All Forum Posts by: Miguel Alvarez

Miguel Alvarez has started 1 posts and replied 2 times.

Quote from @Dan H.:

Quote from @Miguel Alvarez:

I’ve got a 2-unit in San Diego that’s bleeding cash:

$10K/month all-in expenses (mortgage + MI + other costs)
$7.5K/month in rent income
Locked at 5.5% interest
Can’t raise rents for another year, and local rents are trending down

Even with future rent bumps, I’m years away from breaking even.

Possible moves I’ve thought about:

- Short-term rentals

- Expanding the units (lot space available), or adding a second story (to create more units).

I don’t have blueprints, so building would mean paying to get plans drawn.

What would you do in my shoes? Looking for any and all creative, outside-the-box ideas.

San Diego is my market. Retail purchases without a value add with traditional financing requires patience to have cash flow as an LTR.

Seeing the purchase has already made, you will not be getting a desperate seller to sell off market below market price or good alternative financing.

That leaves

- value add: for you first effort you likely will not be adding much value in excess of costs. ADUs in San Diego have achieved terrible valuation. Value adds require work and have risks. I would only recommend this route if you were planning on doing more than just this project.

- alternate rent models: STR, MTR, rent by room. I have not done rent by room in many years but my son is currently doing it to live at reduced housing costs. Each tenant equates to additional work. If you rent a full unit, the tenant drama within the unit is not typically your concern. That is not the case when the LL rents by the room. It can produce better income. MTR and STR also require more effort than LTR. If you have a good location and unit and can be an outstanding host, you can have income that exceeds LTR by enough to justify the effort. I believe most units/hosts will not meet each of those criteria and will be challenged to exceed LTR income by enough to justify the additional work.

That leaves patience. Virtually every residential purchase in San Diego looks great 10 years after the purchase. Some look great much sooner than 10 years.. Getting to that point when every month is costing you money is the challenge.

Curious what sort of underwriting you did prior to purchase? Were you aware MF is rent controlled? Are your units below market rent? If you are city of San Diego, did you account for the new trash fee? You are likely at least 5 years and likely more from being cash neutral. If you are below market rent and a tenant vacates it could be faster.

Mostly I ask these questions in hopes of educating other newbie RE investors.

Because the expensive cap ex items last many years, I fear your expenses likely do not allocate properly for these costs and your cash flow is worse than you realize.

I believe the current market is challenging. Most local listings on the mls will have challenges similar to what you are experiencing.

Good luck

Thanks so much for taking the time to write such a thorough and educative response — I really value insight from someone who’s actively operating in the San Diego market.

For context:

I knew about rent increase limits going in, but didn’t expect to have to drop my rents as much as I did at the start. When I first listed, demand wasn’t strong enough and I wasn’t attracting favorable tenants. On top of that, I started having people break in to squat at night, which pushed me to secure tenants quickly.
I landed at about 12.5% below my projected rents. Thankfully, the tenants I ended up with have been great — they do STR/MTR rentals themselves (I allow subleasing).
According to Rentometer, my units are still under market. I’ve also tried the BiggerPockets rent estimator, but the confidence interval was low. If there’s a more reliable local rent comp tool you’d recommend, I’m all ears.
My $9,300 monthly total is the actual all-in payment, but I round to $10K for analysis to account for property tax increases, landscaping, and now the new trash fee.
The property is in Grant Hill — not the easiest neighborhood, but it's still pulling STR/MTR demand (budget-conscious visitors to SD, mostly).
I was also banking on more favorable interest rate cuts along with continued appreciation — both of which didn’t play out as quickly as I expected, throwing off my original projections.

Regarding your question on my underwriting prior to purchase — can you clarify what you mean specifically? I want to make sure I’m understanding/learning fully.

I’m willing to put more capital into the property if it means shortening the negative cash flow period. From your experience:

Have you seen STR or MTR operators in similar neighborhoods pull enough premium to materially close this kind of gap?
Any value-add plays short of a full ADU build that have actually penciled out recently?
Strategies you’ve seen for bridging cash flow in a soft rent market without over-leveraging?
And if you were in my shoes, would you stay the course, avoid major changes, and just let time do the work?

Really appreciate your perspective — this kind of detailed, reality-based feedback is gold.

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San Diego, California