All Forum Posts by: Dan H.

Your statement about returns is incorrect as the 3 cities with Best Buy n hold returns since 2000 are all California cities. San Diego has been one of the best returns in the nation for any duration from 3 years to more than 50 years. This is verifiable fact. Saying you can get a better return then the best return locations in the nation is historically not just inaccurate but the opposite is true. Do your research. San Diego's ROI on financed buy n hold has done great in last few years or any duration.

Not concerned.  Markets (stock, re, etc.) go through cycles.   I have been through them before.  If prices do not drop I will continue to make smart purchases.  If prices drop I will make even more smart purchases.  Similar to dollar cost averaging.   Either way, because I am not over leveraged, I have no concerns. 

The way I look at it a RE price decline is an opportunity but if there is no RE decline imminent then I will also be fine.  

by the way I would not automatically correlate a new RE high to a market decline.  Markets set all time highs all the time.  A decline would result from a recession, bad loans, change to tax laws that would affect RE values, etc.  I do not see any of those as obvious but do admit the price declines are often not obvious until they are upon us.  

No worries.  

As indicated by Fabio turnkey implies there is no rehab necessary which implies you are missing one key R in the Brrr. Without the rehab there is no forced appreciation from the rehab and therefore only principle paydown and market appreciation. At 70% LTV on a refinance you need about 30% equity which implies you need close to 30% market appreciation which is very unlikely in a year. Basically the rehab R is a critical part of the BRRR and turnkey implies no rehab is needed and therefore forced appreciation opportunities from rehab do not exist.

Good luck

In my market regulation has caused homes to appreciate possible as much as the land value increase has.  My family recently sold 6 acres that it has owned since the mid 1970s.  The land had not appreciated at close to what the homes had in part because it was zoned agriculture.

Currently the cost to break ground on a new residential unit in San Diego is ~$100K.  This is permits and fees and does not include any construction costs.  This is on land that is correctly zoned for residential construction.

I believe that appreciation is dictated by supply and demand.  Supply is a combination of limited land and regulations that limit the land that can be used for construction as well as the associated costs to construct.  Demand is how desirable is the area to live?  Does it have a good climate?  Good jobs? Good schools?  Is it safe?   Does it have things to do (museums, sports teams, ocean, mountains, desert, open space, etc.)?

There are certain areas that are not very desirable to live.  These markets will only appreciate if something changes to make the area more desirable.  I will use North Dakota as an example because my wife has family there so I go there every few years.   A while back North Dakota had a declining population as people were leaving for other areas.  There were homes in OK shape that were abandoned.  Then the North Dakota oil industry got larger provided some jobs and the demand rose some.  If North Dakota did not have the oil I suspect the residential units would have continued to decline as the demand decreased (supply was steady with the already built homes).

I think relying on appreciation in the short-term is risky.  Make sure you are prepared if the property does not appreciate or even depreciates. 

In my market (San Diego) I am confident of long term appreciation because historically it has appreciated long-term for over 50 years.  However in that time there have been many cycles that have included some depreciation.  Trying to time the cycles is like trying to time the stock market; it is difficult to do and most people who try to time the market would have been better off if they had just consistently invested.

Good luck

Using the 1% rule discounts the cost of money.  In RE the cost of money is significant.  Before the recent interest hikes if an RE was purchased with conventional non-owner occupied financing it would likely cash flow fine at .7% assuming 20% down.  However, the same unit purchased with a hard money loan would be significantly cash negative.

That is only one of many flaws of the 1% rule.  Another is the $30K Pig RE.  A issue with the $30K RE is that cap expenses has more to do with number of bathrooms, square footage, etc. then it has to do with what the unit cost.  So if I buy a $30K unit that is 2/1 with 1000' the cap expense is likely to be close to the same as the $250K 2/1 unit with 1000'.  Yet the 1% rule treats the expenses, including the cap expenses, at though it is tightly coupled to the purchase price (which it is not).

Finally the 1% rule is easier to find in Class C and below neighborhoods.  Typically these tenants are less desirable and more work than tenants in class A and B neighborhoods (there are of course exceptions).  So the unit that satisfies the 1% rule is likely to have more damage from the tenants, more late/missed payments, more evictions, and in general be more work.

If you cannot tell I think any rent to cost value except for simply comparing apples to apples is a disservice to naïve investors.  I know I would not consider the highest rent to RE value neighborhoods in San Diego as they are all in the worst neighborhoods.

@Caroline S. you indicated house hack which means you are asking where I would invest and live in the same RE.   I see a lot of replies ignoring the house hack and telling you locales that they choose not to live (excluding the proud/happy KC resident).   I think you live where you want if you can afford it.

I am Southern Cal biased so from me it would be Santa Barbara beach area, Encinitas beach area, or Poway (where I live). None of these areas are likely to produce good cash flow but 1) they are great places to live. They each have good schools. Beach and mountains both close by. Low crime rates. Fun active communities. In the case of Santa Barbara and Poway a lot of open space nearby. 2) they have a good history of appreciation. Their appreciation historically has provided a better ROI for financed buy n hold than better cash flow locales (which is built into the price and why they are difficult to cash flow).

My ideal areas are not necessarily your ideal areas.  Also you may not be able to afford  beach front in Santa Barbara.  Basically if you want to house hack start by choosing where you want to live that you can afford (maybe 5 locations).   Then look at those locations for the property that financially works for you.  You will live where you want and have potentially a good investment.

Good luck

my view is that people new to RE auction will pay close to retail to win a property but the regulars attendees will complete some purchases that can make a profit. 

There are many reasons why the newbies do not get good deals but a big one is their competition are experts who if there was decent profit would be purchasing.  Add in these experts can typically rehab at significantly lower price than most non-experts. I also think there is some bidding up of newbies. 

Good luck

 I agree with @larry fried but will go One further.  10% will not cover cap expenses on properties in these cities.  I suspect that cap expense will be at least $200/month (I use a much higher number where I invest).  

Good luck.  

San Jose's appreciation has far surpassed 3% per year. It was 7% in the last year. I believe someone with Neighbor scout subscription could get the exact appreciation but I suspect it is over 10%/year for last 50 years. So 10% annually is big money with an average SFR of $810k.

If I were OP I would sell only if I had a 1031 exchange investment that I thought could do better.  In most areas I would not think it likely to get a better return than San Jose but it may be possible in San Diego especially if the are over building in San Jose.