56 / condos

[saiine]

All,

I’ve been looking at rent in the area of Carmel Valley / 56. 1 Bedrooms seem to be going for $1200 average and as you move down the 56 more towards 15 it gets progressively lower.

I decided to look at the going rates once again for buying in the area. One complex in particular has a 1 Bedroom unit for sale at 219 with renters currently paying $1,050.00. There are 4 additional 1 bedroom units in this complex for sale between 219-240. I’m throwing in offers of 189 in an attempt to feel out where the sellers are at. Should one take an offer at 189, the mortgage + HOA / Taxes would be roughly around $1,500

What do you all think about the 56 stretch? It seems like it’s semi-central and underdeveloped.

[no_such_reality]

I figure it’s worth $95,760.

Yeah that’s right.

It’s a cap multiplier of 8 with a 95% occupancy. It’s a condo so the HOA fees disrupt the value. If it wasn’t, a cap multiplier of 13 could be used.

Alternatively, I get a value of $127,000 by aligning the $1050 rent against the cost of the PITI & HOA.

[lindismith]

Saiine,
If you have to live there, please go to one of the condos you’re looking at during the night, and make sure you can’t hear either the noise from I-5 or the 56.

Vrudny, your rent sounds about right. But then again, I think all rents are too high relative to wages in SD. We’ve discussed this quite a bit here.

[svferris]

Vrudny, I think your rent sounds pretty good. I just recently moved and did a LOT of searching around for places along the 15 and 56. Three bedrooms in Rancho Bernardo were a minimum of $1400-1500, and that was for pretty ugly and small places. Decent places were about $1600-1800. Getting into nicer areas like Torrey Highlands or Carmel Valley, you can’t touch a three bedroom for below $2000.

To give you an idea, I consider myself very lucky to have found a 3BR 2.5BA 1800 sqft. new townhouse in Torrey Highlands (off the 56 at Camino Del Sur) for $2000/mo. I think it should be another $400-500 more per month. If this is within your price range, you should take a look around the area. There’s a number of places for rent by me (behind the Albertson’s shopping center).

BTW, I’d like to point out that I think rents are more expensive than they should be, but that’s the way things are right now. People are trying to cut their monthly losses as much as possible.

[saiine]

Thanks for all the responses.

no_such_reality. What do you mean by a cap multiplier of 8?

[saiine]

Lindi, good point – I’m going to check it out tonight. Perhaps I’ll knock my offer down 20k and will be forced to wait it out another 6 months and try again 🙂

Thanks as always

[saiine]

No_Such_Reality, additionally, when is the last time your algorithm actually meshed up with values in San Diego? Do you feel they will ever again?

[no_such_reality]

I may have said cap rate, in reality I did a quick rule of thumb GRM (Gross Rent Multiplier).

In the OC, they matched up (GRM in the 8-13 range based on quality) for most of the 1990s.

In fact, the first townhome I bought in California, I bought at 8X the equivalent rent multiplier as a residence.

It’s a matter of time before rental properties fall back to fundamentals. The investment rental market has been distorted even more than the housing market by speculators thinking they’ll flip it in a year or two for mega profit.

Condo’s won’t continue to sell at $400K, in fact won’t sell for much more than $200K if they can be rented for $1200. Condos are just apartments that you’ve leased for 30 years where you get to do your own maintenance and taxes.

[(former)FormerSanDiegan]

GRM of 8 means that value = gross rent x8.

That’s equivalent to a cash-on-cash yield of 12.5%. Did I get that right ?
With bond rates as competing investments in the 5% range that is not realistic.

If bond rates go to 9% or more, your valuation would make sense. If I got the interpretation right, your value estimate is as out of whack (today) as home prices are.

I agree with your general assessment, but not the numbers.

[no_such_reality]

Your equating owning investment property as the same risks as bonds. It isn’t. With a GRM of 13, you’re looking at 7.5% return. With CD’s yielding 5.5% that would be an extremely poor risk adjusted return.

Yet, even with a GRM of 13, the OP’s original condo renting at $1050, would be worth $163,000 $1050 x 12 x13. At $189K he’s at a GRM of 15, at $219K – $240K the owners are at 17-19.

A condo at $1500 / month with a GRM of 13 would net $234,000. If there are concerns the property won’t appreciate, there are significant HOA fees, vacancies increases, that goes down. With low investor mortgage rates or lower risk free rates, it goes up.

When I said condos won’t compete at over $200K, I already allowed for the premium that SoCal prices into properties.

[no_such_reality]

Your equating owning investment property as the same risks as bonds. It isn’t. With a GRM of 13, you’re looking at 7.5% return. With CD’s yielding 5.5% that would be an extremely poor risk adjusted return.

Yet, even with a GRM of 13, the OP’s original condo renting at $1050, would be worth $163,000 $1050 x 12 x13. At $189K he’s at a GRM of 15, at $219K – $240K the owners are at 17-19.

A condo at $1500 / month with a GRM of 13 would net $234,000. If there are concerns the property won’t appreciate, there are significant HOA fees, vacancies increases, that goes down. With low investor mortgage rates or lower risk free rates, it goes up.

When I said condos won’t compete at over $200K, I already allowed for the premium that SoCal prices into properties.

[Anonymous]

If you search carefully, you can find Carmel valley’s 3BR 2.5BA townhome from 1900-2200. If you have good credit score, the owner would like to lower the rental fee. so don’t let them rob ya.

[saiine]

I drove around a bit today looking in the area.

There is a new complex called “The Heights” which has 1 bedrooms at $365,000″ – Next door to it is “The Club” which has 1 bedrooms for rent at 1340 with 500 deposit.

Hmmmm…

[Author]

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