Investment property San Diego

[Coronita]

My frank opinion is that if you’re looking in the better parts of san diego for investment property, you’re late to the party.. About 1-2 years…

Things in the better parts of town are just insanely priced… They might have slowed down at the higher end, but not in the sense of things being a “deal”. And things priced more like investment grade in these better parts of town haven’t shown any sign of any real slow down.

[spdrun]

Actually, there have been quite a few things that worked well as investments that have showed up in the last two months. I don’t need to be more specific than that — Eve can do her own research.

[exsdgal]

Here is a hypothetical scenario if the intent is to purchase a rental property w/o any loans.

Available funds: 400K
Purchase price: ~325K
Repairs/Renovation: 20-30K (before renting the place)
Remaining funds: ~40K (after purchase, repairs, escrow…)

Annual rental income: 25K (about 15 years to recover the principal)
Annual property expenses: 20% (5K)

Would you consider 20K net income/year a good return on the rental purchase? Note – this example does not consider any EOY income tax obligations, time for repairs, appreciation, potential rent increases etc.

In case you find the return to be acceptable… then redfin and craigslist are your friends. Play with the various filters to identify prospective locations/properties. Like others have already mentioned, real estate is a personal preference and the type of property depends on how actively one wants to be involved.

From a turn over perspective I would consider a single family residence is easier to manage. Regardless of the property type to minimize hassles I find the following useful:

– pick a location you are extremely familiar with
– pick a property you will consider moving into (if necessary)
– be ready to learn anything and everything about property repairs (this helps to understand whether to panic/or not during those tenant calls)
– with any repairs pick quality over price for essential items, and compromise on the auxiliary items
– identify a core set of principles for the tenant selection process and do not compromise
– finally set the expectations of the tenants, and try not to let them run your life!

Good luck with your research.

[spdrun]

5.6% net return is on the low side, even today. You can for sure get condos (d/k about SFRs) that do better.

[bearishgurl]

[quote=exsdgal]Here is a hypothetical scenario if the intent is to purchase a rental property w/o any loans.

Available funds: 400K
Purchase price: ~325K
Repairs/Renovation: 20-30K (before renting the place)
Remaining funds: ~40K (after purchase, repairs, escrow…)

Annual rental income: 25K (about 15 years to recover the principal)
Annual property expenses: 20% (5K)

Would you consider 20K net income/year a good return on the rental purchase? Note – this example does not consider any EOY income tax obligations, time for repairs, appreciation, potential rent increases etc.

In case you find the return to be acceptable… then redfin and craigslist are your friends. Play with the various filters to identify prospective locations/properties. Like others have already mentioned, real estate is a personal preference and the type of property depends on how actively one wants to be involved.

From a turn over perspective I would consider a single family residence is easier to manage. Regardless of the property type to minimize hassles I find the following useful:

– pick a location you are extremely familiar with
– pick a property you will consider moving into (if necessary)
– be ready to learn anything and everything about property repairs (this helps to understand whether to panic/or not during those tenant calls)
– with any repairs pick quality over price for essential items, and compromise on the auxiliary items
– identify a core set of principles for the tenant selection process and do not compromise
– finally set the expectations of the tenants, and try not to let them run your life!

Good luck with your research.[/quote]

Great suggestions, exsdgal, especially the one about picking a neighborhood Eve is “extremely familiar with.”

The MM condo (suggested earlier) not only is narrow enough to emulate a train car inside (notice the sorry a$$ kitchen so narrow that if the oven is open, one can’t stand in front of the sink or open the frig??), it has ~$235 in monthly HOA dues (subject to hikes and also special assessments). Having lived in Pt Loma for an unspecified amount of time, Eve may be completely unfamiliar with the type of tenant who would be attracted to that small condo in (congested) MM or at the speed which it will turn over annually.

Contrary to popular belief here, a well-located SFR in metro SD (urban, if poss), even one which has >=1000 sf, attracts a very high-quality tenant. I think she should continue to pursue small investment properties in 92104, 92115 and 92116, as she may have already been doing and then trying to get an offer accepted for up to 80K less than $400K, so she will have some “rehab” money left over.

Eve, in your price range, I feel if you search in SD’s northern communities (north of I-8), you will get interested families for tenants which are far more “high-maintenance” for the landlord than singles and couples. And SFRs in some parts of Linda Vista (92111), while seemingly “affordable,” tend to attract a more low-income crowd living paycheck to paycheck (or benefit pymt to benefit pymt, as the case may be).

I also think SFRs in your price range in SD’s eastern and southern close-in suburbs attract mostly families as well, mostly who have relatives living in the immediate area.

I don’t think you will be able to find a well-located SFR in “urban” SD in your price range UNLESS you are willing to accept one which is 55-90 yrs old. In CA coastal counties, age really has no bearing on value or desirability as a very large portion of older stock is located in the best locations.

