Local San Diego Investors - Still Buying or Now Waiting?

Question

Hey BP San Diego,

I just wanted to post on here to see what the general BP San Diego consensus is regarding the coronavirus and current investing in the SD market. It still may be soon to tell, but I've noticed that the demand for homes is still staying very strong.

Are many of you waiting to see how it all plays out over the next couple months? Or are you trying to resume business as usual?

- Jared

Dan H. · Answer

A property that had multiple offers before Corona but fell out of escrow due to Corona, just lowered the price $50k.   They were already under market for the location.

Many sellers have pulled their listings but desperate sellers are lowing their prices. Question is, is it enough lower to take on the risk associated with Corona? I have changed my buy criteria in an attempt to account for the increased risk, but did I change it enough?

my view is investors should only be purchasing if the price justifies the increased risk. Otherwise, wait to the risk is more in the historical range. No San Diego RE investor should be using same buy criteria that they were using last year.

Good luck

Jay Johal · Answer

I've been looking to buy for a while and have tracked some house prices recently in Hillcrest, North Park, City Heights, and other neighborhoods around Balboa Park. Prices seem to have come down a bit (like 25-50K) but there's significantly less inventory as of today 5/3. I've seen some homes fall out of escrow stating that it was due to Coronavirus and some homes being listed that looked like prior Airbnbs. Even some homes pulled from the market that are no longer for sale.

I am currently working on a Duplex + ADU build in North Park and plan to continue forward with it, and still looking to buy and HOLD (possibly build). I am confident in the SD market's recovery and continued appreciation. Rents will drop and stabilize and the economy will recover in due time (whether it is 6 months or 24 months). I feel like if I hold out for a correction or a discount, I would lose out on current opportunities that are presented now all because I "wanted a better deal."

Kenneth Donaghy · Answer

I agree with most of the above. I would add there is a lag time in RE. Deals closed today, were put under contract 21-45 days ago. I've been keeping an eye on the daily and weekly hot sheets. For the City of San Diego the last six weeks, there has been a consentant roughly 250 new listings, and 250 new closings each week. This week I noticed the shift, still 250 new listings yet 210 new closings currently the past 7 days. Countywide i noticed the gab widen last week.  today the last 7 day 686 new listings 592 closings. Both countywide and within the city, there is still a little drop off in pendings.

At the same time, I noticed a lot more movement this pass weekend. More cars on the road. Properties that were priced aggressively had 50 showings in 3 days with multiple offers. People are becoming more comfortable with the new normal. Of course price range will determine competitiveness.

Many investors are reaching out looking for deals. Uniicorn deals. That hasn't changed. Many investors waiting for opportunity. But with the lag time, and forbearance lasting up to 18 months, they could be waiting a couple years.

It can depend on what type of investing one is looking to do, STRs are a current struggle, how long will that last? perhaps there will be opportunity to buy fully furnished units. Flippers who were buying at 80-85% ARV are now looking at 70-75% ARV. I've seen recent flips where the investors need to get out of their Hard Money loans, and some will need to cut their losses. Some cut their rehab cost just to put it on the market.

For a value add first time home buyer househacker, I'm not sure much has changed. Your buyer competition may be less, for now. Resulting in slightly lower priced homes.

Brad D. · Answer

In the SD area, where are a lot of the STR? I know Mission Beach and PB, but where else. Do you expect a lot of the people who bought multiple STR in the past couple of years to be unloading soon due to the Coronavirus situation combined with what was already an uncertain airbnb future there?

One interesting thing: I have not noticed a big downward movement yet in rent, nor have I seen the flood of properties onto the market as a result of the Airbnb slowdown during the shutdown. I saw rents there drop maybe 10% initially, but not much since. I've been watching fairly closely as I'll be moving there as this summer, providing everything calms down a bit.

Stanley Nguyen · Answer

Love to connect with SD BPers. My partners and I are looking to get into STR, price range under 1mil, easy access to beach if possible. Thanks!

Kendra Allred · Answer

There are people still buying and selling. The luxury market in many areas has seen an influx of homes which are taking longer to move (800k plus) due to that fact that many lenders are no longer offering Jumbo loans and if you come across one that is- the minimum requirements to obtain the loan have greatly increased. Homes in the median price range of affordability still seem to be moving well. Buy & Hold investors can get some great deals right now and if you are fortunate enough to have saved your pennies the ability to negotiate the price of a higher end home is going to be more likely because of market saturation in many areas (Poway is one area that seems to be moving relatively quickly regardless of higher price points.)

If you can flip without having a long hold time prior to resale and can get by without needing a permit it seems the the opportunity to make things happen in the median to lower price ranges is still viable. The permitting process timeline has lengthened because of COVID situation so I'd be wary or at least account for that in an offer price.

