BRRRR with positive cash flow possible in San Diego???

Question

I live in San Diego, and would LOVE to invest locally so I can manage the property myself.  However, San Diego real estate is VERY hot right now.  It's nearly impossible to find a property to rent that has positive cash flow.

Does that make BRRRR impossible to do here?

I was trying to come up with some creative ideas on how to find properties that I could BRRRR.  One idea was to look into pre-forclosures.  Zillow offers the ability to search by this criteria.  Does anyone have a better method to find these pre-foreclosure deals?

Is there another method I should seek out for BRRRR in San Diego?  Or another market nearby where I could look into doing BRRRR and still manage it myself?

Ultimately I'm looking for a way to invest, that will allow me to retire early, with a nice income...  I appreciate any tips/advice!

Kevin Fox · Answer

Hey @Amit Kumar thanks for the mention!

@Joe LaGreca It is by no means easy, but certainly doable. I see that you sent me a message. So I'll get back to you there.

Jerry Padilla · Answer

@Joe LaGreca

I have to agree with @Amit Kumar if anyone can make it happen it will be @Kevin Fox I have personally seen him make the numbers work in your market.

Dan H. · Answer

Look at my just posted response on areas that I believe should cash flow.  Pick such an area near you.  If you cannot find any cash flow in that area then look at my profile.  Also you may want to look for a previous post from me that discusses list price versus actual price in my primary RE locale.   Only use closed transactions to set price.

Hope this helps but ideally without creating greater competition in my locale.  I am analyzing a recent MLS listing.  If I choose not to make an offer I will post numbers if someone reminds me.  It cash flows by my numbers.

Also do not too heavily discount principle pay down.  I am not stating that it is as desirable as cash flow (especially for new investors that do not have large cash reserves) but I run my numbers both including it and not including it.  The property with the real bad refi appraisal was about cash neutral when purchased but I purchased it because 1) I knew it was priced below market ($40k below according to appraiser but I believe over $50k below market) 2) it had forced appreciation opportunity as neither unit had been rehabbed and the property was built in late 1960s 3) with the current interest rates there was significant monthly principle pay down 4) I was fairly confident that the market was still going up (I am less confident now).  My initial principle paydown (prior to the refinance) was ~$400/month. Post refinance principle pay down is ~$500/month (primarily due to the change in LTV and larger loan but the interest rate did improve slightly).

There is a lot to consider in analyzing a property and cash flow is only one criteria as my initial cash neutral property has had all of my investment money pulled out and significant profit extracted (even with a bad appraisal), has had the rent increase from $2500 to $3135 (both market and rehab increase but one unit is $200 below market so market rent is currently $3335), and, even when ~cash neutral, was increasing my net worth (not counting market appreciation) $400/month via principle paydown.  Anyone looking primary at cash flow would not have purchased this duplex.

Hope this helps.  Good luck.

Dan H. · Answer

My last 2 refinanced originally had pathetic appraisals (both from the same appraiser).  I appealed them both and got a $60k increase on one then the appraiser disappeared so there was never any processing on the second appraisal appeal (so it refinanced with the 2nd worse appraisal I have ever seen).

The one with the $60k increase probably ended up ~$20k low.  The other probably was ~$60k low.

I do a modified BRRR in that if inherited tenant is desirable I do the rehab upon tenant turn over which implies I owned the RE longer before refi than a traditional BRRR so I ended up getting more than my initial investment out of both those properties.  Honestly with the second appraisal if it were not for market appreciation I am not sure I would have gotten anything out of it as the refi was at 70% LTV but initial purchase was at 75% LTV.  I would like to think I got a pathetic appraiser but it is not the first time I have had a poor appraiser so there seems to be many out there. I really believe he derived his price by simply applying market appreciation to my purchase price and made the comps work to those numbers (which in this case was really bad because my appraisal at purchase showed I was purchasing $40k below value).

I think the poor appraiser is a real risk with BRRR and it appears especially high risk in San Diego.

So consider this risk in any REI plans.

As for zip codes where cash flow provides best opportunity is working class (blue collar) areas.  I Avoid welfare areas but my tenant's for the most part have occupations like truck driver, handyman, tow truck driver, butcher, etc.  they likely will never be able to purchase their own home in San Diego.

Good luck

Account Closed · Answer

The zillow pre - forclusures are highly inaccurate. However may give you something to work with. Try forclosure.com this will work perfect and much better than zillow.  If you have your real estate license also try RPR from NAR. If not, then forclosure.com is fine.  Best of luck!

Andrew Syrios · Answer

For an apartment, i would think so, but I doubt it for a house or condo.

Amit Kumar · Answer

@Dan Heuschele do you think we can connect sometime? I'd love to pick your brain and get better at finding these properties as well. Whenever I look (on MLS) I never see anything that I could even break even on!

Joe LaGreca · Answer

@Dan Heuschele I appreciate your insight...

Where do you find your off market listings?  Networking and emails with other investors?

Would you say that BRRRR is possible, but because of appraisers, you may not be able to pull 100% of your money back out?  Typically how much are you able to pull back out in the San Diego market?

I've been passively watching real estate listings for years now.  But by no means know the market like a pro.  I also think i'm fairly conservative with my numbers to keep from getting burned.

Are there any specific zip codes in San Diego where BRRRR is more likely to be found/done?

Dan H. · Answer

I see properties regularly (at least virtually every month) in San Diego that have positive cash flow with realistic cap expense numbers (I.e high and conservative).  I think you need to spend time to know market rents, PITI costs (interest rates have big impact on PITI) local markets where cash flow is doable, etc.

there is also off market properties (I get slightly regular off market opportunities that cash flow including 3 the last full month that I was home (may)).

Profitable BRRR is definitely doable in San Diego county but I will say local appraisers stink at fully valuing rehabs for the refinance (actually my view is most appraisers are lazy and not very good at setting values compared to active RE investors).

So my view is those who cannot find cash flow properties may need to do more research and that it is not that difficult.  I realize I have been doing this a while and it takes time/effort to figure things out.

Also initial cash flow in San Diego will not be as high as lower appreciation areas like Ohio, Memphis, KC, etc.

Good luck

BRRRR with positive cash flow possible in San Diego???

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