Have You Had Multi-family Success In San Diego?

Question

Hi All,

I moved to San Diego two years ago and I love it here (it's hard not to!). I bought my first property as a primary residence upon arrival in 2016 and I have gotten to experience the great appreciation potential that a hot SoCal market can provide. I am now interested in investing beyond my primary residence and I am looking to connect with people in the market to hear any success stories and get any feedback that anyone is willing to offer. I know the market is hot right now and that it is incredibly challenging to cash flow in SoCal. If you are a newbie like me looking to bounce ideas or a successful investor willing to provide advice, I am just trying to get the ball rolling and open to any and all communication. I am primarily interested in value-add small multi-family (2-4 units) opportunities so any advice in this arena is greatly appreciated. Thanks in advance for any feedback and looking forward to connecting!

Dan H. · Answer

San Diego RE has been pretty good to long time RE investors that were not over leveraged at the Great Recession. I also think, like most people, we started by not getting anything that was a good/great deal. We paid retail on every purchase until the duplex that was purchased I think in 2011. We were newbies and not that different from other newbies but maybe I was around RE investing more growing up than most but I had to convince a wife (who now is fully on board but was only a little on board during the Great Recession when it would have been great time to have purchased more).Now with more knowledge I would avoid purchasing RE investments at full retail. I would know that most homes to live in that are purchased without consideration into if they could make a good/great rental property are unlikely to be good/great rental properties.Mostly I would know that I have a lot more regrets on properties not purchased than properties purchased. San Diego historical appreciation can overcome small RE investment mistakes. I hope this is always the case.

Dan H. · Answer

The state does not mandate that the ADUs be at an owner occupied property but both local cities (San Diego and Escondido) that I have looked into does mandate that the owner occupy either the primary unit or the ADU unit. This implies that at least in those two cities it can only be used for a house hack. I am curious if any city in San Diego county allows ADUs in non owner occupied properties.References are below:San Diego: https://www.sandiegocounty.gov/pds/zoning/formfields/PDS-611.pdfOwner-occupancy of one of the dwellings is required for the duration of use of the ADU for residential purposes. Before a building permit is issued, the owner of the property shall submit a notarized and recorded copy of an agreement stating that the owner understands and will abide by the requirements of the Zoning Ordinance. The ADU shall not be used for short-term rentals. Short-term rentals means rentals for less than 30 days. Escondio: https://www.hausable.com/city/escondido-ca-562765Ownership: owner occupied. The owner of the property shall reside on the parcel on which the accessory dwelling unit is located. The accessory dwelling unit is not intended for sale, except in conjunction with the sale of the primary dwelling and property. Deed restriction. Building permits will not be issued for the establishment of accessory dwelling unit or its occupancy prior to the applicant's submittal of evidence that a deed restriction, which sets forth the occupancy limitations prescribed by the ordinance , has been filed with the county recorder. This deed restriction shall run with the land; inure to the benefit of the city as well as to the benefit of the other residential property owners within the subdivision; and, be coterminous in tenure with the life of the accessory dwelling unit.

Casey Murray · Answer

@Jacob Martin I agree with @Tim Gordon about ADU's. There's still opportunity in San Diego in the MF space, you just have to think creatively about adding value to the property. Hot housing market means hot landlord's market (although note of the rent control possibility coming to light in San Diego). Feel free to PM me with questions.

Tim G. · Answer

If you want to add value, it would likely be buying a home with room in the yard to add an ADU. Take a look on forum there's many threads on the topic. Gov. Jerry Brown did us a huge favor and created statewide regulations to allow homeowners to add ADU's. You can't really turn it into a duplex, you can add a granny flat type unit and use it as a long term rental.

Tim G. · Answer

Have you considered ADU’s?Adjusting to the market and finding your advantage is key. The new ADU laws, especially for owner occupants is likely one of the best cash flow plays available to smaller owner occupant San Diego investors. Competing with big dogs and institutional money for multi units doesn’t often leverage the small investors advantages.

Kevin Fox · Answer

Hey @Jacob MartinI’d be more than happy to chat about the multiunit market here in SD. My team and I work with 2-4 unit investors all over the County, with a majority of the deals having some degree value add. Feel free to reach out at any time.

Jo-Ann Lapin · Answer

Chiming in late here. The adu’s opportunity is truly amzing for a value add real estate investor for a gold or flip . The trick is navigating each city/counties requirements of which not one is on the same page.

Jacob M. · Answer

@Dan Heuschele Thanks for your initial response and the follow up on ADUs a few minutes ago. That is pretty interesting and slightly discouraging on the ADU front as it would make a property difficult to buy and hold unless you wanted to live in one of the residences for a long period of time. Given the current housing crisis in this city, you would think that they would want to encourage building, regardless of owner occupancy or not. I will have to do some research on other cities in San Diego to see if there is any variation in the law.On another note, it was very cool to go through your property portfolio and see your (mostly) buy and hold strategy over time. Investing primarily in this market has clearly put you in a strong equity position.

Jacob M. · Answer

@Casey Murray Great point on the rent control possibility in San Diego... it looks like it is the only large CA city to not have any laws in place currently. I see that you just bought a MFR property in the area - very cool and encouraging to see that happening right now. I might reach out to you with some specific questions on that. Thanks so much.

Jacob M. · Answer

@Tim Gordon Thanks for the insight on the ADUs with California's new law. I've been reading up on it and it definitely presents a new opportunity to house hack or add value to an investment property in this market.