All Forum Posts by: Keith Meyer

Hi All,

Like all of us trying to wrap our heads around how to get involved in the San Diego residential real estate market in 2018, I am trying to weigh the pro's and con's of where I see the market currently and where I see it headed in the next few years. I am hearing more consensus recently that San Diego is much more likely to experience a cooling off than a crash in the next 5 years, even with record high median home prices. Much of this is attributed to some unique aspects of our market, namely the "landlocked" nature of the county. We've also seen the economy grow and diversify in the past decade, and foreign investment is very strong here. There doesn't seem to be a glaring weak spot which would throw the supply/demand situation into a radically different state than it is now.

We seen for years now that supply is not keeping up with demand here, and I've not yet heard a solid proposal to solve this issue. I can't blame developers for focusing on high-end new construction, given the risk and unbelievable headaches they must go through to get anything accomplished. It's been interesting to watch our Median Sale Price / Median Monthly Rent ratio slowly creep up to ~20. Many San Diego investors I've talked to have also taken note of this metric, fearing the ROI on rental properties does, not justify current prices. Some investors, such as myself, are choosing to rent their primary residence in San Diego and invest their capital in other markets, due to the low cash flow returns in SD, and the relatively low rent prices for a primary residence.

That said, I am huge fan of the lifestyle in San Diego, and I'm still looking for ways to put down roots in this city that I love while not completely sabotaging my investment ability for the next 10 years. Fortunately I have access to some solid databases for finding good off-market properties to target, and have ramped up my yellow letter efforts in the past month. 

I'm sure many of us have heard that the typical investment rules don't apply to San Diego/California markets. I've heard from multiple brokers/lenders recently that we could expect current home values to double in the next 15 years, then re-double again in the following 15 years given anticipated appreciation rates. Theoretically that could be right (though inflation and accessing that equity need to be taken into account), and I hate betting on appreciation anyway. 

Since my strategy involves looking to be an owner-occupant, I'm willing to bend the investment rules a little bit and get creative with my strategy. I have a partner lined up to go in with me on a small MFH for us to occupy and rent the remaining units, if we can find one which makes sense. I would love to get the opinions of those who are looking to actively invest in SD on how they are planning to approach the market in the coming years. Are you taking a "wait and see" approach, and are you really confident that we'll see any solid devaluations coming within the next 5 years? If you're renting your primary residence currently, do you think it's still worth throwing that money away for the next couple of years to see where the market heads?

This is a very important topic to me, so I'm happy to get on a phone call with anyone who has strong opinions one way or the other. The more inputs I get the merrier in my opinion. Thanks in advance for your contributions. 

Good idea, let us know the Facebook group or the BP Event ID once you create it. Thanks!

I have access to the LandVision software for doing research on off-market properties, and I'm looking for some recommendations on how to best filter my search criteria. I can easily filter for out of state owners, and properties which have not sold within the past 15 years (high-equity owners). 

I'm looking for some guidance on any strategies which can be used to filter on Ownership Type. Some examples of the filter parameters include:

• Husband and wife
• Revocable/Irrevocable Trust
• Family Trust
• Joint Tenants
• Estate
• Company/Corporation
• Partnership

There are many additional options. Any recommendations on which types of ownership structures are the best to target? In this case I'm specifically focusing on SFH or small MFH, out of state owners, both owner-occupied and rental properties.

Thanks all!

@Dmitriy Fomichenko & @Brian Eastman

Thank you very much for the prompt, informative responses. EXACTLY the information/clarification I was looking for. This is why I love BP!

I've searched the forums for clarification on this, but haven't been able to find. Two questions:

1. It seems more advantageous to use a 401k vs an IRA to buy real estate. Can a former employer 401k (not sure the official term for this) be used? Or would it have to be converted to a Solo 401k or Self Directed IRA first?

2. I've heard 401k's avoid the UDFI when leverage is used. Is this true? Can you also avoid UBDI? What would be the disadvantages of using a 401k to acquire a Buy and Hold rental property?

Thanks!

Thanks Chester. Do you know if certain transaction types are exempt from recording a "new" purchase price with the assessor? Also, any idea how often cities like SF and ABQ do periodic reassessments without a purchase transaction?

