I bought my first 4plex in 1998 – paid about 11 GRM which was high at the time but made sense due to property and location (not to mention that everything else I had looked at over the previous 4 months was absolute TRASH).
Bought the next one in 1999 – 11.5 GRM for 4plex in Mission Beach. Never again – beach people (I call them beach scum) are horrible tenants – all they want to do is drink their beer, smoke their weed and figure out how to get over on the landlord.
Bought several more in the next two years – GRM kept increasing but rents were rising sharply too.
Around 2002 GRMs were consistently 14-15 for anything that wasn’t obviously trash – it was very common to see properties listed AND SELLING at 16-20 GRM – I stopped buying. It was no longer possible to pretend that I was INVESTING in real estate – it finally dawned on me that I was just another speculator playing the game so I started selling. (I had also read Robert Prechter’s books and was convinced that a major deflation was about to occur.)
The last 4plex I sold was in 2004 and it went for 18 GRM.
I haven’t been watching the multi-unit market since I sold all of my investment real estate but IMO, if GRMs are still above 12, there is no way in hell that you will get positive cashflow out of property. If you think you can get some type of suicide loan (interest only, ARM, neg am, etc) and make the cashflow work, I hope you will ask yourself this question: “Am I investing or speculating?”
I will be a buyer of multi-unit property again – probably in the 2009-2012 timeframe depending on how things unfold in our local market.
As far as buying income property somewhere other than where you live, my opinion is “DON’T DO IT”. All of the real estate books I have read say that being an out-of-town owner is a mistake. My experience: one of my properties was in Imperial Beach – I could drive to the property in about 45 minutes unless traffic was bad – and I decided that even IB was too far away to own property!
As far as value fluctuating: IMO multi-unit properties are priced strictly based on rental income (that is why I only talk about GRM) – if you can accept this premise, ask yourself “Are rents going up or down?” If you think rents are going up I’d like to hear how you think 3000 additional condos downtown in the next two years are NOT going to provide a glut of rentals which will depress rents throughout San Diego.
The multi-unit game in San Diego is over for several years, IMO. I believe you will be fooling yourself if you come to any other decision.
