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Greg

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Reply with quote  #1 
I just googled this topic and found the slightly aged Zillow thread below. What do you guys think ?

https://www.zillow.com/advice-thread/currently-what-is-the-best-area-to-buy-an-investment-property-in-san-diego-ca/475146/

rickencin

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Reply with quote  #2 
The least expensive homes tend to have the highest CAP and ROI which is something like rent/purchase price.  A 50% increase in home price rarely provides a 50% increase in rent.  There are other considerations.  Homes need to have easy access to jobs and not be in a war zone.  There are hundreds of secondary and tertiary issues. 
San Diego Association of Realtors has a median price by zig code page.  It is small type so I had to zoom to 200% to read it.
http://www.sdar.com/media/CurrentStats.pdf
I would start my search for best cashflow in the zip codes with the lowest median prices that have access to jobs and are not in crime central.

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Greg

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Reply with quote  #3 
Quote:
Originally Posted by rickencin
The least expensive homes tend to have the highest CAP and ROI which is something like rent/purchase price.  A 50% increase in home price rarely provides a 50% increase in rent.  There are other considerations.  Homes need to have easy access to jobs and not be in a war zone.  There are hundreds of secondary and tertiary issues. 
San Diego Association of Realtors has a median price by zig code page.  It is small type so I had to zoom to 200% to read it.
http://www.sdar.com/media/CurrentStats.pdf
I would start my search for best cashflow in the zip codes with the lowest median prices that have access to jobs and are not in crime central.


Thanks Rick. I guess that basic rule always applies - cheaper home = higher cash flow. And then the lowest price homes are out because they are too war zone.


larrywww

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Reply with quote  #4 
Some of the posters were answering a slightly different question: Where should you have invested in 2009 if you had 20/20 hindsight about future appreciation? I don't really know the San Diego market.  But, if you take what was said in the comments section at face value, it sounds as if you bought houses for $150,000 in Escondido (that ultimately were worth $300,000) that you would have ample cash flow and could even refinance at 100% of what you paid to keep buying.  And given that such a house would clearly rent far in excess of the 1% amount ($1500), this sounds like a very safe investment.
brycewheeler

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Some comments make it sound like choosing to buy a house in Escondido in 2009 for $150,000 (which was worth $300,000) was a decision a reasoned investor could make with endless calculations based on a thorough due diligence investigation and methodically proceed.  This quiet, fact-filled environment for real estate did not exist in 2009 in San Diego area for many reasons.

Many "Experts" thought buying in 2009 was pure stupidity because the market was falling like a hot knife through butter, and that it was only going to get worse.  Then that house with MLS price on $150,000 most likely had only the briefest, or NO description in the  MLS listing, saying only that the Seller never lived in the premises and was thus excused from making any disclosures to a Buyer.  That same listing probably also said the house was sold only "AS-IS"  with no termite report, no repairs of any kind and ALL-CASH strongly preferred.  The house may or may not be easily available to look at.

A great many investors at that time may have been horrified to even think ab0ut making an offer of any kind on such a risky property and dropped it without another thought.  But another group of investors in northern San Diego County licked their chops and dove in with offers to purchase.  That group probably consisted of 40 to 50 investors, of which 20 or so were quite active.  They believed that while the housing market bottom was probably not reached yet, it was getting so close you could hear the scraping along the bottom-close enough for them.  They were not going to wait for some Expert to ring the bell so the stampede could start.

So flying by the seat of their pants, a few dove in making an offer asking for loans, termite reports, disclosres etc etc.  Offers like that, even full price, were most likely turned down because there were always a handful of fearless investors who on minimal information on the house made an offer, usually more than Full Price, with NO conditions etc at $155,000 or more for the $150,000 wreck of a house.  I say "wreck" because most "bargain-priced" homes at that time selling for prices like that were lost by owners who knew they would lose their homes and of course made no repairs for years and let everything run down.  Almost none of those bargain priced homes could be rented out at all unless many repairs were made just to make them rentable at all.  So to be rented out, that "$150,000"  home suddenly had $180,000 in it, not the $150k. 

So did our investor offering $155k for the $150k listed home get the home.  Maybe not because there was 3 to 6 other all cash offers.  I was one of those investors that typically lost out on many strong offers.  Maybe one of the other offers was made by the agents brother, or maybe one of the offers was made to the listing agent whereby that agent could double-end the commission, or who knows what.

