Cash Flow areas in San Diego?

Question

New to REI and looking to purchase multi-family doublex or similar apartment as my first purchase.

Doing some basic cash flow calcs, it seems most areas in San Diego are very challenging to maintain positive cash flow with the high price points of the inventory.

Are there any neighborhoods or areas you've had good cash flow in? Any areas you see as opportunities?

Dan H. · Answer

I agree with @Danielle Wolter that retail purchases today, after projecting realistic expenses, are cash flow negative.  However, historically rent appreciation results in good actual achieved cash flow over any long term hold period (as Danielle indicated her property is cash flow positive due to rent appreciation).

So here are some options:

• Look for below retail purchase.  This is challenging because there is a lot of competition and some of that competition has large marketing budget and a lot of contacts.  We find this the most difficult of the options.
• Realize that it will be initially cash flow negative and plan accordingly.  Make sure you have the reserves to handle worse case type scenarios over the short term and that this is a long term game.  In the long term, San Diego has always appreciated (over the long term) significantly more than inflation.
• Look for value add properties that you can BRRRR.  Note, after the refinance, it will be cash flow negative (assuming high LTV) but this is much easier to deal with if you have added tens of thousands of dollars (and sometimes $100K+) of value.  A good value add can cover a lot of negative cash flow for a long time.

We have used value adds (option 3) and market appreciation (option 2) a lot.  We have purchased some properties noticeably below retail but never enough below retail that it would suffice as the entire source of return.  The competition for below retail property is tough, smart, and often has money to spend on marketing.

Good luck

Danielle Wolter · Answer

@Forrest Baker There may be some areas out there that people are able to find cash flowing properties, but I haven't found them myself. I have a condo in Northpark that cash flows, but I bought it years ago and it would not cash flow at it's current value. I keep my San Diego properties for appreciation, and buy cash flowing properties in other parts of the country.I'm sure there will be others who have opinions on this!

Kyle Smith · Answer

Hi @Forrest Baker. As the others have said previously, you’ll struggle to find cash flowing properties in many areas of the county. I have a duplex in National City that we bought in ‘09 that does really well but I wouldn’t buy it in today’s market if I was strictly going for the cash flow. Rental growth hasn’t kept up with appreciation here and that won’t change (particularly with the recent rent control legislation being enacted).

Anything that pencils out in terms of cash flow is almost certainly going to be in C/D neighborhoods but those areas appreciate nicely as well. I work in those neighborhoods in SD and can help with specific streets in many cases.

PM me if you’d like more info. I’m happy to chat more about specific areas

Account Closed · Answer

If you buy cash you will probably get a little bit of cash flow. I wouldn't try it with debt service, tbh. Flip something. Invest elsewhere. Or invest in a different type of asset. San Diego isn't a "cash flow" market even when the market is low, the money there is always going to be better if you make an equity play. I wouldn't make an equity play in a peak market, though.. unless you plan to exit the equity position pretty soon.

Greg Scott · Answer

In 2016 you could buy a duplex in San Diego (Clairemont) for under $600K. With rent increases those cash flow today. But the same duplex is now $750K

Same old story. Property values always seem nuts when you buy. Hold on a short time and you feel like a genius.

Danielle Wolter · Answer

@Anthony Rosa I'm totally with you on the appreciating markets - if I could make even a small amount of cash flow, or just really break even, I'd continue to invest. But I can only afford so much loss every month LOL! I have just started investing in Memphis which is not much of an appreciation market, but should cash flow pretty well. I've just gotten started, so I don't have the numbers to back that up yet.

However, I invest only in nicer B to A- areas. or instance, I just got a house under contract that was built in 2014 and is in a solid B neighborhood. I will only buy under market value or value add properties to force appreciation. I also include at least 1 months worth of vacancy per year and 5-10% for repairs and CapEx (each), depending on the property. I do agree that you will have to have volume when buying SFR, and I'm ok with that.

I'm definitely no expert as I'm pretty new at this! If the San Diego prices start coming down I'll start keeping my eyes open for deals :-)

Anthony Rosa · Answer

@Danielle Wolter - My opinion on what you are doing is was real estate is all about. Location, location, location is what gives appreciation. I have two properties in NYC that were bought years ago and with today's value it wouldn't be worth it to buy it for cashflow, unless its a cash buyer or hefty down payment, but Absolutely Absolutely worth it for Appreciation.

I have mixed feelings on the typical cashflowing properties because they don't appreciate unless its forced appreciation but to me that don't count.  I feel that they actually lose value because they are older, expensive to maintain and you never get your money back if you sell.  Income is relied on a month to month basis and with a few repairs and vacancies you may not cashflow for a few years. To make it work the owner needs volume, lots of volume.  The ROI on paper is for some deals are great but with a few repairs and class C tenant issues that ROI dwindles down fast.  Thoughts? Where do you buy for cashflow?

Tj Hines · Answer

@Forrest Baker I have a few contacts in the market of San Diego. Feel free to PM me and I will connect you. There are a few meetups out in Cali that focus on out of state investing because of the same reasons you listed.

Dan H. · Answer

My market does not need more competition :=).  I am mostly in jest.  I am interested if the off market Escondido property would show positive cash flow using my conservative estimates.

Kenneth Donaghy · Answer

With respect, They are in lower class areas. I know of an off market duplex in Escondido currently available. I know of couple cash flowing 3-4 units properties bought this year in Logan Heights. As well as value add investors cash flowing south of the 94. All people within my network. Not including the househackers.

Cash Flow areas in San Diego?

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