All Forum Posts by: Dan H.

There is a monthly Meet up at a current REI project put on by some San Diego BP members (@Justin R., @Parker Cox, @Kevin Fox, @Tim G.). It is an exchange of information. Especially if you stay to the end of the meet up there is a lot of chance to talk with the investor and get your questions answered with a smaller group than are present earlier in the Meet up when there may be 30 or 40 people there.

The Meetups have ranged from flips of SFH, to flip of a SFR that will be sold as a SFR but the buyer will be renting it as a duplex (included tricks of the trade to work around the SFR zoning), to a quad that is a buy n hold where each unit can use some rehab, to a purchase of empty lot and building 3 new SFRs. In summary they have ranged a lot of the REI scenarios and I learned something at almost all of them even the building of 3 new units which is above my comfort zone (I learned it is ~$100K to break dirt on a new SFR which places a bottom value on any SFR).

There has been no selling. I have found them to be motivating, a chance to network, and learn something.

I recommend you come to at least one. It will be worth the time just for the chance to network with other San Diego RE investors.

I have not seen the posting for the next one yet. I have one of my search words be "San Diego". It usually (but not always) catches the BP Meet up open house post.

Good luck

Projecting the future is quite difficult.  I would base it significantly on historical performance but agree that using the last 5 years for either locale would be very optimistic. 10 year numbers may be a little too pessimistic. 

I will predict that no matter what happens in the short-term the long-term appreciation for San Diego will be better than most locales.  I do not know Fort Myer well enough to make a long-term projection.   

I have not house hacked a short-term rental but my family has 2 short-term rentals.  I can say that for the family's short-term rentals I would not choose to live on-site.  However I should maybe have prefaced this with the family's unit are in Mission Beach on perhaps the top party street in a party area.  

So maybe you will not experience the same type of items (like converting the small yard into giant mud wrestling pit). 

I am glad to not be living on the same property.  North Park may be different.  

Good luck

 I'm not sure I am up to the task (and I know I do not have time for it) but I will make an educated guess at how they will compare.  

Using 1 or 2 years Fort Myer REI would have been the better investment (Fort Myer: 14.8% appreciation last year, 30.1% over last 2 years (14% annual)). Using purchase 3 or 5 years ago I expect the two to be very close. Starting at greater than 5 years, going for any duration greater than 5 years (especially at 20 years+), San Diego would likely have been the better investment. What is being compared here are 2 real estate markets that have been exceptional. It would be like San Diego comparing to Los Angeles or San Fran.

Both markets have had very good returns via appreciation for investors that purchased in the last 5 years. So I do not consider Fort Myers primarily a cash flow market; in the last 5 years it has been a good appreciation market (significantly better than the national average). Do current SFR purchases in Fort Myer cash flow? Mostly SFR do not cash flow in San Diego. Multiplexes in working class areas will cash flow in San Diego but not like the markets that typically have minimal appreciation (i.e. 1% rule property is virtually extinct in San Diego).

My point being Fort Myers is not the type of high cash flow locale that I indicate San Diego has better ROI. Fort Myers is more like the San Diego market than it is like Cleveland, Memphis, Kansas City, etc. - the cities that are chosen for RE investing primarily for their cash flow because their appreciation is historically, at best, inconsistent.

If you are calculating cap expense on current repairs then you are making no realistic attempt at projecting cash flow. In San Diego my calculations show the kitchen alone has a cap expense at ~$40/month.  If I use actual repairs as my predictor on cap expense I will show many months good and then something that will eat much of the "profits" I thought I had booked.  For example I have a property with a ~$30k foundation issue.  If I used my actual repairs as cap expense then, until I pay for the foundation repair, all will look great.  Then what?

I will say your numbers look good. Almost 200% increase ($225k/$111k) since purchase in 2012. That is very close to same percentage wise as my REI purchase from Aug 2012 (purchased at $302k with no rehab so far and valued at ~$600k). i see Fort Meyers is on the list of top appreciating cities in the short term (1,3, and 5 years). Look at San Diego on such lists. It is on most such lists going back virtually any duration. 3 years, 10 years, 20 years, 50 years. I will also say you cash flow is comparable on my 2012 purchase but I have been below market rent for the last 2 years as I have not raised it since purchase (rent $3200 (current market rent is $3500 to $3600), payment including escrow $1407 - I use totally different cap expense break out so any further comparison would be apples to oranges).

My main points are 1) in the recent time fort meyers has been an appreciation market more than cash flow market so it really is not primarily a cash flow market in the duration of your ownership (you have made >$100k in appreciation and far less than that in cash flow even using actual repair cost as your cap expense cost) 2) that San Diego for any long term duration has been a top appreciation market. 

As for taking money out of a property, a 0 point refi is fairly cheap.  You can even do 0 cost refinancing with slightly higher rate.  Even without refinancing the equity can be leveraged for other loans.  So using appreciation equity is not difficult or expensive.  

For sure investing in either Fort Meyer or San Diego in 2012 would have returned a very good ROI.

I guess you are correct that I was not clear but I was going back from the current time.

Of course you are correct that there have been cycles along the way that in those cycles there have been times that San Diego would not beat cash flowing places but going from the current time back 3 years to 50 years San Diego ROI on financed buy n hold would beat any of the great cash flow locales in the US.

Your reply also reminds me of another item.  The only people to have, in recent times, lost money on financed San Diego buy n hold are those that have sold on a down cycle.  Because rents in San Diego did not depreciate noticeably in at least the last two down cycles the only people who had to sell were those over leveraged. 

San Diego financed buy n hold has historically been very good measured by ROI. It has had historically better ROI than any of the better cash flow locals. This it true for any duration from a couple years to 50+ years. This is a verifiable fact. Your statement would be correct if instead of stating "not a good market for landlords" to "does not have good initial cash flow".

It happens I responded recently on another topic to this exact question.  Copied from my other posting...

If I do not purchase another property (multiplex) in the next 6 months it will have 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. 4) supply and demand.

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

 Property tax will reset based on selling price.  It will be a little higher than 1%.  So in your example it will be a little greater than $3600/year. I would use $4000/year. Prop 13 will ensure that the property taxes only have slight increase after purchase. 

Most of my units are in next working class city north of there (RB, Scripps Ranch, and Poway are not working class).  I have not looked at Mira Mesa much and therefore do not claim the expertise I have in my area but I would think it has many similarities to my area.  It also happens to be not much further from where I live than my chosen area so it would be a good local for me also (but I have so much expertise on my area).

My chosen area (which I think you can figure it out or you can look at my profile) I suspect is closer to Carmel Valley than Chula Vista is to Carmel Valley.  One thing about Chula Vista is that the coastal is cheaper and older than inland Chula Vista.  It is somewhat unique in that manner.   Almost every other coastal area prices go up as you get closer to the coast.  So there may be some very long term upside to coastal Chula Vista.

Good luck