All Forum Posts by: Dan H.

 My family and I had 7 rentals in San Diego in the last depreciation cycle.   We experienced no rent depreciation.  This is because some people moved into higher occupancy situations (moved in with family or friends) but the banks owned a lot of empty properties.  So the supply n demand remained relatively constant.  

So if the next downturn also does not result in any rent depreciation (not guaranteed) then if you are not over extended you should be ok.  

My big concern is that without any rent appreciation your property will be cash negative.   Expecting it to be cash positive in 6 years could be optimistic.   Would you be ok if it was 12 years before it was cash positive?  The $840/month principle pay down only adds value if the property does not depreciate.  

So I see certain risk in the purchase but there is also some significant upside.  Only you can evaluate if the upside warrants the risk but if I was starting out I would definitely consider the purchase.  

Good luck

@Kyle Horjus as long as rates stay low you can access appreciation via refinance or (harder to find) ELOC.  Home prices in last 5 years have appreciated between 8% and low 20%.   I suspect your 5% estimate for rent increase is pretty accurate.  

The property and rent appreciation has produced good ROI for recent purchases but also for long term holds.

Los Angeles has historically produced one of the best ROI for financed buy n hold of any location in the country yet you are considering investing in a different area. Think about all the wealthy foreign investors that choose to invest in locations like Los Angeles, New York, San Francisco. why do you think they are not purchasing in locations like Ohio, Tennessee, etc? Are they stupid? I think they are not stupid.

Good luck with whatever you decide. 

@Patrick Senas I do not try to predict the price of RE in the short term as I think it is very difficult to do (and I have purchased twice near market highs so obviously I am not skilled enough to correctly predict short term prices every time).  

I have made purchase that have been virtually cash neutral but they were under market purchases and/or had an opportunity for a small amount of sweat appreciation.  So I knew in the short term I was starting with an initially profitable investment.  

Losing $6k annually and hoping for short term appreciation is too risky for me today but I slightly wish I had the huevos to take that sort of risk when I was in my 20s (I did not and only purchased my primary home).  

So there is no way I would make that purchase but maybe if I was starting out I would consider it but hopefully I would be fully aware of the risks.  

Good luck

I think the numbers are very tight for a flip but maybe a buy n hold investor would be happy with purchasing below market.  

Good luck

 When someone on BP says San Diego I do not typically associate it with the city without the suburbs.  I include the suburbs when San Diego is mentioned on BP and suspect the typical BP reader interprets San Diego to include the suburbs and not just urban city of San Diego.  

San Diego suburbs have some of the best schools in the state.  

 There is not a school district as large or larger in California that does better on the standardized testing than Poway school district.  In other words the only school districts to out score Poway school district are smaller districts.  San diegeto school district is in many ways ranked higher than Poway school district (but is smaller).  Carlsbad and Coronado school district are also very highly ranked (and smaller than Poway school district).  This is not a complete list of good San Diego school districts but are the best of the many good San Diego school districts. 

So San Diego has quite a few highly ranked and touted school districts. 

@Lee G.

I believe when starting out in REI you should self manage as typically your resources are not as significant and self managing provides a learning opportunity.

However, as many have indicated as you scale the self managing of the units will become a job as it will take significant time.  How many units do you think you can self manage and work a traditional W2 job?  Do you like managing properties?  I slightly do but time is also very precious.  Do I like managing properties more than fishing with my kid(s)?  I say the answer is no but my actions state otherwise.

We still self manage all of our LTRs (14 units) and we use a property manager on our 2 STR units. However, my wife and I both realize that at some point we will convert some of the self managed properties to managed properties. My view is that somewhere around 20 units, even with a good team (mine is currently just an OK team), the managing of the units is a job.

Also as others stated, is dealing with tenants or doing handyman tasks the best use of your precious time. I think the answer may be yes when you are starting out and not able to generate large amounts of cash. However, for me to self manage in many ways is stupid. I self manage because I slightly like it but also because I am teaching my 14 yo son what REI entails (all facets) similar to what my Mom taught me. I recognize that it is not financially the best use of my time and may be financially the worse use of my time.

So it is important to include management fees because there will likely be a time that you no longer want to self-manage.

