All Forum Posts by: Dan H.

I guess you are correct that I was not clear but I was going back from the current time.

Of course you are correct that there have been cycles along the way that in those cycles there have been times that San Diego would not beat cash flowing places but going from the current time back 3 years to 50 years San Diego ROI on financed buy n hold would beat any of the great cash flow locales in the US.

Your reply also reminds me of another item.  The only people to have, in recent times, lost money on financed San Diego buy n hold are those that have sold on a down cycle.  Because rents in San Diego did not depreciate noticeably in at least the last two down cycles the only people who had to sell were those over leveraged. 

San Diego financed buy n hold has historically been very good measured by ROI. It has had historically better ROI than any of the better cash flow locals. This it true for any duration from a couple years to 50+ years. This is a verifiable fact. Your statement would be correct if instead of stating "not a good market for landlords" to "does not have good initial cash flow".

It happens I responded recently on another topic to this exact question.  Copied from my other posting...

If I do not purchase another property (multiplex) in the next 6 months it will have more to do with interest hikes (basically 3/8% in the last month) than the current price of San Diego real estate. While I never try to predict the short-term market, I am confident that the long term San Diego market will be appreciate.

Why do I have this confidence? 1) It historically always has appreciated long term. 2) I had a rental and the family had quite a few rentals at the biggest real estate decline ever. Our rents did not go down at all. So if you do not need to sell (i.e. are not over leveraged) then history shows you will be fine with your San Diego RE buy n hold investment. In fact the only way anyone has lost money on San Diego financed buy n hold residential real estate in the last 50+ years is they sold when it was depressed. 3) I have purchased twice near market highs. In 1992 I purchased a SFR for $167K. It probably fell to upper $140s (close to 20% decline). Today it is worth ~$520K. In 2003 I purchased a SFR at $741K. At the low it was probably worth about $620K (again close to 20% decline). Today it is worth over $900K. So I am not afraid to purchase at market highs but of course prefer to avoid purchasing at market highs but no one really knows when we are at the market high. 4) supply and demand.

The supply is very limited in San Diego. It costs about $100K to break ground on new construction in San Diego. That is after you can find and purchase a lot that permits residential construction. Building is also expensive. We are constrained on the west by ocean, South by mexico, North by Camp Pendleton/OC, and East by quickly harsh environment. So the supply is both limited and expensive to add to. The demand? We have perhaps the best climate in the US. We have diverse environment in close proximity from ocean, to mountains, to desert (all less than an hour from virtually any location in San Diego). We have pretty good jobs (not in general the quality or salary of the San Fran Bay area but good compared to 95% of the nation). In short, it is a very desirable place to live with minimal supply.

Before the recent interest rate increases I was planning on buying at least one multiplex between now and spring time. I have recently looked at 3 properties that had good potential. Now I am more on the fence on completing a purchase. Note the recent interest rate increase is approximately equivalent to an 8% cost increase in the past month (using 4.25% as interest rate a month ago and 4.875% now, both ~0 points: non-owner occupied multiplex). ~8% increase in a month is huge. I am having a hard time believing the current interest rate will not drop at least a little but they may not any time soon.

Good luck

 Property tax will reset based on selling price.  It will be a little higher than 1%.  So in your example it will be a little greater than $3600/year. I would use $4000/year. Prop 13 will ensure that the property taxes only have slight increase after purchase. 

Most of my units are in next working class city north of there (RB, Scripps Ranch, and Poway are not working class).  I have not looked at Mira Mesa much and therefore do not claim the expertise I have in my area but I would think it has many similarities to my area.  It also happens to be not much further from where I live than my chosen area so it would be a good local for me also (but I have so much expertise on my area).

My chosen area (which I think you can figure it out or you can look at my profile) I suspect is closer to Carmel Valley than Chula Vista is to Carmel Valley.  One thing about Chula Vista is that the coastal is cheaper and older than inland Chula Vista.  It is somewhat unique in that manner.   Almost every other coastal area prices go up as you get closer to the coast.  So there may be some very long term upside to coastal Chula Vista.

Good luck

I like small multiplexes (duplex to quad) in working class neighborhoods that are somewhat close to where you live. It is my belief that the working class areas will have better cash flow with approximately the same appreciation as more white collar areas. All my properties are within ~20 minutes of my home. They are all working class areas but one is a SFR and it is the worse performing of my properties (it is also a slightly more expensive area than the rest of my rentals).

Good luck

If I do not purchase another property (multiplex) in the next 6 months it will do more to do with interest hikes (basically 3/8% in the last month) than the current price of San Diego real estate.  While I never try to predict the short-term market, I am confident that the long term San Diego market will be appreciate.

