Getting Started in this Market

[James Solis]

Hi All,

I was living abroad Pre-Covid as a Nomad and moved back to the US (after 5 years abroad). Over the past year I've settled back down in my hometown in San Diego and have a child on the way. I currently work online as an agency owner but want to start transitioning into Real Estate as an investor. I have experience as a property manager from 2008-2013.

My concern about investing locally is that it's so expensive here in San Diego. I've had my eye on parts of Washington and Florida as a place to start the journey. 

If you were in my position:

• early 30's with a child on the way
• $125K allotted for REI
• living in San Diego
  

With so many options - House Hacking, BRRR, Flipping, Wholesaling - what would you do?

Also troubled with deciding to invest in San Diego (expensive) or to invest in different states that I have some attachment to.

Any tips/advice is welcome.

[Dan H.]

Originally posted by @James Solis:

Hi All,

I was living abroad Pre-Covid as a Nomad and moved back to the US (after 5 years abroad). Over the past year I've settled back down in my hometown in San Diego and have a child on the way. I currently work online as an agency owner but want to start transitioning into Real Estate as an investor. I have experience as a property manager from 2008-2013.

My concern about investing locally is that it's so expensive here in San Diego. I've had my eye on parts of Washington and Florida as a place to start the journey. 

If you were in my position:

• early 30's with a child on the way
• $125K allotted for REI
• living in San Diego
  

With so many options - House Hacking, BRRR, Flipping, Wholesaling - what would you do?

Also troubled with deciding to invest in San Diego (expensive) or to invest in different states that I have some attachment to.

Any tips/advice is welcome.

Few markets have more potential for BRRRR than San Diego. Here are some of the reasons:

• With values so high, the value added is correspondingly high. For example, lets use the case that you find a home in Ohio that is all in 75% of ARV after value add. Lets use a nice $200K ARV. You made $50K from the value add, not bad. Lets say that due to increased competition you only can achieve a cost of 80% ARV in San Diego. Average home in San Diego is ~$800K at this moment. You made $160K from the value add which is basically little different in effort from the Ohio value add.
• The historical appreciation: Case Shiller has San Diego as the number 3 highest return market in the US for this century.  Neighborhoodscout shows San Diego a 10/10 for this century in appreciation.  
• A BRRRR that you are in at 80% ARV will trap a little money, but the amount will be so small that it compares in investment amount with low cost out of state properties. For example if 5% gets trapped, you have $40K invested. At 75% LTV could purchase a $160K property. Would you rather invest $40K for an $800K property or $40K for a $160K property? I know my preference.
• Long term cash flow: As the properties appreciate the rent goes up.  It is basic math that the higher rent appreciation market will always eventually have better cash flow than the lower rent appreciating market.  This implies on long term holds, San Diego historically has produced far superior cash flow compared to the Ohio market (or at least until value is extracted via a refinance).
• Property 13: This is an under appreciated benefit for long term holds.  We currently have a property that is taxed at about 20% of what it would be taxed if purchased today.  We have another property that the ratio is not as good but the actual dollars difference is greater.  We are taxed at ~10K/year and the current rate would be ~$25K/year.  Note that is over a $1k/month savings resulting from prop 13.
• Local investing is full of advantages including easy to build/maintain team, easier to self-manage, easier to perform heroics if ever necessary, local knowledge, etc.

The stats are out there.  You can find out that San Diego has experienced 164% appreciation (Source Neighborhoodscout) this century and ~24% appreciation in the last year.  You can find out what rents have done and what they are projected to do.  You can research prop 13 and its advantage to long term RE investors.  

You live in an incredible RE market.  #3 according to reliable source (Case SAhiller) for this century.  The answer is clear if you look.

Good luck