Investing in San Diego suburbs or OOS?

[Li Lu]

Hi folks, I'm new to RE investing and plan to purchase my first rental property. I live in the city of San Diego. I'm looking for both appreciation and cash flow. Looks like I may not be able to afford properties in the city, as I only have $50-70k for down payment for now. I'm wondering whether it makes more sense to consider some of the affordable suburbs (e.g., Escondido, Santee) or out-of-state areas?

Any advice would be greatly appreciated!

[Dan H.]

Originally posted by @Doug Spence:

Originally posted by @Li Lu:

@Doug Spence Thank you for weighing in. Do you mind elaborating on the tenant friendliness point? Apart from the COVID-related rent moratorium, what other policies make SD tenant friendly (and meanwhile landlord unfriendly)? Would setting a higher tenant selection criteria help lower risks of conflicts?

I'm speaking more towards California as a whole. The landlord-tenant laws make it more challenging to evict tenants than in other states that are more landlord-friendly (Southern states tend to be more landlord-friendly). 

Stricter tenant criteria would definitely help, but you're reducing the total pool of tenants you can rent to if you do that. Also, you have to be careful not to violate any discrimination laws!

Have you had rentals in San Diego?   The reason I ask is not because I disagree with your comment but do not view it as a significant impact.  The reason is the vacancy rate is so low that tenants with a blemish find it difficult to rent c class and above. 

Our rental criteria eliminates anyone who has been evicted, any one who has a rent payment blemish on their credit report, anyone that does not get a favorable review from all landlords they have had in previous 5 years, anyone that has moved more than once prior in the previous 5 years.   We can set this criteria due to the very low vacancy rate. 

The stats show CA has one of the lowest eviction rates in the country (depending on source 5th to 7th lowest).  Related, It has one of the lowest missed payment rates in the country.  

I believe San Diego is lower than the state as a whole because the vacancy rate is lower than the state as a whole.  

Problem tenants are rare in San Diego especially if the LL screens well.  Problem tenants can usually only rent the worst units available (class d units).