All Forum Posts by: Dan H.

It is a great rehab and you appear to have a great designer or design team. I like Del Cerro area.  Lake Murray, Cowles Mountain, SDSU, convenient location.  

My question is how did you find the property? Was it on MLS? Mass mailing? Drive for dollars? Other? Being in San Diego market I think hardest part is finding properties with such good opportunities. I think you did fabulous maximizing the opportunity that you found.

Great job!

@Taylor Robinson

>what do you use to determine how high or low it is and where you expect it to be in the future? Do you follow local prices and easily get a sense of where they are (relative to where they've been) after having been in the business for so long? Or do you follow more "macro" indicators, like real estate market indices or similar things?

Like many people on this site I spend a lot of time reading about REI but I look at the current trend possibly more than I should (i.e. I use current trend over some of the things I read that are opinions of experts). The prices in my market (Escondido) on multiplexes are not going up as fast as a couple/few years ago but the rents are going up faster than a few years ago. A duplex I purchased 2 years ago has likely gone up a total of 10%, so less than 5% annually. So I use the trend that I see mixed with what I read from pundits. There are many areas to get market predictions. Many of the real estate sites like Redfin and Zillow have market projections on price. I suspect these are based on other pundits' predictions. My prediction of <3% appreciation in next couple of years is my prediction based on everything that I see and read. I hope it is too pessimistic but if appreciation ends up being close to 3% I will be content (not a home run but decent return if you put down 20% and do not have negative cash flow - ~15% return not including cash flow nor cost to obtain the money so ~15% on paper but less in reality). If I could have increased equity at purchase (via below market purchase, rehab, or more extensive effort/construction) then the gain is even greater (I try to obtain properties that permit 100% equity gain on investment (i.e. at least 20% of purchase value) upon purchase without counting standard property appreciation). It is getting more difficult to find which is one reason I have not purchased a unit in 2 years (but I have put in some offers).

@Charles Lemelle People who invest in So Cal  and San Francisco area are not investing for monthly cash flow but for appreciation.  I have purchased units that at time of purchase had negative cash flow using my cap expense numbers (-0.2% maybe).   Historically those area (So Cal and San Fran)and their appreciation has clobbered the cash flow areas.

To give you an idea for my properties, every one that I have owned at least 3 years has returned better than 10% compounded annually on initial investment and my longest goes back to 1992.  Homes I bought in 2011-2012 with $30K to $45K down have over 100% annual compounded return (cash flow + appreciation).  I realize buying today is very unlikely to perform similar to the properties I purchased in 2011 and 2012 but I am just using those to show the extreme on what appreciation can do.

Maybe So Cal is at a market high and is not likely to go up in the short term.  Well that unit I purchased in in 1992 was close to market high and has returned over 10% compounded annual return.  A unit purchased in 2003 was close to market high and it has returned over 10% compounded annual return.

The great recession's impact on my REI. I lowered one rent $50. There were a lot more people looking to rent than there was before the great recession (when many were looking to buy).

You are correct that no one knows what the future market wise or rent wise will be but if the past is any indication those that invest in So Cal will do better than virtually everyone that invests out of state.

I currently am looking at properties were I can obtain instant equity because I predict an appreciation growth in my market (San Diego county) of <3% over the next couple years (3% at 25% down still would give 10% return) and I want better.  I figure rents will go up about >5% in my market for the next couple of years which also will help.  But if I can purchase a place and get an instant doubling of my investment either because of rehab, buying below market, or more extensive project then that is how I hope to home run in what I speculate will be a lower appreciating market for So Cal.

I do understand those that invest for cash flow.  It can work.  Appreciation has historically done better.

Good luck

I watch Flipping Vegas and I realize it is a TV show but it depicts terrible treatment of the contractors and laborers.  Is work that short in Las Vegas?  Do you think it is massively exaggerated for the sake of the show?

So my question for contractors who have seen the show: Would you work for someone that treated you as depicted on the show if it meant a significant amount of work?

The other flipping shows seem to treat their laborers and contractors much more appropriately (mostly good unless the contractor has done a poor job).

@Taylor Robinson I invest mostly in Escondido.  The longest unit we have is a sfr in Claremont purchased in 1993 but my family purchased its first rental when I was a child in the late 1970s.  

Most multiplexes in Escondido that sell will cash flow.  Do not look at list price on Escondido multiplexes for comps; only look at multiplexes that have sold. They will not cash flow like other parts of the country.   

@Justin R. and I are in agreement most the time but I interpret his response to imply that he believes we are near market high but I am more optimistic of further appreciation, just not as fast as it was between 2010 and 2015. You never know until after the fact. In 2010 the market had been depreciating. Any purchase could have depreciated more and buyers were leery which is why the prices were so low compared to today. My point is that it is always easy to find a reason not to jump into the REI market.

If you purchase a multiplex where you can obtain some equity quickly then you have some buffer if prices depreciate a little.  Ways to achieve this equity include purchasing below retail, rehabbing, or more extreme transformations.  For example, I know of an investor who purchased a sfr in Escondido recently a little below market but the property was zone for up to 8 units. He plans a complete tear down.  The value of the purchase was in the zoning.  I do not know how many units he is planning but it looks like a large effort that will result in significant equity gain.  

