San Diego Housing Bubble News and Analysis

TG is the man. In fact, I am waiting for him to share his wisdom on this as well. But I can wait after this winter when he finishes his own investment property purchase.

I would try to stay along the I15 corridor myself, as when the LA/OC/SD mega city finally finishes it first direct connection it will be along this corridor is my belief.

Anyway I think it is only maybe 15-20 years before this corridor gets built out
( Darn near completed it last boom).

(Of course it may happen along the 215 corridor first but I will refuse to recognize this as being the first true connection that establishes an endless city from the Mexican border to Bakersfield).

While I'm not as familiar with the area as TG, my wife and I have been looking for an investment property there for a year or so. What it comes down to is this - in order to attract the most potential tenants, buy something that YOU wouldn't mind living in. That is, a 2 bedroom apartment conversion without a garage is a definite no-no. Once you buy it, set the rent just below market and don't settle for a low quality tenant.

We had decided that the sweet spot is a 1400-1700sf condo with attached 2-car garage (if $200/mo HOA seems high, consider what you get for it, like a new roof every so often and no need to pay a gardner). So naturally we ended up opening escrow on a small (2000sf-ish) house, at least I think we have, if the seller signs today. We overpaid for it, but the location is awesome and we're very happy. We're going to live there for now, but it was definitely selected as an investment property for ease of renting, and should cash flow about $500/month when we rent it out in 3-4 years.

Here's a house that conveniently already has tenants:
http://www.redfin.com/CA/Temecula/45337-...
According to the listing agent, it's renting for $1,600. I'll let you do the math and decide if those are the kind of numbers you can live with. It will undoubtedly do better in a few years.

egads, nevermind - $120 HOA. Unacceptable for a sfr rental. I do like the house, though.

Edit#2: In my experience, it's hard to find a really bad neighborhood in Temecula. I would stay away from areas built in the 80's (like west of Pechanga Pkwy), they look dated and will only cost you in maintenance. Also think ease of commuting for your tenant. Don't rule out Murrieta, either.

Personally I find that the higher end you go for rentals the more trouble you will have, as these people are generally not in the life time renter class and have a much different attitude toward renting than someone more inclined to rent for a long period of time. So I would not look at a rental home the same as one you would want to live in, but whatever you are most comfortable with I guess.

As a side note most people get into being landlords by accident (many of these happing now) they are ready to move up and find a deal but at the same time don’t want to sell in today’s market. Not saying this is bad Idea but the same logic may not be the best one for rental property investment in general.

Thanks to all for the excellent information. I am looking for an investment property which will provide a good return from home price appreciation and/or rental income, with the emphasis on home price appreciation.

Are there any specific neighborhoods that you think would be especially attractive to renters? For example, most renters are single or young couples. If a house is close to an elementary school or conveniently located (for transit or shopping), do you think it will be desirable as a rental?

My point is just that you can't buy an apartment conversion and think someone will say "oh good, an 11'x12' master bedroom and a carport," because they won't. They'll immediately cross you off the list. There's a point where it's large enough that it isn't a pain in the ass to live in, but not so large that the tenant may as well buy something rather than pay that kind of rent. I definitely wouldn't go high end on a rental. My 2000sf place is the largest I would consider.

You are far less likely to have trouble with tenants if you do a thorough reference/employment/credit check, and if you price below market, the good tenants (who can be choosy) will tend to gravitate to you.

I'm conflicted because I haven't acted on it and there is already too much competition, prices have jumped and inventory is low. I agree with Ren on a couple of points, especially the 1400-1700 townhouses with 2 car garages, the problem is that there are only about three in town and only in 92592. I would stay in 92592, it has the fewest rentals, there is only one apartment building in the Temecula parkway corridor and even now, while we are in the worst economic times in decades, the rental market in the South is tight. The casino employs a few thousand people who fit the rental demographic and there are limited rentals available without getting ont the freeway, once they are on the freeway, they have lots of choices. For S.D. commuters, the south is preferable as the freeway jams up going north, getting progressively worse, not that renters are commuters, but for appreciation, ppsf, etc (customs, land and other variables not included), prices go down as you travel north.

Personally, sfr's are not the way to go up here, the rent multiplier isn't as good and the taxes are higher. It's not mello roos, but voter approved bond things and community assessment districts. The way they assess, sfr's get more bite, the school tax costs each sfr lot $600 a year and each multi something like $200, there are a bunch of little add ons like that, driving the taxes for an sfr lot up a fixed dolar amount above the 1% tax rate between $100 and $300 per month, not based on value, while the townhouses/condo pretty much escape with $50 a month, so an hoa almost gets wiped out by the tax differential.
It's hard to determine from redfin and last years taxes because they lowered them mid year, when they sell they get mid year adjustments, but the assesor web site will show the exact bill and what's in it.

