Condo BRRRR, San Diego

Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes

5y

So, you have no cash flow and are banking on the fact that there might be appreciation. What drives appreciation? Nothing, absolutely nothing that you control.

True investing is about finding or creating value. Speculation is basically gambling that you chose correctly. Did you pick red or black?

If you are dead-set on buying a SD condo, find one you can buy well below market value, so you capture some equity upon purchase and are not just gambling the market bails you out.

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Maxwell Ventura

Real Estate Agent · San Diego, CA · Member since 2016 · 308 posts · 173 votes

5y

@Jack Landry

Nothing wrong with this strategy. It may not have the sexy appeal of house hacking a 2-4 unit but many people start out this way. I've helped numerous clients (usually first time home owners) through this.

I would also encourage you not to look at the HOA payment as an "extra fee." I like to look at the HOA payment as essentially taking the place of your cap ex. It usually comes out to be less in fact.

Furthermore, after you move out in 1-2 years and secure a tenant, you can essentially eliminate a property manager expense. Almost anything that needs fixing inside a condo/townhome can be done by an experienced handyman. 1 Phone Call Away.

I know a handful of agents w/i my brokerage in fact that exercise this strategy. They find 2 Br condos around 300-400k range. Rehab, rent, repeat. They are able to acquire more assets faster than a SFR twice the price. Now they have multiple assets taking advantage of one of SD's greatest strengths -> Appreciation.

Hope this helps.

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Jack Landry

OP

Rental Property Investor · Jupiter, FL · Member since 2020 · 12 posts · 10 votes

5y

@Greg Scott Thanks for your input, I agree that you cannot gamble on the market. I would not consider this option unless there was a clear opportunity to increase the property’s value through rehab.

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Jack Landry

OP

Rental Property Investor · Jupiter, FL · Member since 2020 · 12 posts · 10 votes

5y

@Maxwell Ventura thank you for your insight, like you mentioned I think the rehab becomes essential with this type of investment. I also see the historical appreciation of San Diego as offering a long term hold strategy in a worst case situation were the property to depreciate at some point in time, give I have already added some sweat equity to the property.

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Mark Frattini

Real Estate Agent · San Diego, CA · Member since 2014 · 338 posts · 176 votes

5y

@Jack Landry

Welcome to Bigger Pockets! It looks like you've done some research which is great. Condos are a great place to get started investing in real estate. The low entry point makes it possible to get started in a desirable, high appreciating market like San Diego. It sounds like you have multiple exit strategies which is something I always suggest. Watch for any twin homes or town homes as they can be a bit more desirable when it comes to renting or selling and are priced less than a SFH. I'm ok with having an HOA just stay away from ones that are too expensive. Make sure you research the HOA and read the CC&Rs. Find out what the policy is on using the condo as a rental. You're off to a good start. Let me know if there is anything I can do for you.

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Andy EakesPro Member

Property Manager · San Diego, CA · Member since 2020 · 205 posts · 162 votes

5y

@Jack Landry I'm going to have to somewhat disagree with appreciation being 100% out of your control. Sure there is a lack of control when it comes to a neighborhood's market. But if you plan to do rehabs and BRRRRs, I am assuming you want to buy something a little distressed and fix it up. Value is added through that and if you know what you're doing, then you can add quite a bit of value. Plus San Diego is a market so much different than the rest of CA. Our average home price is far below the average in LA or SF and their surrounding areas. If you have been watching the market around here, you'll know that a lot of the people leaving those major cities are coming down here. The market is on fire!

Plus, we have an incredible amount of military presence here in San Diego (also different than LA or SF) helping our economy stay afloat in these hard times. So you cant compare the things about CA that everyone complains about to San Diego. It's just much different. San Diego is going to see some real growth in the next 5-10 years and real money is made in appreciation when you play your cards right. The deal will be crucial. And a good agent will tell you the areas you should look into.

Good luck!

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Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

5y

Originally posted by @Jack Landry:

Hi all,

I am exploring entry strategies into an expensive market, San Diego, CA, for my first deal. My original hope was to BRRRR a single-family home, but with my current cash reserves, it seems as if a condo will be more affordable for me to get started (less money down and lower rehab cost). That being said, I would attempt to BRRRR a condo, with a 3.5-5% FHA loan, house-hack for 2 years so that I have the freedom to sell and avoid short term capital gains tax if desired, or hold and 1031 down the road.

Originally, I was not keen on the idea of a condo, due to:

1) HOA complexities and fees

2) the challenge of achieving cash flow that breaks even or nets positive (my expectation at this point is that I would not be breaking even)

- I am not ecstatic about this idea because I feel like I could be saving that additional capital for a next investment.

However, I see it as an equity building + appreciation play, where in the worst case situation (say a market downturn), I could rent the condo out, given it is in an area where rent demand will be stable, and then choose to sell/exchange when the market has recovered.

I know investing out of state is an option, but specifically here I am trying to answer the question, how can I invest in San Diego? This is the best approach I have found for myself thus far in this market.

What do people think about this strategy as an entry point?

What are your concerns with a condo (+ BRRRR) and challenges/roadblocks that could arise?

What do you think about potentially not breaking even, re cash flow, on this deal?

Thanks in advance!

Jack

My fear is 50% of your item #1. The fees do not scare me. Most HOAs are very responsible stewards of the fees. The HOA fees go mainly to cap ex and maintenance. The HOA obtains better pricing than you would on smaller scale units. Their roof quote will be less per foot. Their pool maintenance and landscape fees will be less. Etc.

My fear is the control that the HOA has to regulate. What if they prohibit renting? What if they limit your rehab options? What if the rules are to burdensome?

Your item #2 is a challenge whether it is a condo, SFH, or small multiplex. My belief is it is a rare purchase from a newbie that will have decent initial cash flow. What this implies is that you will be relying on appreciation for decent cash flow whether you want to or not. Fortunately, San Diego has outstanding historical long-term appreciation. Note the long-term. That long-term appreciation has had numerous depreciation cycles. They are usually short in duration, but the Great Recession depreciation took ~8 years to recover not including inflation (so longer if factoring in inflation).

I have never done a brrrr of a condo because I fear the HOA control. I would be more inclined to do a flip if I was to go the rehab route on a condo.

Good luck

1 Reply

Derrick LloydPro Member

Investor · San Diego, CA · Member since 2017 · 38 posts · 33 votes

5y

Here is another way to think about it, which is what I did when I bought my condo: House hack it with the goal of paying just as much or less than you would if you were renting on PITI + HOAs after your roommates rent. It would be hard to break even and have roommate or tenant rent cover the mortgage and other costs, but if you can bring your costs down compared to rent, then I would count that as a win. Plus you get all the tax benefits as well, which you don't get for rent.

I bought a 2/2 condo 5 years ago and have generally had the spare room rented constantly. It didn't need rehab when I bought it, but it has appreciated. Now, with lower interest rates and rising rent, I can rent it out and cash flow. As an added bonus, I got a HELOC on condo, and I used that to invest in the mid-West.

I think you have a good plan and one that needs rehab does add the potential for forced equity. I plan to do something similar when I start looking for my next place.

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Condo BRRRR, San Diego

Condo BRRRR, San Diego

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