All Forum Posts by: Dan H.

@David Singyee

San Diego house hack cons: Cash flow: 1) initial cash flow in San Diego is worse than almost everywhere else. Note I stated initial cash flow because long- term cash flow is better but probably still not great (see rent appreciation and prop 13 below) 2) related to the first is the high price of property  

Those are my only cons but they get many people to choose to invest elsewhere. 

San Diego house hack pros: 1) appreciation which is both rent and property appreciation. San Diego has a long history of long term appreciation. This includes both property appreciation and rent appreciation. This appreciation has made San Diego one of the top ROI locals in the nation for financed buy n hold properties. 2) oportunity for sweat equity is better than cheaper locals. I can purchase a property and rehab it using contractors and achieve close to 50% over cost appreciation (I.e. A $20k rehab I expect at least $30 of equity for a $10k positive equity gain). 3) prop 13. Prop 13 basically virtually guarantees taxes will not go up faster than rents. In addition with San Diego historical property appreciation it basically means the rental owned long term will be producing better cash flow than the recently purchased like rental. I have a rental that I pay prop taxes at ~$2k/annual that would cost a new purchaser ~$6k annual. This is a great benefit for long term buy n hold. 4) because of the higher costs it takes less units which requires less management. Example if I purchased somewhere where unit price is $60k I need to purchase 10 units to get $600k of property but if I purchase somewhere where unit costs are $300k then I only need 2 properties That is 1/5 as many tenants, kitchens, roofs, yards, foundations, walls, etc

I suspect you know the general benefits of house hack anywhere including experienced gained, supplemented residence costs, benefit of principle pay down,  ideally appreciation, etc.  

Good luck

My family has a detached duplex (2 very small units) that is STR (property manager and not air BNB). We started with one unit STR and the second LTR until height of season then STR (rented to out of town college students during LTR). Now both units are STR year round.

Our rates are per night + fixed fee.  The fixed fee is to cover the cleaning and turn over.  It does result in occasional short periods (typically 1 night but occasionally 2 nights) that a unit goes unrented because with the fixed fee our single night charge is not cheap.  However the turn over expense is real and if not charged as a separate fee and instead part of the rent the long term renters would pay too much and the short term too little.  Seeing we are trying to encourage long term rental this would be undesired.  

Many of the unused nights are used by family to have a little get together (BBQ).  We seldom actually sleep in the unit.  

So this property has some of my worse tenant stories (including tenants that turned the yard into a giant mud wrestling pit and a tenant guest being decked by a neighboring tenant) but has been the family's most profitable property.  The appreciation on this duplex has been enough to be able to retire (or supplement a deadbeat siblings "retirement").  The rents are incredible (over $300/night per unit for the highest cost nights not including the fixed cost which I think was just raised to basically $100).  

So with the right location duplexes can make very good STR.

I'm not a big fan of Logan Heights or Normal Heights for next turn around location.  Logan Heights is just too low and I agree with @Sarah D. sentiment that it is wrong type of home mix.  Not so much that being being multi family by itself is a problem but old small multi family with minimal room to build. 

If the soccer fans get what they want then I can see mission valley area becoming more of a destination area which may help the nearby residential communities.  A lot of ifs and maybes there 😃.

Escondido has a ton of new apartments.  I think it has stopped the rent appreciation but maybe it will help with property appreciation.  

What you describe is exactly what I would recommend: house hack duplex to quad, look for property with sweat equity possibility, purchase with as little money down as possible (owner financed, fha,va, etc).  

Ideally San Diego RE continues to appreciate and in a couple of years you can refi pulling out your investment money and reinvest it. If the market slows or falls the time span simply increases.  I have bought 2 times near market highs.  Both of those purchases seem like bargains today.  In 1992 I purchase sfr for $167k.  It fell to maybe $140k.  Today it is worth ~$550k.  In 2003 I purchased a sfr at $741k.  It fell to maybe $620k.  Today it is worth ~920k. So the San Diego RE market does fluctuate but long term it has always appreciated.  Traditionally it is one of the best appreciation markets in the country.  

Good luck

Is it a REIT specializing in senior living/health care? Do you mind providing the name of the REIT?