While shopping in “urban” SD, try to find at least a 5000 sf (std) lot and just be sure to have an inspection/engineering contingency in your offer with at least a ten-day window to perform. Yes, even for houses on raised foundations.

If you need a referral to a competent local structural engineer, please pm me.

Good luck, don’t be afraid to underbid the asking price with a 3-4 week closing window and be patient 🙂

[Jazzman]

The first question has to be: Are you going to manage it yourself? If so, are you confident about the process? Secondly, if you are after income you need to find something that offers a good margin, not just breaks even. Break even is CA talk for hoping prices continue to increase. Expect to pay up to 50% of income on expenses (property manager, maintenance, insurance, HOAs, vacancy, lease fee, advertising, some utilities, property tax). In other words, you need a rent ratio of about 1 (for every $100k invested aim for $1k monthly rent). To achieve this you need to be at the lower end which as someone has pointed out is higher risk. Note that higher risk can be very high risk = zero gains. A good property manager is worth his/her weight in gold. Spend six months educating yourself on investing in RE before taking the plunge. I doubt you will find what you are looking for in SD. You may want to consider looking further afield. Bear in mind that inventory is still low in many parts of the US.

[an]

[quote=bearishgurl]The MM condo (suggested earlier) not only is narrow enough to emulate a train car inside (notice the sorry a$$ kitchen so narrow that if the oven is open, one can’t stand in front of the sink or open the frig??), it has ~$235 in monthly HOA dues (subject to hikes and also special assessments). Having lived in Pt Loma for an unspecified amount of time, Eve may be completely unfamiliar with the type of tenant who would be attracted to that small condo in (congested) MM or at the speed which it will turn over annually.[/quote]
Sorry but you have no idea what you’re talking about. You’re masquerading opinion as fact.

[FlyerInHi]

bearish, you don’t know what you’re talking about.

If you own a condo in the UTC/Sorrento/MM area, and you bought at the bottom, you’re doing well. There are no vacancies and you can rent it out with very little effort. Literally, over the weekend, your phone rings off the hook.

I happen to know the area I suggested. Pardee built some new housing right next door and those prices have increased very nicely. The people who bought the first phase are sitting pretty. Lots of professionals who are well-qualified to rent so you won’t need to worry. As far as I’m concerned, a tenant who works for a well-known company near his home is pretty much money in the bank. Tenants are busy kids-free professionals who are never home so they don’t damage your unit.

I also own a condo in North Park. That area is more expensive to purchase, the units are older and require more maintenance. The rents are lower, relative to Mira Mesa in the same house value range (because there’s a hip factor to NP and buyers are willing to pay more, especially those who can’t afford Hillcrest or Mission Hills).

North Park is relatively more riff-raff with tenants whose income is harder to verify. One tenant might have an easily verifiable job, but the girlfriend is a hairdresser type deal. Regardless, you cannot buy an SFR for $350k in North Park.

As far are the cheap SFRs in other areas at about $350,000, you’re talking the ‘hood almost, if you can find one in SD. I know that you can’t discriminate against families with kids, but those are little monsters who will damage your rental. I’m generalizing here, but pick a neighborhood where SFRs go for $350k, and see how people live.

I’m assuming the OP wants to buy in SD only. There are not a lot of choices unless you want to accept a lower return.

[FlyerInHi]

Bearish, the proof is in the pudding.

The exact same floor plan I suggested rents for $1,800 per month. And it will go quick. I only saw one on CL. There are few condos on the westside of mira mesa near Sorrento, so professionals taking jobs in the area don’t have a lot of choices (there are new apartments on the east side of MM at I15).

http://sandiego.craigslist.org/csd/apa/4115841533.html

Now show me what else you can buy in the other areas of San Diego you suggested, for $350k, and rents for $1,800 (I’d personally make it nicer and more modern like a downtown condo and charge $2,000)

Question is that really the kind the return the OP wants?

[bearishgurl]

[quote=FlyerInHi]bearish, you don’t know what you’re talking about.

If you own a condo in the UTC/Sorrento/MM area, and you bought at the bottom, you’re doing well. There are no vacancies and you can rent it out with very little effort. Literally, over the weekend, your phone rings off the hook.

I happen to know the area I suggested. Pardee built some new housing right next door and those prices have increased very nicely. The people who bought the first phase are sitting pretty. Lots of professionals who are well-qualified to rent so you won’t need to worry. As far as I’m concerned, a tenant who works for a well-known company near his home is pretty much money in the bank. Tenants are busy kids-free professionals who are never home so they don’t damage your unit.

