Live in Paradise — But Don’t Buy Income Property There

Posted @ 12:19 am - Filed under 1031 Exchanges, Real Estate Investing, San Diego Property Owners, Real Estate Markets

I can think of three major cities that have always been in high demand because of their positive reputation — San Diego, Seattle, and San Francisco. All three offer investors a large supply of 2-4 unit properties. And in all three cities those units will cost somewhere in the vicinity of $500,000-1,500,000. The typical response to prices that high for so little is, “Who would even consider paying that?”

And that’s why selling them will continue to become more difficult each passing year. Why would you make it harder than it needs to be by waiting?

It’s a fair question. In Seattle it’s not uncommon to shell out $5-600,000 for a regular folk kinda home in a decent family oriented neighborhood. Same goes for San Diego. San Francisco? That much will get you a very large closet in an iffy area, with a shared bathroom.

All three cities have crossed the line when it comes to income property, especially the small properties. When it gets to the point where 30% down is still in doubt as to cash flow, it’s time to book a flight outa town for you equities.

Bottom line? Anyone owning income property in those cities, and/or surrounding suburbs, should face reality and move their equity to growth regions with far better price points and and much lower down payment requirements. The longer you wait, the more money you’re losing.

If you have units worth a million bucks in one of these areas, with a net equity of $400,000 — you can easily double or triple the value of the property you own through a 1031 (tax deferred exchange) into one of the lower priced growth regions. The cat will probably be out of the bag by next year, so don’t waste time wondering if you should do it.

This is not a judgment call — it’s a no-brainer. Moving equity into lower priced areas that are years, sometimes decades behind in prices, will turbo charge not only your capital (equity) growth rate, but will also increase your annual depreciation wildly.

If you’re still hesitating — ask yourself this one question.

Assuming you own units in one of these three cities, would you buy them for what they’re worth today?

I didn’t think so. Now I’ll ask you a question.

Why would anyone else?

This entry was posted on Friday, May 25th, 2007 at 12:19 am and is filed under 1031 Exchanges, Real Estate Investing, San Diego Property Owners, Real Estate Markets. 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.