To increase my chances of success on my offers, I typically stated I would accept  AS-IS, would not ask any conditions, no termite report etc.  Also to be competitve I had to offer $10,000 or even  up to $25,000 earnest money deposit to have my offer stand out and possibly be accepted.  So instead of methodically calculating a cool, well reasoned offer based on tons of due diligence, I or other investors had to be aggressive bull-dogs quickly jumping on any listing that had a semplence of breath to it, and hope for the best.  It was the wild west for this small group of agressive investors.  And for the majority of other well reasoned investors, they waited until 2011, 2012 and 2013 to jump in when the market was
back to a slower paced, well-reasoned real estate market when disclosures could again be demanded in the normal cours of business.

And once you have a winning offer, could you quickly refi and proceed on with the game???  Not so fast!!   Would you believe, many banks would not refinance a "free and clear" home  because they had policies of not putting fresh money on homes with no existing loans, as they would only refi old existing loans or other crazy policies.  But of course with searching there were other banks with more sensible policies so the game could  proceed, but it was not always simple to find a sane bank.

In 2009 (and late 2008), an investor for bargain priced homes might have to make 5 to 10 offer quickly packaged offers to get one or two where he or she might be in the running to have your offer considered.  It was not always a fair market either.  I remember having the broker call me saying my offer was the winner of a nice home, and then when I called an hour later so say I still had not gotten his formal acceptance, he said he was sorry to tell me that just before he could send that to me, he got a call offering $3,000 more than my offer so he accepted that instead.  Crooked, crooked, crooked, but it happened.  Sue?  Sure but what a waste of time.  Instead very pissed but practical, I went back to me property searching, making offers and hoping to wrap up the next one with an honest agent.

Bryce

larrywww

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Reply with quote  #6 
I disagree that everyone (or nearly everyone) was advising buyers not to buy in 2009----Bruce Norris wasn't.  And, as I recall, his talks during the time frame didn't buy into the prevailing negative attitude toward real estate.  

I also recall that Rick Solis hesitated about jumping into the market----and later excoriated himself because there were truly screaming deals to be made at this time.

I can't testify as to precisely what was happening in San Diego, but I think 20/20 hindsight will show that there were some excellent deals available.

If you look at Bruce's talk in May of 2009, he makes the following statement:

"In the last several months, The Norris Group has purchased 30 lender owned properties. On these 30 properties, the lenders were owed $10,141,900. We snatched them for $2,921,717. The lenders took a 71% hit! What’s going on here?

We are witnessing the greatest transference of wealth, IN HISTORY!

I’m in the trenches everyday as an investor. I know things you couldn’t possibly know. I know first-hand that lenders have thrown in the towel. They are running away from properties, giving huge discounts, and have radically changed their approach to investor offers in just the past 60 days."

These are not the statements of someone who is negative about buying real estate!

brycewheeler

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Reply with quote  #7 
I agree.  Bruce Norris was not one of those stodgy Conservative types, he was among us early bottom-feeding investors.  Most of us started in 2008, not 2009, and I suspect Bruce was buying in 2008 also altho I am sure Bruce Norris was much more heavily armed with data and insight than the rest of us wild investors, but in any event we were not going to wait for some Expert to ring a bell and declare the bottom was reached.  Investing then was not for the plodding, faint of heart investor but it sure turned out to be profitable.  2008, 2009 & 2010 had the low lying fruit.  In 2010 and 2011 marked the early price upswings.  By late 2012, things started to get relatively pricier and it was hard to find properties which still penciled out as an investment with a little mistake margin still left in.  I bought my last Calif. rental property in 2012.
larrywww

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Reply with quote  #8 
I wasn't trying to criticize you as an investor because I know everyone has their own specific circumstances----and not everyone could afford to pay all cash, which was the easiest way to get an offer accepted.

And I don't know about the San Diego markets----Bruce mainly described the downturn in the market in the Inland Empire----and the way that Bruce described it in 2009 something like 2/3 (or maybe more I can't recall) of all sales were distressed sales.   And the inventory was so unbelievably large---there were properties for every $1000---maybe even several----getting really cheap properties like shooting fish in a barrel for quite a while.   Even if a specific lender refused to play ball, there were plenty more to do business with.   When the lenders flooded the market, it was just astonishing---a once in a lifetime opportunity.  And this was long before the hedge funds invaded.

But the point I would make---even the free advice that Bruce Norris has given----even if you never bought any of his products but just relied upon the advice he gave in his talks at Sdcia----was really good advice by  20/20 hindsight.  He encouraged investors to jump in the market in the late 90s with the California Comeback----he advised everyone to jump out of the market in late 2005 with his crash report----and he encouraged everyone to jump back in late 2008 / early 2009.    Since these times the market forces have been muddled by unusual lender policies, sidelining alot of the inventory to hedge funds, government intervention and other variables that aren't normal market forces.  But that is stiall a really admirable track record.  

