San Diego Real Estate is a tough market at the moment for investors from AB 1482 provision, “Just Cause” Eviction and high prices. The question is should beginner real estate investors shy away from the market or dive straight in? It’s a tough question but one we hope to answer in this post.
Legal Challenges in San Diego Real Estate Investment
Unfortunately for California Real Estate Investors, the state has some not-so-pleasant laws in place. The main is AB 1482 provisions this provision limits rent increases to 10% total or 5% plus the percentage change in the cost of living over a 12-month period. That means even if demand for the property increases at a greater rate than inflation you can’t charge more to justify that increased demand. The downstream effect of that on investors is simply less cash flow increase per property each year.
Compounded with this is “Just Cause” eviction laws. It simply means the landlord needs “Just Cause” to evict you and unfortunately that’s a little bit vague and leads to squatters. Squatters are never a good thing; they simply destroy your cash flow and your property, leaving you with a huge bill.
Financial Considerations
The next consideration is the market prices in San Diego compared to say a midwest state like Wisconsin. Remember we are talking about beginners, here who don’t have the ropes of Real Estate Investing just yet. The Average home price according to RedFin in California is $945,000 compared to Wisconsin’s $316,200.
A Beginner Real Estate Investor often is still working a W2 Job and has limited income to put on the line; that means every single penny matters. If I told you, you could learn the ropes of real estate investing for one third the price would you do it? I sure would! Note there are two major downsides to this.
Market Appreciation
The California market has a higher-than-average property appreciation rate of 6.5% year over year, compared to the national average of 3.8%. If you are willing to get less out of your investment initially to learn, it might pay to look outside of San Diego.
Proximity to your Property
Choosing to not live close to your property can be a major downfall for beginner investors. 99% of learning real estate investing is personally dealing with terrible tenants and cleaning up the cat pee on the floor. As much as I wish that no one, it’s an experience that teaches you to select your tenants wisely.
Lifestyle and Community
Now we are getting off-topic from Financial Considerations. This is a super important topic to cover. The California lifestyle is hard to replicate from Mission Beach to a just general high quality of life. There are so many opportunities in California it’s almost electric.
Other Investment Opportunities and Locations
Now we’ve gone over some of the pros and cons for beginner real estate investors in San Diego however where else should I look to invest? Let’s look at two places.
Las Vegas vs San Diego
Unlike San Diego Real Estate, Las Vegas is really thriving at the moment. This would be the place to invest if you are slightly more risk-averse. The Las Vegas market is consistently getting 9.3% property value increases year over year. That’s super super high compared to San Diego’s sitting at 6.5%. The other advantage is that Las Vegas’s average home price is $451,000 compared to San Diego’s crazy $945,000.
Wisconsin vs San Diego
The other major location you could consider buying a home is shockingly in the midwest, Wisconsin. As we mentioned earlier the average home price in Wisconsin is on average one one-third that of San Diego’s Real Estate. Comparing $316,200 to $945,000 is a huge difference, especially for a new-time investor. We fortunately know a Real Estate Agent, Michael Kurlayk with MK Real Estate, in Central Wisconsin and this is what he had to say:
With a 13.5% year-over-year increase in median sale prices, now averaging around $234,950, Stevens Point has become an attractive location for buyers. But with the average home staying on the market for 54 days, sellers need to stay competitive to capture buyer interest and secure a timely sale.
The context of this quote is talking about how Stevens Point, WI is currently a buyers’ market meaning it’s a good time for investors to buy.
Reasons to Consider San Diego Real Estate Investments
We’ve spent too much of this article going over the negatives of San Diego Real Estate investment however, it truly is a great place to buy rentals, Airbnb investments and so much more. Let’s talk about the upsides.
Lifestyle and Community Benefits
As briefly mentioned earlier southern California especially San Diego has a high quality of life and a strong community. This includes beautiful beaches, tons of recreational activities, scenic parks and so much more. The upside of this lifestyle for real estate investors is a simple one: Vacation Rentals. While they are often more work they yield a higher return on investment compared to that of a traditional residential investment.
Why we have AB 1482 provisions
AB 1482 provisions are a royal pain for investors however the reason we have them is not. These provisions came about partly because of a housing market boom. This market boom means money is potentially flooding to smart real estate investors and in general just a good appreciation in the market. The supply of houses is bound to deplete as more and more people come to California making rents go even higher.
Now the question still remains: Is San Diego Real Estate for Beginner Investors? Maybe. It’s all going to depend on the real estate investor’s ability to handle risk but the reward is definitely there. Before buying your first property do some research on markets other than San Diego because sometimes there’s a diamond in the rough.
All Data in this article is from RedFin.com