All Forum Posts by: Dan H.

If you could find a 70% rule property in San Diego that would be a home run.  I have seen 2 that other investors purchased recently that likely qualify.  Both had BP open houses.  

One had title issues that took a lot of leg work to resolve.  It was purchased for ~$125K and was going to sell for close to ~$400K but do not know what was spent on rehab but it was a little 2 BR/1 BA property.  So I would think the rehab was probably $40K-$50K.

The other has much larger pockets but it was mis-classified as a historic property.  When classification was removed and when shared cost with neighbor on a retaining wall that was a huge expense it end up being a home run.  The purchaser was unaware at time of purchase that the house was moved to that property and the historic property was erroneous.  @Justin R. was part of the BP open house.

I do not do flips but know the San Diego market pretty well.  I would not look at the 70% rule as a prerequisite as there are just too few but I would have a prerequisite that the flip should project $100K profit otherwise it is too risky (I would make an exception if you have a lot of experience with flips then maybe it can be worth the risk at a little less than $100K projected profit).

BTW we do a fair amount of rehabs on our buy n holds and we virtually always underestimate the rehab cost.  Unexpected expenses should be expected.

Hope this helps.

1. Increased rent (seems county wide)

2. In my market (Escondido multiplexes) less properties available at "correct" price (less inventory).  Those priced "correctly" are selling fast.

3. Price increase seems to have slowed over the previous few years in my market.

I suggest you research cap expenses and cash flow on BP.  I invest in San Diego county and unfortunately believe your property as described above is negative cash flow after including cap expense, vacancy, and maintenance.  

Does this imply that it is a poor investment?  Possibly not but you are relying on appreciation to do well on this investment.  Fortunately San Diego has done well in the appreciation area.  

I do have a little experience on having property in Germany but not enough to make a recommendation either for or against investing there.  I no longer have property in Germany but my situation was different than your situation (i.e. I was not living in Germany). 

If you invest in San Diego I suggest using a cap expense cost of $300/month for SFR. Allocate 10% for vacancy and maintenance. Finding a property that cash flows with these numbers in San Diego likely eliminates SFR and requires multiplexes. If you can handle some negative cash flow you can invest in SFR in San Diego in hopes of appreciation but if you are not in San Diego I question why San Diego.

I invest here because I live here and can manage the properties.   I have done well investing here and am pro So Cal investing but if I did not live here I probably would invest elsewhere.  

Good luck.  

 @Aaron Mazzrillo I'm very pro CA investing but I find it a lot of work to find properties at such deals that they can whole sale with large returns.  You may have the network in place, etc but there are not many people succeeding at it like you are.  There is no need to be so harsh on those working hard to make decent money on volume of whole sales outside CA.     Note 10 deals at $2-$6k month is $20-$60k a month.  That is a lot of money (even in So Cal or San Fransisco) that would reflect hard work.  Note that amount of money outside So Cal would go further than in So Cal making the standard of living it could provide even higher.  

@Michael Tran with the goals you have stated I recommend the book land lording on auto pilot or something close to that. I believe the author experienced harsh consequences of the 2008 crash as he was investing in Detroit but it does not imply that the information in the book is not helpful.  It is loaded with interesting tips many targeted at reducing the amount of time it takes to manage buy n hold properties.  

Here is an example nugget: never refer to yourself as the owner but as the property manager. It allows you to delay answering any questions until further time and minimizes the discussion/debate as well as provides opportunity to think about all ramifications (I need to check with the owners or my partners- whatever wording you want). 

He has recommendations on ways to minimize time between tenants including flooring choices, paint selection (minimize colors used on your units), etc.  

good luck

 I do not know what part of San Diego your partner was in and it sounds like he had many more units than what my family and I had (we had a total of 7 units back then) but we had no appreciable rent decline.   We had one unit go from $1900 to $1850 a month.  That was the only decline I can recall.   The thing working for us is the banks owned a fair amount of vacant/foreclosed properties.  Those people had to live somewhere which if it was not with family meant they were now renters.  We had no extra vacancies.  Basically outside the on paper equity loss due to homes depreciating 20% to 50% (our areas did not approach 50% decline but areas in San Diego county did for example Valley Center) we had no impact on our rentals.  