Since most investors had alot of money at stake, investing in Bruce's report was largely a no brainer.  But even if you didn't do that, the basic contours of his conclusions were frequently available to those who just attended the meetings.

And while we are on the subject---Ward Hannigan said the same thing during the same time frame.   I was listening to the 2 podcasts Ward made in February of 2009 for the Norris Group----and he was affirming the wisdom of buying at that time (the really good market was just starting).

mks_97

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Reply with quote  #9 
I bought back in 2009. The reasons I bought were the following:

. I had never bought investment real estate before. Total newbie. I had no idea about RE cycles etc.

. I had a bunch of passive losses due to some prior bad investments. The best way for me to write them off was by getting rental income.

. I used a spreadsheet and anything that gave me a 10% return on my money made a lot of sense to me.

I was warned by several investors that it was too early to buy as a Tsunami of REO's was on its away. As far as I was concerned, any investment that yielded a 10% return was an investment I was interested in. The Tsunami never materialized. My last acquisition was  in Jan 2103 as the yields were going below 10%. It probably wasn't my best decision as I underestimated how high rents could climb.

If I was a seasoned investor, I might have been burned by the downturn and may have ended up running for the hills in 2009.
brycewheeler

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Reply with quote  #10 
mks_97

Congratulations on your good thinking.  Common sense plus great sense ( your 10% required return)  made you a winner.

Do you plan to hold forever or do you have any guidelines on when to sell?

Bryce
mks_97

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Reply with quote  #11 
Thanks Bryce.

I plan to hold as I have used the equity in the properties to do cash out refi's . I have moved those funds to other investments (lending, other asset classes such as storage units, mobile home parks, etc.). 

I have 30 yr fixed loans on these so my income stream is fairly predictable. If I sell, it will be due to the management overhead. Its hard to find good PM's and self management can be painful sometimes.
mlreits

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Reply with quote  #12 
I also started buy-and-hold in 2009 for a different reason. I've observed the Bay Area real estate market since 1999, but didn't know how to break-in given how expensive it was and interest rate was at 8% at the time. I continued to monitor the housing market until it crashed in 2008-2009.

My formula was 75% of monthly rent covers PITIA. This way, it doesn't add any financial burden on our borrowing capacity. 

I knew real estate is about control and leverage responsibly and let time work for you. ;D

My goal was to buy 10 rentals and done. I got to 7 rentals under my wife and my name and 8 rentals with a couple of partners (50/50 each) so our share was 11 rentals by summer 2013. I was happy with it and was working on a strategy to pay them off. 

Then it was mks_97's fault. He introduced his college buddy to me in late 2012. I showed his college buddy the rope but his buddy said he wanted to scale so we started doing some syndications by buying small multi-family in our market. We bought 18 units with our investors (mostly friends and family) between 2013-2014. Then my partner said "not enough deal flow, let's keep everything to ourselves." Since then, we have accumulated 42 units together and generated about $3.5M worth of equity on these 42 units thanks to our value-add strategy, bought right and thanks to the market of course. I took some of that equity and paid off our primary residence and our in-law parents' home. Happy wife = happy life. Of course our investors are also happy with what they got. 

So.....mks_97, we owe you for your introduction, which resulted in our partnership. To celebrate our achievement when we finally "got paid" this year from one of our investments, each of us went and bought a new Tesla. He got a Model X while I got a Model S. Both cars are white on white. We both have this on our license plate frame. 

If You Can Dream it....jpg 

Cheers! [thumb]
Minh


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rickencin

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Reply with quote  #13 
Quote:
Originally Posted by mlreits
Since then, we have accumulated 42 units together and generated about $3.5M worth of equity on these 42 units thanks to our value-add strategy, bought right and thanks to the market of course.  

Minh

Well, that is a happy story for a Halloween night.  Congratulations!

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mks_97

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Reply with quote  #14 
Minh,

You give me more credit than is due. You folks were the ones who took the initiative and made the bold decisions! In hindsight, I wish I had invested in the bay area. I was a bit spoiled with the 10 cap properties we were getting here. 

I looked at Real Estate as a means for cash flow. Capital appreciation was just gravy at the time. I did not think much of it.  However, the  capital appreciation enables investors to cash out and invest in other assets (or teslas [wink]. Good thing we have non-recourse loans in CA !



