Are investors still buying properties in San Diego?

[Marty Howie]

Are people still investing is San Diego or have the high interest rates and low cash flow moved investors to other markets?

Who’s investing in North County? And what areas are the numbers still working?

[Dan H.]

The more experienced RE investors that I know in San Diego are not purchasing rent ready units off the MLS in San Diego. They are buying flips, ADU bonus program, extensive value adds (near development efforts) mostly purchased off market.

The reality is rent ready purchases at high LTV have huge negative cash flow at purchase. With patience, they will eventually have positive cash flow and historically the appreciation whoops the cash flow. I do not have the level Of patience required to enjoy owning an investment that I have to supplement for years. Also with rent control, the MF have caps on increases. In addition Costa Hawkins is under constant attack so SFR will lose their protection in the not so distant future.

In addition the tenant protection Act of the city of San Diego places rent control and eviction rules in excess of state mandated laws. 

San Diego is not a LL friendly environment.   The Covid eviction moratorium was the most harsh in the nation as it did not allow evictions even for non payment and/or lease violations.  The only exception was health and safely. 

Maybe I am old school and simply have outdated expectations.  I have not purchased in San Diego area since Dec 2021 (I purchased $4m that month that I have easily made over $1m on those purchases, but we are negative on the cash flow).  Note those purchases were shortly before the recent rate hikes.  If I was paying today’s rates rather than just over 3%, I would have huge negative cash flow even with a purchase of $4m on a current valuation of over $5m.  That is today’s reality. 

Flip, extreme value adds, or lots of patience.  I am pretty sure in 10 years you will be happy you purchased even if you purchase at retail without a value add. 

Good luck