All Forum Posts by: Dan H.

@Keeya WangJones

He is not cheap but he is thorough.  He will look at the foundation but if he sees anything of concern he will recommend having a foundation contractor look at it.  

His name is Jason.  If you colleague request me I will reply with phone number (posting police do not allow phone numbers outside market place even if it is a third party person/recommendation).  

Good luck

Houses built from late 1800s to maybe 1935 often are on sea sand fill.  Sea sand fill will eat the foundation footings.  Foundation expenses can be excessive.  My #1 recommendation is to get a foundation inspection from a licensed foundation contractor.  Ideally the property has already had its foundation repaired and there is no issue but you do not want to get surprised by a huge foundation expense.  

Negotiation is largely related to demand.  If there is significant interest in the property you will not get much of a discount.  However a good property inspector can find many issues which can reduce the selling price even after negotiating a price.  My inspector once got the seller to accept $47k less than our negotiated price.  Once issues have been identified the seller is obligated to disclose them to other potential purchasers. Your agent should remind the seller's agent of this when negotiating. 

Good luck. 

I am pro San Diego investing but I would not let the out of state be much of a factor as there is not a huge difference between investing hundreds of miles away (current) and a thousand plus miles.  

Good luck.  

I show that link shows LA as 8th worse but it also shows San Diego as 9th worse.  I am not an expert on LA but know the San Diego market well.  The appreciation rate listed for San Diego is lower than any source that I can find.  Zillow shows my investment zip code (which is not all of San Diego) as over 10% and neighborhood scout shows San Diego as 8.3% which it lists as 9 out of 10 appreciation in america.  Three years ago San Diego appreciated over 20% and over 8% the last 2 years.  So I question the BP appreciation source and question how a location that ranks 9 out of 10 in aporeciation in the US for last 12 months can be anywhere near the bottom (9th worse) when financed.  Note if I finance with 20% down a 10% appreciation is a 50% return on investment if the rent only covers the expenses (I.e. Without any cash flow). 

It is my belief that most experienced RE investors leverage their money and therefore will typically choose to finance even if initially purchased with all cash. 

I am a big fan of So Cal investors investing in So Cal. All you need to do is look at 10 fastest appreciating markets for last decade and compare them to the national average. So Cal not only would have been a superior investment but it would not even be close compared to the average locale. Of course past performance is not necessarily an indicator of future performance. However, One thing to note about So Cal properties is the supply is finite especially in coastal urban areas. The demand seems to be infinite.

I have purchased a couple of times near market highs but both those properties have done great.  In 1991, I purchased a property at $167k.  It depreciated to maybe $140k.  Today it is worth about $540k.  In 2003 I purchased a property at $741k.  It fell in value to low $600k (maybe $620k).  It is worth north of $900k today. My point is that if a property depreciates but there is  no need to sell when depreciated historically you will do fine. 

So here is my case for So Cal:
- Advantages of local including expertise, cost to get to property, able to self-manage if desired (typically ~10%). The family had an out of state property hit by 2 hurricanes. Even though we hired contractors, because we were not present we were the property getting the least attention with the slowest work.
- Appreciation: Do the research. Use your own knowledge of the supply/demand. It really is simple Econ 101. I am not stating that it is certain to appreciate like it has but econ 101 tells me that excluding something catastrophic it is likely to continue to appreciate.  Historically San Diego has always appreciated long term. 
- Prop 13: My family suffered from this big time on a property on Gulf Shores Alabama. The taxes went up faster than the rents (until the hurricanes). We sold this property even though it was awesome (on the sand).
- I have no problem finding cash flow properties in my chosen area in So Cal. These properties cash flow using a $300/unit per month cap expense and 5% vacancy (our vacancy rate is less than this) and 5% maintenance expense. This cash flow does not include equity gain from making the payment which is in effect additional cash flow that can be obtained with a little effort. They may not cash flow with other parts of the country but the effort is less than out of state and so far the appreciation has more than made up for any reduced cash flow (Each property I have owned at least 3 years has gone up at least $100K - I have one property that has been owned only 1.5 years and is probably up $50 to $60K).
- The equity gain for rehabs is larger than many other parts of the country. Nice properties are greatly valued over neglected properties. This implies that I can purchase neglected properties, rehab, and have additional appreciation (more per unit than many other parts of the country).

