First Rental Property Purchase San Diego or Out of State

[Liz Boer]

Hey BP, currently residing in San Diego, Ca. Evaluating investing in multifamily & single-family homes in San Diego, however, from podcasts and seminars I have started attending, many investors mention San Diego is not the best market for this. Have experienced investors found the same? My husband is active duty military so we won't likely live in San Diego forever, therefore also considering MidWest and DFW to invest in as well. Would love thoughts and things to consider. Thanks all! 

[Dan H.]

My family and I have been investing in San Diego a long time through many ups and downs. I can tell you that it has been a great place to invest even though the initial cash flow is behind most other locales. I literally no of no one who has lost money on long term buy n hold in San Diego (I know quite a few that have lost money on OOS RE). I have invested a couple times at near market highs and those properties depreciated in the short-term (implied by invested near market high) but today look to be outstanding investments. I would compare our ROI with any pure cash flow market and I would not expect it to even be close. If you want to hear all the advantages of San Diego RE you can PM me but suffice to say it has historically produced very good returns and this is verifiable fact (anyone can verify this).

However, you do not know whether you plan to stay in San Diego.  If your not staying in San Diego there is little advantage to investing here and you can look for a market that may still have more appreciation left in this appreciation cycle than San Diego likely has left.  I would not go for the best cash flow locales as they typically are the best cash flow locale because they have little historical appreciation so the market dictates a price that produces cash flow.  I would look for a market with solid cash flow but that is likely to appreciate and has a history of appreciation (do your research but maybe the Pacific Northwest has cities that meet this criteria).

If you do decide to invest in San Diego I would suggest looking into a owner occupied (house hacking) detached duplex to quad financed via a VA loan. The VA loan is a great benefit that you should try to leverage regardless of where you invest (does require owner occupied). I have some multiplex properties that are virtually impossible to tell that they are not SFR (I use "virtually" because they are on single water meter so if you realize that some units do not have water meters you can determine that they are not SFR). This option provides 1) a low entry point into an expensive market due to the VA loan 2) A SFR feel for you and your family ideally with a yard 3) Small multiplex are the best cash flow options currently in San Diego (SFR are real hard to find cash flow). This implies that the other units will likely be subsidizing your home payment. 4) Purchase of a property in a locale that historically has incredible long-term appreciation.

Good luck