Welcome to San Diego Blog | February 14, 2010
Investing in Downtown San Diego Condos
The question that frequently comes up from investors is which downtown San Diego condo buildings are the best investment properties? This topic comes up month after month and year after year on websites like Trulia and Active Rain as well as in conversation with locals and tourists.
The fact of the matter is, when considering investment opportunities, one need to focus on immediate return on investment and potential for future gain. Because these 2 factors are the simple financial principles involved, condos in San Diego with a prime location and low HOA dues will always be the smart choice.
Intelligent choices – Downtown San Diego Condos
- Gaslamp Quarter | Gaslamp City Square Condos San Diego
- Little Italy | La Vita Condos San Diego
- Columbia | Treo Condos San Diego
- The East Village | Metrome Condos San Diego & M2i Condos San Diego
- Marina District | Crown Bay Condos San Diego & Pacific Terrace Condos San Diego
- Cortez Hill | The Mills at Cortez Hill Condos San Diego
- The Wildcard | Parkloft Condos San Diego |
- These are warehouse style lofts that are very hip, but the building is currently in litigation. You get huge square footage for a great price per sq/ft in an excellent location. There is a small amount of risk, but a huge potential for reward in this building. The HOA’s are currently high due to the litigation, but again, this is the wildcard pick.
Why not invest in a luxury building like Bayside Condos?
Simple economics…Don’t get me wrong, Bayside condos San Diego are outstanding condos with great value, but the numbers just don’t pencil out with the high HOA dues and sales prices. If you are looking for a home or vacation home, now that is a different story, but let’s take a look at the numbers as they say a thousand words.
| Purchase Price | $350,000 | $400,000 | $450,000 | $500,000 | $550,000 | $600,000 |
| 30% down payment | $105,000 | $120,000 | $135,000 | $150,000 | $165,000 | $180,000 |
| Mortgage Amount | $245,000 | $280,000 | $315,000 | $350,000 | $385,000 | $420,000 |
| Est. mtg at 4.75% | $1,278 | $1,461 | $1,643 | $1,826 | $2,008 | $2,191 |
| Property taxes | $365 | $417 | $469 | $521 | $573 | $625 |
| Home Owner Association | $400 | $400 | $450 | $450 | $500 | $550 |
| Total Monthly Obligation | $2,043 | $2,278 | $2,562 | $2,797 | $3,081 | $3,366 |
| Estimated Rent | $2,350 | $2,450 | $2,550 | $2,700 | $2,900 | $3,200 |
| Monthly Profit | $307 | $172 | -$12 | -$97 | -$181 | -$166 |
| Annual Profit | $3,689 | $2,068 | -$141 | -$1,162 | -$2,171 | -$1,992 |
| Annual Return on Investment | 3.51% | 1.72% | -0.10% | -0.77% | -1.32% | -1.11% |
As you can see in the chart above, the higher the price of the condo, the lower the immediate return on investment (ROI). Now there are certainly other factors that one must take into account. Location, potential for increased rent, potential for rising real estate prices and the demand for the rental market are all important factors in the equation.
The beauty of investing in real estate is that one can leverage a mortgage so they are not tying up all of their own money in the investment. In the above example for $350,000 the immediate annual return on investment is only .37%. However, if the investor holds the property for 5 years and the value increases to $400,000, then the annual return on investment jumps up to 9.5% which would be considered great for an investment secured by real property.
| Two Bedroom Condos | Metrome 617 | Treo 1401 | Bayside 2506 |
| Purchase Price | $ 340,000 | $ 417,000 | $ 775,000 |
| 25% down payment | $ 85,000 | $ 104,250 | $ 193,750 |
| Mortgage Amount | $ 255,000 | $ 312,750 | $ 581,250 |
| Est. mortgage at 4.75% | $ 1,330 | $ 1,631 | $ 3,210 |
| Property taxes | $ 320 | $ 393 | $ 730 |
| Home Owner Association | $ 349 | $ 420 | $ 744 |
| Total Monthly Obligation | $ 1,999 | $ 2,444 | $ 4,684 |
| Rent on identical condos | $ 2,400 | $ 2,600 | $ 3,400 |
| Gross Monthly Profit | $ 401 | $ 156 | $ (1,284) |
| Annual Profit | $ 4,810 | $ 156 | $ (1,284) |
| Annual Return on Investment | 5.66% | 1.80% | -7.95% |
Above are a few examples for specific downtown San Diego Condo projects I recommend for investors.
I recommend Gaslamp City Square for its excellent location, good amenities, low HOA dues and popularity among renters. I recommend Metrome for its proximity to the new Thomas Jefferson School of Law, low HOA dues, and low sales prices. You will also see why I don’t recommend a luxury condo like Bayside condos San Diego as an investment property. The above numbers could also work for condos like La Vita San Diego Condos, Crown Bay condos, Pacific Terrace condos.
If you would like to discuss numbers specific to an investment you are considering, please give us a call at 619-309-8011 or email Chad at Chad@DanneckerAndAssociates.com We’re happy to give a second opionion and evaluate the investment opportunity.
Keep in mind, I did not include any of the tax benefits that an investor may receive from their investment in the property as each individual’s tax implications vary greatly. For more information about condo investments contact us:
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Written by: chad
Categories: Buyers, Downtown San Diego, East Village Real Estate, Gaslamp Real Estate, Little Italy Real Estate, San Diego Real Estate
Dentist in Encinitas says:
Good points in the article, you’ve got a fascinating website here. Thanks for the thoughts.
Kasey Nayar says:
Really helpful information. Thanks for the great post.
Enola Jirsa says:
Nice one! If I could write like this I would be well chuffed. The more I read articles of such quality as this (which is rare), the more I think there might be a future for the Web. Keep it up, as it were.
Brent Cole says:
This is so true about Metrome as I just opened an escrow with a client who intends to occupy the property, but may decide to rent the property out as an investment in the future. He is purchasing a rather large 1 bedroom (over 800 sq ft) in the low $200,000s. This same property was yeilding a monthly rent of $1,700 per month, which factored into the buyer’s decision, knowing that he could get an excellent return on his investment in the future!