Good luck. 

I invest in San Diego county.  I think it is challenging to find sfr or condos that cash flow at all in San Diego.  Multiplexes in working class areas are easier to find that cash flow but typically require more money to purchase.  

If you find a property that cash flows or comes close to cash flowing after including all expenses (and be conservative for example I use $300/month for cap expense for a detached normal size rental) then the property should be evaluated for its appreciation potential (both rent and price appreciation).  Can it be rehabbed obtaining significant equity gain?  Are rents likely to go up (currently my rents are going up faster than the unit value)?

San Diego will not cash flow like other areas in the country but you can find cash flowing properties easier with multiplexes). The primary return on San Diego properties traditionally has been via appreciation. San Diego traditionally has been one of the best markets in the nation for return on REI. All of my units except two (one has loan with such good terms I chose not to refinance it the other has not appreciated enough as it was purchased only 2 years ago) has had initial investment extracted via refinance. Once I fill my only vacancy they will all cash flow. So I have very little of my initial investment in the units and they are providing me income. Only two of my units at purchase had rent in excess of 2 times mortgage payment (these were purchased at the right time in 2011 I believe)

In summary, initial cash flow is unlikely to be great in San Diego but appreciation and rent appreciation can be great and provide better return than can be achieved via cash flow by itself. 

Good luck

I trust Broaddus Construction but I would not rate them great at each of you criteria:

- Good rates: B+

- Professional Attitude: B

- Quality work: B+ (Most things A but a few things C)

- Quick turnaround: D+ (typically it is him and one helper doing the work and he prefers to not work long days)

My own criteria: Trustworthy: A+. 

I have used him quite a bit in both my rentals and my own home.  He does great tiling but price is a little higher than others specializing in tiling and he is much slower.  He has built a patio structure (great work), installed diving board (great work), turned 2 half bathrooms into full bathrooms (great work), framed to have sliders where there were windows previously (good framing, mediocre finishing), fixed window contractor's poor finishing job (great work), 3 complete bathroom remodels including installing jacuzzi tub (great work), fixed car port structure (great work), extended a chimney great work), replace roof on a patio (great work), repairs from giant tree fall (good work).  He has done two complete unit rehabs (these were 2/1.5 each but converted to 2/1.75 each after the rehab: complete guts including in one of them much of the drywall) for me and they both took longer than I would have anticipated but good/great work.  I am sure I am missing many of the projects he has done for me.

If speed is a high criteria than I would likely look elsewhere. 

In San Diego water is a scarce and a precious resource.

We have used percentage of water bill for units of 3 or less on a meter (not split evenly but split equitably and agreed to by tenants as part of the lease).  For example we have a detached duplex with a 4/2 and a 2/1.  The 4/2 pays 60% and the 2/1 pays 40%.

We have 3 units that are on a 8 unit water meter (yes the water meter services units owned by multiple owners).  For these units we include the water as part of their rent.

The difference in policy is due to how much of an impact they can make by saving water.  On up to 3 units they could make a difference conserving water and encouraging our other tenants to conserve water.  On a unit that has 7 additional units and not all are our tenants their conservation efforts could make little impact.

This works for us.

So we do not sub meter our units but maybe in the future things will change and we will need to charge for exact water used.

@Kevin Chhum I think it was very nice for @Kevin Fox to run such detailed numbers.  You can tell from my earlier post I agree with his sentiment and I would give his view extra credence because he knows the property (versus I only knew the numbers).

I suggest if you can still get out of the deal without super harsh consequences that you consider doing so.  You would need some real good appreciation to make this work out well enough to be worth the effort.  It could happen but if it did happen I suspect it would also be happening on other properties that have better numbers.  BTW I am not as strong as @Lee Zap Martin that a property needs to have positive cash flow at purchase but it should be close to cash positive (I have purchased 4 units that were not initially cash positive) and there has to be some way to increase the equity (i.e. purchase under value, rehab, extend (extra footage, both, or bedroom)) and/or to get the unit cash positive (other than hoping for double rent digit appreciation).

If you do proceed I hope the posts have made you aware of likely costs of holding this property so at the least you are fully aware.

Good luck with whatever you decide.

I have long term rentals in San Diego county (most in Escondido).  

Here are the numbers that I would use for cash flow on a duplex that I will assume is attached:  $2077 (hopefully this includes escrow for prop tax and insurance) - ($2000 + $500 cap expense + $200 maintenance and vacancy for self managed) = ($777/month).  Adding in for monthly principle +$500 = ($277/month).  So under both conditions it has substantial negative cash flow.  So far my maintenance and vacancy has been less than 10% but I use that for my calculations.  

Read up on cap expenses and remember almost everything costs more in San Diego than other places in the nation.

Note with a 5% appreciation you will get $16,400 of appreciation.  Not to be Debby's Downer but the effort in managing 2 units for that amount of capital appreciation - costs will get old fast.  

Also to get value from the capital appreciation either requires a refinance or a selling.  Refinancing has been working well lately but at some point the interest rates will rise and a refinance will result in further negative cash flow.

I am pro So Cal investing but unless the properties continue to have double digit appreciation this one will have low/no return (too low for the effort).  

Good luck and again I am sorry to be Debbie Downer (bearer of bad news).