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Reply with quote  #15 
Way to go, Minh.
mlreits

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Reply with quote  #16 
Thanks Rick and Thanks Paul. It's a dream come true for me. I would never been able to afford a Tesla had I stayed at my W2.

mks_97, you're not the only one who got spoiled. A good friend of mine stopped buying in early 2013 too. Hindsight is 20/20 of course. Who would have thought the market kept on appreciating at a crazy pace while the rent growth has been fantastic too.

Regardless of what you say, WE STILL OWE YOU. If it weren't for the introduction, both of us wouldn't have accomplished what we have had. You know your college buddy is one smart individual, and it shows. My siblings, wife's siblings and my friends, whoever have met and talked to him, all walked away with an impression "Man, that guy is smart." Well, you can't have an 8-figure net worth before 30 years old if you're not smart and hard working. We make a great team though so THANK YOU VERY MUCH FOR THE INTRODUCTION. [biggrin] [biggrin] [biggrin]

Give me a holler the next time you're in town. I'll lend you the Tesla to commute around town. It's one fun car to drive. It flies. I can't stop smiling while driving it. How much does that worth? In fact, I have a new hobby. If my wife doesn't see me in the house, she knows I'm in the garage cleaning the car. [biggrin]

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Nyou

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Reply with quote  #17 
hi mlreits,

what do you think about the rent control in your area and future in CA? will hurt the apartment business?

Nyou
mlreits

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Reply with quote  #18 
Quote:
Originally Posted by Nyou
hi mlreits,

what do you think about the rent control in your area and future in CA? will hurt the apartment business?

Nyou


To me, rent control is annoying, but that's where the opportunity lies. My partner and I don't mind rent control actually. For us, it creates opportunity for the patient and creative investors to buy assets at deep discount value.

As Wayne Gretzky said "A good player goes where the puck is while a great player goes where the puck will be." Investing is a journey and not a destination. Rent control puts up obstacles. The few who can navigate through them can actually make a bundle as we have seen in our Bay Area markets. The stricter the rent control, the more opportunities. That's been our observation. 

As crazy as it may sound, we've been scoping out Oakland and San Francisco markets as their rent control is much tougher than San Jose. We haven't pulled the trigger....yet as the timing is not quite right yet.

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Nyou

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Reply with quote  #19 
Hi mlreits,

i know what you are talking about. my question is that after you get the properties, are you going to keep the properties under rent control? worth to keep them?

Nyou
chatterweb

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Reply with quote  #20 
Quote:
Originally Posted by Nyou
Hi mlreits,

i know what you are talking about. my question is that after you get the properties, are you going to keep the properties under rental control? worth to keep them?

Nyou


He is using rent control as leverage. Or maybe not. Life is a gamble with out a strategy.

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mlreits

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Reply with quote  #21 
Quote:
Originally Posted by Nyou
Hi mlreits,

i know what you are talking about. my question is that after you get the properties, are you going to keep the properties under rent control? worth to keep them?

Nyou


Yes, we keep all our buildings under rent control after acquisition. Our goal is to buy rent control buildings with low in-place rents, bring up the rents, then do a cash-out refinance to get our money back. Rinse and repeat.

It doesn't bother us....yet... to keep it under rent control. Once we got our money out, we just let the tenants buy us the building. We haven't looked into condo conversion....yet.

I have a friend in San Francisco who buys duplexes and triplexes, then convert them to condos to get out of rent control. I also know a guy who bought a 4-plex and went through the Ellis Act and kicked out all of his tenants. The catch is that he had to leave the other 3 units vacant for 5 years under Ellis Act before he could bring them to fair market rents. I know it's crazy, but it's worth it to him. He offered me to stay at his 4plex for free if I ever go up that way. 

I've seen some investors making a killing in rent control cities. One guy is buying in the working neighborhood of Oakland. He'll tie up the asset, negotiate to buy out as many Setion 8 tenants as possible, rehab the units, bring them to market rent, then do a cash-out refinance. His rent to price ratios have been around 1.2-1.3%. On average, he's getting $1,800/unit in rent and all in cost is around $140-$150k/unit. He said the Section 8 tenants would be happy with $5k buy-out as it's free money for them. When they move to another more expensive unit, Section 8 pays the delta while their portion of the rent stays the same.

It seems like every investor has their own niche. As they say "Riches are in the niches."

Cheers.
Minh

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Nyou

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Reply with quote  #22 
Got it. Not easy if has rent control!!
thanks
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