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All Forum Posts by: Dan H.

Dan H. has started 29 posts and replied 5778 times.

Post: Anyone else involved with vacation rentals here in SD?

Dan H.
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Posted
  • Investor
  • Poway, CA
  • Posts 5,892
  • Votes 6,796

My family (not my wife and I) have a duplex in Mission Beach a couple blocks north of the Roller Coaster.  We used to self manage but now we use a property manager and do not use VR sites.  VRs are of course more work to self manage than long term rentals.

Mission Beach is a party area and the unit is next to an infamous unit known as the MB Ghetto so the street sticks out for its parties even in MB (especially the part around our unit is known for its parties - as you get a little ways from the MB Ghetto the street is better).  The MB Ghetto was created with the purchase of 2 lots to build a larger higher volume property.

So there are quite a few horror stories.  The most interesting is that the front yard was dug up to make a mud wrestling pit for girls to wrestle in.  This resulted in us putting a deck over half the front yard.  They can still create a little mud wrestling pit if they tried but we did not want to deck the entire yard which is fairly small already. 

Someone from the MB Ghetto decked one of our tenants once.  The MB Ghetto person verbally abused the ladies at our unit but first assault was from our tenant so there were no charges.  Needless to say the tenants left immediately.

Even though the family has this MB rental I have rented from other people in Encinitas (versus staying free in MB) because I prefer the environment and I like my sleep.

If your unit is in the right area you will not have these horror stories (or at least not as many).  One thing to note with any vacation rentals is the more people that use the property the more likely you are to get a bad tenant (probably none so bad as to turn the yard into a mud wrestling pit).

Post: Buy Local or Buy for Cash Flow w/ PM out of state?

Dan H.
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  • Poway, CA
  • Posts 5,892
  • Votes 6,796

By the time you add vacancies, maintenance, and cap expense I suspect you have a slight negative cash flow but I do believe it will appreciate.  I do not think it is a bad first deal.  I think you could learn a lot.

Have you considered House hacking in a 2 to 4 plex?  That is the route I would choose if I were in my 20s or even 30s without child.  I believe you could do better than the deal you are currently analyzing.

The place listed as your home city is my area of expertise on 2 to 4 unit properties and I can tell you that they typically have positive cash flow but there is some patience involved as multiplexes in Escondido priced to sell is fairly rare.  Even if including off market sales I suspect there is about one multiplex a month sold in Escondido.  To give you an idea though of what is a typical price/value (not great price but definitely a price that would allow a fairly quick sell) is a colleague of mine has a duplex under contract.  It has a detached 3/2 and a 2/1 (separate yards) with 3 one car garages (the 2/1 is above the garages), a view for the 2/1, and 7 of 10 for Escondido condition at $430K.  Detached 3/2 rent for $1750 to $1950, detached 3/1 rent for $1350 to $1500 (both are about $100 more than apartment rents). If you are patient that is about the price of a fair deal.  Do not use listing prices in Escondido multiplexes to determine value.  Only look at sales that have closed.

Live in one unit, rent the others.  Have the tenants supplement your residence while learning about managing properties is what house hacking is all about.

Good luck

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

Dan H.
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  • Poway, CA
  • Posts 5,892
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I agree with both of @Justin R. posts.  I am finding that we typically have similar mindset.

I will add that your numbers are way worse than what I can find fairly regular where I invest in San Diego county.  Typically I am thinking $1500 rent for each $140K to $165K unit.  For $615K I would be expecting North of $4500 rent.

I do not consider expecting appreciation from this market (So Cal) long term to be any different than investing in a stock that you are intimate with.  There is a limited supply and a lot of demand.  I believe prices will continue to go up.  My family invests independent of my wife and I and between both we have purchased at highs and lows.  Every So Cal property including those purchased at market highs is worth more today than when purchased.  A home purchased in 1992 at $167K bottomed at maybe $145K is worth ~$500K today.  It was purchased near market peak.  Another property purchased at $641K in 2003 (near market peak) likely was worth ~$540K at the low and is worth about $870K today.

As Justin pointed out you could learn a lot house hacking.  Can you sustain large negative cash flow?  With vacancy (5%), maintenance (5%), and cap expense (likely $500/month if the units are small and attached - more if detached) the negative flow will be significant.

