8 comments to “Random Sunday Thoughts — Invest In San Diego? Nope”

The Mortgage Cicerone on January 28th, 2008 at 12:03 am said:

• Hi Jeff - I love San Diego and it has a whole lot to offer, but best Mexican food is not a title it can claim. I travel a lot and I can definately say the State of New Mexico ROCKS when you are talking mexican food.

  That said, ever since my 10 year old daughter spent 2 weeks in San Diego last June, there isn’t a week she doesn’t try to talk my wife and I to move to San Diego…of course she wants a place on the beach!

Brecht Palombo on January 28th, 2008 at 6:08 am said:

• Jeff - we have the same issue here in Boston as you do in SD. I’m finding that still equity rich investors are picking up high 6 and low 7 caps on just about anything thats in a decent neighborhood with a dozen units or more (i do mostly multifamily) - Long term value plays I suppose.

BawldGuy on January 28th, 2008 at 9:33 am said:

• Tony — Haven’t been to New Mexico yet, but I’ll take your word for it. SD sets a fairly high standard though. Now you’ve got me anticipating another trip.

  Why should your daughter be any different everyone else’s when it comes to living at the beach?

BawldGuy on January 28th, 2008 at 9:46 am said:

• Brecht — I’m unacquainted with the Boston market. We tend to steer around properties with more than four units because the interest rates are generally higher, as are the down payment requirements.

  For the same capital it takes to acquire a 15 unit apartment complex, the investor can instead cut their down payment in half (or more) and end up owning at least twice to properties as measured in value.

  Long term value is better than long term nothing, but when compared to the above example, it pales.

  Don’t be a stranger Brecht.

Sam Guillen on January 28th, 2008 at 11:59 am said:

• Thanks for the mention. I too enjoyed the conversation and the Gringo Mexican food.

  I also wanted to qualify my investment strategy. But before I do, let me say I am 100% in agreement with your school of thought for those who are capitally limited(anything higher than 60% LTV). The cost of acquisition outside California does provide for terriffic opportunities. But for those who do have “conventional wisdom” funds, have a greater opportunity for sustainable growth and quicker burst of appreciation in the highest demand areas (SD, LA, NY, SF).

  California, has always and will always out perform other states. For 17 of the last 30 years appreciation has been north of 12% annually with numerous 15%-25% bursts. Only 8 of those years have been in negative territory and the remaining 5 are zero to 10%.

  So if I leverage $500,000 (down 15% of it’s recent high) over two properties with $200,000 capital (yes, there are opportunities available at $250,000 in SD, but that’s for a different discussion) I cash flow, not much cash… but it is in the black.

  Now factor in one 12% burst (when ever that may be between now and the next 4-5 years) that’s $120k. I won’t mention the 3% and 4% nominal increases in between.

  Next, add in my tax base… the base that has stayed the same since acquisition because of Prop 13. If out-of-state investment is unable to keep reassessment at bay, the 4% - 7% annual appreciation is forcibly reduced. It could mean the difference between Black and Red from one year to the next for those marginal flow investments. So at the end of the same 4-5 year period out-of-state is no better.

  That’s what tipped it for me. Property taxes!

  In California, Prop 13 gives us the affordability to maintain our tax base at acquisition however long I choose (have to) keep the property.

  I suppose it is apple and oranges. Because without capital, California will eat you up.

  With that said, I will be looking to hedge my bet with a few “small” capital investments outside of Cali (smaller 1031’s) as result of our time together.

BawldGuy on January 28th, 2008 at 12:12 pm said:

• Sam — Gringo Mexican food — love it.

  The underlying problem with investing serious capital in San Diego is twofold.

  1. You already say the only thing you can make work is the one bedroom condo. Your argument is fine, except for #2.

  2. Your sly insertion saying — I won’t mention the 3% and 4% nominal increases in between. — assumes San Diego real estate will rise in value this year. I’m always open for evidence of this, but I just don’t see it happening.

  Even if your small condos went up 5% yearly, your capital growth rate, (the only growth rate that actually matters) is 2-4 times less than out state capital. You put 30% down, they put 10%.

  Their capital grows 3 times faster. How are you ahead? After 4-5 years, you’re so far behind you’ll literally need a 20-30% jump in one year just to be ‘not so far behind’.

  Next thing you know, the out of state investor executes a 1031 exchange, turbo charging anew their capital growth rate. This puts you even further behind.

  The numbers just don’t lobby for investment into SD real estate.

  Meanwhile, back at the ranch, I’m looking forward to knowing you better. Friday was not only fun, but informative. I’m afraid Josh and I got the better deal, listening to you explain your business model.

  We’ll try to bring more to the table next time.

Sam Guillen on January 28th, 2008 at 12:53 pm said:

• Well Said

  I suppose the question is:
  Would you like 500% of $1 or 10% of $100?

  Thing is the $100 is hard to come by.

  Business Model? What Business Model….

  Transparency, accountability and common sense is hardly a business model…

BawldGuy on January 28th, 2008 at 1:00 pm said:

• Notice I gave no details.

  >I suppose the question is:
  Would you like 500% of $1 or 10% of $100?

  Bottom line? Given the same initial capital, who ends up with the most capital in terms of dollars at the end of the game?

  Dad used to put your quote a little differently. ‘10% of somethin’ is better than 100% of nothin’.’

  Time will tell, as my crystal ball has been cracked for quite some time.

Leave a Reply