All Forum Posts by: Dan H.

If I do not purchase another property (multiplex) in the next 6 months it will do more to do with interest hikes (basically 3/8% in the last month) than the current price of San Diego real estate.  While I never try to predict the short-term market, I am confident that the long term San Diego market will be appreciate.

Why do I have this confidence? 1) It historically always has appreciated long term. 2) I had a rental and the family had quite a few rentals at the biggest real estate decline ever. Our rents did not go down at all. So if you do not need to sell (i.e. are not over leveraged) then history shows you will be fine with your San Diego RE buy n hold investment. In fact the only way anyone has lost money on San Diego financed buy n hold residential real estate in the last 50+ years is they sold when it was depressed. 3) I have purchased twice near market highs. In 1992 I purchased a SFR for $167K. It probably fell to upper $140s (close to 20% decline). Today it is worth ~$520K. In 2003 I purchased a SFR at $741K. At the low it was probably worth about $620K (again close to 20% decline). Today it is worth over $900K. So I am not afraid to purchase at market highs but of course prefer to avoid purchasing at market highs but no one really knows when we are at the market high.

The supply is very limited in San Diego.  It costs about $100K to break ground on new construction in San Diego.  That is after you can find and purchase a lot that permits residential construction.  Building is also expensive.  We are constrained on the west by ocean, South by mexico, North by Camp Pendleton/OC, and East by quickly harsh environment.  So the supply is both limited and expensive to add to.  The demand?  We have perhaps the best climate in the US.  We have diverse environment in close proximity from ocean, to mountains, to desert (all less than an hour from virtually any location in San Diego).  We have pretty good jobs (not in general the quality or salary of the San Fran Bay area but good compared to 95% of the nation).  In short, it is a very desirable place to live with minimal supply.

Before the recent interest rate increases I was planning on buying at least one multiplex between now and spring time.  I have recently looked at 3 properties that had good potential.  Now I am more on the fence on completing a purchase.  Note the recent interest rate increase is approximately equivalent to an 8% cost increase in the past month (using 4.25% as interest rate a month ago and 4.875% now, both ~0 points: non-owner occupied multiplex).  ~8% increase in a month is huge.  I am having a hard time believing the current interest rate will not drop at least a little but they may not any time soon.

Good luck

@Ricardo R. advice is probably spot on for Michigan and most of the country. The only way REI investing works in San Diego at this time is to forecast appreciation (rent and property appreciation). In addition property and rental appreciation in San Diego have historically far surpassed 3%. Fortunately historically the appreciation of San Diego has had a far better ROI versus better cash flow locales (verifiable fact).

By the way rents on small rental units in San Diego have been going up ~$100/month per year for the last few years. Property appreciation a few years ago was over 20% and has been near 10% annually since then.

San Diego market is not a strong initial cash flow market. It relies on appreciation (property and rent appreciation). 

If you want good initial cash flow San Diego is not the locale for you. If you are looking for best ROI San Diego historically has much better ROI than the better cash flowing locals (verifiable fact).

Good luck

 Unfortunately 4% loan on an investment property currently does not look possible.  

A big problem with the 50% rule is that the largest expense of that 50% is cap expense which tying it to rent rather than size, bathrooms, quality of products, etc. is flawed. I use $300/month cap expense on my small detached rentals and they cash flow using that cap expense. Similar if I purchase a 3/2, 1400' SFR property for $50k that rents for $500/month most of that rent is likely to be cap expense (likely more than 50% of rent will need to go to cap expense).

Regardless San Diego market is not a strong initial cash flow market. It relies on appreciation (property and rent appreciation). Fortunately historically the appreciation of San Diego has had a far better ROI versus better cash flow locales (verifiable fact).

By the way rents on small rental units in San Diego have been going up ~$100/month per year for the last few years.  Property appreciation a few years ago was over 20% and has been near 10% annually since then.  

If you want good initial cash flow San Diego is not the locale for you. If you are looking for best ROI San Diego historically has much better ROI than the better cash flowing locals (verifiable fact).

Good luck

I suggest you start with a duplex.  The price per unit improves slightly as you move from duplex to triplex to quad but 1) there are many more duplexes than quads typically on the market 2) It gets you started gradually instead of taking on 3 tenants to start you will start with a single tenant.

I suspect the places that are listed at $225K/unit will sell just above $200K/unit so you can probably get in at ~$425K.  These units would have some forced appreciation opportunities which is ideal.  They would allow you to learn a lot about buy n hold RE investing.  They will almost certainly appreciate in the long term but even if they do not these are cash positive properties (not as cash positive as can be found elsewhere but the appreciation potential beats all of those better cash flowing locales).

So hopefully $425K is less daunting. Unfortunately, with the recent interest rate increase (>0.25% in the last few weeks), the property at $425K was a lot cheaper for the financed purchaser a few weeks ago than it is today.

Good luck

@Sarah D. is correct that in general SFR in San Diego are not as good buy n hold investments as the small multiplexes. I have a single SFH that I rent out. It is by far my worse performing property. It used to be my residence. In general your ex-residences are not going to be ideal rental properties. They typically were not purchased to be a great rental but to be a good home for you and your family. The two are not the same.

