All Forum Posts by: Sean Michael

I'm moving to San Diego next year from Denver, CO and am looking to make the right personal finance decision in the process.  I have the funds available today for the purchase of a rental property as well as a primary residence, but I also want to set myself and my wife up to reach financial freedom.  I've noticed some really extreme discrepancies between renting and potential mortgage payments which make me hesitant to buy a primary residence.

My wife wants to move around 56 (not too far from the ocean), which I don't mind because it seems they have great school districts and we have young kids. We have managed to build a solid liquid nest egg, but I'm hesitant to lock the majority of it up in a low LTV mortgage on a really expensive primary residence. I'd like to put as much as I can to work in order to reach financial independence sooner. When I started to run the numbers of what it would be like renting and investing vs buying, the difference was staggering.

I'm looking for advice on what I should choose.  Also, let me know if these numbers seem correct.  Here are the numbers:

$30k - avg monthly income

3 options for rent vs buying
$12.5k - avg monthly payment (20% down) on $2mil home
$6.25k - avg monthly rent on $2mil home
$6.25k - avg monthly payment (71.5% down) on $2mil home

3 options for return on capital:
7% - avg yearly return on 71.5% down payment (assuming 5% avg yearly appreciation in SD)
10% - avg yearly return on from S&P 500
>10% - avg yearly return on investment property (just an assumption, but I think you are all here because you beat the stock market)

First, the $12.5k monthly is very intimidating and beyond what I should be spending on shelter (a no-go for me).  $6.25k feels manageable, so I compared the rent vs purchase numbers.  I understand that rents will go up over time and my mortgage payment will pay down the principal, but it seems like investing the $1.43mil into rental properties and/or a low fee US stock market fund may work out better for me.  The discrepancy between the monthly payment with 20% down and the monthly rents was mind boggling for me.

Let me know what you would do to maximize wealth under these circumstances.  Also, let me know if I'm missing something here.

I have been a resident of Denver, CO for 10 years and am hoping to relocate to San Diego, CA within the next 2 years.  I am currently saving up additional down payment funds to buy a long-term home in San Diego (your housing prices are crazy).  Prior to deciding that I want to relocate myself and my family to San Diego, I was looking for a multi-family investment property in the Denver area.  I was targeting 4-unit and 4+ units (commercial).  The plan was to buy the property and pay for a management company.   I know the area pretty well and also have a good idea of what properties I'm interested in.  I have $500k that I'd like to deploy from the sale of single family rental that I sold this past year.

Now that my family and I are set on relocating, I'm trying to figure out where I should buy the property.   All I know about San Diego real estate investing at this point that you have much higher prices and some unfavorable laws for landlords.  We have visited a lot and I have basic ideas of what different areas and neighborhoods are like.  One tempting option I have in mind is to use the funds to buy and live (with my family) in a multi-family in San Diego.  This would allow us to move sooner and we could get to know what areas that we like to buy our personal home in the future.  Financially it also works out very well.  We already have a "long-term" home in Denver and I could never convince my wife to do this in Denver at this point.  In the context of a move to San Diego, it makes sense.  After a year or so, we could then find our long-term home, move out, and fully rent the units.  The other option that I'm considering (if owning rental properties is much less favorable in San Diego), is to buy my investment property in Denver and find a good management company.  Then move to San Diego in a year or two and deal with management and decisions while I'm out-of-state.

I think I have a decent grasp on how cap rates will differ between Denver and San Diego and the implications of this on my down payment and cashflow potential.  I assume I will be relying a bit more on appreciation in San Diego.  I'm mainly looking for a gut check on the 2 options listed above.  In addition, I'd like to find out if there are favorable strategies for investing in San Diego RE and what laws and regulation I should be aware of before considering entering the market.

 Where is a good place to find market data like you mention here?

@Scott Anderson I would do that, but as a first time landlord I'm worried about running the process myself and finding the right people to fix things when they pop up.  I may end up giving this a shot though.

@Simcha Davidman Denver seems like a great market right now.  At least in my industry (software/tech), companies from Silicon Valley seem to be moving in on a monthly basis.  The population growth is high and it seems to be a top alternative to SF for many people in tech, along with Austin, Seattle, and (maybe) Portland.  I do feel like we are at the top of a market cycle right now though.  Real estate price growth is starting to flatten.  No one knows, but I would confidently say that we are closer to a top than a bottom.

I’ve been wanting to find a rental property since I started listening to bigger pockets, so when my wife and I decided we wanted to relocate from Denver to San Diego I thought it would be a perfect opportunity to rent our home in Denver and save for future properties in SD.

After running the numbers, I’m having some doubts about this strategy. After expenses and selling fees we would have about $250k in hand after selling.  If we rent the home, monthly rent will be about $2.5k.  Since I’m out of state I will be hiring a management company.   Many of them charge 40% of first month to get a tenant and 25% for lease renewals, as well as 9% per month for month-to-month management.  I pay $1.65k/month in mortgage/taxes/insurance.  When I run these numbers For one year that’s about $30k income - $19.8k house - $3.5k management = $6.7k net.  When I start thinking about vacancy or maintenance, I’m looking more towards $5k net for the year.

I have a hunch on what the right answer is, but want to check with others to make sure this is the right decision.  Even $6.7k is a return on equity of 2.68% (assuming I have 250k and can get from selling the home).  A yearly return of 2.68% is low enough that it seems easier to just invest this money in super safe assets and wait to find a better investment property in SD with a higher return and manage it myself.  Any thoughts?