All Forum Posts by: Dan H.

I enjoyed the open house and especially the discussions related to granny flat versus companion permit. I learned a little bit and always find these BP REI open houses to be motivational. Thanks

Virtual all RE in So Cal is in San Diego, OC, and Los Angeles but even if I include Riverside and Inland Empire Southern Cal has had great RE profit. So I know of no county in So Cal with a significant amount of homes (Imperial County and others that far east do not have significant number of homes) that has not done better than almost anywhere out of state. So I invite you to look up the numbers on Riverside County, Inland Empire, OC, LA, or San Diego appreciation for any duration and tell me how many out of state locations you think have had a better ROI (better profit) than the worst of the bunch assuming the So Cal REI was financed.

I take no offense but want to invite people to look at the numbers.  They confirm my view that So Cal (all of So Cal) has been very profitable to RE investors.

San Diego RE has gone in cycles.  I do not try to time the cycles.  I make sure that I am in a situation to handle the down cycles without needing to sell.   So I do not make any claim where San Diego is in the current cycle.  What I do claim is that history tells us long term San Diego RE will appreciate.  This implies that if you can ride out the down cycles it will come back (always has).  

I also know when the market is down people are afraid to invest because it may go lower.  When the market is doing well people are afraid to invest because it may be the top of the market.  It is easy to find reasons not to invest.

My own feeling (I try not to invest on feelings) is that we are not at the top of the cycle but probably closer to the top than the bottom.

Note most areas in San Diego (but not all) that were purchased 10 years ago have appreciated since purchase.  This is something that is easily verified (one minute google search).  This means if you purchased shortly before the crash and were not forced to sell you would be fine.  I purchased in 1992 near the top of a cycle and that property is worth ~3.5 times what I purchased it for.  It initially lost maybe 15%.  Here is another item about the 2008 crash: I did not need to lower my rents.  Houses were in possession of banks artificially lowering supply.  Some people moved in with friends and family slightly lowering demand but the lower supply resulted in virtually no rent depreciation in San Diego (again I am talking averages as there were areas with rent depreciation but not where I owned).

My initial post I indicated I am for San Diego REI. I can make a good case that long term it is very likely to have better ROI than out of state places you would choose to have your REI. I do not really try to make any case (for or against) for the short-term (If I knew I would be very rich). If you are planning a long term buy n hold and can handle a short-term downturn you are likely to do great with San Diego REI even if we are at the top of the cycle.

Good luck

Going out of state is not even close to better profit than San Diego. I suggest you look up San Diego property appreciation numbers for 5, 10, 15, 20, 30, 40, or 50 years. Realize the rent appreciation has been similar. Virtually no where in the US has had better profit on REI than San Diego and most of the areas that have had better profit are not out of state (for some of those durations San Francisco, OC, or Los Angeles has had better REI profit). San Diego having better profit than out of state is especially true if the REI was financed.

I see the statement about better ROI or better profit out of California quite a bit on this site and elsewhere but the numbers indicate that there is virtually no where out of California that would have had a better ROI on a financed REI than San Diego. This is verifiable and easily verifiable. If you looked at San Diego REI appreciation over the last 5 years you would realize what sort of returns are average for San Diego on a financed property (average ROI for the 5 years would far exceed 100% if property was purchased at 75% LTV (it likely exceeds 200% when cash flow and principle payment is included and at least for me the majority of cash flow comes from rent appreciation)).

Your not the only one who has made the statement about better ROI or better profit out of California so I suspect you are just spreading what you have heard/seen. I invite you to look at the numbers rather than just repeating what you have seen elsewhere. Here is a site that states San Diego homes in last 5 years has appreciated 38.6% so if you purchased putting down 25% (75% LTV) and had 0 cash flow your return on appreciation alone would be 150%:

https://www.neighborhoodscout.com/ca/san-diego/rates/.  Add in cash flow and principle pay down and you can see why I state it is likely that the profit (assuming a purchase was financed) is over 200% for the last 5 years.  You are invited to do your own search or use 15 year, 20 years, or any number greater than 20 years all the way back to 1900.

The San Diego appreciation is also why the OP has so much equity.

San Diego has been very profitable for buy and hold RE investors. 

I'm surprised it is so hard to get rid of the PMI with the equity that you have in you property. I would think an appraisal would suffice. It is a shame to have to pay PMI with such a high equity percentage. Has your lender told you what you need to do in order to not pay the PMI?

You can definitely get out of paying PMI if you refinance to a 80% LTV or lower (most refinances will want a 75% LTV for favorable terms which being lower than 80% has no PMI). You can also pay down the $15K you are short but if you go this route realize when you refinance you are likely to only get 75% of this $15K as cash out (due to the 75% LTV). So $15K in will only result in $11.25K cash out when refinanced at a 75% LTV. Still I would rather pay the $15K than PMI because the PMI payment is lost while the ~$4K of the $15K that you will not be able to pull out upon refinance is still yours in the equity.

Again I hope to provide you things to consider.  The correct choice for you has to be made by you.

Good luck.

People who say this have not actually looked at the ROI on Southern Ca REI because there are virtually 0 locations in the US that have had a better return than So Cal and San Francisco over the last 5, 15, 20, 30, 40, or 50 years. All you need to do is look at the property appreciation in So Cal for any of those durations and you will realize the size of the return exceeds virtually everywhere especially if the REI were financed. This does not even account for rent appreciation which has had similar appreciation percent as the REI appreciation. REI purchases that I did 3 or 4 years ago have returned over 100% on my investment (typically financed at 75% LTV but some at 80% LTV) and this is the usual where I invest (it is not like I picked exception investment properties - in fact I suspect I did average at best). Good luck finding many areas outside So Cal and San Francisco that can approach those returns.

