San Diego Investment Property — The Year’s #1 Oxymoronic Phrase

I love San Diego. Been here since June 15th, 1967. Wouldn’t make my home anywhere else — period.

Dad used to joke with visitors from other states about living here. He said it only posed one big problem. Where the heck do you go on vacation?

I went to school here. Married and started a family here. My kids lived in two places until they went to college. Both my son and daughter have best friends with whom they went to 2nd grade.

I’m a San Diegan through and through.

I sold my first set of ‘units’ in the ’70′s — a fourplex for well under a hundred grand. Even allowing for the latest price drops, that same fourplex would go today for about $800,000 or so.

Real estate investment means different things to different investors. One thing on which they’ll all agree? When they sell an investment, they’d prefer to net more than they invested in the first place. They’d also like to have some reasonable demand when they sell.

BawldGuy Axiom: If you wouldn’t buy your own San Diego real estate income property at 80% of today’s reduced prices — nobody with three digits in their IQ (before crashing into the first decimal point) will buy it for more in the future. At least nobody who is literate, and values their capital.

We both know, the very thought of paying anywhere near what the market says they’re worth today is insanity. Furthermore, you wouldn’t buy them at today’s prices. Admit it.

Why? He asks, baiting the BawldGuy brazenly.

Your duplex is worth say, $480,000 or so. It’s annual income is about $32,000. Your net income after everything, is roughly $21,000. Don’t start crying about how you’re netting a lot more than that. The dang thing was built 50 years after Moses first wife died for Heaven’s sake. Sure, you’ve kept things in good shape, but really, you and I know how old your stuff really is. OK, if you stop sniffling, we’ll use $23,000 for your net income. Happy now?

A fixed rate loan will come in at 6.5%, maybe 7%. Let’s use the lower of the two, which gives us a fixed monthly payment of $1,896.20 or rounded, $22,755 a year. Oh, did I forget to mention the loan amount? Your less than impressive $23,000 net income will support a whopping $300,000 in debt. Way to go Big Guy — your buyer only needs $180,000 down to break even on an ancient, but incredibly cool San Diego duplex. That’s 37.5% down.

I ask you again, San Diego income property owner — would you buy your own income units today?

Of course not, cuz you realize yer stuck here.

Grandma always admonished me about pointing out a problem without bringing along a solution. Here’s what I suggest you consider. A pause here for disclosure.

BalwdGuy Disclosure: I wouldn’t advise any of my own clients to even consider driving by San Diego investment property, unless it was for comic relief. We sell them though. We just let other local brokers put their clients in the dang things. There is one exception to this. If our client plans to live in the units to save money, or get started, we give them comparisons to analyze.

For instance, if they’ve saved enough to put 10% down on a San Diego duplex, plus closing costs, it means they have around $50,000 saved.

Their options include renting in a San Diego neighborhood superior to one they can afford to own. Meanwhile, their $50,000 could be in Dallas, Austin, Kansas City, or (fill in the blank) — owning two, even three new or near new properties, which, Holy Cow! pay for themselves with slightly less than 37.5% down. Usually 10-15% does it.

Back to your duplex. Let’s say you sell it, and net around $175,000.

Here’s what’s absolutely possible. You can own more than $1.5 Million in income property. They’ll pay for themselves — with professional property management. They’re well located and work well with traditional fixed rate loans.

Let’s say for the next five years, the average appreciation, meaning some years lower and some higher, is 5%. Let’s say it’s only 4%. You gonna get that in San Diego? Dream on. Let’s say you do get 5% in San Diego for the next five years — a pipe dream if ever there was one, at least from where I sit. There’s a better chance of elephants flying.

Staying in San Diego gets you just under $133,000 in appreciation at 5% over five years.

Moving that equity to superior real estate markets, at only 4%, gets you almost 2½ times that amount — a few bucks under $325,000 in those same five years. How ’bout the additional $40-50,000 a year of depreciation as a bonus? For those following at home, that’s an annual tax savings of around $12-16,000 every year for five years. Wait just a darn minute! That means besides the almost $200,000 more in capital gain, you’ll be keeping around $50-65,000 of tax savings in your Levi’s to boot.

Let’s add up what you’re losing by staying in San Diego.

Almost $200,000 + at least $50,000 in extra tax savings. (Some of those tax savings will come in yearly on your tax returns, some at sale.)

How’d you like a minimum of A QUARTER MILLION BUCKS EXTRA over the next five years?

Look, wherever the numbers end up, your pouring a huge portion of your potential retirement income down the drain by keeping your equity here. Over the next 10-20 years, depending upon your age, you’ll be $500,000 to over $1 Million ahead by trading your equity from San Diego to a region making much more sense.

It’s worth repeating: This is serious stuff — by keeping your real estate investment capital in San Diego, you’re literally pouring much of your retirement income down the drain.

A million bucks extra at retirement will be an additional $5,000 to $6,500 a month in retirement income. No bull. No smoke, no mirrors. This is 8th grade math, and you know it.

Living in an oxymoronic investment world is a sure way to reducing the quality of your retirement.

Your retirement — That is why you began investing in the first place, right?

Thought so.

Stop procrastinating and call us. It’s not as easy as falling off a log. It’s a heckuva lot easier than living 30 years of retirement with $5-10,000 a month less than you could’ve had. We’ll sit down with you, over a superb cup of coffee, and figure out your personal investment situation. Even if you never pull the trigger, it’ll be worth knowing what’s possible, right?

Call us — you know it’s the smart thing to do. We’re easy, and we’re fun. Just ask for the BawldGuy.

Related posts:

1. San Diego Income Property Owners: Are You Investing For Growth?
2. 40 Years In San Diego — Changes — Lunch With Mom
3. San Diego Real Estate Investors — Some Reasons to Invest Out of State — Try Texas
4. Live in Paradise — But Don’t Buy Income Property There
5. Investing In San Diego? How’s That Workin’ Out?