Multifamily or SFH in San Diego?

Question

Background:

-My parents recently sold their business and have around $700-800k they would like to invest. They have asked me to learn and invest it on their behalf.

-I am also a small business owner, but of a relatively new business. Income for last year was $60k, and expect it to increase $20-30k/year moving forward. My original plan was to wait on RE investing until I had a higher salary, but that plan has changed due to my parents request.

Question:

I like to start learning about real estate ASAP, but I want to take care of their money. I’ve read about the pros and cons of each, but am looking for targeted advice based on San Diego the money we have to spend in particular.

-We would be investing locally in San Diego, not out of state.

-The only investors would be my parents and possibly myself, no syndication or other investors etc.

-My parents aren’t looking to get rich. Just immigrant parents looking to preserve their wealth and possibly grow it a bit. They are your typical "millionaire next door" type of people. Like keeping things as simple as possible.

I know absolutely nothing at this stage, but my thought would be to either pick up a few single family homes or pick up a 5-8 unit multifamily property. If you were in my shoes with this criteria and $700-800k to invest, would you recommend spending a few months studying up on single family or multifamily investing?

Dylan Vargas · Answer

@Rick Rand Welcome! I personally would keep studying both methods and wait until all this settles in the next few months to figure out which way to go. Multi family peaks your personal interest so maybe thats is a good way to start learning the next few months. Be real careful in this changing market. I have learned so much in a few years and changed many views on properties and investing. California is getting more non landlord friendly each passing day. Keep this in mind when venturing down the real estate path. I say this as you mentioned keeping it real simple. California also has the big gain potential over time that is tough to match. Check and see how @Michael Swan (Swany) is doing.Good luck and keep us posted.

Pratap Koppula · Answer

There are multi faucets in real estate investing. We can extend help in financial modeling on your expected rate of returns, to be prudent to meet the conservative approach.

Eric Martel · Answer

Is the goal cashflow or appreciation? I suspect that they are looking for cash flow so you should look for cash flowing markets that have a great return. You can make anything cashflow if you put enough cash in it so you also need to look at your returns.

Tyler Hungerford · Answer

@Rick Rand I guess it just depends on what you'd like to do within your portfolio. If you go the larger multi-family route, then starting off with something around 7-10 units could be perfect for you. It just depends on what you'd like to do with those funds.

I'll message you and we can talk more there.

Rick Rand · Answer

Thanks for the reply. I guess my long term goal would be either to get 8-10 houses/townhouses in the $600-750k range, or maybe 3 small apartment complexes with say 7-10 units each. I've read the basics on the pros and cons of each, just don't know which makes more sense for the market out here...Hence the reason I posted in the California forum. From my research it seems like MFH is preferred, but most of the people recommending MFH also lived in landlord friendly areas and finding 7-8% cap rates, $120k door, etc which obviously is unrealistic out here.

Ideally, I can spend some serious time delving into either SFH or MFH and just stick with it employing a buy and hold strategy...rather than doing 1031 exchanges, switching from one strategy to another, doing anything super fancy, etc.

Tyler Hungerford · Answer

Hi @Rick Rand, I just messaged you. With $700-800k in your pocket, you should be able to pick up multiple units throughout Southern California. San Diego is a great market and highly competitive. The focus should be on trying to purchase as many units as you can, while also not over leveraging your money. I don't know if a 5-8 unit off the bat is the best idea for you, especially with the loan limitations right now on the commercial side. Considering you can put large down payments on multiple properties, I think the best thing to do would be to pick up multiple small multi-family units, 2-4 units. I think those would be a bit more manageable for you and allow you to diversify your portfolio a bit more. You can always 1031 exchange into larger units later, but start with something you can actually handle now. Have you been listening to any of the podcasts that BiggerPockets puts out? I started listening to those back in 2014, did my first deal in 2015 and haven't looked back since. You should consider listening to those and getting the book on rental property investing. That will help give you a good start to building your knowledge base. Reply to my message and let's chat more about this. I educate real estate investors like yourself often and help clients purchase cashflowing investments throughout Southern California. I'd love to help you along in your journey and provide you with sound advice and tactics to help you pursue this endeavor.

Rick Rand · Answer

I should mention, my preference would be Multifamily...but this is a very uneducated preference as I am a total newbie.

My fear is that I spend months learning about MFH to only then realize it wasn't a viable option for us unless we looked out of state or something.

Multifamily or SFH in San Diego?

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