All Forum Posts by: Dan H.

Most appreciation numbers for San Diego for 2016 are between 5 and 7% (http://www.sandiegouniontribune.com/business/real-...). Using 5% on a cash neutral (after all expenses: PITI, vacancy, maintenance, cap expense, and misc expense) financed buy n hold at 75% LTV (easy conventional financing, VA or FHA would provide much better LTV if owner occupied) would imply a 20% projected ROI. Note any positive cash flow would raise this projected ROI.

Referring to 20% projected ROI as meager is interesting.

That is good cash flow for that unit cost.   What cap expense estimates are you using?

I was hoping that @Justin R., @Kevin Fox, @Parker Cox, @Tim G would indicate that they had a Meetup in the works.

I do have a unit (in Escondido) that I rehabbed in 2016 that currently is on tenant turn over (current tenant moves out end of month).  It is not my favorite area as it has an apartment feel that my other units do not have.  I can look at my calendar, the date on incoming tenant and see if I can schedule something at that unit but I am not real optimistic that I can fit it in and I certainly will not be as organized as the group I referenced who typically had the entire rehab budget broken out with line items.   This unit also does not have much parking.  So if I can arrange it there will be a short walk. 

One of my favorite units is also on turnover but 1) I did not rehab it (it was rehabbed prior to purchase) 2) the vacant time prior to in-coming tenant is too tight as I believe there is only one day empty to address anything needed.  

Don't hold your breath but I will at least look into the possibility. 

@Drew Chance

Here is a thread on property tax issues in Texas.  

https://www.biggerpockets.com/forums/585-texas-rea...

I experienced a similar issue on some units that we used to own in Gulf Shores Alabama. The duplex was awesome. It literally was on the beach. We had them as STR with property management. First couple of years the unit's cash flowed close to expectations. Then the property taxes started rising faster than rents. Cash flow was reduced. The area was then hit by hurricane #1. Insurance rose significantly ($6k annual). Cash flow was gone. Then hurricane #2 hit. We sold the property for significantly less than the appraised value we were taxed at.

There were various issues with out of state investing (including getting repairs when contractors have more work than they can handle due to hurricanes) but the property tax rising faster than rents was one of many issues we encountered.  

Note if property taxes raise 10% to 20% it will take a significant rent increase to offset that tax increase.  Getting hit by annual tax increases can quickly turn that cash flowing property into a cash neutral or cash negative property.  

@Robin Boyer @Lisa Tolan

in 2016 there was a near monthly BP meetup put on by some San Diego BP members (@Justin R., @Parker Cox, @Kevin Fox, @Tim G.).   These meetups were at various RE investment properties.   They provided an opportunity to netwok with other San Diego RE investors as well as to learn about the site project.  

Unfortunately I have not seen any scheduled this year and we are approaching half way through the year.  

You could have purchased just about any property off the MLS iN San Diego 2 to 5 years ago and if you financed it you would have had a very good ROI. So virtually every property was a deal. The hard part is not finding the properties that will produce a good ROI but realizing that the properties will produce a good ROI.

I recommend starting local prior to trying out of state.  Most out of state investors are putting a lot of trust in other people.  

If you decide to invest out of state Make sure you have a good team that you can trust.  

We were fairly experienced when we tried investing out of state. Our first purchase was a duplex in gulf shores on the beach. It was beautiful. The location that is unavailable virtually everywhere in the US. We used STR with property management. Things were as projected for a while. Then the property tax started to rise much faster than the rents would support. Our cash flow was reducing. Then hurricane #1. Our unit survived but would need a lot of repairs. Many units did not survive and current regulations would not allow them to be rebuilt on the beach. We had huge issues getting work done. We had to go there and manage the repairs ourselves as every contractor had too much work. The owners there where were getting the work before absentee owners. Our property just became more desirable as more than 50% needed to be rebuilt with setback from the beach. Now our insurance and property tax rose more than the rents but at least our units had significant paper appreciation. We could exit with a profit if we wanted but we chose not to.

Then hurricane #2.  Again our units survived.  Again we could not get work completed from afar and had to go there to manage the work.  Again insurance rose.  However the market depreciated.  2 hurricanes was too much and many owners including ourselves were done.  We sold for far below taxed appraised value.  

We currently own one out of state property that we will sell likely at next tenant turn over.  

Out of state can be challenging.  Teams transition.  Property management companies change either due to sell or adapting.  Building a strong team is step #1 but effort must be exerted maintaining a strong team.  

So we currently only invest local and our projected ROI on local property has been far better than our out of state properties (All out of state except one have actual ROI as we have exited the investments).

Ca income tax pre dates prop 13.  I am not even sure that it has risen since prop 13.  So prop 13 did not result in the state income tax or state sales tax.  

If your point is that one way or the other the state has to collect taxes then true.  Ca uses state income tax, property tax, sales tax, and a gas tax.  

The intent of prop 13 was that people's property tax did not go up at astronomical rates when property appreciates (which long term it always has in So Cal and San Fran area). A couple of years ago property values in San Diego rose 20% for the year.  Without prop13 the property taxes would have risen at same rate as the property which may have been a large burden on many owners (fixed income, etc.).   Salaries have not gone up at same rate as property.  

I am not a mortgage broker or expert but I believe it is bad faith to purchase a property using fha and not intend to live in it.  However I do not know if there is a time that you are expected to live in the property.  

I have heard of investors claiming they were going to live in properties that they never intended to live in to get the owner occupied rate.  I admit it is tempting because it seems waistful to need to pay extra interest simply because it is not owner occupied.  Seeing that the owner occupied aspect is based on intent it also would seem to be difficult to prove that you never intended to occupy the property.  

All of my rentals are non-owner occupied loans.  I think a lender would find it unlikely that I would move from my home into one of my investment properties but also in some ways I am too honest to lie about my intent to occupy a property.  

I suggest you consult a loan specialist about your intent.   It could be that there is no minimum duration or the minimum duration is  very short.  

Good luck

I would house hack a detached duplex to quad in a location I would want to live. Duplex to quad finance similar to SFR. Using a FHA loan you could put minimal down or you could look for seller financed. Regardless because it is a house hack you would qualify for owner occupied financing.

I would not look for a homerun on this first purchase but an opportunity to get into the market and learn a lot about RE investing including property management, maintenance, contacts, etc. all while having the tenants help you build equity.  

This first investment would provide the opportunity to determine if buy n hold is a good fit for you without significant risk.  If it is something that fits your goals I would leverage the knowledge gained to make the subsequent RE investments more successful.  I would use the house hack approach until reaching a point in life that I desire more separation from the tenants.  

After obtaining a certain amount of success using the house hacking approach I would look to obtain a home for me and my family (rent or purchase) that is not a house hack  and continue to leverage my constantly increasing skill set for continuing RE investment success.  

Good luck