Good luck where ever you choose to invest. 

I would not buy a flip as a buy n hold.  The equity opportunity has already been achieved by the current seller. 

The permit issue also is problematic because the work may not be up to code.  There are reasons for the various codes.   A disgruntled tenant could call code enforcement if the unit is not up to code.  There would go the extra income stream from the granny flat.  

Good luck

@OliverFang ROI in San Diego is mostly via appreciation (property appreciation but also rent appreciation). However, in general the rent - mortgage expense (mortgage + escrow) is greater in the working class neighborhoods so if you select your tenant correctly they can have the best cash flow. But damage, vacancies, etc. affect your ROI. Typcially better neighborhoods with better units have better tenants resulting in less vacancies, less damage, etc. This typically does totally make up for the difference in price versus rent but when you factor in your time the difference may be smaller.

All it takes is one very destructive, bad tenant to significantly adversely affect your ROI.

You would think from my answer that I am advising for nice units in nice neighborhoods but most of my units are in a working class area.  We typically buy units that have not been rehabbed and wait for existing tenant to give notice (assuming they are a fairly good tenant) before we rehab.  The rehab results in some forced appreciation.  The rehabs we do are nice (our rehabbed units are some of the nicest rentals in their area) but they also are done to try to minimize maintenance items. 

So most of our units are neither nice or in great neighborhoods when purchased.  We make them nice but the neighborhood remains not great (decent working class neighborhood - definitely not the ghetto).

We have done a pretty good job selecting tenants.  My average tenant duration (including time prior to purchase) has been over a decade.  I had one move out in the summer that had been there 23 years (needless to say everything about the place needed to be rehabbed).  I have 2 original tenants both over 10 years.  Total unpaid rent for all units combined since we started is less than 1 month rent on a 2/1.5 (which is almost our average size unit - I think the rent was $1450 but we kept the deposit so we were only out about 1 week of rent, the water utility, and minor damage).  Our first rental unit was in 2003 (so one deadbeat, that took pretty good care of the place, total in 13 years).  Maybe we are getting lucky or we are good screeners.

So if you decide on working class neighborhoods there is likely greater risk of getting the poor tenant but we have yet to have a significant issue. The potential upside is definitely better in the working class neighborhoods but as I already stated one bad tenant can cause a lot of damage and headaches and adversely affect your ROI. I know of a landlord that had a tenant less than 2 years that destroyed the place and left without paying the last month rent (I have some pictures that would shock almost anyone). That bad tenant was replaced by another bad tenant that he got out quite quick with not too much expense. Current tenant seems to be working out.

Good luck

We use Miles Lawrence (EA, Esquire but not a CPA) for our tax man (Lawrence Tax Service).  He is the named partner.  He is not cheap but he saves us money every year without being aggressive enough to ever have resulted in an audit.  In other words he finds legitimate write offs for us that warrant paying him very well.

Our tax situation is also fairly complicated.  We have an investment in North Dakota that has paid well enough that we pay North Dakota as well as CA state taxes.  Add in that we have 10 units of rentals in San Diego.  Until recently the wife had her own marketing business run out of our house. We still have the write offs associated with having the rental units and managing them ourselves. My 5/40 job was the easy part of the tax return.  So you would think we get hammered with taxes but I feel we pay our legal obligation but get virtually every write off we are entitled to.

He is exactly what we desire in a tax man except for it would be nice if he did not cost as much but sometimes you get what you pay for.  We do not want a tax man so aggressive that we are getting audited every other year but we also want someone that finds virtually all of our legitimate write offs. 

Also while he is expensive he does not nickel and dime us.  He answers quick questions over the course of the year without billing us.  Also because our tax return is so time consuming he does give us a discount off of his total bill which even with the discount is expensive.

In summary I recommend Miles but realize I am claiming up front that he is expensive - I suspect few tax men earn a higher hourly rate.

Good luck

@Oliver Fang We (H3 Properties) self manage.  We do not do a decent job of tracking hours but we have had 2 separate years were my wife had enough hours to qualify as a real estate professional (I forget the threshold but think it is something like 1000 hours).  The bulk of these hours were managing rehabs and not managing the tenants.