Good luck

Post: Real Estate Owner in San Diego, New to BP

Dan H.
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  • Poway, CA
  • Posts 5,892
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I think your unit possibly does not cash flow after adding cap expenses. I use $300/month per unit for ave size rental SFR for cap expense in San Diego. I still think because of the other factors it is a good property for you.

Your reference unit in S Escondido is in my area of expertise.  Do not use asking price as reference as there is a large difference between asking price and selling price on multiplexes is Escondido.  Many multiplexes have positive cash flow at the selling price. 

5 units typically requires commercial loan so I typically do not look at 5 to 7 unit properties.  Better to get quad or twin quad with traditional financing. 

I live in Poway.  The elementary schools in particular are superior due to number of volunteers available.  

Good luck

Post: Q! All cash purchase out of state or financing to buy in SoCal?

Dan H.
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  • Investor
  • Poway, CA
  • Posts 5,892
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I am a big fan of So Cal investors investing in So Cal.  The post about 1 property in So Cal versus 10 properties at the average return location with same investment money is correct for past 5 or 10 years.  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 the 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.

It is my belief that most experienced RE investors leverage their money and therefore will typically choose to finance over paying cash with the exception being if the cash has additional payoff such as being required because purchasing at auction, required to close the deal, required because the property as purchased cannot get traditional financing due to various issues, etc.  So if you can get traditional financing using it will allow you to leverage your capital more than putting all the capital on the one property.

You received all sorts of good advice on avoiding $30K properties.  I suggest a blog on this site titled something like Why $30K properties do not work.  It basically points out that cap expenses are independent of the cost of the property (ignoring size and bathroom counts).  Cap expense therefore are a bigger hit on lower rent properties.  There are of course other issues with lower rent properties.

So here is my case for So Cal:

- Appreciation

- 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.

- 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 $30 to $40K).

- 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 with whatever you decide.

Post: New Study Forecast: More Companies Will Leave California

Dan H.
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  • Poway, CA
  • Posts 5,892
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@amit M. 

We have 10 units and the family has an additional 7 units. All of our units are within 25 minutes. All but 1 of the family units are within 25 minutes; the family has one SFR out of state.

I work full time as an engineer and the wife has a marketing business.  None of the units take much time but we keep our schedule full so in aggregate the time they require is significant. 

But we still are looking but we are being way more selective than if we had more time to attend to running the properties.  My wife and I both like the hunt.  We are also in the process of trying to free the wife from her current employment as the properties have been more lucrative than her marketing work. 

So we plan on adding at least one multiplex this year but are being quite selective. 

Post: New Study Forecast: More Companies Will Leave California

Dan H.
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  • Poway, CA
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@Matt R. I believe it is supply and demand - simple economics.   San Diego has perhaps best weather in Continental US and maybe all of US.  However, It is constrained on south by Mexico, north by camp Pendleton, west by Pacific ocean and east by the harshness of the desert.  The supply is very constrained.  The demand keeps increasing. 

In places like North Dakota (and many other locales) there is not as much variation between many properties 100 miles apart (there are few sweet spots).  There is so much similar property.  The cost there is largely the cost to build the home as there is no huge issue with supply and demand.

I believe the entire California coast is similar but I also believe SF prices are high more because of its healthy tech industry than super climate (not that the climate is bad but it is not San Diego).  SF salaries are much higher than San Diego which allows the property prices to be higher.  San Diego property prices are real high compared to salaries because the demand so exceeds the supply.  San Fran prices are high in larger part because the salaries are high and again there is only so much supply.

I suspect RE investing in any of SD, LA, SJ, or SF over last 7 years or 16 years would have done better than investing in 95% of the other locales including the central US turn key properties.

Therefore I am a fan of So Cal RE investing (but past performance is not necessarily an indicator of future performance).

Post: New Study Forecast: More Companies Will Leave California

Dan H.
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Posted
  • Investor
  • Poway, CA
  • Posts 5,892
  • Votes 6,796
Originally posted by @Amit M.:

I think the turn key/out of state cash flow/2% rule/50% rule crowd should read very carefully what both @Martin Scherer and @Dan H. - they have experience with out of state and CA properties, and are both back to CA only RE.  Take heed- Valuable lesson folks!