I also own a condo in North Park. That area is more expensive to purchase, the units are older and require more maintenance. The rents are lower, relative to Mira Mesa in the same house value range (because there’s a hip factor to NP and buyers are willing to pay more, especially those who can’t afford Hillcrest or Mission Hills).

North Park is relatively more riff-raff with tenants whose income is harder to verify. One tenant might have an easily verifiable job, but the girlfriend is a hairdresser type deal. Regardless, you cannot buy an SFR for $350k in North Park.

As far are the cheap SFRs in other areas at about $350,000, you’re talking the ‘hood almost, if you can find one in SD. I know that you can’t discriminate against families with kids, but those are little monsters who will damage your rental. I’m generalizing here, but pick a neighborhood where SFRs go for $350k, and see how people live.

I’m assuming the OP wants to buy in SD only. There are not a lot of choices unless you want to accept a lower return.[/quote]

FIH, did you have a close look at the MM condo suggestion? It was so narrow that there was no room for a standard staircase. Instead it had a cheap spiral staircase that a small dog could fall thru and become severely injured. And don’t bump into it in the dark! I’ve seen this “traincar” floorplan in SD County condos before and it is a joke, IMO. It is a classic example of the developer trying to squeeze as many townhomes on a city block as they can.

Several posts in this thread suggest that the rental return percentages were good for those who bought in late 2009 thru as late as late 2011 (in some areas) and that buying an investment property for a reasonable price is over in SD County, for the most part. If there has actually been a 100K “uptick” in prices since other Piggs may have purchased in or near this MM complex (as was suggested here earlier), then this is all the more reason why this condo isn’t worth today’s asking price. I seriously doubt any Piggs would pay “today’s” listed price for it.

In any case, this doesn’t apply to Eve’s situation as she is in a position to pay cash for a rental property NOW.

You also comment on a typical North Park tenant-couple applicant as being possibly one “professional” and one “hairdresser-type.” And also that tenants in MM are all “professionals” (whatever that is supposed to mean). That condo in MM could barely hold two people (and their stuff) with room to turn around. Hopefully, it has a dedicated garage to itself or assigned storage closet. Don’t tell me that the “MM rental-applicant crowd” isn’t full of single-parent families, para professionals and blue collar applicants cuz I’m not buying it. MM is actually blue collar, white collar AND retired and always has been. It is NOT, by any stretch of the imagination, “upscale” or sought after by the well-heeled as is parts of North Park and its close surrounds (South Park and Normal Heights).

If two highly-paid “professionals” who work in Sorrento Valley or Sorrento Mesa choose to rent together instead of buy, they have dozens of vacant rental units in the UTC area, LJ Colony and Carmel Valley to choose from. They don’t have to rent in MM.

I laughed at your statement here that the typical girlfriend/spouse co-tenant in NP is only a (lowly?) “hairdresser type” (and therefore probably doesn’t qualify to be a co-tenant)? It’s funny to me because several regular male posters have posted here that their spouses/SO’s do NOTHING. Meaning they have no “career” whatsoever. They stay home … are housewives, so to speak.

I suggested that Eve might be able to find a light or cosmetic fixer in a nicely gentrified area … I erred when I suggested she shop for SFR’s >1000 sf on a 5000+ sf lot. I meant <=1000 sf on a 5000 sf lot (750 sf to 1200 sf or larger if she can find it). You state NP is "hip" and commands high rent yet you state MM attracts a better tenant and so commands higher rent (for a comparably sized condo/SFR)? That doesn’t make sense, Flyer. Most of those ~1000 sf (circa 1925-1935) houses in NP (92104) have open layouts, sometimes with pocket doors between the dining area and LR (can be opened up to one big room). They usually have a BIG bathroom and two fairly good-sized bedrooms. Over half have one or 1-1/2 car garages. If there is any “traincar-like” homes nearby (like our sample condo here with a ~$235 mo HOA dues obligation), they are likely in NW Univ Heights (92103). I don’t recommend that area for that reason as well as its many odd-shaped substandard lots.

I DID warn Eve that tenant-families could be a lot more of a headache (if she intended to manage herself) but I disagree that tenants in MM are any less of a headache than the urban area(s) she was shopping in. MM, PQ and several other North City SD communities all have their share of Section 8 and other assorted “fixed income” tenants and tenant-applicants.

You’ve also stated here that most (or all) houses listed today for $350K in SD County are located “in the ‘hood” (does this include any possible $350K houses in MM?) and therefore wouldn’t make good investment properties. I disagree that a $350K house listed in SD County today, especially one purchased with all cash, would necessarily be located in “the ‘hood,” whatever the h@ll that is supposed to mean. Eve CAN likely purchase a small 3 bdrm SFR in South, East or Inland North County for $350K all cash today. But it would likely attract applicants with children. Just like the family tenant-applicants in MM, MANY of those applicants are looking for a rental in the area where they grew up because that is where they have relatives nearby to help them with their children. They may very well be a “professional” and even work in Sorrento Mesa/Valley but need to live near family for childcare reasons.

