Hello from San Diego!

[Bill Everton]

Hello BP Community!

I'm Bill from San Diego.  I've made a goal to purchase my first real estate investment this year.  I'm still learning about different strategies, markets, etc. from podcasts, books, and the learning articles here.  Currently reading Brandon Turner's "The Book on Rental Property Investing."  

I'm thinking about David Greene's "Long-Distance Real Estate Investing" considering the challenge for entry in the San Diego market.  Also considering J Scott/Dave Meyer's "Real Estate by the Numbers."

Any recommendations for my next?

[Dan H.]

I invest in San Diego.  Have for quite a few years.  My mom started  in the 1970s. I will start by saying this is a more challenging market compared to the dozen years prior to 2022. This challenge is nation wide.

However, the initial cash flow was never good in San Diego.  Note the word initial.  This is because long term few markets have presented the cash flow of San Diego RE.  How?  First there is a correlation between appreciation and rent growth.  High appreciation markets have higher rent growth.  2) prop 13 basically means property tax increases will be small (2%) regardless of the appreciation or rent growth. 

Everyone of my properties has a rent to purchase ratio above 1%   They all have loans that were prior to the recent rate increases   The prop tax has been nearly fixed.  Imagine the cash flow I could have if I desired (my cash flow is not great because I extract value regularly and because I prefer my return to be in tax free or tax deferred sources and cash flow you get taxed on yearly).

Case Schiller used to (maybe still does) publish a residential market performance ranking since 2000.  I am not sure the first year I saw it but I would guess 10 years ago.  San Diego was 3rd in every one that I had seen and was narrowing the gap on Los Angeles and San Francisco (the top 3 cities were CA cities). 

Purchase at high LTV with realistic expense estimates will project initial negative cash flow if purchased at retail (off the MLS). The income historically improves quickly so the cash flow improves quickly. For the long hold, San Diego I likely to have the better cash flow potential (assuming you do not consistently extract cash out of the properties).

If you require initial cash flow, San Diego may not be the right market   However if you plan to hold long term, few markets have produced better return on residential RE.

Good luck