Investment Properties

[rent4now]

We are interested in purchasing a rental unit the next time there is a price correction and we are able to afford one and able to cash flow.

For those of you that have investment properties, would you recommend purchasing a condo, SFH or duplex?
We are new to investment properties and would love to hear pros and cons based on your real life experiences.

Our other question is what area of town do you find the best opportunities?

Thanks for your input and wisdom!

[Coronita]

Whichever one pencils out and in the area you want to deal with. I sold a place near SDSU not because it wasnt cash flowing well, but appreciation was good and it was too far for me to want to drive to self manage. I ended up doing a 1031 exchange To something slightly better in MM.

There are pros and cons to both. Attached properties typically have higher HOA costs and the HOAs can be pesky to deal with. SFH, on the other hand, you would be on the hook for larger repairs (for example roof repairs). SFH generally appreciate better. Depending on clientele smaller condos might be easier to rent out as they generally cost less. If I were to do things over , I would sell my SFH in CarmelV and exchange it into 4-5 condos because the cash flow on those 4-5 condos in MM would be a lot better than a SFH in CarmelV. Plus it’s much easier to rent out $1600-1800/month condos than $4200+4500+/month SFH as the pool of renters is much smaller and a lot more picky. And the ones usually shelling out $4200+/month for rent probably are also the same people only renting for the short term before they buy. At least in CarmelV. CarmelV frankly is a lousy SFH rental market. If it wasn’t for my ideal plan for my kid to inherit the home and live there possibly if they go to school here, I would consider getting rid of it for things that rent better. So yeah, this isn’t the best choice cashflow wise. Homes that rent for $4000+/month probably do better elsewhere in North County.

The problem with MM is the ridiculously low inventory level right now. 19 active properties serving an area with a population of 74,000 and roughly 23k households. and an average PPSF of $430, lol

I have a lot of cash, but there is nothing I want to buy right now. The inventory in the area I want to buy just sucks donkey butt.

[Myriad]

I don’t have enough cash to buy a property outright here in SD, and the real returns are fairly low right now.
I have been looking at crowdfunded companies such as Crowdstreet, but more for commercial property or multi-family.
Invested in a hotel in 2018 and the earnings have been ~10% so far 1 year in. There’s some disadvantages, but provides better diversification outside of CA and away from residential. And only $30-50k of capital needed.
One concern is if rates go up, all the valuations and refinancing can be a problem with commercial property.

[Coronita]

I don’t know, but while i doubt this virus will have a direct impact on local residential home prices, I’m thinking this virus panic might have some impact on leisure travel and vacation. Not sure if hotels and cruises are where I want to put my money right now. Maybe in a year or two after the dust settles.

[Myriad]

I was worried about the refinancing wave for commercial. But looks like rates will be low for the next year. Keeping cash for now. Things are pretty pricey across many asset classes.

[Coronita]

[quote=Myriad]I was worried about the refinancing wave for commercial. But looks like rates will be low for the next year. Keeping cash for now. Things are pretty pricey across many asset classes.[/quote]

I have not considered commercial property investments beyond REITs. Have you done any? Im curious to learn about it , if you’ve done anything with them, if you don’t mind sharing.

One upon a time, I ended up in Florida for a condo-hotel sales pitch where they sell you one unit in a hotel. But for the life of me I couldn’t get things to pencil out unless occupancy was more than 90% of the time, when the actual occupancy rate of that hotel was much lower…

[Myriad]

Yes, I’m invested in a hotel in FL (one of the large chains). You have to be picky as a small investor. You’re not going to get the deals a large real estate company would. But if you invest in growing markets like TX, FL, CO, Nashville, TN, you’ve benefiting from the demographic changes. However you have to worry about how well the sponsor performs and how well a platform manages the various sponsors.
REITs are definitely a good way to go, just direct investment gives you a more specific focus and different diversification.
I’m in a few deals, but am now waiting it out to see how they really perform. One is building a multi-unit condo building in Williamsburg in Brooklyn. That one is a little more speculative.
The benefit is that you still get some of the tax benefits (K-1, passive investment gain/loss) without the hassle of managing property. But as I mentioned, most of the commercial investments all get 5 year interest only loans, and then roll over to a new loan later – so definitely interest rate sensitive.
One of the ones I considered, but didn’t invest due to limited capital and overwhelming demand was the SD Mission Valley Marriott. Which is somewhat typical – the really good deals (or the ones that appear to be) generate a lot of interest.

[gzz]

I think we’re far more likely to go up 12% this year than have a correction of even -2%.

