All Forum Posts by: Dan H.

@Robin Boyer @Lisa Tolan

in 2016 there was a near monthly BP meetup put on by some San Diego BP members (@Justin R., @Parker Cox, @Kevin Fox, @Tim G.).   These meetups were at various RE investment properties.   They provided an opportunity to netwok with other San Diego RE investors as well as to learn about the site project.  

Unfortunately I have not seen any scheduled this year and we are approaching half way through the year.  

You could have purchased just about any property off the MLS iN San Diego 2 to 5 years ago and if you financed it you would have had a very good ROI. So virtually every property was a deal. The hard part is not finding the properties that will produce a good ROI but realizing that the properties will produce a good ROI.

I recommend starting local prior to trying out of state.  Most out of state investors are putting a lot of trust in other people.  

If you decide to invest out of state Make sure you have a good team that you can trust.  

We were fairly experienced when we tried investing out of state. Our first purchase was a duplex in gulf shores on the beach. It was beautiful. The location that is unavailable virtually everywhere in the US. We used STR with property management. Things were as projected for a while. Then the property tax started to rise much faster than the rents would support. Our cash flow was reducing. Then hurricane #1. Our unit survived but would need a lot of repairs. Many units did not survive and current regulations would not allow them to be rebuilt on the beach. We had huge issues getting work done. We had to go there and manage the repairs ourselves as every contractor had too much work. The owners there where were getting the work before absentee owners. Our property just became more desirable as more than 50% needed to be rebuilt with setback from the beach. Now our insurance and property tax rose more than the rents but at least our units had significant paper appreciation. We could exit with a profit if we wanted but we chose not to.

Then hurricane #2.  Again our units survived.  Again we could not get work completed from afar and had to go there to manage the work.  Again insurance rose.  However the market depreciated.  2 hurricanes was too much and many owners including ourselves were done.  We sold for far below taxed appraised value.  

We currently own one out of state property that we will sell likely at next tenant turn over.  

Out of state can be challenging.  Teams transition.  Property management companies change either due to sell or adapting.  Building a strong team is step #1 but effort must be exerted maintaining a strong team.  

So we currently only invest local and our projected ROI on local property has been far better than our out of state properties (All out of state except one have actual ROI as we have exited the investments).

Ca income tax pre dates prop 13.  I am not even sure that it has risen since prop 13.  So prop 13 did not result in the state income tax or state sales tax.  

If your point is that one way or the other the state has to collect taxes then true.  Ca uses state income tax, property tax, sales tax, and a gas tax.  

The intent of prop 13 was that people's property tax did not go up at astronomical rates when property appreciates (which long term it always has in So Cal and San Fran area). A couple of years ago property values in San Diego rose 20% for the year.  Without prop13 the property taxes would have risen at same rate as the property which may have been a large burden on many owners (fixed income, etc.).   Salaries have not gone up at same rate as property.  

I am not a mortgage broker or expert but I believe it is bad faith to purchase a property using fha and not intend to live in it.  However I do not know if there is a time that you are expected to live in the property.  

I have heard of investors claiming they were going to live in properties that they never intended to live in to get the owner occupied rate.  I admit it is tempting because it seems waistful to need to pay extra interest simply because it is not owner occupied.  Seeing that the owner occupied aspect is based on intent it also would seem to be difficult to prove that you never intended to occupy the property.  

All of my rentals are non-owner occupied loans.  I think a lender would find it unlikely that I would move from my home into one of my investment properties but also in some ways I am too honest to lie about my intent to occupy a property.  

I suggest you consult a loan specialist about your intent.   It could be that there is no minimum duration or the minimum duration is  very short.  

Good luck

I would house hack a detached duplex to quad in a location I would want to live. Duplex to quad finance similar to SFR. Using a FHA loan you could put minimal down or you could look for seller financed. Regardless because it is a house hack you would qualify for owner occupied financing.

I would not look for a homerun on this first purchase but an opportunity to get into the market and learn a lot about RE investing including property management, maintenance, contacts, etc. all while having the tenants help you build equity.  

This first investment would provide the opportunity to determine if buy n hold is a good fit for you without significant risk.  If it is something that fits your goals I would leverage the knowledge gained to make the subsequent RE investments more successful.  I would use the house hack approach until reaching a point in life that I desire more separation from the tenants.  

After obtaining a certain amount of success using the house hacking approach I would look to obtain a home for me and my family (rent or purchase) that is not a house hack  and continue to leverage my constantly increasing skill set for continuing RE investment success.  

Good luck

Our duplex STR in Mission Beach (San Diego both units are small 2/1) are rented virtually all year but the rents fluctuate from low season of $130/day to high of $350/day. But with the price adjustment we have close to year round bookings and when not booked someone in family at least makes use of the parking spots for easy access to the beach.

As I have indicated previously, you appear to be doing great but I do not understand your belief that you could not have done the same in San Diego. Yout ROI would have been greater if you financed buy n holds in San Diego. The equity could have been pulled and leveraged on additional financed buy n hold. Repeat.

Seeing the San Diego ROI for financed buy n hold is greater than Houston's ROI implies you could have done better in San Diego than Houston. Maybe you would have made decisions that would not have resulted in the same success as you experienced in Houston but the opportunity for achieving better ROI in San Diego was there.

@Nicholas Baughman

The last housing crisis I did not experience any rent depreciation but 1) it does not mean the next one will not have rent depreciation 2) if rents stagnate but other costs increase the cash flow decreases.   So while I have not experienced it personally, it is possible that a cash flowing property ceases to cash flow (there are many locations where rent has depreciated).  Basically the Boy Scout Motto: Be Brepared!

Seems like you are doing proper due diligence and therefore are likely educated enough to know this, but ... I have seen a lot of newbies forget various expenses when working numbers.  In San Diego Cap expenses are huge.

Some Newbies think if rent > PITI then it cash flows. There are misc expenses (gardeners, water, electricity, etc.), vacancies (I use 5% and have not hit 5% any year yet), maintenance, and the big one - cap expense. In my ROI projections I use cap expense estimates between $250/month (attached, 2/1) to $300/month (detached 4/2 - my largest rental unit). Many may believe that I am being conservative but I believe my numbers to be more accurate than most other San Diego RE investors primarily because I have taken the time (a few years ago) to fill in a spreadsheet with life spans and expected San Diego costs. In addition, I have seen the more experience the San Diego buy n hold RE investor has, the higher cap expense numbers they use. That is because they have been hit by a large cap expense (my worse: $28K foundation issues, $28K can eat up a lot of cash flow).

Good luck

@nick Baughman

I am pro San Diego RE buy n hold investing but the market goes in cycles.  Trying to time the market is very difficult.  

What does this mean for you?   It means make sure you have the means to withstand a possible downturn like the last housing crisis.  No one knows what the market will do in the short term (it could continue to appreciate, stagnate, or depreciate) but I am confident that in the long term the market will continue to appreciate.   Why do i have this confidence?   Because for over 50 years long term it has appreciated.  There is finite supply but seems like infinite demand (almost anyone would love to live here). 

Good luck with whatever choice you make.