Dear Landlords and Investors,
The principles of leverage, supply, demand, and ROI still push appreciation. San Diego has proven to be a wise location for your investment dollars. But, don’t become complacent. Don’t lose track of why you are investing, regardless of how successful you are. Dealing with unexpected issues can make or break your business. So of course, you’re right to want to understand how the current market affects your property values. You deserve expert guidance. Here are details on what you need to know now:
GOLDILOCKS AND THE 3 REALITIES
It’s late August 2023. Rates are over 7%. Would-be sellers with rates at 3-5% aren’t budging. Unless they are leaving town. And the ones who are leaving are all asking the same question. Who could actually afford my property at the current price? The last few folks we’ve helped buy fell into 3 different buyer profiles.
The first buyer profile is a software engineer family from up north. Making over $300k a year. Having been diligent and disciplined saved over 20% for down payment. They qualified up to $1.5M but decided to play it safe, at $1,235,000. The truth is there are a lot of these buyers in San Diego right now. Did our buyers get that exact neighborhood they wanted at first? No. But, they did get a great location that wasn’t even on their radar. This also gave them an even bigger size property and lot than what they thought they could buy. It’s a location that has the potential for a boom too. Due to the new Apple Campus being down the street. They stretched their search criteria. Which is what a lot of folks are doing now. It happens after getting beat out of several offers. And by hundreds of thousands of dollars on each offer. So, they settled. Yep, right into what turned out to be an even better situation for their family. Lower priced, bigger home, and a view lot. With an extra bedroom for a dedicated home office in a hot neighborhood. It’s only a bit North of where they were first looking.
The second buyer profile inherited Mom and Dad’s paid-off home. After capital gains with the sale of that property. He was able to use the proceeds to pay cash on a smaller home. With no concern for the current higher interest rates. Did he settle? Yes. Instead of staying in San Diego County, he ended up in Riverside. In a fixer lake-front property. A sweat equity project that he can make his own. As he works away on his place he’s enjoying the 180-degree lake view. Is a speed boat next on his list, you can bet on it!
The third buyer profile is a first-time buyer couple. Well-qualified with high-paying jobs. Searching in one of the toughest markets we’ve seen in SD in quite a while. Anywhere in the Poway Unified School District. Found a home they didn’t want to lose. Listed at $1,050,000 with 5 offers on the first day it was on the market. Over 60 people through the home during the open house. We talked about their pre-approved traditional 20% down conventional loan. They then decided it may not be enough to seal the deal on this home. So they got creative. And turned to everyone’s favorite bank. The Bank of Mom and Dad. Fortunately for them, they have the Cash to fund the purchase. So their already strong offer goes to the top of the pile. No loan or appraisal contingency. Couple that with super tight investigation contingencies. Giving the seller confidence to move forward with their offer. Especially cause the seller is doing a 1031 exchange on this sale. As of this afternoon, we received notice that the seller went with another offer. Well over our client’s highest at best of $1,205,500! Even coming in with a cash offer, a $155,500 over list, we didn’t get the home. This market is brutal for buyers right now. We will find this family the right home. It will just take a little time.
Traditional buyer searches start out with a wants and needs list. We always try to match that up with what’s currently on the market. No easy tasks when you only have 1,726 homes, 730 condos or townhomes, and 168 2-4 units on the market right now. This is county-wide. San Diego count has over 3 Million people. That ‘wants and needs’ list is gonna need to be a bit flexible. Especially if a buyer is going to actually be able to, buy and own, a property. Guys, nobody wants to be window shopping in this environment.
Perspective needs to set in. In June of 2019, the last normal year before Covid hit. San Diego’s median home price was at $584,420. Fast forward to June 2023. $855,000 is the median home price. Rates were at 4% in 2019 and have jumped to 7% plus in 2023.
BUYING IN TODAY’S 2-4 UNIT MARKET
Shifting to the 2-4 Unit Market, in June of 2019 SD’s median 2-4 unit property was at $762,500. Now this past June, 2023. That median price is at $1,037,500.
Oh but, “We’ll wait until… rates come down. We’ll wait till prices come down. Or our kids finish their grade level. Until we find something that checks off more of our boxes.” We hear it often. All the while, the property values continue to rise. And there is talk of rates rising even more.
