This isn’t about keeping something out of your backyard, it’s about whether or not it makes sense for you to invest your hard earned capital into your own area’s real estate. If you live in San Diego as I do, you know what the history of real estate has been. In a nutshell, if you invested and let it be, depending upon the cycle, sooner or later (never real long) your capital grew — big time. That was the case from the 1970′s ’till late 2005 or so.
For the record, San Diego is not, by any stretch of the imagination, the Lone Ranger in this. It’s true for California in general. Look at where you live. Is the median price of a home affordable for the typical family? No? See, it’s a matter of degree. San Diego is ecstatic cuz their median home price is now under $400,000! What’s your region’s median price? If it’s much over $200,000 the regular folk are beginning to be crowded out. If that’s the case, your 1-4 unit residential income properties are already becoming less attractive.
Enter what appears to be a paradigm shift — in fact two .
Since we can all remember, real estate investing has been a local exercise. You decided to invest, picked an attractive location and property, then pulled the trigger. For regular folks the option of investing outa town, much less in other states, clearly wasn’t on their menu.
Paradigm Shift #1
San Diego is no longer a slam dunk region in which to invest, especially for retirement. The factors needed to produce a minimum acceptable capital growth rate are plainly out of the picture now. When a down payment of 35-45% is required to simply break even on a 1-4 unit property, it’s time to look elsewhere. Also, there’s the problem of an already aged (as in way to old) product. Pick whatever San Diego neighborhood you prefer, and the youngest properties will still be 20-30 years old. In fact, many of the areas traditionally most attractive to investors are old by definition. Why would you buy a 30-60 year old duplex, put 35% down, then have operating expenses higher than the national norm due to age? Also, and this is crucial, the price to income ratio, regardless of age, is vastly inferior to many regions with better economic futures.
For instance, Boise, Austin, Dallas/Fort Worth MetroPlex, Kansas City, and a few other regions offer much younger (sometimes new) properties for 50-65% or so of San Diego’s (Or say, Palo Alto) prices — but for about the same rental income.
BawldGuy Axiom: When analysis clearly indicates one property, or one region is inferior to another, either believe your analysis or ask yourself why you did the numbers in the first place. The facts are the facts.
Paradigm Shift #2
Just as the world is much smaller than it was 50 years ago, the same is now true when it comes to buying and selling real estate. Real estate investors can now buy, sell, refinance, and exchange real estate in multiple states without leaving their living rooms. It’s a matter of understanding what’s possible, what’s available now on your menu. Once you grasp the potential you have at your disposal, your horizons will expand very positively.
BawldGuy Takeaway: A real estate investor’s insistence on remaining in their own relatively expensive backyard, is now an inferior option when compared to newly available alternatives around the country. You needn’t be ‘area bound’ any longer. Your menu has expanded.
Give me a call at 619 889-7100 or email me. Together we’ll figure out what your potential is. Have a good one.
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“That was the case from the 1970’s ’till late 2005 or so.”
2005? Sir, it is the hen’s tooth that commands so much as its 2003 price. If you bought 2003-2008 any skin you retain is luck, not plan. Don’t get me started on 1988-1995.
You’re cherry pickin’ again.
Fact is, if an investor started with $10,000 in 1975 and still owns what he traded into and/or bought in 2002ish, they’re now worth two comma’s easily. Throw and the low and the high, that’s a fact.
You point on the cartoonish appreciation is preachin’ to the choir, as you already know so well. Love the hen’s tooth analogy.