In general, I agree with @J Scott that my time is worth far more than the expense of a Property Manager and if you do not learn from managing your units or enjoy it then at some point if does not make sense to manage your units.

Good luck

@Patrick Senas I fall mostly into the @Justin R. former category as mostly we do a modified BRRR. I call it modified because we typically wait for the tenant (assuming a desirable tenant) to give notice and move out before doing the rehab. We will not get super rich on our rehabs. We strive for a 50% return on the rehab and I believe we have achieved it every time but some appraisers have not agreed with me (but in my market I know the value better than any appraiser I have seen, typically I have seen each of the comps when they were on the market but I digress).

Doing nothing larger than rehabs my family and I have done very well long-term mostly due to the long-term San Diego RE appreciation. It likely is a slower process than Justin R.'s process but long term it has done great. Every property I have ever purchased has produced a good annual return taken over the life of ownership. This includes 2 properties that were purchased near market highs and at one point had depreciated close to 20% (1992 SFR purchase for $167K fell to around $140K worth ~$550K today and a 2004 SFR purchase for $741K fell to ~$625K today worth ~$950K). Most of our RE purchases never went below purchase value (other than the 2 already listed) and the ones in recent years appreciated every year.

So I do not call it coincidence (even though I virtually always agree with Justin's view) as much as that the long-term San Diego RE appreciation track record will typically save even poor purchases (like my 1992 and 2004 purchases).  It is like speculating on a virtual certainty (going back over 50 years San Diego has long-term appreciation that exceeds inflation and the RE appreciation of virtually all other locales (20, 30, 40, 50, 60 years it does not matter what long-term duration you use)).

Of note is that there have been cycles of depreciation (as my 1992 and 2004 purchases demonstrate). You must have the resource to ride out any such cycles.  Virtually the only people to lose money on San Diego buy n hold RE are people that sold when the market was depressed.  Most of the investors who sold when the market was depressed were over leveraged.

Good luck

@Kyle Horjus

I have an opinion on buy n hold local versus out of state and it is that new investors should start local.  This does not imply that a new investor cannot succeed doing out of state but it is more difficult for various reasons the biggest of which is you need to trust others more than you do for a local investment.  Building a quality trustworthy team is not always simple and it takes work to maintain the team (even local takes work to maintain a quality team).

As for buying your primary residence I have two considerations: 1) how long do you plan to live in the area 2) how are the long term appreciation outlook (in LA the long-term appreciation outlook historically has been excellent).  Even appreciation markets like LA go through down cycles.  If you are only planning on living in the unit 5 years you may be attempting to sell after a decline.  Then add selling fees.  Similar if your market is unlikely to see appreciation faster than inflation there is not much to gain by purchasing.

@Ali BooneAli Boone using the fixed point in time analysis makes it easy to justify renting. I am more knowledgeable about San Diego RE appreciation but figure LA has a similar path. In San Diego in the last 5 years the lowest RE appreciation year was over 8% and the highest over 20%. So if I purchased a SFR with 10% down even in the worse year in the last 5 years I gained 80% on my investment (net worth). In the best year I gained over 200% on my initial investment. Rent appreciation usually correlates with property appreciation so it is likely her rent has risen significantly in the last 5 years. There is little doubt in my mind that she would have greater net worth if she had purchased in the last 5 years than she has by renting.

I realize this is 20/20 hindsight and that the next 5 years could be different (we will know in 5 years) but San Diego and LA have a long track record of long-term appreciation that exceeds inflation and if you use periods like 20, 30, 40, 50 years there is little difference (i.e. the market has always had long-term appreciation better than inflation going back over 50 years).   However, 5 years from now the market may be down (there have been many short-term cycles of depreciation) which is why I think to have best chance for purchase beating renting you should plan to live there 10 years or longer.  If the market continues to appreciate then you can move out when your assets allow but if there is a decline in the market and you need to move in less than 10 years you could lose money (and remember there is a cost to sell).

Good luck

Depends on where you look. In my area that should get a triplex. I saw a quad a month ago on MLS that was not much more than $600k.

Never use the MLS active listings as the price of duplex through quad. In my market the price between listing and those that have sold is very large.

Good luck.