Investing in San Diego

[Charles Perez]

Hi everyone,

I'm trying to get started in Real Estate Investing but I'm afraid that prices are too high again in Southern California...Should I wait for prices to drop?  Is it possible to find a great deal during these times? I'm looking to buy a second home as an investment but the prices right now are sky high.  What do you think? 

thanks,

Charles 

San Diego, CA

[Dan H.]

I compare San Diego RE to a growth stock that has a history of long term appreciation going back over 50 years that does not pay dividends.  It will not provide good cash flow in the near term but has a good chance to have good long term appreciation. 

Versus a value stock that pays a dividend.  The short term cash flow will be better but it does not have many indicators that it will appreciate well (otherwise it would be a growth stock).  

You live in San Diego.  You likely are aware of both the property and rent historical appreciation.  You likely understand the supply vs demand.  You likely have seen or heard about the various reports that indicate there is anticipated to be a continuing housing shortage and continued increases of property n rent are anticipated.  

What you may not know is that appreciation locales have produced better ROI than cash flow locales for financed buy n hold. That San Diego is near the top of the list in terms of ROI for virtually any long term duration you choose (example #3 since 2000). In the last 5 years the worse year for appreciation was 8%. This implies if you house hack with 10% down, the worst year in the last 5 years produced an 80% return on your investment.

I recommend all new RE investors start local and self managed.  This is not to imply that it is not possible to succeed investing out of state with a PM but I think you will have a better chance of success if buying local n self managed.  

Good luck