long term duration you choose (15 years, 20 years, 30 years, ...., 50 years). This incredible track record of providing great ROI is reflected in the current prices.

Obtain an umbrella policy. The more you are worth the higher the coverage should be. I have an LLC that I use in name only. I have none of my properties owned by the LLC as financing, etc becomes more difficult. So my LLC provides no protection.

The umbrella coverage costs more than the LLC but it should protect my assets better in practice than my LLC (which likely provides no protection). by the way my primary insurer would not provide me an umbrella coverage. They were vague on the reason but I suspect the primary reason was number of rental properties. They were willing to be the broker for a policy for a different company.

The umbrella coverage is also more dummy proof than an LLC which has various conditions necessary to provide the protection you desire (notably separation of funds which is not always easy).

Good luck

@Account Closed please post the addresses of your Baltimore purchases as completed.  

Basically I want to determine if you are placing your money where you indicate or if you are just a troll.  If you are just a troll I think your post can harm some newbie investors.  

If you are actually investing in Baltimore, good luck.  

 Who do you think is financing the RE that is selling?  For quad down they use comps for the financing so there is no issue getting banks to finance.  

As for the smart buys I understand your perspective of smart is one with significant cash flow and why you invest out of state. However a different perspective of smart is one that produces the best ROI. Areas with historical long term appreciation have produced better ROI which is why they are priced such that initial cash flow is not good.

So no one knows what coastal So Cal prices will do in the short term but they have historically appreciated far better than inflation or most other locales.  In the last 5 years the worst appreciation year was 8% and the best over 20% for San Diego.  

So I suggest we analyze the question by going back in time when you started investing in Houston (which I do not know when you started investing in Houston). At that time, similar to now, I assume you held the belief that San Diego did not have any "smart" purchases. Yet San Diego financed buy n hold would have produced outstanding ROI (averaging better than Houston).

I realize that that is using hind sight but the simple fact is the future is hard to predict.  

As for a property that could make sense for purchase there is one that hit the market a couple of days ago in my area of expertise (I suspect you know my area) that is a quad. Two 1/1, two 2/1. I place expected rent if rehabbed at $1200 (1/1) and $1500 (2/1) for a total rent of $5400. Asking price was just above $600k. I do admit it does not cash flow like other locals but using conventional financing it should cash flow at 80% LTV.

As a long term buy n hold the prop tax is basically fixed (prop 13: wouldn't that be nice in Texas?). Historically the rent and property appreciate far faster than inflation and other locals. Short-term anything can happen but using historical average appreciation for both RE and rent appreciation in a few years this barely cash flowing property will have appreciated significantly and had associated rent appreciation and now be cash flowing nicely and produced a nice ROI mostly due to the appreciation.

It is a different perspective having to rely on appreciation for the outstanding ROI but San Diego has experienced long-term appreciation going back more than 50 years.

You appear to have done well investing in Houston but there are many investors who have done well investing in coastal So Cal.  

Good luck

I realize this does not match your stated goal but I want to throw this out there as something for you to consider because if I were married and starting out with a VA option this is the approach I would use.

Purchase a detached duplex (ideally each unit with its own yard) using the VA loan. Live in one unit and rent the other unit out (house hack in separate detached units). The VA loan I believe can be used to purchase up to quad but start small.

Advantages include an opportunity to learn a lot about buy n hold including if you like being a landlord and various information about repairs and dealing with contractors, ability to use VA financing (requires owner occupied), the principle pay down of the tenant, all while having the advantages of having your own detached residence.

I also suggest you refer to yourself as the Property Manager and not the owner.  It is not really lying as you are the property manager and the owner but referring to yourself as the Property Manager has some advantages when dealing with tenants including providing an excuse to not provide instant responses (need to confer with the owner).  This was a suggestion from the book Landlording on Auto Pilot which I do recommend (I am not the author but it has a fair amount of useful tips :=).

Thanks for your service to the country and good luck.

@Kyle Horjus I suspect a loan officer or mortgage broker could answer your questions more authoritatively but ...

You can typically refinance any time the equity warrants after owning an investment property at least one year but typically only to 75% LTV. I do not believe it effects your credit score. With recent appreciation in San Diego ranging from 8% to the low 20% and the sweat equity I have been in a near perpetual state of refinances the last few years but none in almost 6 months.

If you are confident that you will be staying in Los Angeles for quite a few years I would look at house hacking a detached duplex using an FHA loan. You will learn a lot, save on rent, obtain equity via principle pay down, and if properties continue to appreciate you will be keeping up rather than falling behind.

Good luck 

xxxx