Investor Activity

[Steve Beebo]

I haven’t seen this in the last 12 months – investors buying real estate in San Diego.

I’m not saying that things have bottomed out at all, but I have seen in the past week: one intelligent investor buying a condo in a distress sale at a very low price in Mira Mesa, and another investor, who I don’t know, buying a house to be used as a rental in the last phase of a tract in Valley Center, at a very low price with large incentives added in.

[bubble_contagion]

Low enough to be cash positive or even neutral when renting?

[Steve Beebo]

I don’t what kind of loan they are getting, or what their payment is – I’m just doing the appraisal. But for the property in Valley Center, the sale price is $660,000, with 20% down, so the loan amount is $528,000, and the estimated market rent is $2900 per month. At a 6% loan for 30 years, their payment alone would be $3300+. Real estate taxes add maybe $9,000 per year.

[lendingbubblecontinues]

Someone please help me here…

I can’t, for the life of me, imagine who on Earth would pay $2900 to rent a house in Valley Center. It seems to me that one who can afford to pay $2900 a month in rent would not live so far out. This guy better have funds on hand to pay the carrying costs for at least 12 months while he tries to find a renter.

Sounds like another stupid move to me, made by yet another uninformed California jackass.

P.S. Yes, I have been to Valley Center.

[Steve Beebo]

This is a new house just off a golf course in a gated development, if it matters.

[sdcellar]

I’m not sure if lendingbubbleco… mentioned that it was in Valley Center.

Also, don’t forget that his $120k or so for the down could probably be doing something for him. Savvy investor, that.

[Daniel]

I do believe that at this point one can pick up low-end condos and rent them out cash-flow positive. That part of the market already got hit much harder than the SFR market, and the rents aren’t too bad. But I’m very skeptical that the same is possible with higher-end properties. I haven’t yet seen anything above $500K that could remotely be cash-flow positive.

[(former)FormerSanDiegan]

The investors purchasing now are jumping the gun.
For the past 6-7 years I’ve owned a SFR rental in SD. Every few months I look at the market and run the numbers. Last time it made sense was in early 2003 for SFRs.

I agree that condos may appear to get to break-even cash flow first, but the HOA fees and the lack of control over supplemental HOA assessments for unforeseen maintenance and repairs means that the positive cash flow on paper is less likely to happen in reality.

IMO we still have another 10-20% downside for central SD SFRs (don’t know about other areas) before investing starts to make sense … to me.

[lendingbubblecontinues]

And,

Once another 20% is shaved off the central SD SFRs, how comfortable will most “investors” be buying rental property in SD?? I’d be waiting to see what might happen next.

See…this is why the pendulum nearly always overshoots a true equilibrium point. Sentiment and emotions of greed and fear swing equally strong in both directions.

[(former)FormerSanDiegan]

lendingbubble….
Another 20%+ and “investors” (by quotes I assume that you mean flippers and speculators) will be selling, auctioning and/or gifting their properties at a discount to investors (without quotes … long-term buy and hold income types).

[woodrow]

I don't what kind of loan they are getting, or what their payment is – I'm just doing the appraisal. But for the property in Valley Center, the sale price is $660,000, with 20% down, so the loan amount is $528,000, and the estimated market rent is $2900 per month. At a 6% loan for 30 years, their payment alone would be $3300+. Real estate taxes add maybe $9,000 per year.

How is this an "intelligent investment"? Including taxes, the investor owes over $4k per month, and hopes to rent for $2900. That's ~ a $13k loss per year, not taking into account that a modest savings bond will yield + $6k per year on the $120k down payment, or $500 a month.

Essentially, this investor is cash flow negative $1600 a month, before the mortgage break.

 

 

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