That would mean a return of over 50% on a downpayment of 20%.

I have a rental house and condo. The condo is much simpler. The HOA is a bit of a hassle in minor ways but overall not worrying about exterior maintenance is very nice.

I would certainly buy ASAP if I didn’t already own 3 San Diego properties. And I would buy a fourth if a perfect place hit the market.

Purely for a low cost investment, I’d get a small condo in City Heights, Loma Portal, or Linda Vista and ride the last leg of gentrification. They are mostly there already, but not quite.

[Coronita]

[quote=Myriad]Yes, I’m invested in a hotel in FL (one of the large chains). You have to be picky as a small investor. You’re not going to get the deals a large real estate company would. But if you invest in growing markets like TX, FL, CO, Nashville, TN, you’ve benefiting from the demographic changes. However you have to worry about how well the sponsor performs and how well a platform manages the various sponsors.
REITs are definitely a good way to go, just direct investment gives you a more specific focus and different diversification.
I’m in a few deals, but am now waiting it out to see how they really perform. One is building a multi-unit condo building in Williamsburg in Brooklyn. That one is a little more speculative.
The benefit is that you still get some of the tax benefits (K-1, passive investment gain/loss) without the hassle of managing property. But as I mentioned, most of the commercial investments all get 5 year interest only loans, and then roll over to a new loan later – so definitely interest rate sensitive.
One of the ones I considered, but didn’t invest due to limited capital and overwhelming demand was the SD Mission Valley Marriott. Which is somewhat typical – the really good deals (or the ones that appear to be) generate a lot of interest.[/quote]

Interesting. It probably isn’t my cup of tea, but sounds like it’s working for you well and that’s great.

Dumb question. So does your investment in the hotel mean you own a room in that hotel (the condo-hotel model) or is it some other arrangement. Just like to hear about different things.

[Myriad]

[quote=flu]Interesting. It probably isn’t my cup of tea, but sounds like it’s working for you well and that’s great.

Dumb question. So does your investment in the hotel mean you own a room in that hotel (the condo-hotel model) or is it some other arrangement. Just like to hear about different things.[/quote]

Well it’s been ok so far. The true test is when the properties are sold to see how much/little capital gain/loss you’ll get.
No, I’m an equity share partner in the hotel (It’s a Hilton hotel in FL). I get quarterly dividends from the profit.

Here’s an example of the distribution structure – pretty typical from what I’ve seen with various % and levels.
Distributable proceeds from operating cash flow are to be distributed in order as follows:
1. Senior debt service payments;
2. Then, to all deal-level investors (including the Company) pro-rata and pari-passu until investors have earned an 8.0% annual cumulative preferred return (compounded monthly);
3. Thereafter, 30.0% to the Sponsor and 70.0% to deal-level investors.

Distributable proceeds from capital events are to be distributed in order as follows:
1. Paydown of senior loan and any associated prepayment costs;
2. Then, to all deal-level investors pro-rata and pari-passu until investors have earned an 8.0% annual cumulative preferred return (compounded monthly);
3. Then, 30.0% to the Sponsor and 70.0% to deal-level investors until investors have earned a 20% annual internal rate of return (compounded monthly);
4. Thereafter, 40% to the Sponsor and 60% to deal-level investors.

[sdsurfer]

I think you just need to run your numbers based on how much you are looking to invest.

It’s a good idea to start out with a condo if you cannot afford a single family home. You can get your feet wet without as much risk.

You have more upside with a single family since you can add a granny flat, etc. However, it’s a lot more expensive to buy so it’s more risk.

I always base my numbers on prevailing rents (maybe a hair below) and 25% down.

Feel free to DM me with any questions!

Josh

[Myriad]

The HOAs for condos can be a factor. I have one that went from $205 to $280.
The depreciation helps offset profit from impacting your taxes.

[Coronita]

[quote=Myriad]The HOAs for condos can be a factor. I have one that went from $205 to $280.
The depreciation helps offset profit from impacting your taxes.[/quote]

Some of the HOA is $300-400/month

[flyer]

To the OP.

The key to making your decision will be, as you mentioned, making sure you can afford the investment, and cash flow. Run your numbers for each scenario.

We’ve built a portfolio of many types of investment properties from condos to commercial buildings, etc. over the years, some passed down from our parents.

Investment properties are a great way to build wealth, but you definitely have to stay on top of things on a regular basis to make sure all is going as planned.

[Anonymous]

The best way to make $10 million, like fabulous me…

…is to start out with $9.99 million from parents, also like fabulous me…

[Author]

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