Buy & Hold is generally a less risky strategy as you would hope to purchase at a good price(min 10-15% below current value) and be able to absorb any market fluctuation over the long term if there were to be a market adjustment.

These are just things to consider and unfortunately there's no way to say for sure. Just like with many things there is a point were higher risk typically equates to higher reward. In times like these a conservative approach is common but while that typically shields from large losses is also limits large gains. There's always going to be some degree of volatility but the most we can do as investors is learn everything we can and hedge our bets accordingly.

Brad D. · Answer

I'd like to get your thoughts on Temecula/Murrieta for SFR investments in the near future. I know it's technically riverside county, but it seems people in SD county have their eyes on Temecula/Murrieta as well.

Looking at Zillow Home Values, they have Temecula and Murrieta set for a bigger drop than almost anywhere else. (I believe Zillow is drastically underestimating the drops everywhere in the next year, but I think this metric may be useful for comparison between markets).

In any case, check out Temecula, then plug a few markets:https://www.zillow.com/temecul...

Zillow is predicting an even bigger drop in Temecula than Vegas, which I'm guessing can't be true, but who knows.

What are your thoughts on Temecula/Murrieta to invest in?

Brad D. · Answer

San Diego has the lowest murder and robbery crime rates of any city in the US over 1,000,000 people in the US:

https://en.wikipedia.org/wiki/...

It's percentage of people with Bachelor's degrees and higher is extremely high, and SD is very expensive. These type of stats show how different SD is from Las Vegas, and why I would guess those who've managed in both places would say the cash flow in vegas is better but the tenants are 'easier' to deal with in SD. I think a lot of times the human tendency is to obsess over the exception to the rule ('that one jerk in SD I know' or read more into general arrogance than is necessary), the same way in journalism, the 'man bites dog' is king. But I could be wrong, would love to hear more opinions on this.

I grew up in the South Bay (LA area), and have spent a lot of time in SD and LV. I live in the midwest now. I get what you're saying about the 'obnoxious patriot fans." I deal with some obnoxious east coast attitudes in my business. In fact, I'm sure I would get along with down to earth vegas types better for conversation, hanging out, etc. But in terms of dealing with people over emotional issues like money, housing, repairs; I find that it is almost always easier/smoother to deal with people of a higher class, even if they are a bit smug and unlikable. They are certainly less likely to become violent, threatening etc. But the profit margin is almost always better selling to lower classes, providing you can deal with the grind and also still scale it.

So in terms of where I will invest: If things go great for me business-wise; I will invest SD. If things really pull back in my business, as is possible with this pandemic situation, I will focus on Las Vegas.

I think you're right on where to live. Clairemont does look the best. Big houses, yards, driveway, and not super expensive.

Tom Kastorff · Answer

I am not sure "I would expect SD renters to be much easier to manage" - what is that expectation founded in? SD is mostly made up of non-locals that move here (think lovely patriots fans, jersey folk, etc). And entitled millennials galore. I would not say an SD renter is any better than a Vegas renter etc. Socal people in general are a different bunch, especially if you are not from here and used to the personalities. I live in one of the first 3 SD regions you mentioned. If you want any tips or have questions, PM me. Unless you're 29 and live to surf 7 days a week driving your retro VW bus, I would advise against living in PB. Dirty, overpriced, piss on your lawn, no parking, horrible traffic 6 months a year (when the zonies come by the 100s of thousands clogging Garnet and Grand (the 2 major streets into PB). Your other options are far nicer and cleaner and give plenty of fast access to the beach. I spent 12 years in a 3/2 SFH in Clairemont and enjoyed that too, nice neighborhood right next to a large remodeled and transformed strip mall with everything you need (Target, Home Depot, 12+ restaurants) and right off Balboa that turns into Garnet straight into PB. Clairemont is probably also the most central suburb in town as you can access the 5, 52, 805 freeways all very quickly.

Dan H. · Answer

The map was a little enlightening.  I thought Lindbergh field was a little further south then it is.  I also thought north island was closer to OB than Lindbergh but that also seems to be incorrect.

I worked at Pt Loma for many years and did not find the airplane noise to be that significant.

OB has changed a lot in the last 15 years.  Some are trying to hold on to the old feel.  It used to be a very liberal, hippy like location.   It used to have dive bars, music stores, 2nd hand shops, run down movie theater, craft stores, etc.  That has been changing for quite a few years.   Now it has higher end bar, boutique stores, etc.  It has been transitioning to upscale.   I miss the old feel.  I do believe there is still a slightly higher number of homeless in OB than PB; maybe some hold over from the more liberal days.

Local San Diego Investors - Still Buying or Now Waiting?

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