It’s incredible how uniform these statistics are, when every month measures different houses and participants. It’s amazing that there isn’t more variance!
It’s still early, there will be another 3-5% added by the late-reporters, but here are the number of May detached sales, and average cost-per-sf:
| Town or Area | Zip Code | 2010 | 2011 |
| Cardiff | 92007 | 10/$500 | 8/$569 |
| NW Carlsbad | 92008 | 16/$353 | 22/$330 |
| SE Carlsbad | 92009 | 45/$262 | 39/$248 |
| NE Carlsbad | 92010 | 8/$280 | 13/$251 |
| SW Carlsbad | 92011 | 21/$296 | 13/$304 |
| Del Mar | 92014 | 8/$443 | 14/$606 |
| Encinitas | 92024 | 47/$370 | 32/$351 |
| La Jolla | 92037 | 26/$660 | 22/$593 |
| SE Oceanside | 92056 | 42/$214 | 37/$198 |
| Poway | 92064 | 51/$276 | 37/$261 |
| RSF | 67+91 | 19/$411 | 20/$415 |
| Solana Bch | 92075 | 6/$847 | 6/$715 |
| N. Vista | 92084 | 22/$185 | 21/$180 |
| West RB | 92127 | 49/$288 | 33/$271 |
| East RB | 92128 | 57/$282 | 26/$267 |
| RP | 92129 | 40/$291 | 28/$255 |
| Carmel Vly | 92130 | 43/$344 | 39/$335 |
| Scripps Rch | 92131 | 26/$274 | 29/$276 |
| NSDCC | usual | 249/$388 | 228/$382 |
| All SD Co. | All | 2,169/$252 | 1,726/$242 |
With all the concern about sales and pricing dropping off the cliff once the housing tax credit expires, I think statistically the market has held up remarkably well. NSDCC = La Jolla to Carlsbad.
If you look at the areas with the larger numbers of sales (which is more statistically relevant) they did go down a decent amount:
-92009 -5.3%
-92924 -5.4%
-92037 -10%
-92056 -7.5%
-92064 -5.4%
-92127 -5.9%
-92128 -5.3%
-92129 -12.3%
-92130 -2.6%
The areas like Cardiff and Del Mar with small numbers of sales are not statistically relevant. I would say those are all decent drops in price, especially AFTER the market has declined the last 4 years already by a lot. I think it’s a really big risk to take a huge down payment and put it down on an expensive house in San Diego. 5-7 years you may lose half of that down payment + if you have to sell, lose another 6% Realtor commission, lose all the fix up money you put into the house, all the closing costs when you bought, all the closing costs when you sell, and possibly lose your mortgage deduction. Doesn’t sound like a very promising investment.
Why not take that $300k you would put down and go by some small investment property somewhere and get a 10% cash-on-cash return? Instead of watching your $300k down payment lose 50% the next 5-7 yrs.
Good with numbers – bad with real life decisions.
@numbers guy,
I am not familiar with investment properties. Based on the scenario you presents here, what happens if your investment property also loses 50% value the next 5-7 yrs? Is it true that as long as the investment property brings in rental income every month, any drop in value is irrelevant unless you have to sell? Am I right?
The same may be said about dividend yielding stocks. As long as the stocks generate good dividend every month or year, it’s less of a concern if the share price drops. Am I correct to liken investment property to dividend yielding stocks regarding their income generating ability? Your dividend income is based on how many shares you own, not on what the share price is at any given day (unless of course the company cuts dividend).
Just kinda thinking how to fund future retirement and where the income stream will be coming from.
One thing to think about is to buy the house as a retirement investment. Then numbers guy’s issues about selling down the road go away.
The house isn’t paying any dividends now, unless you decide to rent it out until you retire and the costs are the investment in the retirement lifestyle down the road.
Then, at retirement, you move into a much nicer coastal house than you could have afforded if you had executed this strategy 5 years ago and probably better than you will be able to afford 10-15 years from now (since real estate – or inflation – always goes up, right? :))
IMO, this strategy makes a lot of sense for boomers with steady income looking for a place to park their cash – safer than stocks and the house will still be there when you are ready to relax!
If you are young enough–consider writing a 15 year mortgage if you can qualify (maybe a 10) and acutally pay it off while you are still relatively young–then clip some coupons!
I still have to see decent investment properties with cap rates above 6%. That is a spread of 2.5 to 3% more than the 10 year treasury. Not so much considered that your cap rate could easily be wiped out by unforeseen repairs, crazy tenants etc.
And higher the cap rate, higher the risk that you will end up with a crazy tenant that will wreck your property.
I think prices are still high at least compared to the rental yield. This is all that matters to the cash buyer, unless he is speculating on future price appreciation, but then that is not investment.
I love numbers guy, who gets up before 8am on a Saturday to rain on my parade – repeatedly.
Are you a competing realtor or something?
Hey Numbers Guy,
My rent has been increasing steadily in Coastal North County. Currently paying close to $3000 for a 3 Bedroon SFR in Aviara (2 miles to beach). At going rate my rent in next 5-7 years would be $3500 or more. With your strategy, I am all set to loose $200K or more guranteed … quite likly to some genius like you.
Please enlighten us how it is any better than loosing 50% of a $400k down payment on buying the same SFR (assuming all you say come true).
Next time you give this advise … please DO include a personal guarantee that you will NOT increase my rent in the next 5-10 years.
RE: Numbers Guy, “Why not take that $300k you would put down and go by some small investment property somewhere and get a 10% cash-on-cash return? Instead”
Easy – because most people can’t find investment properties in San Diego that provide 10% returns. Have any examples?
