Looking for Sand Diego thoughts and Ideas

[Kyle Jones]

Tried to edit the title and couldn't, I know it is San not Sand.
I am a USN Veteran, father of two, at-home-dad and our family will be moving back to the San Diego area next year. I have been studying RE Investing and would like to make contacts in SD to discuss various topics. I am interested in long term buy and hold of SFR up to triplex, and would like to actively manage two to three of the units I am hoping to purchase. I have lived there before and know a little about the north county but would like to know anyones success/fail stories. I don't see a lot of inventory that is a deal and would guess many of the deals are made outside the MLS or on Foreclosure properties. Again I would like to ope dialogue with anyone who has experience in this area. Thank you.

[Dan H.]

Originally posted by @Kyle Jones:

Tried to edit the title and couldn't, I know it is San not Sand.
I am a USN Veteran, father of two, at-home-dad and our family will be moving back to the San Diego area next year. I have been studying RE Investing and would like to make contacts in SD to discuss various topics. I am interested in long term buy and hold of SFR up to triplex, and would like to actively manage two to three of the units I am hoping to purchase. I have lived there before and know a little about the north county but would like to know anyones success/fail stories. I don't see a lot of inventory that is a deal and would guess many of the deals are made outside the MLS or on Foreclosure properties. Again I would like to ope dialogue with anyone who has experience in this area. Thank you.

Buy n hold in San Diego is about value adds. Without a value add, the SFR to quad purchased at retail (MLS) is cash flow negative when using realistic expense estimates (contrary to what a few people claim, but when called out on it decide they do not want to publish their numbers). RE purchased at retail have poor rent to purchase price ratios; in many/most places in San Diego below 0.5%.

The number one value add at this time is still the rehab. Find run down units, fix them, rent them. Note if you refinance them, your cash flow situation is likely going to be about where it was prior to the value add but your equity has increased and what you have actually invested has decreased. So do not refi if you want cash flow, but for me I rather extract when I can and cash flow later. To this end, I have purchased cash flow neutral RE. It had a value add that I projected at $60K return and I did better than my projection (some due to market appreciation). $60K value add can compensate for a lot of months of cash flow. Immediately after BRRRR it was still projected cash neutral. It now (4 years later) cash flows ~$600/month.

Gaining fast on the rehab value add is adding an ADU. Learn the 6 CA ADU regulations at least enough to know them at a high level. learn the costs of ADUs. They cost more than you may think. A garage conversion to studio mostly hands off starts at ~$90K. This is the low end of a hands off ADU other than converting existing living space.

The more sophisticated value add people are still leveraging non-optimized zoning.  Is the lot zoned for 4 units, but only has a duplex?  Can it have a quad?  Note just because a lot is zoned for more units than exists does not mean the lot can actually have units added.  A local investor that I know recently bought an RE because its vertical zoning was significant (something like 30' - I do not remember exactly but he is on BP and may chime in).  Who would think to look at that?  That is a sophisticated value add.

If you simply buy an RE (SFR to quad) off the MLS that has no value add, you will be waiting on rent appreciation to generate cash flow. During normal times (the virus is not normal times), I would think 5% long term appreciation is not aggressive, but I would choose more conservative of 3% or 3.5% in my projections. Ideally the RE also appreciates, but value achieved via appreciation is not real simple to access (i.e. HELOC, Refi, or sell).

San Diego RE profit = Value Add + long term appreciation (both property and rent)

Good luck