We’re going to examine a market where the sun shines 300 days a year and the market is prime for real estate investors. Let’s turn our attention to sunny San Diego and take a look at what key factors make San Diego real estate investing attractive to investors.

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SAN DIEGO REAL ESTATE INVESTING: MARKET SPOTLIGHT

San Diego provides big opportunities for a growing city with high demand, but still maintains relatively low real estate prices in comparison to the rest of California — which make it prime for commercial real estate and investment real estate.

Population Growth

San Diego started budding as a promising town in the early 1900s with a mere 35,000 people. Today, the thriving city boasts a population more than 3 million residents in San Diego county.

The region’s Metropolitan Planning Organization, the San Diego Association of Governments (SANDAG), projects the region to grow by another 1.3 million people by 2050.

The trickle down effect will cause the demand for new homes and jobs to rise as a result of the influx of population. SANDAG estimates the population increase to require 400,000 new homes and 500,000 new jobs.

San Diego is a beautiful city that attracts many outsiders to move and call America’s Finest City home. However, SANDAG also notes that 63 percent of the growth is internal, with children and grandchildren deciding to call San Diego home.

We expect to see pressure on housing prices due to decreased supply and scarcity of land. That should push more people toward renting rather than owning. With the expected increase in population investors can take advantage of the trend and invest in real estate in the San Diego area.

Low Prices, Rising Values

The real estate climate has been friendly toward buyers in San Diego county the past few years. Several factors contribute to the prime investing situation we see today:

  • Foreclosures have been consistently declining
  • Interest rates have remained at historic lows
  • Many properties are seeing significant value appreciation

San Diego real estate investors stand to make big gains and steady returns on their property investments. Prices of single-family homes for sale and rent rates continue to rise. Savvy real estate investors are snatching up San Diego property before the San Diego housing supply disappears.

Weather

In addition to the real estate climate being incredibly friendly towards investors, the weather in San Diego attracts many people towards the sunny beaches year round. San Diego is in the top 2% of climate areas with an average temperature of 70 degrees Farenheit almost year round.

The attractive weather means that San Diego will always have a thriving population for business, retail and hospitality.

Economy

The San Diego economy has one of the most diversified and multifaceted economies in the US with biotech, military, education, tourism and entertainment. This means that there are a wide variety of jobs available in the San Diego area, and with office spaces costing approximately 1/3 the price of Silicon Valley real estate, many major companies are looking to relocate or set up satellite offices in the San Diego area.

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SAN DIEGO REAL ESTATE INVESTMENT EXAMPLE

Real estate investment opportunities can be found all over San Diego. One location to focus on is the downtown and Gaslamp areas. This area is a centralized urban area within San Diego that is easily accessible to any part of the county.

The northern part of the Gaslamp district is one example of what makes San Diego an excellent investment opportunity. The property is a 22,000 square foot building in the most trafficked area in San Diego, and provides a great cash flow opportunity.

This project uses the value add strategy to rehab the building and make it more attractive to higher rent tenants. The current building just happens to be one of the ugliest on the block. Once the refurbishments are complete, prospective tenants include Subway, Dunkin’ Donuts and other retail office centers. This property is a mixed use building which diversifies passive income streams through different sources, like office and retail tenants.

The property is expected to be purchased for $4.5 million, 33 percent below asking price as the seller is eager to liquidate. After refurbishing the building, property will be leased at an average rent of $2.35 per square foot — which gives investors a 27 percent rate of return.

DO’S AND DON’TS OF SAN DIEGO REAL ESTATE INVESTMENT

San Diego offers an attractive opportunity for real estate investors. But like most investments, it carries some risk for those who aren’t in tune with the trends and niches in the market. Here are a few handy tips to keep in mind as you browse available properties in San Diego:

Do look for projects that need rehabbing. Investors can find good opportunity with properties in need of upgrades. Rehabbing a property can allow an investor to boost their rental rates and income, along with raising the overall value of the property. Investors can find a niche in the San Diego market with projects that require a little (or a lot of) elbow grease.

Do consider air rights. In more dense areas, like downtown San Diego, air rights can potentially carry a lot of value. If you want to expand your property upwards, those air rights might immediately come into play. Down the road, they might be lucrative if adjacent properties are looking to expand and want to purchase those air rights.

Do consider a syndicated deal to access larger projects. Real estate syndication allows investors to purchase equity in real estate projects they might not be able to access on their own. This enables investors to diversify their real estate portfolio and not bear the entire risk of a real estate project.

Don’t think investing in real estate is going to get you rich quickly. Investing in real estate is about producing passive income and generating wealth for the future. For example, you can recieve passive income through rental income, or you can receive capital gains if you choose to sell the property later.

Don’t invest single-handedly. Good real estate investors leverage a successful team with the experience and expertise in the local real estate market. Having the right team in place is essential to achieving high returns and spreading the risk of a single real estate deal.

Don’t overpay for your investment. Investors new to the real estate market are often too eager and end up overpaying for a property. It’s important for investors to do their homework and have the due diligence to make a successful real estate transaction.

FINAL THOUGHTS

There is plenty of investment opportunity within the San Diego real estate market. The various cities and neighborhoods in the County provide investors with a variety of flavors in their real estate investments.

From residential real estate in the suburbs of Rancho Bernardo to the apartment complex investments downtown, San Diego brings a diversified offering for investors. Now is the chance to take part in the urbanization phase happening in San Diego.