All Forum Posts by: Dan H.

I second what @David Faulkner indicated.  The only San Diego investors that I know that have lost money in buy n hold RE all invested outside of San Diego.

My family purchased 3 units in Alabama.  Very nice units that you simply cannot buy equivalent in So Cal.  Two were short-term rentals (minimum of 1 week) on the beach (literally step onto sand when stepping off the last step).  One is long term rental lake front.  We still own the lake front but will likely sell when current tenant decides to move.

Horror stories include the usual out of state issues of finding good reliable contractors (after getting hit by two hurricanes - We needed to go out there both times to manage the repairs), no rent appreciation, property tax increases (appraised value went up but we were unable to sell at close to the value the state appraised at), short-term help turn-over, turn-over of management company, etc.  

We loved the beach properties, but as an investment they underperformed all of our San Diego properties even though initial cash flow was anticipated to be superior.  Note the word anticipated because fees were always increasing but rents stayed the same.  I think this is because they know how difficult it is for you to hire a new management company from a far but even the trash feeds went up a lot.

We did not lose a lot of money in our out of state RE investments but we spent more time on them than our self managed San Diego RE and we would have made significantly more money on a San Diego investment.  We do not invest to lose any money.  We would have done far better with an index fund than on our out of state RE investing.

Good luck

For you as a new investor I recommend understanding VA loans, house hacking (maybe a duplex), and cap expenses.

Many new investor believe if rent is greater than PITI then the unit cash flows. If you make this mistake you will typically do fine until there are some significant cap expenses. Then all your profits will vanish.

House hacking will provide you an opportunity to learn a lot about buy n hold including maintenance, finding tenants, and dealing with tenants.  

VA loans are a benefit that you have earned. Use it to your advantage.

Good luck.  

For my rentals I experience below a 5% vacancy rate but the $100/month maintenance is pretty close as I average almost $60/month per unit to my handyman and then there are times I need to use plumber, electrician, or HVAC contractor.  It is amazing how little maintenance items can add up.

I derived the $250/month cap expense by filling out a spreadsheet with expected costs and expected lifespans but I was hopefully conservative in my numbers.

Basically I would rather over estimate expenses than underestimate expenses.  Furthermore, if a market tanks maybe rents will fall but I use actual rents in my calculations so I want to be conservative elsewhere.

Note the tax advantage has income limitations that you may need to be aware of.   If I have a property that looses money after accounting for the depreciation I do not get to write of the loss.  I have to basically bank it against future profits due to our income.  So you may or may not have that tax advantage.

Good luck

Cap expenses vary some by locale but my numbers show this to be heavy cash negative. 

Using mid point for rent I get:

$1450 rent - $1200 PITI - $75 vacancy (5%) - $100 maintenance - $250 cap expense = -$175/month.

You would need some significant appreciation on a $155k SFR to make up for $175 negative cash flow.

I think you did not purchase a good investment property but seem to be much better educated now.  It is my belief with your increased knowledge that you can do better than your initial purchase.  

Good luck

I would classify San Diego as purple and not very liberal.  However pockets can be very liberal or conservative.  Hillcrest liberal, RB conservative. On the positive our city wide candidates that win are mostly moderates regardless of their party.  

I suspect our median price is just over $500k as most sources show between 4% to 5.5%  for 2016.  The numbers I was for below $500k was in first part of 2016.  Safe to say somewhere around $500k median price.  So housing is not cheap.  

I love San Diego but our air port is poor.  For domestic flights it is acceptable but for many areas you will have an extra leg and if you have been to fine air ports you will quickly realize that our air port is not good.  Flights to the north east coast literally could not be further. 

The traffic is not good.  

On the positive San Diego has perhaps best weather in US (in my view definitely best in continental us).  

We have good high tech including bio med.  

The community I live in and some other communities, but not all communities, have good schools for your kids.  

Make sure you understand cap expenses prior to purchase.  Perhaps the number 1 mistake I see of newbies is not understanding cap expenses.  Many newbies believe a property cash flows if the rent is higher than mortgage, taxes, and insurance.  They often forget vacancies, maintenance and the big expense of cap expense.  

For self managed small renal I use $100/month maintenance (reality has been a little less), 5% of rent for vacancy (reality has been less), and $250 - $300 month cap expenses depends on thing like attached vs detached, number of bathrooms, size of unit, size of yard, etc). I derived my cap expense by filling out a spreadsheet with expected costs and expected life spans.  You can find a post on my estimate in the San Diego section of BP.  

Good luck.

 I am pro San Diego.  Typically I would do #3 into a duplex to quad in San Diego that would make a better buy n hold investment than your current property.  The problem is the interest rates have gone up significantly in the last 4 or 5 months which in effect has raised the cost of good San Diego buy n holds such that they are not as good.  

I was planning on at least one and probably 2 duplex to quad purchases this winter/spring but due to the interest rate increases have not pulled the trigger. I have more invested in non RE than I had planned and it may stay that way.  

So I would definitely do #3 but I am not sure that I would currently invest it in Buy n hold RE but 6 months ago I would have invested in San Diego RE.

Fortunately it appears you are not forced to 1031 exchange for tax purposes.

Good luck

 Similar but not quite the same.  We made an offer on a duplex $20k over list.  We never received a response from the listing agent.  The property sold for $5k over list.  Our realtor believes the selling realtor had their own buyer and either did not present our offer or indicated some reason why our offer was not as good an offer as the other offer but our offer had no selling of property contingency.  

It was the last duplex to quad to hit the MLS in Poway and it was 3 years ago.

The sad part is 1) I would have gone higher 2) I would have waived the appraisal contingency.  Seeing we did not get a response I could do neither.  It is my belief the realtor did not do the seller right.   I am not a big fan of realtors; too many horror stories.  They are mostly useless for me.  In my market they are clueless. Appraisers are almost as bad.  

Apartments have cap expense.  They vary by locale as both lifespan and cost is local dependent.  In San Diego a kitchen is almost $40/month cap expense.  In San Diego roofs last a while due to mild temps.   However costs are likely higher than most locals.  

You either need a local person to provide you their numbers or start with an existing cap expense worksheet and modify the lifespans and costs for your area.  Eliminate anything that is covered by the apartment complex (roof, foundation, siding, water heater (likely), heater (likely), window (likely), most plumbing, most electrical, etc.).  Items to include is everything in kitchen and bathrooms, flooring, interior electrical, interior plumbing, and interior walls (paint).  

Good luck

I would be interested in attending if it can fit into my schedule.