Hopefully 2008 is an extreme.  It is comforting to me having rentals at that extreme and having fairly minor impact (other than to my net worth on paper).  I like to think future depreciations will play out similarly.  

@Sundeep Amin

I am in San Diego and specialize in Escondido.   

The cap expense I use is $300/month for SFR of standard rental size (think 800' - 1100': 2 or 3 BR, 2 BA or less) and $250/month attached. I derived this number with a cap expense sheet that I bound on BP and replacing the numbers with my expected costs (higher than elsewhere) and my experienced life span (My experienced life range varied significantly from other projections: for example sliding aluminum windows I experienced a shorter life than the work sheet, similar for HVACs. I do not base cap expense on rent because the correlation is weak. If I have a 1120' 3/2 rent at $2500 and a 4/2 1450' at $1900 (BTW these are 2 of my units and the $1900 is a close to market rent) which is likely to have greater cap expense? I believe the larger 4/2 is likely to have higher cap expense.

I typically start with 75 to 80% LTV (the lenders typically want 75% LTV so finding greater than 75% LTV is more work). I attempt to keep my equity as low as I can but sometimes it gets a little high (I have a few units were for various reasons my equity is above 50% of value which is not leveraging the money well).

Here is what I use for my cash flow numbers: Rent - Mortgage - Escrow (tax and insurance) - Cap expense (see above) - 10% rent (maintenance and vacancy: I actually have so far experienced less than 10% for vacancies and maintenance but I have a cheap dedicated maintenance person and take good care of our tenants) - incidentals (I have 3 units that I provide gardener and 2 units that I pay water/trash).  Ideally this results in a positive number.  If it does not I also look at the return if I include the principle from the payment.  Note when the interest rates are low the principle from the payment can be substantial (I have one property were the principle form payment is >$500/month and a couple of others at >$400/month.  This principle gain is net worth gain but obtaining it is similar to obtaining appreciation (i.e. requires a refinance or ELOC) so is not as desirable as cash flow not a result of principle gain.

As for purchases in San Diego: It is real difficult to find a cash flowing SFR using my numbers. Multiplexes in select areas of San Diego will often cash flow but not like other parts of the country. Where traditionally money is made in San Diego by buy n hold is in appreciation and rent appreciation. I have purchased properties that did not cash flow using my formula when purchased but I believe my last property to not cash flow will cash flow next month (rent appreciation) but where I have made most of my REI money is on the property appreciation.

Escondido has been a very good market for me.  I recently refinanced a few of my properties and took out all of my initial investment.  So I have no money currently in on those properties and yet they have equity and are cash flowing (one is soon to be cash flowing).

Hopefully this answers many of your questions including if investors are including all expenses (they should be) and how investors are making money on buy n hold in San Diego.

Good luck.

@Richard Bradshaw even a brand new unit needs accurate cap expense calculated in to have an accurate cash flow.   The large components will eventually need replacing.  I suggest you search the weblogs for cap expense so that you more accurately determine your expected cap expense as it looks a little low.  Regardless it looks like a great rehab with good equity gain that will likely cash flow with accurate cap expense costs.  It looks great and I suspect you learned quite a bit making it a HR.  

Good luck

 Interesting, whereas my 6-units are cash flowing 49k each year. Guess I need to get my camera adjusted.

 @J Beard That could be a good return (depending on amount invested).  What numbers are you using for cap expense?  

One thing to note about @Junior Mathews is I assume he was referring to a single unit.  So on 6 units he would have made $420k to $480k in 3 years or $140k per year per unit (basically close to 3x your return).  Of course neither of you indicated cost of property, cash put down (i.e. Initial investment), etc.  I can state that in my example I have my full initial investment out of the property with significant equity remaining and it is about to cash flow using a cap expense of $500/month ($250 unit/month) and that is my worse performing property that I have owned greater than 3 years. 

@Account Closed I think your plan answers your question. I will add that few Properties cash flow in current San Diego market at 75% LTV 30 year (15 year is even harder to cash flow) especially after allocating for cap expense, maintenance, and vacancies. Multiplexes in select areas can cash flow regularly at 75% LTV (30 year) but not like other areas in the country. So Cal's great return on REI has been via appreciation and to a lesser degree rent appreciation.

Add difficulty of long distance management to your stated REI goals and I suggest you sell (even though I am pro on San Diego REI).

Good luck