Looking to buy 1-4 unit in San Diego or invest out of state

[Tony Moreno]

Hello BP,

I am currently living in San Diego with my parents and will be graduating from college in 2018. My parents have some extra money and want to use it to help me put a down payment on a house or apartment. It would be my first house so I would be able to use my FHA loan and only put 3.5% down. This is just a general question because I don't have any specific properties or numbers to analyze. What would make more sense using that money to put down payments on a couple of rental properties out of California or using my FHA loan and buying a duplex, triplex, or fourplex here in San Diego?

I am going to be apply to join a couple of different police departments soon. So once I graduate I will be able to start working right away. I know police officers don’t make a lot of money especially to be living here in San Diego. I’m going to be moving out next year no matter what and don’t really want to rent because it feels like a waste of money and renting here in SD would cost as much as owning a duplex and renting one side out and living in the other.

If anyone has any recommendations on what would be a better idea or if anyone has another idea I would love to hear them. Again, this is just a very general question I am just looking to get some ideas so I can do some more looking into what would be a better option for me.

Thank you for all the help!

Tony

[Dan H.]

Originally posted by @Tony Moreno:

Hello Dan,

Yes I do plan on staying in San Diego. I would really like to get that experience also which is why I thought about house hacking in the first place. I know the property wont cash flow, but I am just looking at a general overview of the numbers it seems like it will be almost the same as if I were renting. Something else that has been concerning me is the point of the market we are in. These prices we are at and past the prices of 2007-08. Would you have any concerns with buying now when the market is one of the highest we have ever seen. Also thank you for getting back to me. 

My family and I have been doing buy n hold a while in San Diego (long before the last crash and even before the crash before that).  I think in the short term the price goes in waves and it can depreciate in the near term.   

However I have confidence of short term rent appreciation.  Why?   Because rent appreciation has lagged every property appreciation.  Because every study is predicting increasing rents.   Because there is a supply and demand issue with rentals that places our current vacancy rate last I looked at below 4%.  I also have confidence of long term rent appreciation (see my reasons for believing in long term property appreciation).  

So short term the prices may depreciate but long term I have confidence they will appreciate.  Why?  The San Diego RE has over 50 years of long term appreciation that exceeds inflation and most other locales.  In addition the supply is very limited.  What is the demand for one of the best climates in the us?

In 1994 I purchase an RE near a market high for $167k.  It fell to ~$140k.  Today it is worth ~$570k.  In 2003 I purchase near a market high a RE for $741k.  It fell to ~$620k.  Today it is worth ~$925k.  So even though both those purchases lost nearly 20% today they look like they were great purchases.  The key is to make sure you have the resources to sustain any short-term depreciation. 

Add in the prop 13 protection as a bonus. 

The only people to have lost money on San Diego buy n hold in the last 50 years are those that sold when the market was low.  Most of them were over extended.

Good luck