...

I am not stating that out of state is not a fine route for some people or that I have had a lot of out of state properties (We have had two - One Alabama Shores duplex that was hit by multiple hurricanes and had property tax go up faster by far than the rents only to have values plummet after the hurricanes and one Alabama SFR that is beautiful on a lake). Neither of these properties could you find an equivalent in So Cal. The Alabama Shores property was on the sand (completely on the sand: the driveway ran through the sand).

Neither worked for us as well as our local properties.  Every So Cal property I bought more than 3 years ago has gone up at least $100K.  All but one property cash flows using a $300/unit per month cap expense rate (5% vacancy/5% maintenance) and the one that does not is unique because of a few reasons including we have our handyman in one of the units below market and we use a 2 car garage for the property management (stores paint, refrigerators, tools, spare parts (tile, fence planks, composite flooring, etc.).  The Alabama Lake front property has been owned maybe 10 years and I doubt it has gone up $100K.  It does cash flow but with the PM fees not by as much as my average So Cal unit.  So it has significantly underperformed my So Cal properties.

The Alabama Shores duplex we owned about 5 years (we sold it about 5 years ago).  In those 5 years, even using a PM, it took more time than any other of our units (in part due to getting hit by multiple hurricanes and issues with contractors).

I like investing in San Diego and my biggest issue is not finding cash flowing properties but to find the time to do anything about them.  We choose to have fun and are about the size we can handle without either cutting out some of the fun or brining on a PM for some of the local properties.

I think going out of state with a turn key company and PM that can be trusted has a lower monetary entry and less commitment of time (spend the time finding people you can trust to do what you desire). So for many RE investors out of state REI is a good choice. I think my So Cal (San Diego) route will result in the higher return and I am very confident that over the last 5 years it has resulted in a higher return than virtually any out of state cheaper location.

I think you can make money RE investing out of state and you can make money RE investing in So Cal.  I have done fine RE investing in San Diego (by far better than I have RE investing out of state).

Post: New Study Forecast: More Companies Will Leave California

Dan H.
Pro Member
Posted
  • Investor
  • Poway, CA
  • Posts 5,892
  • Votes 6,796

in San Diego the demand for both business and residential space is much higher than supply.  If anyone moves out their vacated area is quickly filled.   This is in spite of most San Diegans wanting some anti-growth passed but they cannot agree on which one.  Any anti-growth is either too stringent or too lax for certain people so even though a very high percentage of San Diegans want an anti-growth they typically fail.

Cities are by necessity passing rules to try to curtail jamming every open space with buildings.  I could not imagine how bad it would be if the costs did not drive some companies to depart the region.

My family has invested out of state but we currently only invest in San Diego County.  We typically have a short open house for a rental and have the place rented such that we have to be quick to turn around the unit to accommodate the desire of the new tenants.  Rents have gone up a lot in the last 2 to 3 years.  Where most of my units are there are two large high density complexes being built.  I am sure they will be full and I will still be finding tenants in an hour open house.

I am unconcerned about departures in this market.  If high cost of living or cost of doing business drives some away it does not concern me.

Post: Are San Diego and Orange County too expensive for a beginner?

Dan H.
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  • Investor
  • Poway, CA
  • Posts 5,892
  • Votes 6,796

If you are planning on house hacking it sounds like it either has to be OC or you need to work/live somewhere else (unless you like a long commute).   I like the idea of house hacking and agree with @Justin R. that you have advantages over typical investors that would allow you to purchase and profit where a investor that is not house hacking cannot.

I am also big fan of So Cal investing in general and have posted before on the advantages of So Cal residents investing in So Cal. They include Prop 13 protection, increased values due to high demand and limited supply, benefits of investing local rather than remote (including repairs, expertise of neighborhoods, etc.), ability to cash flow, etc. My family has tried the out of state investing and no longer look for out of state REI (we have one unit left in Alabama - Lake front).

If I were much younger I would house hack entry level then house hack when I moved up to something a little nice, etc.   Repeat until you reach a quality of home that would be difficult to find that quality as a multiplex.  At that time you may have 3 or 4 multiplexes and have significant net worth and monthly revenue.

Good luck.