Like all of us trying to wrap our heads around how to get involved in the San Diego residential real estate market in 2018, I am trying to weigh the pro's and con's of where I see the market currently and where I see it headed in the next few years. I am hearing more consensus recently that San Diego is much more likely to experience a cooling off than a crash in the next 5 years, even with record high median home prices. Much of this is attributed to some unique aspects of our market, namely the "landlocked" nature of the county. We've also seen the economy grow and diversify in the past decade, and foreign investment is very strong here. There doesn't seem to be a glaring weak spot which would throw the supply/demand situation into a radically different state than it is now.

We seen for years now that supply is not keeping up with demand here, and I've not yet heard a solid proposal to solve this issue. I can't blame developers for focusing on high-end new construction, given the risk and unbelievable headaches they must go through to get anything accomplished. It's been interesting to watch our Median Sale Price / Median Monthly Rent ratio slowly creep up to ~20. Many San Diego investors I've talked to have also taken note of this metric, fearing the ROI on rental properties does, not justify current prices. Some investors, such as myself, are choosing to rent their primary residence in San Diego and invest their capital in other markets, due to the low cash flow returns in SD, and the relatively low rent prices for a primary residence.

That said, I am huge fan of the lifestyle in San Diego, and I'm still looking for ways to put down roots in this city that I love while not completely sabotaging my investment ability for the next 10 years. Fortunately I have access to some solid databases for finding good off-market properties to target, and have ramped up my yellow letter efforts in the past month.

I'm sure many of us have heard that the typical investment rules don't apply to San Diego/California markets. I've heard from multiple brokers/lenders recently that we could expect current home values to double in the next 15 years, then re-double again in the following 15 years given anticipated appreciation rates. Theoretically that could be right (though inflation and accessing that equity need to be taken into account), and I hate betting on appreciation anyway.

Since my strategy involves looking to be an owner-occupant, I'm willing to bend the investment rules a little bit and get creative with my strategy. I have a partner lined up to go in with me on a small MFH for us to occupy and rent the remaining units, if we can find one which makes sense. I would love to get the opinions of those who are looking to actively invest in SD on how they are planning to approach the market in the coming years. Are you taking a "wait and see" approach, and are you really confident that we'll see any solid devaluations coming within the next 5 years? If you're renting your primary residence currently, do you think it's still worth throwing that money away for the next couple of years to see where the market heads?

This is a very important topic to me, so I'm happy to get on a phone call with anyone who has strong opinions one way or the other. The more inputs I get the merrier in my opinion. Thanks in advance for your contributions.

San Diego, California

3 Votes