The older 1000-1400 sq ft sfr's rent for the same as 1500 or 1600 sq ft condo, has the same carry cost when you add in a gardner and water (which landlords must pay up here) but they won't appreciate as much. The sfr's are holding their value on the low side but don't rise as much in the bubble.

A 3/2 1600 sq ft 2 car attached garage townhouse rents for 1500 in a heartbeat and sells for 140k, it's bubble price was 375k and it's prebubble 2002 price was about 200k, they are just getting beat up more because of sterotypes. A 3/2 vail ranch 1300 sq fter, rents for 1500, had a bubble price of about 350k and they killing each other to get them for 160k right now.

The demographics of the renter for that little, older place is actually much more problematic than the townhouse, especially the no hoa places, where you can have 6 cars and pack em in, or park your monster trucks and play you music loud. The upscale condos mostly have 40-60 year old without little kids, many living alone, the one I'm looking at is clean and the hoa is is finacially secure. I think ren already owns one, unfortunately none are listed right now that aren't shorts with offers. If I say anymore, I'll never get mine. I'm actually losing faith that I will because there the shadow inventory there already cam out of the shadows, almost all the ones bought between 2004 and 2007 have already been turned over. Alright, here's the ones I like, who cares, it's gonna be a while before I do anything, I might wait another year.

http://www.redfin.com/CA/Temecula/33618-...

http://www.redfin.com/CA/Temecula/41315-...

This third one is a classic low end sfr in the same price range, it's peak price was a 100k less, it rents for about the same, probably a little less and they look like crap. The demographics are worse.

http://www.redfin.com/CA/Temecula/44881-...

I think the reason why it's different is that there are so few condos, I do not like the numbers of the dr horton ones near pechanga parkway, they are way overpriced and too small. The temecula creek little ones are 100k, they pencil well, broke 300k in the bubble, i like em, but not as mych as the townhouses.

Consider buying investment property in north county where the average income is lower than in the valley.

Those are the ones I was most serious about, but didn't end up buying one. I do think they would make great rentals. That's where I'll look first when it's time to buy again.

Thanks for the info on the taxes, I had no idea condos got a break.

I fail to see how a condo in Temecula makes even a decent investment; most people move to Temecula to buy and live in a SFR. Condos make sense where land is truly at a premium, not in the hinterlands of Temecula.

That's why there are very few condoes to begin with in Temecula.

Then you are failing to see the math. It had a better rent multiplier and appreciated more during the bubble, it breaks from conventional wisdom but it's true. It's not about relocating here but needing to live here and wanting a particular type of housing that is in short supply in the immediate area. It's also about looking to target a rental demographic, not a relocating purchasing demographic. When I rented in that development, most of my neighbors actually owned, most were young grandparents in their 50's and 60's who wanted to live by their kids and grandkids, there were also a chunk fo divorcees. I'm low 40's so I felt a little young at cocktail parties, but they made great neighbors. With about 20k kids in the zip code and about 200 total housing units where you don't have to do a lot of of landscape maintenence, it's a niche that exists but is unfilled. About half had decent sized back yards, not too big, maybe 30x40 but certainly more than that a traditional condo courtyard, I rented one with a nice back lawn. The dog size restrictions of under 25 or 30 lbs made the ladies with their lap dogs happy, they could walk them within the gates adn not have to have leash wars with big dogs, in the early evening it was a lap dog parade.

And this might interest you paramount, far less criminal activity compared to small, older sfr tracts, so don't hate cause it's got the word "townhouse" in the name, trust the math, everything else is just opinion.

TG: I moved from a 800 sq ft condo prior to moving into my current house, which seemed huge @ 1500 sq ft compared to my condo.

I have nothing against condo's or townhouses at all.

I don't have anything against Yugo's either, but I'm not about to stock up on those either just because they represent a niche market. There's a reason they are in a niche market.

1500 sq ft SFR Residence in Temecula: 270k

Cranking up Alan Parson's Project on my Klipsch sound system while enjoying a Sierra Nevada Pale Ale on a Saturday night - PRICELESS!

Just try that in a Townhome...

I have a few more questions:
1. What is the effective tax rate for a typical newer single family home (built recently)?
2. Approximately how many days do you need air-conditioner on in the summer?
3. Where do most Temecula residents work: Local (Temecula), Riverside, or San Diego?

Thanks.

I'm not a resident yet, but I can tell you what I will be paying, which is 1.52% for a 1997 sfr. I believe that's common for newer construction as well. When I was house hunting, I don't recall seeing a rate lower than about 1.4%. On the plus side, HOA fees are usually much lower than similar places in SD county (e.g., $50 in Temecula and $100-150 in San Diego, for the same amenities), which doesn't make sense to me. Keep in mind that landlords can deduct HOA fees.

The owner of the property we're buying went all out to combat the heat, with double-paned and tinted windows, patio cover, keeping the blinds and windows closed during the day, etc. He claims his electric bill is about $70 most of the year, creeping into the low $100's if there's a really hot month at the end of summer.