Why do I have this confidence? 1) It historically always has appreciated long term. 2) I had a rental and the family had quite a few rentals at the biggest real estate decline ever. Our rents did not go down at all. So if you do not need to sell (i.e. are not over leveraged) then history shows you will be fine with your San Diego RE buy n hold investment. In fact the only way anyone has lost money on San Diego financed buy n hold residential real estate in the last 50+ years is they sold when it was depressed. 3) I have purchased twice near market highs. In 1992 I purchased a SFR for $167K. It probably fell to upper $140s (close to 20% decline). Today it is worth ~$520K. In 2003 I purchased a SFR at $741K. At the low it was probably worth about $620K (again close to 20% decline). Today it is worth over $900K. So I am not afraid to purchase at market highs but of course prefer to avoid purchasing at market highs but no one really knows when we are at the market high.

The supply is very limited in San Diego.  It costs about $100K to break ground on new construction in San Diego.  That is after you can find and purchase a lot that permits residential construction.  Building is also expensive.  We are constrained on the west by ocean, South by mexico, North by Camp Pendleton/OC, and East by quickly harsh environment.  So the supply is both limited and expensive to add to.  The demand?  We have perhaps the best climate in the US.  We have diverse environment in close proximity from ocean, to mountains, to desert (all less than an hour from virtually any location in San Diego).  We have pretty good jobs (not in general the quality or salary of the San Fran Bay area but good compared to 95% of the nation).  In short, it is a very desirable place to live with minimal supply.

Before the recent interest rate increases I was planning on buying at least one multiplex between now and spring time.  I have recently looked at 3 properties that had good potential.  Now I am more on the fence on completing a purchase.  Note the recent interest rate increase is approximately equivalent to an 8% cost increase in the past month (using 4.25% as interest rate a month ago and 4.875% now, both ~0 points: non-owner occupied multiplex).  ~8% increase in a month is huge.  I am having a hard time believing the current interest rate will not drop at least a little but they may not any time soon.

Good luck

@Ricardo R. advice is probably spot on for Michigan and most of the country. The only way REI investing works in San Diego at this time is to forecast appreciation (rent and property appreciation). In addition property and rental appreciation in San Diego have historically far surpassed 3%. Fortunately historically the appreciation of San Diego has had a far better ROI versus better cash flow locales (verifiable fact).

By the way rents on small rental units in San Diego have been going up ~$100/month per year for the last few years. Property appreciation a few years ago was over 20% and has been near 10% annually since then.

San Diego market is not a strong initial cash flow market. It relies on appreciation (property and rent appreciation). 

If you want good initial cash flow San Diego is not the locale for you. If you are looking for best ROI San Diego historically has much better ROI than the better cash flowing locals (verifiable fact).

Good luck

 Unfortunately 4% loan on an investment property currently does not look possible.  

A big problem with the 50% rule is that the largest expense of that 50% is cap expense which tying it to rent rather than size, bathrooms, quality of products, etc. is flawed. I use $300/month cap expense on my small detached rentals and they cash flow using that cap expense. Similar if I purchase a 3/2, 1400' SFR property for $50k that rents for $500/month most of that rent is likely to be cap expense (likely more than 50% of rent will need to go to cap expense).

Regardless San Diego market is not a strong initial cash flow market. It relies on appreciation (property and rent appreciation). Fortunately historically the appreciation of San Diego has had a far better ROI versus better cash flow locales (verifiable fact).

By the way rents on small rental units in San Diego have been going up ~$100/month per year for the last few years.  Property appreciation a few years ago was over 20% and has been near 10% annually since then.  

If you want good initial cash flow San Diego is not the locale for you. If you are looking for best ROI San Diego historically has much better ROI than the better cash flowing locals (verifiable fact).

Good luck

I suggest you start with a duplex.  The price per unit improves slightly as you move from duplex to triplex to quad but 1) there are many more duplexes than quads typically on the market 2) It gets you started gradually instead of taking on 3 tenants to start you will start with a single tenant.

I suspect the places that are listed at $225K/unit will sell just above $200K/unit so you can probably get in at ~$425K.  These units would have some forced appreciation opportunities which is ideal.  They would allow you to learn a lot about buy n hold RE investing.  They will almost certainly appreciate in the long term but even if they do not these are cash positive properties (not as cash positive as can be found elsewhere but the appreciation potential beats all of those better cash flowing locales).

So hopefully $425K is less daunting. Unfortunately, with the recent interest rate increase (>0.25% in the last few weeks), the property at $425K was a lot cheaper for the financed purchaser a few weeks ago than it is today.

Good luck