Similar we spend a lot less time showing units to potential tenants than getting the unit ready for the potential tenants.  We typically hire out the bulk of the rehab/maintenance work but on-site decisions and managing the effort takes time.  I used to have a great handyman (he is now an RE investor with 5 rental units) but the one I have now is so-so and requires significant managing.  There are also typically little things that simply do not get done for whatever reason (probably because my handyman is so-so)  that we do last minute before showing.

Also the amount of time spent managing a unit has more to do with the tenant than anything else.  We have one unit with a high maintenance tenant that takes significantly more time than any other tenant.  They pay on time and are clean but they complain a lot and do not get a long with the other tenants.  I swear if they or their family complain about the unit again without complaining about something that needs work we will evict them.  We already have told them they can leave with one months notice any time they want.  I think they just like to complain.

I think REITs are for people that desire a passive way to invest in RE. They give up control and potential profits for the luxury of having to exert little/no effort. I think they can be good for people looking for this form of investment but I do not think the typical person on BP is looking for a passive RE investment. Also like a mutual fund the timing, assets, management, etc. can make a big difference in return. When self managing you are in control but you also have no one to blame but yourself if it does not work out. In 2011 and 2012 I seriously considered investing in an REIT but instead chose to purchase some of our properties. I would have done pretty good with an REIT investment and it would have required little time commitment but I would not have done nearly as good as I did with the route that I chose.

@Oliver Fang Traditionally properties and rent appreciate in San Diego in the long term.  This does not imply that they always appreciate in the short term.  If you have the means to not sell in a down market you would do fine investing in San Diego.  So your plan is sound as long as you realize: 1) buy n hold is not 100% passive 2) your property can depreciate in the short term.  In fact most of the best gains in the San Diego RE market were preceded by a market decline 3) you take into account all expenses.  This includes cap expense, vacancy, and maintenance when determining if you can afford a property.  The cap expense is surprising.  I find a kitchen is almost $40/month in cap expense.

Note also with RE appreciation and rent appreciation the refinancing can often be done before there is significant equity via principle pay down.  Recently all but 2 of my properties have been refinanced to take out appreciation (one had too low an interest rate that I did not desire to refinance and the other I had not owned long enough to have a lot of equity via appreciation to pull out).

There are many people who do not succeed in real estate investing (I do not know any that have failed miserably investing in San Diego RE but I know many that have failed investing in other areas).  In appreciating markets it seems easy.  In down markets it seems difficult.  The reality is some of the people getting in on an appreciating market will get in too late, lose equity, maybe not have the means to withstand a down market or do not have the stomach to withstand loosing much of their equity, and sell during the down turn often at a loss.  Similar purchases during down markets are the biggest homeruns when the market turns positive.  In hindsight virtually every RE investor wishes they had purchased more San Diego property in 2010 to 2015.  No one knows if 2017 will be a good year to purchase (further appreciation) or a poor year (properties depreciate implying buying later would have saved money on the purchase).

Good luck

What concerns me about your post is the Don't really have too much time...

RE investing is not passive like the stock market.   Even if you have a good team it takes time to manage the team and a team will have costs.  

The easiest way to get quick equity is to purchase a property that offers equity opportunities which in the simplest form is via rehab. I do not believe you can find a SFR that will cash flow with a reasonable cap expense number that does not have a means for equity increase. Cap expenses in San Diego are high. I suspect a new to San Diego RE investing may not have all repair costs necessary to calculate cap expense accurately on their own so I suggest consulting with someone who has been in the San Diego RE market a while for their numbers. I think you will be shocked at what numbers they provide.

With the recent interest rate increases it is challenging to find small multiplexes that cash flow. I do not want to manage a unit for an expected return of $100/month or less. It just makes no sense. Managing units takes some time. Finding units that can offer a decent ROI will take time

Basically without spending the time I fear your odds of being a successful buy n hold investor is reduced.   Then again most of my purchases have been from investors that the investment did not work out for them for one reason or another so I guess we need some investors who do not have much time so that we can find properties to invest in that can work by spending some time on them.

Good luck