Assistance analyzing a duplex in El Cerrito area of San Diego, CA

[Ryan R.]

Hi All,

In advance, thank you for any and all help/advice you are able to provide. My fiancee and I have an accepted offer on a duplex in San Diego, very close to San Diego State in a great neighborhood. The terms of the deal would be we pay the downpayment (FHA 3.5%), and the sellers pay all closing costs. The purchase price is $615,000. Rents are currently $1,350 and $1,450 per month (with a projection of rents being raised to around $2,000/month each. We would be living in one of the units and renting out the other until we save enough to move on to our next property.

We have been working with our real estate agent, who has been investing in San Diego for quite a long time. His words exactly regarding this property are:

I'm trying to get assistance on whether this is a good deal. I understand that San Diego is not a typical market like much of the rest of the country, and that margins are much tighter here. That said, even though the cash flow is at best break even, there is the debt pay down, tax benefits, and appreciation (understanding of course this is speculation) to consider in our favor. 

With all that in mind, what do you guys think about this deal?

[Michael Swan]

I am selling all my rental properties in Santee and Lakeside, due to us approaching the peaks.  I am 1031 exchanging for Apartment complexes in Northeast Ohio.  I began investing in 2011 and had 10 condos in Santee and Lakeside and am currently down to four and own 8 low priced, high cash flowing single family and 4 apartment complexes and counting.  We have 57 front doors and soon to be 78 front doors and this summer will 1031 my remaining Santee and Lakeside condos in for Apartment complexes.  Cash deferred cash flow is now $120,000 after 5 years of investing.  In 8-10 years from now, I expect to have $1,000,000 in tax deferred cash flow.  To think, in 2011 and 2012 we were putting an average of $30,000.00 on each condo here in San Diego at an average of $120,000 purchase price and exchanging $6,000.00 cash flow on each condo and selling those condos for $275,000 each and trading them in for $15-20,000.00 in cash flow per year.  My advice is to buy rental properties in nice cash flowing areas of the country and at low prices and then chunk in our expensive cost of living here in San Diego.  Now if you lived in a high cash flow area of the country, I would say, yes go for it and house hack.  Now if this was 2009-2011 and you could purchase that same duplex for approximately $400,000.00 than I would have said to go for it.  My rental properties pay fo my $2,000 mortgage, my son's college, two cars and all expenses.  If I lost my teaching job today, how long would I survive without getting another W2 earnings job?  Forever!!  If I can do this with a combined family w2 earned income before taxes, then anyone can!!

Swanny