You think 7% is bad? Due to AB 1482, our rent control law is state-wide. Rents increased by 10% these last 2 years.
The consequences of not buying now:
- Renting = Negative Equity Where a Mortgage = Positive Equity
- When rates drop, refinance.
- Wait too long and you could get yourself priced out of the market in San Diego!
Currently, there are 50 2-4 units in escrow. And 168 on the market. A majority of them are outdated, with lower-than-average rents. Some are in rough neighborhoods. So the question is why do millionaires buy these used apartments in San Diego? They understand the Power of Leverage. Controlling a large asset with as little down as possible. They recognize the appreciation of real property. It is greater than their gains in the equity markets. Add in cash flow and tax benefits. It’s obvious. Owning income property is much easier and a less risky escalator to long-term wealth. Tax advantages, appreciation, self-amortizing, and cashflow, are but a few benefits. Wealthy people have a solid strategy. “Buy, Refi, Die!”
Thanks to housing shortages and the government’s refusal to address it themselves. (Insert SB9 & SB10). You’ll continue to have a steady renter profile to keep vacancies low and rents high. Oh, one more thing. And it’s a BIG ONE. They ain’t making any more of it. All new apartment buildings are mega multi-unit buildings. Most are owned by large corporations now.
Things to keep in mind on your income property journey. Don’t let you and your ego get in the way of your business. You’re not the only investor out there who is searching for the perfect one, the unicorn. The numbers, the location, the bedroom and bath counts, and value add potential. Yeah, it’d be amazing if it checked off all your boxes. But most 2-4 units in SD were built well before the 80s. They don’t have garages, or updated kitchens and baths. And when they do check off all the boxes. You know fancier neighborhoods, current market rents, and remodeled units. They are coming on the market at top dollar. And most buyers won’t pay those premium prices for finished products. We refer to them as Vanity property. Nothing wrong with vanity property. If you can afford it…
Have a long-term wealth vision. Can you see the potential of what you can make a property over time. Bring your expectations up to speed with current market and property conditions. And have confidence! That way you can pull the trigger when you find something that does match most of your criteria. Checking off enough boxes to be exactly what you want down the road.
Be ready with a full approval. One that is already underwritten and ready to go. Positioning yourself to close in 21 days or less. You’re not the only one eyeing that potential unicorn. Especially when there are only 168 units on the market. You Will have competition. Keep in mind. If a property doesn’t meet your expectations, that other investors won’t find value in that asset. Savvy investors are smart, calculated, and know when to pounce. Especially when they can figure out a path to making a property work for them long term. It may not be right when they buy it. But will definitely be down the road. The last thing you want is to miss out on is the one that got away. Or even worse! Get priced out of the market while waiting on the sidelines.
AND WHEN YOU’RE AT THE END OF THE GAME… READY TO RETIRE FROM LAND LORDING?
Let’s face it. Being a landlord has its ups and downs. If we had to point you in one direction it would be the Delaware Statutory Trust folks. And here’s why. With the DST, you get all the benefits of ownership. Without the hands-on day-to-day dealings of tenants and property management/maintenance. Plus it provides you with cash flow. And in a lot of instances, it’s even more than the relinquished property provided. Second of all, you’ve got professional management and bookkeeping. It’s automatically done for you. We’ve touched on DST options in the past. Don’t be shy, contact us.
Bookmark-Worthy Links
San Diego Real Estate YouTube-Weekly Videos Keep You Connected
Rentometer-House and Apartment Rental Rate Comps
HomeBot-Personalized Home Finance Tool
ALTOS Reports -Powerful Data-Driven Real-Time Zip Code Market Updates
MLS Access for Investment Property -Custom Searches For Investment Property
San Diego Apartment Investors Market Report Archives-Access Past Market Reports
IT’S TIME FOR YOU TO GET THE ROI YOU DESERVE
You’ve worked hard for what you’ve earned, and you’re right to want the best experience. Be confident you have professionals on your side. We use ROI-based marketing. Rest easy knowing we use an organized system to market your property. Employing our highly targeted and proven approach like no one else is what you deserve!
Thinking of selling your property in the next 12 months? Call us today for your strategic marketing consultation at 858-218-4511.