Hearing it does not make it true in either the cannot get good ROI or can get good ROI on So Cal purchases. So I invite you to look up the property appreciation for any of the years I listed for either San Diego, Orange county, Los Angeles, or San Francisco. Then let me know where I could have had a better ROI (assuming conservative 75% LTV financing on the So Cal REI) with the other location numbers (I know the SoCal numbers). Numbers should include initial cash flow, appreciated cash flow, and REI appreciation. It would be great to find a better REI location.

Why are you still paying PMI? Once your equity has surpassed 20% you typically are able to drop the PMI. Contact your lender as soon as you can to confirm but every loan I have had only requires PMI until 20% equity. On the positive, your post is probably going to save you some money. On the negative you likely have been paying PMI for quite a while unnecessarily.

Next, a refinance at favorable terms likely will only let you refinance at a 75% loan to value (sometimes you can get 80% LTV but 75% is much more common). This implies you will get ~$100K. This would be a great down payment on a San Diego property assuming you can get financing. Because it would be a rental property the expected rent will be used in any loan calculation and you may qualify for more than you think.

You do not state if you like you home and its location but one thing to consider is that you are paying property taxes on a prop 13 protected asset. For tax purposes you may be paying on a base value of ~$225K rather than the $385K value. Also if you sell and then buy a new home to live in I believe this is unlikely to get you more money for a REI than a refinance because the new purchase will not have rent used in the loan calculations (because you will not be getting rent but will be living there), the payments will be higher because of the increased property taxes and seeing you would be reducing your equity you would once again be stuck with PMI (note ate 75%LTV and 80% LTV there is no need for PMI) and there could be tax consequences if you do plan to buy a less expensive home (do you want to downsize your home?).

Most of these decisions are personal decisions that I cannot make for you. What I can do is provide you some things to consider such as San Diego REI over the out of state you are considering and the advantages of San Diego REI. Such as pointing out the prop 13 advantage your current home has that a new home purchase would not initially have (not until it appreciates). Such as pointing out that you may qualify for a larger loan than you think because loan on rentals take into account the rent for the REI.

Good luck.

I realize you indicate that you do not have the money to invest in San Diego but out of state REI are risky, require a great team, and traditionally do not have the ROI of San Diego REI.

I am a big fan of So Cal investors investing in So Cal. 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 has 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 but history indicates long term the property and rent will appreciate. One thing to note about San Diego properties is the supply is finite. The demand seems to be infinite.

So here is my case for San Diego REI:
- 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 duplex 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: Property and rent 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 and history tells me that excluding something catastrophic it will continue to appreciate in the long term (there are cycles but long term it has always appreciated). 

- 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 REI 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).

So my recommendation is you look again at San Diego REI before considering out of state. My family has only sold 2 REIs. One in San Diego county that was used to get all of the equity out to purchase a San Diego (mission beach) beach duplex (so because we needed the cash to purchase another San Diego REI) and a beautiful duplex in Gulf Shores Alabama because it was too difficult for us to own long distance and had turned into a non cash flow property due to increases in taxes and insurance. The San Diego properties cash flow increase almost every year.

Good luck. 

I also find this to happen more than would be justified by coincidence.  It is my view that the most fair appraisal would occur if the appraiser was totally unaware of the negotiated price.  I especially find it interesting when I know I am purchasing well below market but the appraisal comes in at offer.  However, when I look at the comps listed in the appraisal I feel very good because in general I was in each of the comps and know the differences far better than the appraiser who typically at best drove by the outside and talked to the realtor (often they have not even done that much). 

As a buyer I love when the appraisal comes in lower than value as it provides me better opportunity to lower negotiated price or to obtain concessions for items found during the home inspection and I employ the best home inspector.  On one property I received $47.5K off the initial agreed price with an appraisal that came in at agreed price.

I do see how it can suck for the seller especially because I think appraisers are typically not as aware of market value as the investor who sees/visits each property and tracks the selling price of each property.  In other words, I think appraisers estimates can be significantly different than market justified value on some properties and this typically can only benefit the buyer (if the appraisal comes in higher than agree value there is never a renegotiation for a higher value).

I wish the OP the best. 

I have purchased negative cash flowing properties (2) but I was not relying on them being cash flowing in the near term (they both did end up cash flowing in less than 3 years but I was not relying on it). I am very pro San Diego REI but I also do not ignore history. History tells us that the prices in San Diego go through cycles. I personally do not try to time the cycle. However, history also tells us that long term San Diego properties will appreciate and have rental appreciation.

So my big concern is that you want the property to cash flow in 1 to 3 years.  If the next 1 to 3 years has been like the last 6 years then it will likely cash flow but where are we in the cycle?  One thing is clear is that we are not at the bottom of the cycle.  Are we at the top or part way up the hill?   I personally think we are not at the top but I would not make a purchase based on this belief.

I am a fan of house hacking for young, starting out RE investors but never did it.  I think you can learn a lot (including maybe that property management is not for you), build equity, get favorable financing, etc.

So in general I like your plan but I think your plan going in should be more pessimistic.  Can you handle the property not having positive cash flow for a decade?  Can you handle a 30% depreciation (the last down cycle had more than 30% depreciation in some San Diego communities)?  What are your exit strategies if the market starts to decline?  Do you have the finances and fortitude to ride it out.  I once shorted AOL.  We all know I ended up being right but I did not have the fortitude to stay in as AOL kept inexplicitly (from my perspective) rising in value.  I got out at my biggest loss of any investment I have made (and it was the last time I shorted something).   My point is that it is sometimes not easy to watch equity vanish and not know where it will stop.  It could be tempting to sell and take a loss.   I think what you are planning may happen but you should not plan for all going well and if all goes well then great and if it does not you are prepared.

Good luck