Great Places To Live Aren’t Always Great Places To Invest — Take San Diego — Please

Posted @ 11:04 pm - Filed under Real Estate Investing, Selling Income Property, San Diego Property Owners, Real Estate Markets, Cash Flow, Buying Income Property, Capital Growth

I’m allowed to talk about San Diego. I’ve lived here for over 40 years. Went to school here. I’ve raised two kids, who still have many of the friends they had in elementary school. I love living here, and frankly, haven’t seen anywhere I’d rather live. I am a San Diegan. Everyone says they live in Paradise, but when compared to San Diego?

Get real.

We’re polite about it, but we know in our hearts — we really live in Paradise. Incredible beaches to the west — great getaways in Mexico to the south — the desert to the east, along with some gorgeous mountain towns — and north? We don’t talk much about that direction. Is anyone bragging lately about their cool trip to L.A. recently? Right, didn’t think so.

Our county is a testament to how long we’ve been around. Newer areas abound in the north and south. Our Gaslamp area downtown is now used by cities around the country as an example of what’s possible. The Coronado Bridge is world famous, as is the Hotel Del. We have homes designed and built by Sears, and homes built for the mega-wealthy which are worth $20Mil +.

How ’bout Balboa Park with all its incredible museums and art? Or the best zoo in America? Or the Wild Animal Park? Or Sea World? Anyone been to our bay lately?

Those reading this as San Diego residents are saying (many loudly I’m sure) I’ve not even done justice to summarizing why it’s so cool living here — and they’re right.

Though we take it for granted, much of our everyday lives are experienced surrounded by scenes found in vacation postcards. There are so many spectacular views in our town, it’s a constant challenge not to be smug about it. We’re so spoiled here.

Our weather is fodder for Jay Leno’s opening monologue. I remember one night, when he was making fun of TV weathermen here. He said, “Tomorrow, we can expect 72˚ with light offshore breezes and clear blue skies with cotton candy clouds. Tonight — mostly dark. Back to you Mark!”

My son and I both live in what’s known here as the East County — western side. I’m 20 minutes from breakfast on the Pacific Beach strand with a view of the beach and the waves escorting surfers in a never ending cycle of perfection.

Our drive to the office is 15 minutes if we hit traffic — on the days our presence there is required.

My daughter also lives in the same part of town, and is currently finishing up her degree. (3 semesters to go!) She walks five minutes to the trolley, which drops her off inside the campus.

Don’t think I’m saying we don’t have our problems. Unless you’ve been living in a cave the last couple weeks, you know Paradise here gets, ah, interrupted from time to time. Putting a positive spin on our recent wildfire(s) experience — when Paradise is threatened, it allows us to realize what we really have here.

Bottom line? For San Diegans — Life Is Good.

In the last few years though, part of our Paradise has been permanently deleted.

Invest in San Diego income property the last 40 years? You’ve done very well. Up times, down times, yer still way ahead of the game. The first fourplex I ever sold was for under $100,000. A client today is waiting for escrow to close on his fourplex — a few bucks under $1 Million!

What sane investor, whether pursuing capital growth or reliable cash flow, pays a million bucks for four units? Look, if the rents were $2,500 a unit, it’d work. They’re just over half that. I won’t bother to do the numbers. Suffice to say, 35% down kinda defeats the whole growth agenda thing, know what I mean, Verne?

Cash flow? That down payment gets you $0 pre-tax cash flow.

Ask the seller of the million dollar fourplex if he’d buy his own fourplex for 20% less than his buyer has agreed to pay. He’ll laugh out loud, as long as the buyer isn’t in the room.

Wanna buy a rental house in San Diego? That idea leaves funny, and goes directly to sad. 50% down brings you a break even cash flow position. Pretty enticing, eh?

If you’re sitting on a lot of equity in San Diego, or own some income property here, you’re nodding your head in agreement.

“There’s a whole ‘nother world out there”, as Great-Grandpa used to say.

That San Diego duplex you’ve owned since 1999? What’s it worth today, $500-750,000 or so?

Would you even contemplate buying it today for 80% of today’s value?

I thought not.

You’re lookin’ at the blue skies of San Diego, and not paying attention to the sign telling you to stop investing here. It just doesn’t make sense no matter how convoluted the logic gets.

I have a solution for you — and you do need a solution, whether you realize the problem or not.

If you’re investing for capital growth, or cash flow — San Diego is your problem.

Your current plan calls for you to keep that small SD rental property?

Growth? In the next 10 years you will have cost yourself at least $500,000 by staying here.

Cash flow? You can’t imagine the income you’re literally throwing away by not trading outa here. If you currently have $250-500,000 in net equity, are you cash flowing $25-50,000 yearly?

Of course you’re not. In fact, you’re not even coming within shouting distance of that kind of cash flow.

Do you want to?

Call me — I know how, and it ain’t rocket science.

This entry was posted on Wednesday, October 31st, 2007 at 11:04 pm and is filed under Real Estate Investing, Selling Income Property, San Diego Property Owners, Real Estate Markets, Cash Flow, Buying Income Property, Capital Growth. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.