All Forum Posts by: Dan H.

I do not fully agree with @Kyle J. as the information is on-line but not public.   Make connections with people like loan brokers or escrow brokers.  They can obtain ownership records on your behalf.  

Good luck.  

I do not have a recommendation for an agent but the response from @Adam Nishikawa about a realtor specializing in cash flow in San Diego raised some flags.  Daniel Graff may be a very good realtor for investors (I do not know him so this is not meant to imply he is not as Adam indicated).  

My point is the most experienced San Diego buy n hold RE investors that I know would avoid the best cash flow neighborhoods in San Diego.  Why?   Because these neighborhoods in general do not produce quality tenants.  They turn over at higher rates, cause more damage, have more issues paying rent on time, have lower credit scores, etc.  

The end result is often these San Diego locales that appear to have better cash flow in reality take more effort and do not have as good cash flow as they often initially appear they will produce.  

Good luck finding a great agent.  

Your opinion is shared by many but not me.   Do you invest in stocks?   Do you expect a positive return from stocks over the long term?   Why?   In large part it is because history tells us this has always happened.  

If there is a RE market that for financed buy n hold has far surpassed the stock market for more than the last 50 years why would you not expect appreciation if nothing fundamentally has changed?   

I have purchased cash neutral units and within 3 years I have all of my investment out and positive cash flow.  Was I lucky?   Was I brilliant?   I think neither.  I was smart enough to realize in the long term my market has always appreciated and I saw nothing to indicate that long term this was not likely to continue.  It did not require being a genius.  

Have I been smart enough to always buy at the right time?   Unfortunately no.  I purchased units in 1992 and 2003 that both depreciated around 20%.  The 1992 purchase is now worth about 3.5 times its purchase.  The 2002 purchase is worth about $150k more than the purchase price.  So my RE market goes in cycles but long term it has always appreciated.  I am confident long term it will continue to appreciate.  

 I would start by looking for historically high appreciation areas (areas that have appreciated well for durations as long as 50 years) that I would desire to live.  Then I would verify that nothing has changed to make that location unlikely to continue to appreciate.  

I would then look for a detached duplex to quad that has one unit appropriate for your family. Detached puts distance between you and the tenants which I recommend. I would use an owner occupied FHA loan to purchase the property with low money down keeping some cash for reserves. I would then house hack the property referring to myself as the property manager.

If the property has an opportunity for forced appreciation that would be bonus.  

Using an FHA loan you can purchase a nice (expensive) property with little down that has a great record of appreciation in an area that you want to live and in a unit you want to live. You want a good home for your family.

Meanwhile the other tenants will be helping pay your loan (ideally partially supplementing the cost on your unit).   Finally you will be learning about investing, property management including dealing with tenants, repairs, etc.  This experience will provide you the opportunity to determine if buy n hold is an investment option you want to continue with.  If you do determine that buy n hold is an investment option you want to continue with, the knowledge gained will allow you to be able to have the next purchase be even more profitable.  

Good luck

Your statement about returns is incorrect as the 3 cities with Best Buy n hold returns since 2000 are all California cities. San Diego has been one of the best returns in the nation for any duration from 3 years to more than 50 years. This is verifiable fact. Saying you can get a better return then the best return locations in the nation is historically not just inaccurate but the opposite is true. Do your research. San Diego's ROI on financed buy n hold has done great in last few years or any duration.

Not concerned.  Markets (stock, re, etc.) go through cycles.   I have been through them before.  If prices do not drop I will continue to make smart purchases.  If prices drop I will make even more smart purchases.  Similar to dollar cost averaging.   Either way, because I am not over leveraged, I have no concerns. 

The way I look at it a RE price decline is an opportunity but if there is no RE decline imminent then I will also be fine.  

by the way I would not automatically correlate a new RE high to a market decline.  Markets set all time highs all the time.  A decline would result from a recession, bad loans, change to tax laws that would affect RE values, etc.  I do not see any of those as obvious but do admit the price declines are often not obvious until they are upon us.  

No worries.  

As indicated by Fabio turnkey implies there is no rehab necessary which implies you are missing one key R in the Brrr. Without the rehab there is no forced appreciation from the rehab and therefore only principle paydown and market appreciation. At 70% LTV on a refinance you need about 30% equity which implies you need close to 30% market appreciation which is very unlikely in a year. Basically the rehab R is a critical part of the BRRR and turnkey implies no rehab is needed and therefore forced appreciation opportunities from rehab do not exist.

Good luck

In my market regulation has caused homes to appreciate possible as much as the land value increase has.  My family recently sold 6 acres that it has owned since the mid 1970s.  The land had not appreciated at close to what the homes had in part because it was zoned agriculture.

Currently the cost to break ground on a new residential unit in San Diego is ~$100K.  This is permits and fees and does not include any construction costs.  This is on land that is correctly zoned for residential construction.

I believe that appreciation is dictated by supply and demand.  Supply is a combination of limited land and regulations that limit the land that can be used for construction as well as the associated costs to construct.  Demand is how desirable is the area to live?  Does it have a good climate?  Good jobs? Good schools?  Is it safe?   Does it have things to do (museums, sports teams, ocean, mountains, desert, open space, etc.)?

There are certain areas that are not very desirable to live.  These markets will only appreciate if something changes to make the area more desirable.  I will use North Dakota as an example because my wife has family there so I go there every few years.   A while back North Dakota had a declining population as people were leaving for other areas.  There were homes in OK shape that were abandoned.  Then the North Dakota oil industry got larger provided some jobs and the demand rose some.  If North Dakota did not have the oil I suspect the residential units would have continued to decline as the demand decreased (supply was steady with the already built homes).

I think relying on appreciation in the short-term is risky.  Make sure you are prepared if the property does not appreciate or even depreciates. 

In my market (San Diego) I am confident of long term appreciation because historically it has appreciated long-term for over 50 years.  However in that time there have been many cycles that have included some depreciation.  Trying to time the cycles is like trying to time the stock market; it is difficult to do and most people who try to time the market would have been better off if they had just consistently invested.

Good luck

Using the 1% rule discounts the cost of money.  In RE the cost of money is significant.  Before the recent interest hikes if an RE was purchased with conventional non-owner occupied financing it would likely cash flow fine at .7% assuming 20% down.  However, the same unit purchased with a hard money loan would be significantly cash negative.

That is only one of many flaws of the 1% rule.  Another is the $30K Pig RE.  A issue with the $30K RE is that cap expenses has more to do with number of bathrooms, square footage, etc. then it has to do with what the unit cost.  So if I buy a $30K unit that is 2/1 with 1000' the cap expense is likely to be close to the same as the $250K 2/1 unit with 1000'.  Yet the 1% rule treats the expenses, including the cap expenses, at though it is tightly coupled to the purchase price (which it is not).

Finally the 1% rule is easier to find in Class C and below neighborhoods.  Typically these tenants are less desirable and more work than tenants in class A and B neighborhoods (there are of course exceptions).  So the unit that satisfies the 1% rule is likely to have more damage from the tenants, more late/missed payments, more evictions, and in general be more work.

If you cannot tell I think any rent to cost value except for simply comparing apples to apples is a disservice to naïve investors.  I know I would not consider the highest rent to RE value neighborhoods in San Diego as they are all in the worst neighborhoods.