All Forum Posts by: Dan H.

There are caveats that I will mention at the end. 

Rent - PITI is $566/unit.

Rent - PITI + principle buy down is $732/unit.

I do not concentrate on actual cash flow as much as anticipated cash flow.  This is because actual cash flow could be fine until some huge cap expense such as foundation and sill plate issues at same time $28k (my largest single cap expense so far). 

So my projected cash flow is 

$566 - $80 (vacancy: 5% of rent which has been close to accurate if including rehab vacancy time) - $270 (cap expense: $250 attached, $300 detached) = $220/unit. 

If including principle pay down $220 + $166 = $388/unit. 

Caveat: I try to have properties close to 70% LTV. However for various reason some properties are lower than 70% LTV. I have one duplex that due to interest on original loan is at ~45% LTV. Typically the lower your LTV the better your cash flow (if not it is not a good rental). So my cash flow is elevated due to some properties not being that close to 70% LTV with the 45% LTV significantly helping the cash flow (both units are rented below market but rent is $3200 and PITI is $1407)

One other item about large cap expenses: see if it is covered by your insurance before taking on the expense.  I have had slab leaks that we have covered.  However we had a slab leak that was significantly more costly than normal for a couple of reasons (the manifold would have required destroying a bathroom that had been rehabbed about 1 year previously so it was cheaper to replumb the entire duplex.  It ended up being covered by our insurance. 

Good luck. 

I think trying to predict the top of the market in RE is as difficult as picking the top of the market in the stock market.  I think you are just as likely to be incorrect as correct.  

Having stated this I have not purchased in 3 years. I was all set to purchase 1 or 2 small MFR this spring when the interest rates rose significantly. With the rate increases the cash flow is less. I do not bother unless I can expect cash flow of at least a few hundred a unit self managed.

Managing units is work.  A RE investment must return enough better return than other more passive investment options to justify the effort.  

Note when I was first starting I was willing to have less cash flow than I am willing to have today.  

Also I do my cash flow estimates with what many think is very conservative cap expense estimates (which I believe are fairly accurate and not that conservative) of $250/month attached, $300/month detached. 

Good Luck. 

if the last visitors were in November it currently is not cash positive.  Also watch for unpermitted work as most garage conversions are not permitted.  

One BR units are significantly less valued by investors than 2 BR.  It is in part that you will be managing a unit with a lower rent potential.  The size of unit has less to do with the effort managing the unit than the number of units.  

Basically do your research prior to purchase.  

Good luck

By the way Broaddus Construction has virtually retired (he is a supervisor elsewhere and no longer does his own work).  

He recommended someone who did good work and was trustworthy but he is now too busy to finish a job he started.  He did refund our money.  

So I do not have a recommendation. 

For those that believe there are not properties that cash flow in San Diego they are mistaken as I see properties on MLS that cash flow on a regular basis and then there are off market properties. The trick is to know where to look.

Be patient.   Learn what to look for.  Get confident in your knowledge and jump at the opportunities.  

Good luck.  

 Your perspective on the hi-tech employment opportunities in San Diego does not match my perspective.  The facility I work at has been hiring 20-30 employees a month and cannot fill our need with ideal candidates.  We lost 5 engineers in the last month.  The most recent loss got a 20% raise for leaving.  

Qualcomm publicly has advocated for increasing H1B visas because they traditionally have issues hiring hi-tech employees.  My perspective is that they advocate for more H1B visas in an attempt to keep salaries down rather than pay what the supply and demand would dictate if it were not 85,000 H1B visas every year.  

Regardless of our differing perspectives on the job outlook, median income in San Diego has risen this decade and our buy n hold properties have increase faster than inflation going back 1 year, 3 years, 5 years,  ..., 50 years.  Any short term decline has always been recovered.  

your question presented selling options only.  One thing to keep in mind is that if you choose to make the unit a rental your property tax is artificially low due to prop 13 which provides you cash flow opportunity that someone purchasing the property today would not have.  

So I think you should consider keeping the property as a rental.  I suggest at least run the numbers and determine if it is the correct option for you.  

If after running the numbers, taking into account prop 13 savings, renting is not for you then you will have analyzed the option and any decision would have evaluated all options.  

Good luck

I second what @David Faulkner indicated.  The only San Diego investors that I know that have lost money in buy n hold RE all invested outside of San Diego.

My family purchased 3 units in Alabama.  Very nice units that you simply cannot buy equivalent in So Cal.  Two were short-term rentals (minimum of 1 week) on the beach (literally step onto sand when stepping off the last step).  One is long term rental lake front.  We still own the lake front but will likely sell when current tenant decides to move.

Horror stories include the usual out of state issues of finding good reliable contractors (after getting hit by two hurricanes - We needed to go out there both times to manage the repairs), no rent appreciation, property tax increases (appraised value went up but we were unable to sell at close to the value the state appraised at), short-term help turn-over, turn-over of management company, etc.  

We loved the beach properties, but as an investment they underperformed all of our San Diego properties even though initial cash flow was anticipated to be superior.  Note the word anticipated because fees were always increasing but rents stayed the same.  I think this is because they know how difficult it is for you to hire a new management company from a far but even the trash feeds went up a lot.

We did not lose a lot of money in our out of state RE investments but we spent more time on them than our self managed San Diego RE and we would have made significantly more money on a San Diego investment.  We do not invest to lose any money.  We would have done far better with an index fund than on our out of state RE investing.

Good luck

For you as a new investor I recommend understanding VA loans, house hacking (maybe a duplex), and cap expenses.

Many new investor believe if rent is greater than PITI then the unit cash flows. If you make this mistake you will typically do fine until there are some significant cap expenses. Then all your profits will vanish.

House hacking will provide you an opportunity to learn a lot about buy n hold including maintenance, finding tenants, and dealing with tenants.  

VA loans are a benefit that you have earned. Use it to your advantage.

Good luck.  

For my rentals I experience below a 5% vacancy rate but the $100/month maintenance is pretty close as I average almost $60/month per unit to my handyman and then there are times I need to use plumber, electrician, or HVAC contractor.  It is amazing how little maintenance items can add up.

I derived the $250/month cap expense by filling out a spreadsheet with expected costs and expected lifespans but I was hopefully conservative in my numbers.

Basically I would rather over estimate expenses than underestimate expenses.  Furthermore, if a market tanks maybe rents will fall but I use actual rents in my calculations so I want to be conservative elsewhere.

Note the tax advantage has income limitations that you may need to be aware of.   If I have a property that looses money after accounting for the depreciation I do not get to write of the loss.  I have to basically bank it against future profits due to our income.  So you may or may not have that tax advantage.

Good luck