Advice for Duplex Investing in San Diego County

[Paul D.]

Hello BP!

I just joined the site today, and relatively new to RE investing. I am an engineer by profession in my late 40s, and would like to get more involved in RE in the San Diego area. I feel like there is lots of wisdom from many folks here that I can utilize. To this, I would appreciate any and all advice/critique. If I am not asking the right questions, please point me to the right ones. I want to ensure I am doing the due diligence.

Brief Background:

I have a paid off Condo in El Cajon, that I purchased in 2017, that is worth ~400K, which is being currently rented out for $1,950.  Currently live in N. CA, and have a PM maintain the rental, and it has been a smooth experience with hardly any issues with tenant (Rented out since Jan 2021).

Plan:

I am wanting to invest in a rental/duplex (non-owner occupied). I am thinking of getting a cash out refi on the condo for ~240K (60-70 LTV?), and add some cash, for 25% down payment, hoping for a 800K - max of 1 Mil. range duplex; and mortgage the rest. I am ok with some short-term negative cash flow for an overall positive cashflow and appreciation over the long haul 10+ yrs. I am hoping to invest in the B- or C class areas (El Cajon, Santee, etc. but also SD area).

Questions:

1. Currently have MLS listings from agents, and am familiar with 50%, 1% rules, etc. but I understand San Diego market is different. Given that, what are the metrics I should be looking for, if that is a way to screen the listings. I am open to your suggestions on the best way to screen/analyze.

2. Do I need to look for value-add types of properties? How about 2 individual condos/townhomes in lieu of a duplex?

3. I got quotes from few brokers/lenders and as of now the interest rates are at 6.5% ish. Any advice on to wait for few months or is this still an ok time to purchase.

4. Any important criteria or areas I need to be looking at?

Thanks.

Paul

[Greg R.]

I would personally wait a few months to see what the market does. I just moved from SD a month ago but still own properties there and follow the market closely. Inventory is starting to increase. In the winter months I think you're likely to see some improvement in prices. With rates, who knows... I personally don't think we're going to see a lot of improvement there. However, if inventory increases you might find a motivated seller to buy down your rate.

I would personally avoid condos for the reasons Dan cited. However, value add is definitely something that I look for. But you want to make sure that it makes sense, you don't want to inherit someone else's nightmare. One property I purchased in Lakeside was technically a Duplex, but was actually divided into 3 units. This has provided tremendous cash flow. This is the type of deal that will yield high cash flow.