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?
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About BawldGuy
I’m still in awe of how expensive regular homes are in those places. I imagine the rents there would be enough to actually buy a home in most other places of the country.
Great post.
Thanks Sock.
In San Diego, I sold some duplexes in a blue collar area. They were 43 years old, in good condition. 2/1′s with a one car garage rented for $1,200 easy.
Yup exactly my point. $1200 per month, with say 10% down gets you about a $200,000 home in my town. Would be 3/1 around 1200 sqft.
-Athol
You could do that in SD – with a time machine.
But it’s Sunny and 70 degrees year round. Of course, all you have for baseball is the Padres.
OK Chris, I know it’s Memorial Day Weekend, and you probably had a night out with the wife, had a great time, and drank a little too much.
But seriously, the Pads are in 1st place and the Royals (duh, as usual) are in last place.
Folks, this is evidence – there’s no more die-harder sports fans than in baseball – and especially in KC, where there MUST be something in the water.
Who are the Royals losing to, ah, playing this weekend?
Ah, winners of 7 out of their last 10 and obviously on their way to the pennant.
Okay, okay, okay. I even had a hard time writing that. It’s just nice to know that we’re only two games behind the Yankees…and their payroll is more than the gross national product of all of Kansas City.
Yeah, and if I was A-Rod, I’d be outa there so fast my $2Mil+ monthly salary would have to be forwarded.