I'm looking for way to avoid triggering a property tax reassessment upon a potential purchase of a Multifamily property. The property was last assessed in 2016, and is still taxed at far below market value. 

This specific property is located in New Mexico. I don't know the Seller on a personal level, so I'd prefer to avoid doing an Entity/LLC transfer if there is another method available. Any advice from someone experienced in doing this in a state with laws similar to New Mexico would be much appreciated.

@Bill F. Thank you for the feedback. To answer your questions with the current information I have available:

1) We are placing a formal request for this in our Purchase Agreement. I'm very curious to see what we get back. Good suggestion on the private money angle, I really want the Seller to understand we need to be able to do solid underwriting to get this deal done.

2) The park is in pretty rough aesthetic condition, the roads have not been reconditioned in many years and are ugly but there aren't any problematic potholes. As this is a park in a great location which is also a "high desert" climate, dusty roads are mostly accepted across town. According to the Seller there hasn't been a need for him to improve the aesthetic to attract new tenants.  Even with effectively raising the rent $40-$60/month with the utilities bill back, I'm pretty confident the park will stay full in this area. I think the bill back makes up the majority of the value add opportunity, I'm just looking for other creative ideas to add value in a cost effective manner.

3) Good suggestion on the dealer/mover visit, I was thinking something along those same lines. I'm also going to need to get more granular with the City Zoning department in terms of what exactly is grandfathered. We'll be ordering an official Zone Cert to get as much in writing as we can.

The sewers are cast iron and the water lines are galvanized metal. Seller says both have been very low maintenance required for the past 30 years, only occasional leak repairs. I'm a little wary of the rust potential with cast iron, we will certainly have the sewer lines camera snaked early in the DD process. I'll also call around to the local plumbing repair companies to make sure their repair history matches up with his records.   

Hi All,

I'm currently evaluating a park with 65 pads with no vacancies, at a lot rent of $450 for a Gross Income of $351,000. The Seller is willing to finance the park with a low Down Payment, between 5-10%. The Seller is very proud of his low quoted expense ratio, and is using this as leverage to command a higher monthly payment based on his existing cash flows. 

The park currently includes water/sewer/trash with rent. Below are the expenses which have been provided to us so far with some digging:

The property tax figure I calculated is based on an assumed reassessment after the sale of the park. This comes out to an Expense Ratio of 35%, on the low end for a park which pays for water/sewer/trash. For the expense categories I have listed which are blank, the Seller has said his expenses are "negligible", and I can see it's going to be a real struggle to get his historic records on this. Assuming we will conduct thorough due diligence on the park infrastructure and utilities, I'm looking for guidance on the following:

1) Does anyone have experience in extracting this type of information from challenging Sellers? Since we're planning to Seller finance, I won't really be able to pull the "the bank would need to see this type of information" card in this case.

2) With submetering and billing back utilities (assuming a 15% bill back loss), we would be increasing the cash flow by $50k per year. At an 8 CAP, this would increase the value of the park by over $600k. While this is a strong improvement, I'm worried about further upside potential to the park. The current Owner has done very little in the way of capital improvements, and already has rents pretty close to the higher end of the market. Are there any suggestions on how to add relatively inexpensive value to a park after takeover? We will certainly fix up the entrance to the park, and I'm also considering adding security cameras.

3) As an older park, the lots are somewhat small and close together. I've verified that the park is grandfathered to be able to swap in new homes for the existing pads and not have to meet modern setback standards, so we could fit 65' - 70' homes on virtually all of the lots. Though the park has had minimal turnover I'd like to ensure we're in a good position to bring in new homes when needed. What's the best way to verify the lots meet minimal clearances needed to bring in new homes? Would a Dealer be able to tell me if certain areas of the park are too tight to be able to install a new 70' home? 

Thanks all in advance for the helpful advice.

I'm interested in getting some "2018" feedback on these property management packages as well.  Do you find yourselves needing to also use a separate accounting package such as Freshbooks/Quickbooks, or does the built in accounting functionality of these PM packages get the job done?