@Sean Stu The property tax in Cal is based solely as a percentage of value sold plus the Prop 13 controlled appreciation after sale.  the percentage has a bit of variation based on things such as including the trash in the property tax or any local bonds such as for schools but 1.1% is a good estimate but 1.2% is a safe estimate.

The depreciation is based on structural value.  The depreciation would count against profits but if there is no rehab on the property or other large cap expense the depreciation in San Diego actually places most properties in the red from a tax perspective.  Depending on your income level or being a real estate profession (which has a high criteria for investors) this depreciation is either written off or banked against future profits.  If you want exact info I suggest an CPA or EA provide better details (I have a tax man).

By the way I would not reduce your maintenance too much lower than 7%.  My handyman costs me ~4% of my rents but then there are the contractors (mostly plumbing) that is sporadic but add up.  Where this becomes fuzzy is some of the plumbing is cap expense and some is maintenance.  Ditto the electrician.

Good luck

@Justin R. implied this but basing cap expense as a percentage of rent is not very realistic.  Cap expense is more a function of property characteristics like number of bathrooms, size (footage), number of bedrooms as well as the tenants (number of properties tenants and do they treat the property as though they own it).   

A 3/2 that rents for $1800 in east San Diego probably should use higher cap expense than the 3/2 that rents in North Park for $2900 because the tenants are likely to cause more wear n tear.  

For my cap expense I only use the unit characteristics and assume tenants are going to cause significantly more wear n tear than if I was living in the unit.  So I would use same cap expense for the 3/2 regardless of rent amount. 

 My cap expense estimate would be higher than 7% of rents you projected for that property but I use high cap expense estimates.  This month I am getting estimates for replacing 150' fence and surprised at how high the quotes have been.  So I am asking my handyman to give a quote realizing it may take him 3 weeks to do the job.  

Anyone in San Diego have a recommendation for someone putting a fence in at reasonable cost?

The rent and cost numbers used suggest this is not in a blue collar area.  Blue collar areas in San Diego have better cash flow numbers but 2/1 rent for average size at ~$1500.  

Good luck

I am not familiar with the Austin market but in San Diego county there are duplexes to quads that are unattached with their own yard (These are my favorite type of duplex to quads as tenant issues are rarer). They are often difficult to distinguish upon how they look from multiple SFR. One way to distinguish is that they are often on a single water meter.

There are certainly a lot fewer of these units than SFR so patience may be requireded.

If you can find such a property then you get what you want and your wife gets what she desires (win-win).  If you do purchase such a situation I would refer to yourself as the property manager and not the owner.  I do not consider it a lie as you are the property manager but you are also the owner.  A big reason is that it makes it easy to not need to make on the spot decisions.  Can I put a 2000 gallon pool in the front yard?   I will confer with the owners (wife and you) and get back to you.  It also makes it so you are not the big RE investor but a worker stiff who has a side business of managing the units where you live.

Good luck

My Tax person is Miles Lawrence (Lawrence Tax Service).  He is not a CPA, he is a EA and Esquire.  He also is not cheap.

However, our taxes are quite complicated as we pay state income taxes in multiple states, we have a fair amount of rental properties, we have a home business and in the recent past we had two home businesses, and we must pay quarterly taxes based on projected income.  So our tax situation requires some expertise.

Miles has been our tax man for quite a few years (maybe 10 years).  He does a good job maximizing our write-offs without resulting in an audit.

From my perspective he does a good job ensuring we pay the taxes we are legally required to pay while writing off everything that we can legally write off. 

He also does not nickel and dime us.  If we have a fairly quick question he provides the answer without any billing.  Finally because our tax return is complicated and therefore takes more time than other tax returns, he gives us a discount off his normal rate.  I would not expect this unless your like us with a tax return that can take many hours.

So I have been happy with Miles Lawrence as our tax preparer but I do wish his rate was lower (but sometimes you get what you pay for).

Good luck

@BreAnn Stephenson hinted at this but sometimes market value and replacement costs do not correlate well.  For example a few years ago San Diego RE appreciation was 20% for the year but replacement cost likely went up less than 5%.  

So you do need to make sure you have the appropriate coverage but market value increase is not really the primary factor in determining if you have adequate coverage.  

Your insurance agent should be able to assist you in determining appropriate replacement costs.  

Good luck