How to Invest in San Diego Real Estate from an Agent’s Perspective
In my 25 years as an investor I’ve personally bought fixer-uppers, repos, new construction, and all types of properties. I’ve flipped properties for a quick profit, held a few short term, and I’m now holding some long term. I’ve learned that there is a season for each style of investing. You might hear someone on TV saying to go buy a fixer-upper and you’ll make money. That’s true in some places and at some times, but not in all places and at all times. You have to know the market.
I frequently get inquiries from the Midwest and back east about investing in San Diego real estate. The important thing is not to expect that investing here is the same as investing elsewhere. For example, in many parts of the country it is possible to buy real estate for 5 or 10% down and have it break even. This is impossible in San Diego since our land values are so high.
Another example is the idea of buying a duplex, living in one and renting out the other. You might have in mind the idea of a duplex or triplex in a very nice residential community. While this is possible in some areas, it is very rare. Most areas that are zoned multi-family are near the freeway, or in some other area unsuitable for single-family residences. Since residents in these areas are almost entirely renters, it may not be an area that you would want to live in. And we don’t have any mixed zoning, where you might find a duplex mixed in with single-family homes.
My favorite is the caller who wants a fixer near the beach for $250,000. Right. The problem is that the land alone, with nothing on it, is worth twice that. They don’t understand that around here the land is usually worth more than the buildings on the land, so the fact that the house is a fixer doesn’t reduce the price by all that much.
Investors here are typically looking for growth, not cash flow. The appreciation over time is so desirable, that investors are willing to accept negative cash flow, or a high down payment, in order to participate in it. The low-down payment investor is forced to look in another county or out of state.
But things have changed recently! The good news is that with the current buyers market, cash flow numbers are looking better than they have in the past 6 years! So it’s now possible to get immediate cash flow while waiting for future growth.
An Example of a Real Estate Investment in San Diego.
Now let’s look at a typical house in say, Oceanside that we want to buy for an investment.
| Price | $320,000 |
| Down payment | 64,000 |
| Loan amount | 256,000 |
| 80% 1st mortgage at 4.5% | 1297 |
| Taxes at 1.2% | 320 |
| Insurance | 40 |
| Homeowner Fees | 65 |
| Total monthly payment | 1722 |
This property will probably rent for $2000 a month, leaving you with a positive cash flow of around $278 a month with 20% down. That’s about a 5.2% return on your $64,000.
Note that this is just a simple cash flow calculation, and does not take into account principle reduction, tax savings, vacancy, management or appreciation.
So why invest in San Diego? Investors buy here because we have the finest climate in the country, we are landlocked by National Forests, the Pacific Ocean, Mexico, and Camp Pendleton, and prices continue to rise, sometimes rapidly. Many buy here just to have a “stake” in this market because they want to eventually retire here, and are afraid they’ll never be able to do it unless they buy now. It’s not an investment for first timers, but if you can afford it, San Diego will be an excellent performer over time.
Another big plus is our property tax structure. Propsition 13 limits taxes to a percentage of your purchase price, typically 1.2%, and then they can only go up 2% a year. So if your taxes are $300 a month, you know that next year they will be $306. This stability is a great advantage to the investor. Compare this with Florida, where they have a hurricane and your taxes go from $2000 to $4000 a year just like that. I can tell you from personal experience, it knocks the heck out of your cash flow calculations.
So what to do? If you have only a little to invest, say $20,000, you will have to focus on investing out of the county. There’s nothing wrong with that, and there are some amazing cash flows to be had in nearby Riverside County right now.
Feel free to contact me to discuss your investment goals. If your thinking of investing in San Diego real estate I can help you. Whether it’s San Diego County, less expensive areas of California, or even out of state, Just call me at 800-469-6391, or email me any time.