Contrary to the seemingly “popular belief” here, tenants living outside of surrounding zip codes to SD’s high tech office parks aren’t all running brown paper bags in and out of vehicles parked in their driveways for a minute and a half just as soon as dusk sets in. I know it might be kind of a stretch for a few Piggs, but open up your minds just a little. Or better yet, get in your car and this time, get off fwy exits you never have before. Start with the areas which have active SFR listings today for $325K to $400K and do “drive-bys.” If there are any listings in this price range in MM, you can start there, and then compare those streets to streets elsewhere in the county with SFR listings. You might be surprised at the pride of ownership on a lot of these blocks and the level of owner-occupancy, even though they are relatively far away from high-tech office parks. You might also find areas with mature trees you like and houses in this price range spaced a bit further apart than those in MM in this price range. Shocking, I know, but …. they DO exist!

[bearishgurl]

[quote=FlyerInHi]Bearish, the proof is in the pudding.

The exact same floor plan I suggested rents for $1,800 per month. And it will go quick. I only saw one on CL. There are few condos on the westside of mira mesa near Sorrento, so professionals taking jobs in the area don’t have a lot of choices (there are new apartments on the east side of MM at I15).

http://sandiego.craigslist.org/csd/apa/4115841533.html

Now show me what else you can buy in the other areas of San Diego you suggested, for $350k, and rents for $1,800 (I’d personally make it nicer and more modern like a downtown condo and charge $2,000)

Question is that really the kind the return the OP wants?[/quote]

I looked on the map and Calle Cristobal in this area appears to be part of the portion which was annexed to MM in recent years. I also noticed that the neither of the listings (sale and rental) for both of your suggestions (in the same complex?) have garages. The rental listing states two parking spaces (uncovered?). $1800 month is a LOT TO PAY to live in a traincar apt. I’m curious what the average length of tenancy is there at that rental price point.

I disagree that tenants who work in that area only have the *new* areas of MM to choose from (the far west and the far east). As I just posted, they have townhomes in the UTC area (w/MANY 3-4 bdrm multilevel units with two-car garages), LJ Colony and Carmel Valley. ALL of those areas are superior to MM, imho, for a variety of reasons. (No offense intended, AN … they just ARE.)

A small SFR anywhere in SD County could easily rent for $1800 mo or more and the owner wouldn’t have HOA dues. Eve won’t be taking out a mtg so she doesn’t have to worry about ROI and cash flow as much as an investor who borrowed most of their purchase money (as AN posted earlier).

[FlyerInHi]

BG, I can tell you that I did a lot of research. I’ve been to that complex and visited. The HOA there is actually lower than similar one in North Park, or Mission Valley.

I didn’t say that North Park commands higher rents. I said North Park comments comparatively higher prices for similar rents.

North Park often requires both residents’ incomes to qualify. In Sorrento, 1 tech employee’s salary qualifies. That’s the difference I’m talking about. BTW, I have nothing against hairdresser, artists, or whatever, but as a landlord, I like to fax a form to an HR department to verify income. I don’t want to talk to a small business owner who might be the tenant’s buddy.

And, no, there are not plenty of rentals in the UTC, La Jolla Colony, and nearby areas.

Anyway, show me a link of a $350k house.

[spdrun]

Expect to pay up to 50% of income on expenses (property manager, maintenance, insurance, HOAs, vacancy, lease fee, advertising, some utilities, property tax).

Condo doesn’t need a property manager and if you pick the right one, maintenance is minimal. Insurance is mostly picked up by the HOA fee, landlord’s liability is cheap. What lease fee? What advertising? Craigslist is free, and I’ve never checked a tenant’s credit, just interviewed VERRRRRY carefully, asked for multiple references, checked them out online, and looked if the story made sense.

[FlyerInHi]

BTW, here is the competition on the same street. Not quite the competition because it’s brand new.

High $300 for a 1000sf 1-bedroom.
http://www.pardeehomes.com/sorrento-valley/sorrento-ridge

You might not like it, but other people are paying cash in many cases.

I’m not saying that it’s a good buy. I’m just looking at available inventory in SD for that price point.

Personally, I’ve given up buying in SD and I’ve been looking elsewhere beginning 2 years ago.

I think that for those who were smart enough to buy at the bottom in Mira Mesa, 20 years from now, they’ll look smart. Qualcomm and the tech businesses are changing the demographics (like what happened in San Jose).

[spdrun]

I just saw a 2-bedroom list (and go quickly) for a bit under $200k in Mission Valley. Early 80s construction, but nothing horrible if you’re not squeamish.

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