All Forum Posts by: Dan H.

I have seen the post you reference when it was posted and posted a similar response in that thread.  San Diego RE rose 5.8% in 2016 which was above the national average.  If I purchased a financed buy n hold w 25% down that was cash neutral I would have made 23.2% in appreciation (better than the national average).  I challenge anyone to show me how it is possible for this to be in the worse performers when financed.  I realize you did not derive the original numbers.  

Los Angeles rose 5.5% which is just below my source national average of 5.6%.  Difficult to see how it could make a worse list of last year.  Note using 25% down on cash neutral property would have a first year return of 22%.   Again it is difficult to have Los Angeles on a worse performing list for real estate investors.  

Note both cities would have far out performed any city with virtually no appreciation pretty much regardless of the cash flow because even a 2% property would have only 24% rent prior to any expenditures.   

I can only surmise that the people who derived the list did so as though the real estate were not financed because I cannot think of anything else that could have either city be on any worse performing cities list.  

First I am shocked at the price for your 100 gal heater.  I replaced a 40 gal recently (this month)with new venting at about 25% of your cost (heater, venting, and labor) using a licensed plumber (not my handyman) but I have no idea what the cost difference between standard size single unit heater and the size you are referring to.  So your price may be very reasonable but has the look of being a lot of money.

The warrantees on the tankless are longer than the tanked heaters.  I have used 2 tankless heaters.  One is going strong I would guess at 8 years.  The other unit the vendor settled with me when the unit failed (at about 2 years) but as part of the settlement I can not state anything about the company, what failed, etc. 

The unit that is working great is something like AO Smith (going from memory so the AO may not be exactly right).  Both the two units I refer to are single residence size but the one that failed was a large single resident size (it supposedly could handle filling 4 baths at the same time and I never experienced it underpowered).  I think the AO Smith unit that is still going strong can do 2 baths concurrently and I have never experienced it being underpowered (it is in a 2.5 bathroom unit).  The big unit that failed was almost the size of a 40 gal short tanked heater.  The AO Smith unit is the size of a small desktop PC.  Both were gas units.

So my own experience with single residence tankless heaters is mixed but I am still a fan and have two units that I will convert to tankless when the current water heaters go (because there is only electricity - no gas option).

Good luck

The thing about duplex to quads in my area (I post less often my area) is looking at what is available on the MLS does not provide comps (or provides comps only worthy of wiping your ***). Look at the duplex to quads sold in my market over the last 6 months. Figure a 5% conventional non owner occupied loan (with recent rate increases unfortunately this is the number that I am currently using when evaluating a property). Figure ~$250/unit per month cap expense (typical size detached area rentals - increase if larger than normal). Figure ~$100/month unit maintenance if self managed but using handyman (less if you do the work yourself). Figure 5% vacancy if self-managed.

I suspect if you take the time to do this exercise you will be surprised.  This exercise by itself may convince you that there are some alternatives to OOS.

I am not a fan of the rules that are based on rent or property cost to figure your overall ownership cost.  A 3/2 that rents for $1K in Ohio has virtually the same cap expense as my 3/2 in my area that rents for $2200.  Ditto the maintenance is mostly unrelated to the rent or unit cost but more based on footage, bathrooms, tenant, quality of materials used, etc.  Vacancy costs do make sense being based off the rental price but my vacancy costs are in reality far less than the 5% that I use in my calculations.

I will state I can make a case to convince you the value of investing local but your initial post indicated you were uninterested (if you are interested let me know even though I do not need more competition :=)). So I only addressed the factuality of your statement. If you indicated cash flowing SFR are difficult to find in safe San Diego neighborhoods I would not have bothered with a reply.

If you take the time to do my proposed exercise PM me and let me know if you think I am wrong about the current duplex to quad MLS listings in my area being worthless. Let me know if you gained any insight. I suspect you will be surprised.

BTW I have much of the information of the exercise and know what you will see.

Good luck

by the way I see buy n hold RE close all the time that have cash flow with conservative expected expenditures in non war zone neighborhoods.  But I did not post this to convince you to invest in San Diego but to correct a common perception of many people.   The trick is simply knowing what type of properties are intended to cash flow.  

Good luck with your OOS buy n hold investing.  

RE buy n hold rentals purchased to be your home are typically not very good buy n hold RE investments. How do I know? I have one of my ex-homes in my rentals. It is by far my worst performing REI. It makes sense because I purchased it to be a good home for my family and me. My other REI purchases I made because they made good investments.

You do not say what year you purchased the property or what your LTV is but there has been significant recent property and rent appreciation. For it to be negative cash flowing after the recent appreciation likely means it was a poor buy n hold rental property (but maybe a very good home).

