Welcome to San Diego Blog | June 21, 2011

Good News For Investors: Downtown Rental Market “Heating Up!”


Investing in Rental Condos:  Downtown San Diego

I find it very interesting how right before our eyes, we are seeing a major shift in the local real estate climate.  Last year, there were indicators that we would start seeing a shrinking supply of homes for sale in the Downtown market as the last of the new construction inventory dwindled.

And here we are…Summer 2011:

 With only 281 total homes for sale, demand for desirable properties downtown San Diego is RED HOT! 

We are now seeing a similar trend with the supply of available rental properties.

Major contributors to this trend are as follows:

1. The rising number of displaced homeowners from short sale or foreclosure who are now renting, makes investing in rental condos even better.  This is likely the most significant factor for the increase in demand for Downtown rentals.

2. New luxury rental buildings like Strata and Current are charging premiums for 1 bedrooms which start approximately 15% higher than the average 1 bedroom rental in Downtown.  This factors in to raise the bar as they are having no problem finding renters for these premium units, which in turn is creating an overall increase in San Diego rental prices.

3. The summer heat. As the temperatures rise, the population moves West.  Located directly on the San Diego Bay and moments from our world class beaches, who wouldn’t want to spend their days playing in our warm summer sun?   A quality of life unmatched by any other metropolitan city!

4. The increasing desirability of the San Diego Urban Lifestyle. As our downtown continues to grow with new public improvements,attractionsboutique shopsrestaurants, and night clubs, the lure of living within steps from the action is becoming more appealing than ever before.

5. Significant economic contributors moving to the neighborhood like Petco Park, the Thomas Jefferson School of Law, the New Main Library, The Hilton Bayfront, along with other small businesses, have also been a catalyst for the demand of rental properties.

All of these factors are savory ingredients to the savvy investor.

One neighborhood in particular seems to have ignited into an inferno of opportunity for those  investing in rental condosThe East Village.

Investment condos in the East Village of Downtown:  In many cases, pencil out with an immediate positive return!

We did a recent study on three potential investment properties in the East Village, which we feel are excellent opportunities for a positive return.  The first set of calculations are a breakdown based on an investor who would be obtaining financing for his investment.  The second is an example of a cash buyer.  Here are the results:

Condo with financing:              Nexus                               Metrome                                  Icon
Purchase Price:                        $375,000                           $335,000                           $399,999
Down Payment 25%:               $93,750                              $83,750                           $100,000
Mortgage Amount:                  $281,250                           $251,250                           $299,999
Mtg Payment 5%:                       $1,510                                $1,349                                 $1,610
Property Taxes:                             $353                                    $315                                    $377
Monthly HOA dues:                    $566                                    $343                                    $512
HO-6 insurance:                            $39                                      $35                                      $42
Total Monthly Obligation:       $2,468                              $2,042                                $2,540
Estimated Rent:                           $3,000                             $2,250                                $2,400
Management Fees 6%:                $180                                  $135                                     $144
Net profit monthly:                       $352                                    $73                                   -$284
Return on Investment:               4.50%                                1.04%                                 -3.41%
Condo purchase cash:                 Nexus                              Metrome                              Icon
Purchase Price:                          $375,000                          $335,000                       $399,999
Property Taxes:                                $353                                    $315                               $377
Monthly HOA dues:                       $566                                    $343                               $512
HO-6 insurance:                               $39                                      $35                                 $42
Total Monthly Obligation:           $958                                    $693                               $930
Estimated Rent:                             $3,400                                $2,250                          $2,400
Management Fees 6%:                  $204                                    $135                                $144
Net profit monthly:                       $2,238                                $1,422                            $1,326
Return on Investment:                  7.16%                                  5.09%                            3.98%

With the aforementioned addition of the Thomas Jefferson Law School, this sports and entertainment district of downtown has become alive virtually overnight.  Throw a proposed Charger Stadiuminto the mix, and this once blighted warehouse district may become one of the absolute hottest spots in the country!

The East Village rental market has heated up so much that multiple rental applicants are giving the lessors a real advantage, and in some cases we are seeing $100 monthly increases in the more desirable properties.  Looking at the averages over the past 24 months, we have seen an increase in San Diego rental prices by almost 8%!  As this trend continues, we predict that the bar will be raised on what the economic average rent can command in the neighborhood.

More great news for the rental property investor as we expect the rental demand to coninue, potentially opening the door to greater profits in the future! 

Even without any rental increase, the real numbers that we apply in our formulas above are very conservative.  A savvy investor could certainly reduce management costs to increase the profit margins further.  With that said, an investor could park their cash in a vehicle that will give a better return than any financial institution could offer, with minimal headaches.  Sound like a NO BRAINER?

Give us a call today at (858) 531-8785.  We would love to give you a free consultation on the best available properties for sale.  We could even have a renter lined up for your BEFORE you close escrow!!

Now THAT’S a NO Brainer!!!!

Written by: admin

Categories: Buyers, Downtown San Diego, Real Estate Investment, San Diego Real Estate

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