The numbers are not great on SFR rentals even in the entry level low cost areas. I think a good rule of thumb with buy and hold rentals is a 1% rent-to-price ratio. Meaning if you buy a $200,000 house, it should get $2,000 in rent. Or if you buy a $100,000 house you should get $1,000 in rent. You can’t hit that 1% ratio in San Diego County. So what you are doing is buying on the hope of appreciation. Your cap rate is not going to be great. Also to get a decent deal on a SFR you often have to buy a fixer that needs $20k to make rent ready. But I still think it may not be bad to buy a SFR in a entry level area of SD. I also think Vista and Oceanside are good.
I am in the market for rental property similar to the poster, so I have been thinking a lot about this. One thing about condos is you can get them in better locations than houses. You can get condos right now in very good neighborhoods & locations where you can get very close to the 1% rent to price ratio b/c prices are more depressed on condos b/c the financing on them is so bad right now. SFR’s that would even close to work as rentals are in not nearly as desirable locations. A big unknown with condos is the financing. If the owner occupancy dips below 50% they can become really hard to finance. Sometimes only cash buyers being able to be the next buyer in the complex. That is a negative snowball creating more units as rentals and lowering prices.
I personally think the numbers are very good for SFR’s in some of the further out towns in Riverside and San Bernardino County. Some of the most experienced investors I know that have been doing it 15-30 years are buying rental houses out there for $80k, fixing them up and getting $1,200 in rent. Those are much better numbers than you see in SD County. In this case you are not buying on the “hope” of appreciation, your buying something that has a true positive cash flow of $300+ a month from day 1. And you can apply that to the principle and get them paid off in 10 yrs. But then you have to deal with getting to know those neighborhoods and being an out of area property manager. Which is a challenge. But I have managed a out of state rental for 7 yrs and it hasn’t been that bad. I know of one guy who has bought like 30 rental houses in Palmdale/Lancaster for around $40k-$60k and gets $1,200 in rent mostly to section 8. He bought 100 of those little rental houses in the mid 90’s during the last downturn, sold at the peak in 2005 and made like $10 million. Now he is doing it again!
I’m not so sure buying on the hope of big appreciation down the road in 5-15 yrs is a great bet. There are far more headwinds against real estate this go around than coming out of the 90’s slump. We won’t have the tailwind of easy lending to push prices up. So I am leaning to go more for cash flow right now vs. a break-even house in San Diego. b/c my goal is more to get 10-12 houses paid off so I have a very healthy monthly income to live off and not have to work. If you have a negative cash flow or break-even property in San Diego, it may not produce much cash flow for you to live on for decades.
Anyway, I’ve rambled on long enough. Just my random opinions. Very interesting topic of where and what is the best property to buy for investment right now. Would love to hear more opinions.