I suggest you at least look at if you would be better off investing the money elsewhere. Maybe 1031 exchange it to a better buy n hold rental or DST or ? I will be very surprised if the property and rent appreciation of the last few years can continue. This implies that if it is not cash flowing now it could be a while before it has positive cash flow. You likely have made quite a bit of money on property appreciation but this seems unlikely to continue at the same pace. As a final item, I find most small or more recent buy n hold investors under estimate cap expenses. This implies there is a decent chance that your negative cash flow is greater than you believe it to be.

Good luck

@Matthew Livesay

What I have seen on code enforcement is that it varies significantly based on the area.  Normal heights seems to allow obvious code infractions.  Cities like Poway raise a stink if the recreation vehicles are not parked per the rules.  I even experienced a violation because of a firewood pile being too big (yes they have a rule on maximum size firewood pile).  It would be best if all the structures/units were permitted but if they are not the next criteria is to evaluate if your unit is more out of compliance than virtually all of the other RE.  I was in Normal Height a few months ago and a flipper was creating a granny flat that he knew the purchaser was going to rent out as a separate unit.  He pointed out the both properties next to him already had this violation and was not being enforced.

I think house hacking a duplex to quad is a great way for younger people to start on REI. You will learn so much. I have 2 recommendations: 1) make sure you understand cap expenses prior to purchase. Many inexperienced investors believe their investment cash flows when in practice it will not. Cap expenses are a much bigger hit than vacancy and maintenance. Without knowing the size of the 3 detached units I would use $750/month for cap expense. More if they are bigger than typical rental size and a little less if 1 BR units or studios. 2) Make sure your comps are of sold properties. for duplex to quad do not use listings. In my area of expertise there is a huge difference between duplex to quad listing prices and sold prices. In my area virtually every duplex to quad that has sold in the last 6 months cash flows (@Lee Ripma).  The listings do not reflect this but the sold units do.

Good luck

Was the RE previously your residence?   The reason I ask is that the cash flow is very poor for a property purchased as an burn hold rental investment in 2011.   

In general RE purchased as homes are not as good buy n hold rentals as properties purchased as buy n hold rentals.  How do I know?   I have my previous home in my rentals and it is by far my worst performing rental.  

I suspect you would do better 1031 exchanging it for a better buy n hold rental property.  Before doing anything look at your savings as a result of prop 13 and be sure to weigh that into your decision.  

By the way I am a fan of the local RE market.   If you financed the property your returns would clobber any area that was only only relying on cash flow.  In the long term this has always been true but short-term has various cycles and you must be able to withstand any short-term value decline.  

Good luck.  

The plumbing for the laundry will heavily depend on what plumbing is near to the proposed laundry hookup as well as potentially the foundation type.  Is there hot, cold, and sewer hookup close to the proposed laundry hookups?  Do you plan on gas and electric (240v) dryer hookups?  Can your existing panel handle a new deadicated 240v circuit?  Is there a raised foundation?  is the wall for the proposed hookup an interior or external wall?   If it is an external wall is it acceptable to you to have the plumbing/electric conduit on the outside of the unit?  All of these have an impact on the expected cost.   If you need a new circuit panel with a new sdge drop then I suspect the cost will exceed the benefit.  

Good luck.  

 My issue with out of state is if it is a good deal why are the local buyers who are experts not snatching up this property?  I hold this belief in all out of state RE including Kansas City, Memphis, or Essex County New Jersey. 

My family has purchased out of state but we do not any more.  We do better investing were we are the experts which is our local market.  We can self manage or at least have good oversight of the management.  

Also even if you choose a good PM things change.  Management companies get purchased or managers move on.  

If there is a large scale disaster I can say from first hand experience that you will be hard pressed to have your units needs addressed before any of the local investors.  

Finally you got to love Prop 13 if you are a CA RE investor. We have owned out of state units were the prop tax increased faster than the rents. A duplex that cash flowed good at purchase barely cash flowed a few years later.  It would have been ok if we sold at these increased evaluations but 2 direct hit hurricanes later with months of vacancies and the property was no longer worth its purchase price after we had paid taxes at the higher evaluation for a couple/few years.  

Out of state RE is full of potential problems.   

CA buy n hold RE historically has great returns.   Southern Cal financed buy n hold historically has some of the best returns in the nation but you are looking to invest elsewhere.  

Good luck

I never try to predict the short-term RE market as it is similar to timing the stock market and is easy to not time optimally.  History indicates long-term San Diego has always appreciated.  

Unfortunately the recent interest rate increase has in effect significantly raised the price on financed buy-n-hold RE.  

I had planned to purchase at least one small multiple this winter/spring but with the recent rate increases I have not even though I have seen some that are cash positive with an opportunity for some forced appreciation.  Maybe my expectations are jaded due to just 5 to 6 months ago I could have made much better purchases.  

So I would not be surprised if I do not make my planned purchase (or if I do make the purchase).  I do think it is not as optimal purchase time as 6 months ago to 6 years ago largely due to the rate increases. 

Good luck