[quote=SD Realtor]My two cents on downtown is that I feel it has a ways to go on the depreciation curve. It has come down alot and I sense it could still find another large chunk by the time things are said and done. A few things concern me, one of them being alot of the construction that is coming to hit the ten year anniversary. Some of the construction is well done and some is not. As investment grade goes the tide of speculative purchases made downtown had nothing to do with cash flow and everything to do with appreciation. IMO as speculative investment starts to return to SD real estate speculators will be cautious at least at first until a new bubble is alive and well. Without easy credit I find it hard to see any speculative engine at all. This leaves owner occupation for one reason or another along with TRUE second homes as at the very least the primary engines for purchasing. Given the stock of downtown properties which is non trivial I find it hard to not justify more substantial drops. I to have a few clients looking at downtown but who have decided to sit on the sidelines for now. [/quote]
I agree. The only thing I really have to add is that there are currently a lot of complexes downtown that have the potential to lure real (as opposed to speculative) investors. By this I mean that people who are looking to make money in cash flow and long term capital gain as opposed to those who use trade property as a commodity and are focused on expectation of short term profit.
As a former 1031 consultant, I found that the flippers often did not have more than superficial understanding of market dynamics (not that they needed more during the boom) and usually ended playing one too many hands. As a result, the investors downtown seem really much more focused on what percent they need to bring as a cash component to make these places cash flow even. EG: The other day I previewed a place at El Cortez. 2br/2ba , 1000sf, 4th floor asking 219k. At 10% cash it comes close to break even as a rental. Part of the reason for that is that the building currently is embroiled in multiple lawsuits and potential defect litigation. In other words, you get a bargain for accepting a lot of known uncertainty. (okay that last sentence was worth of Rumsfeld…sorry).