Jinx, Here is one of several real examples – We manage investment funds which invest exclusively in commercial real estate and focus the majority of our efforts on good current cash flow with upside potential (appreciation is secondary). Deals are there, its just much more difficult to enter that marketplace than it is to enter the residential market (no MLS, no openly available comps, all pocket listings, no for sale signs, etc).
We have been out of the market for 4 years and just started buying this year. Commercial has been rocked back to its core economic fundamentals as there is effectively ZERO purchase money debt available. Thus, no direct gov subsidies equals much more accurate pricing.
Example of deals out there in SD: We just bought a bldg for $2.55mm (multi-tenant industrial) in March. That is $75/sf which is apx 50% of its replacement costs. Bank REO. Prior owner paid $5.5mm. Paid all cash, got it appraised for $2.8mm in May, took out a 70% loan at 4.5%. Current yield is 13%. This low $/sf has not been seen for 20 years.
Concrete tilt up, low rents not seen since the 1980’s, etc. Its a concrete bldg, not a lot to be concerned with. Tenant leaves, hose it out, paint it white/gray, done, cheap!
We are in negotiations for 2 more similar bldgs priced below $85/sf. Thus, deals are there to be had but you must be a seasoned all cash buyer.
Caution, don’t do this alone if you’ve never done it before. The commercial market is ruthless and can tear you apart as a rookie. Since the market is far from the transparency of residential and info is very guarded by the players, it is too easy to fool newcomers.
numbers guy,
Thanks for setting the record straight…
http://www.youtube.com/watch?v=6wKyXA_nMVQ
Clearfund,
We were thinking about buying an apartment complex, 5 unit and up. We would be financing it and using a property management company afterwards. What would you think about that and what would be your thoughts on getting started?
Clearfund, that building sounds like a great investment. Unfortunately I only have 125K as a down payment and I need a home in a good school district for my kids. Maybe I can find a duplex in a crummy part of Encinitas?
92011 is the best zip code for Carlsbad. Therefore, I am not too surprised to see an increase in the average PSF. The other zip codes in Carlsbad have gone down. Pretty good sales for 92008 and 92009 and yet the average PSF went down from last year. That is not a good sign…well, it is for me as a potential buyer.
Native – Apartments have a lot going for them these days. Mainly they are benefitting from excess renters due to the housing melt down. In high priced areas demand will always be good. However, be very careful of rent expectations as they can get a bit frothy and never materialize.
The other pro/con is the financing you mention. Purchase money financing is readily available for apts because it is all part of the same gov agency debt machine (fannie/freddie).
Thus, prices are still very high since the debt is readily available vs other income properties. Pro-easy debt; con-easy debt bids up prices.
Personally I prefer a nightmarish market where you can get a good, low basis well below replacement costs. I am not sure many apts are selling at a sizable discount to replacement costs. Be sure to understand this part well!
However, reasonable financed apartments can be great investments if they fit your style and abilities.
Lastly re: mgmt. Be sure and fully understand the cost of management and how it effects your NOI and BUDGET THAT INTO YOUR PURCHASE PRICE VALUATION AND DO NOT TRUST THE NUMBERS THAT THE BROKER/SELLER PROVIDE YOU!!! Get your mgmt company figured out first, then go shop for investments and have them help you understand rent/expenses for the buildings. YOu need to nail down a real NOI so you can price properly.
ps: just because you have ample # of bodies wanting to rent, doesn’t mean it will be a good investment. Really understand what price will get you the yield you need today, and tomorrow if vacancy rises and rents decrease, or you face large capital expenses (roofs, plumbing, etc on an old bldg).
Let me know how the hunt goes!
Clearfund, thanks for your thoughts. Those are great points. I would certainly prefer to buy at a low basis as well rather than just get favorable financing. Regarding apartments not being at much of a discount relative to replacement costs, is it any better in out of the area locations like inland empire, central valley, phoenix when considering price and vacancy rates?
That is the catch-22 of real estate, especially apartments. As an owner you want to avoid turn over as that is where you spend real $$ on capital items like carpet, appliances, repairs, etc.
In cheaper areas it is easier to become a homeowner due to lower housing prices and move out.
Today, it seems there is no ‘discount’ in apts for inferior areas as everything seems to trade at 7 cap (or less). Thus I would choose a higher quality area and get fewer units. After all, 7% is 7% regardless of if you have to manage 50 units in slummy Phoenix, or 25 units in nicer Temecula, etc.
Don’t get lured into a market by the trap of ‘cheaper $/unit’ as there is usually a very bad reason for it.
DISTRESSED OWNERSHIP, NOT DISTRESSED PROPERTIES: You want a deal that is at a discount to its market because of its ownership’s situation/story. All I buy is where there is a good ‘story’ behind the asset. I don’t want bad properties because they are cheap as that is a recipe for disaster.
Demographics you want to key in on are Household formation, first generation renters (18-25), corporate growth, and commute times to start.
clearfund, thanks for your thoughts. I will try to keep what you said in mind. In particular, I like how you emphasized the importance of the “story” behind the asset.
Native – example of a distressed ownership ‘story’: We are negotiating to buy a new bldg where a Trust owns the property, and the Trustees have run over the beneficiaries, milked all the cash, and were basically punks. Court got involved, we got involved, likely getting to pick this one deal out the portfolio fairly cheaply to free up some cash for the rest of the portfolio while they slug it out in court. That makes me happy!
clearfund, congradulations on the purchase.