Welcome! Owning San Diego County rentals is a low-risk escalator to wealth. Current owners probably made less and knew less when they bought than you now earn, and you already know.
Years ago, you learned to ride a bike. Skinning your knee provided a learning opportunity. Apartment investing is also a “learn by doing” experience. A few minutes with this list will decrease your scrapes as you learn.
Life is not fair. But you’ve already won. You are wealthy and have terrific income. Otherwise, you would not even be in this game. Your mom was both right and wrong: you are special but you’re not that special.
So, here are some market truths. We may not like them, but we must deal with them.
- Most buyers earn more in their day jobs than most sellers. Most buyers have superior technology competence. That’s nice. But sellers will only be impressed, by how much the buyer will pay, how realistic the buyer is, and whether the buyer will perform according to the contract.
- 1000+ qualified investors want to buy San Diego County apartments but fewer than 300 buildings will sell this year. Expect multiple offers on most assets you are interested in. The few successful buyers usually just barely finish ahead of their competitors. In other words, tiny details can be the winning edge.
- Unless COVID or the recession get worse, or the T bill rate climbs 0.5% or 1031 tax deferred exchange is repealed apartment values will rise 4% or more. That value trend can mean 10% increase on the buyer’s equity for owning for a year. Buying with 40% down is common. Thus a 4% increase means a 10% return on equity in the first year.
- Novices prefer fancy ZIP Codes to humble ones. So do most investors, which is why beach zip codes sell for twice as much as inland areas. Seasoned professionals know that the most profit is in the less glamorous ZIP Codes.
- Tax policies favor rental owners more than they favor investors in stocks and bonds. Most long-term rental owners have had better economic results than their siblings who invested in stocks.
- In most years, less than 3% of San Diego County’s apartment buildings sell. Most rental owners won’t sell another building again within the next decade. Unless you’re related to them, the odds are extremely slim they’ll ever sell another property to you.
- Experienced rental owners are not desperate, despite COVID, its recession, and the disproportionate burden imposed by state and local government eviction and rent collection policies.
- Government policies have caused San Diego County’s 100,000-unit rental housing shortage which will take more than a decade to correct. There is no evidence that this year will be enough built to handle this year’s rental demand. I expect that in two years, five years, and ten years, the rental shortage will be greater than today.
- Used buildings are, well, used. Most San Diego County apartment building are at least 50 years old. Most have the original kitchens and bathrooms. Perhaps half of San Diego’s buildings utilize sewer pipe which has exceeded its expected life. Most electrical service is half what would be required today. If you upgrade the electrical, your residents will pay more rent to enjoy hairdryers, microwaves and 21st century electronics.
- Too many brokers and owners advertise incomplete or inaccurate income and expense info. A seasoned broker can cut through the stuff better than you can.
You don’t know what you don’t know. Humility and eagerness to learn can help you. Partner with a broker who is willing to teach you, so that you become a savvy investor faster.
If you are fortunate enough to capture an opportunity, you will serve people with less income and less education than you. Your residents have less margin. They are more economically vulnerable than you are. Please be gentle with them.
People who are afraid of failure will rarely be troubled by success. The game is winnable. Choose wisely. Learn quickly. Avoid folly and knowing it all. Try. Learn something and try again … quickly.
Everything worthwhile you’ve ever done was hard. May you have outrageous success.
May 2021 be your best year so far!
Terry Moore, CCIM is an investment real estate broker with a proven history of success in creating value, 1031 (tax deferred) exchanges, and building wealth through apartment investments. He has taught at UCSD, National University’s MBA program, the Appraisal Institute, SD County Tax Assessor, California Association of Realtors and is a National Certified Commercial Investment Member. He is the author of Building Legacy Wealth: How to Build Wealth and Live a Life Worth Imitating. For more information, contact Terry at [email protected], call 619-497-6424 (Direct), 619-889-1031 (Mobile) or visit www.SanDiegoApartmentBroker.com. (License #0091851).