Investment Strategy San Diego CA

[Carson R Gill]

What's up people- Looking for any and all advice on getting into a smart investment with my current situation. Currently, I own/live in a mortgage free, 1/1 condo in Little Italy. Base monthly expenses include HOA ($750) and taxes ($266).

My goal is to get into either a MF or SF with ADU that I can house hack. I prefer the idea of renting out units instead of bedrooms but I am willing to make any sacrifices necessary in the short term.

I feel that holding onto the condo, utilizing a home equity loan, and renting the unit out to cover the loan, HOA, taxes, etc. is my ideal play. Comps in the area for my unit are anywhere from $350-$400k, and should get me a monthly rent of roughly $2000-$2100.

My purpose for the post is to obtain any possible strategies I haven't taken into account- Would selling be a smarter strategy and why? 

I'm looking forward to joining the community here on BP and appreciate all the input in advance-

[Dan H.]

I typically am not for selling local RE.  The poorest of investments over the long term do great and I suspect it is true of this property.  But when analyzing to keep, you should also evaluate it against other investment options.

That condo needs to appreciate at a different rate than local SFH or small MF to be worth keeping. Assuming it appreciates at about the same rate this is why it should be sold:

• $350K for $2K is a 0.57% rent ratio. That is not unusually bad for SFH in San Diego, but it is bad for investment purchases. I find 0.75% seems to always cash flow at investor LTV (80% LTV) using my pro forma numbers. 0.7% usually has positive cash flow. This by itself is not why I am indicating to sell. As indicated your ratio is not horrendous, but I move to the next bullet.
  
• HOA of $750 with a rent of $2K devastates the cash flow. I typically believe HOAs are good stewards of the HOA fees and get good value for the maintenance and cap ex and I am not stating otherwise here. What I am stating is that it does not matter if that is a fair price, it simply kills the cash flow.

I would only consider keeping this property if I expect it to significantly outperform other options in rent and property appreciation.  Note rent appreciation can quickly improve the cash flow situation.  However, if the rent appreciation is good but it is everywhere else then the cast flow is not improving with respect to other options.  The appreciation has to be expected to be better than other options because it is starting from a poor position.

Good luck