Small multiplexes in my RE investment area are cheaper than SFR because the market for them are investors who will only purchase if it makes sense. There are multiple multiplexes on the market in my chosen RE area that are basically $225k/unit for 2/1 to 2/2, 1000'. You would be challenged to find a SFR at that price point. To put it more concrete you would find it challenging to find either a 2/1,1000' sfr at $225k or a SFR at 4/2 to 4/4 at 2000' for $450k. Note for a rehabbed 2/1.5, 1000' my market rent is $1650 to $1750.

Good luck

I think your return is very good but I have issue with your cap expense numbers.  I have seen people make the case because a property has just been rehabbed to allocate a lower cap expense number.  All this does is inflate your projected return because you are not distributing cap expense evenly.  Also projecting cap expense based on purchase price or rent is not very realistic but I have seen it done many times.  If I have a 2/2, 1000' that I purchase at $500k and rent for $4k why would its cap expense be more than a 2/2, 1000' that I purchased for $100k and rent at $1k/month. Maybe a little more because possibly the $500k unit has higher quality flooring, cabinets, etc.  but much of the cap expense is things like plumbing, electrical, foundation, etc.  Wages also vary which has a minor impact.  However the items that most reflect cap expense are items like bathrooms, sizes of unit, etc.  

I suggest you request someone from the local REI group who has populated a cap expense worksheet to share it with you. I would be very surprised if it comes in anywhere close to as low as your 5% estimate. In fact I will be surprised if it comes in below 10%. My guess is it will be close to $200/month which is nearly 15%.

By the way in my market the cap expense on a kitchen alone is ~50% of your entire cap expense projection.  

Note the property still cash flows nicely using $200/month cap expense.  Nothing has changed with the property but you awould be projecting a more realistic cash flow.  

Good luck.  

I like Encinitas and may end up moving there in the future but I do not know its RE investments like I know my area of expertise.

In my area of expertise the difference in price of duplex to quad that is listed versus those that sell is huge. You must use sold units as comps and ignore the units listed. The difference is way larger than for SFR that are typically purchased by the people who are going to reside in the property. Duplex to quads are typically purchased by RE investors. They will not purchase the property unless it makes financial sense which is not necessarily the case for those who are purchasing to live in their purchase. I do not know if Encinitas is the same as my area of expertise but I suspect it is.

Therefore to determine if there is any duplex to quad that looked like a good deal do not look at the current listings; look at the most recently sold.  Were they good deals?  If so then you need to be patient yet quick to leap.  Between now and spring is the best time to purchase RE investments (not including the recent interest rate increases - ugh!).

I was planning on purchasing another multiplex in the next 1 to 4 months but with the interest rates rising I am going to need to re-evaluate.

Good luck

no one knows what the market will do short term but as an RE investor I can say in general duplex to quad make better rentals than SFR. it is tough to get positive cash flow on SFR with 25% down anywhere in San Diego. But there are a few duplexes/triplexes that cash flow fairly well in my area of expertise.

In general San Diego is an appreciation market.  As indicated I do not try to predict where the market will be in the short term.  However long term the market will be up.  It always has been up long term in San Diego.  So if you purchasing for the long term you will do fine.  If you try to time the market you may do great or you may be very sorry.  

Most SFR will never be as good a rental as a small multiplex. My suggestion with what you plan is to attempt to find a detached duplex and house hack or to purchase the SFR you desire but when it is time to move on you sell the SFR instead of renting it and use the money to purchase a more appropriate rental property. I give this advice even though I did not follow it myself. One of my units used to be my residence. It is by far my worse performing property. I should sell it and invest in a better rental property but I do not. My son is 14 and if he goes to college in San Diego I will give him the house in 3 years (he will start college at 17). So that is what I used to rationalize keeping my worse performing property.

Good luck.  

I am looking for an electrician that can upgrade a main panel including dealing with SDG&E.  In reality it is two panels but I figure if they can do one panel upgrade they can do two panel upgrades.

My criteria in order: High Integrity (I may use repeatedly and I want to know I can trust them), has the skillset to do the task correctly, reasonably priced, can work via direction provided primarily electronically (email or text - few face to face meetings).

What I am really hoping to find is someone that meets the trifecta and scores well in each category. 

For this particular job there is no pressing time frame as each panel upgrade will be support a Split HVAC that can go in anytime prior to summer as the units have a working heater.  So someone skilled that does it on the side may be OK as long as there is no issue with SDG&E.  Also the wiring to support an upgraded panel already exists.

Any recommendations?

Thanks

I have heard this explanation before to justify use of a lower cap expense but all it really does is place virtually all items at time 0.  If the worksheet takes into account expected life expectancy and the repair/replacement cost the costs are not reduced because you are at time 0.  The costs are simply further duration away.  If they are not budgeted for at time 0 then you are not level loading those costs.  

In practice I do all my cash flow calculations based on a cap expense worksheet I worked maybe 2 years ago.  However, I do not save the budgeted cap expense as I will do any necessary repairs. So I simply use it to figure my best calculation of the cash flow. 

I have a property that is in need of a ~$30k foundation work.  It is my largest cap expense so far. Everything has an expected life range and an expected cost.  This is true of even the items in my most recent rehab that was finished at the end of summer.