Oh, to be a landlord in OB

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Submitted by EconProf on July 25, 2015 - 7:12am

A teaching buddy of mine bought 4 tiny rentals on a 50 x 140 lot in Ocean Beach forty years ago. They are tiny 2-Br bungalows, perhaps ninety years old, about a half-block to the sand. He paid about 200k for them.
Now he collects over $2000/month rents per unit and gets forty calls within 24 hours whenever he runs a Craigslist ad (which he yanks within one day). All are desperate to rent and beg him to accept them, just to be near the OB sand. He has turned down doctors, professionals of all kinds, etc. His last vacancy was filled by someone with a dog who flatly offered him $150 over the asking rent.
This proves the old adage: location, location. To that I would add: timing, timing.

Submitted by Coronita on July 25, 2015 - 10:41am.

I think more appropriately, the title should be "Oh, to have bought real estate 40 years ago" :)

I am jealous. We have a family friend in her 80ies and they bought a tiny beach house in Del Mar for under $100k about the same number of years ago.... What a killing.

Submitted by FlyerInHi on July 25, 2015 - 12:23pm.

Makes perfect sense. My friend does the same in Florida with vacation rentals.
The returns are higher there because houses are cheaper and renters still want the beach.

If I owned those houses, I'd remodel to the max sf allowed. Turn them into little architectural gems and charge primo dollars as vacation rentals.

Oh, if I were your friend, I would not accept any pets. They are filthy and cause damage. Not sure the condition of those houses, but if they are superior to the surrounding competition, he can afford to be very picky.

Submitted by FlyerInHi on July 25, 2015 - 2:02pm.

To be fair 40 years ago, San Diego was a backwater. $8000 per month equates to roughly a $2 million investment in San Diego today.

40 years ago you could have bought desert land in Las Vegas, houses in NYC or DC during White flight, or even land as China was opening up (if you had the local connections) Hindsight is 20/20.

Another point worth bringing up is that with housing, most homeowners don't invest. They buy then move up several times, riding the wave of appreciation.

Submitted by flyer on July 25, 2015 - 3:01pm.

Our family has invested in RE around San Diego for years, as did most of our friends, but, as FIH said, I don't think any of us had any idea it would turn out so well.

Submitted by sjk on July 25, 2015 - 5:14pm.

Perfect ! Real estate inzone dancing on this board,the top is in,no doubt about it!!

Submitted by gzz on July 25, 2015 - 7:42pm.

My grandparents paid about $35,000 for a house in suburban Detroit in the early 1960's. It is now worth ... about $40,000. If only they had moved to San Francisco and spent $35,000 there!

During the 90's boom it probably got up to about $150,000, and at one point in 2010 similar places were selling for $15,000 when there were several foreclosures per block.

Submitted by bearishgurl on July 25, 2015 - 10:40pm.

gzz wrote:
My grandparents paid about $35,000 for a house in suburban Detroit in the early 1960's. It is now worth ... about $40,000. If only they had moved to San Francisco and spent $35,000 there! . . .

In SF in the 1960's, a flat valued at $1M+ today cost between $56K and $95K depending on the District it was situated in. A SF "flat" is 1/2 to one whole floor of a 2-4 floor building, NOT a whole house! And since most of the buildings there were completely rebuilt right after the 1906 earthquake and fire, they were 50-60 years old in the 1960's meaning most of them needed repairs upon purchase.

Your grandparents very likely could have not afforded to buy a place in SF back then, gzz.

Submitted by EconProf on July 26, 2015 - 2:39pm.

Interestingly, being a landlord in such a popular location has its own set of problems, as my friend describes them:
1. Rents are escalating so fast in his area that he hopes some of his tenants will move.
2. He does raise rents occasionally, but gets enormous pushback from tenants, even though he raises them to somewhat below what a new tenant would pay. So he always gives rent comps when he raises rents, and they still hate him for it. One even sued him, claiming retaliation.
3. For landlord Piggs who are envious of having easy-to-rent units, it is actually no fun to get 40 phone calls after running a Craigslist ad for one day.
How, exactly, does one chose? He has learned to be very picky about income, job stability, education level, age (no young party-types), and students (they don't stay).

Submitted by FlyerInHi on July 26, 2015 - 6:12pm.

Your friend is so nice.

Sounds like his location is perfect for vacation rentals. The sharing economy is upon us. Take advantage of it. It's more work and he need to find a good cleaning person. But the returns are worth it.

Submitted by EconProf on July 26, 2015 - 8:30pm.

He's tried vacation rentals one summer, and it was a big hassle. Lots of vacancy down time, clean up expenses, etc. And he lives 20 miles away. Airbnb is ok if you are close and on top of things, and ready to monitor everything.

Submitted by gzz on July 26, 2015 - 10:07pm.

If he's getting 40 calls in one day, he should be charging more. I only left my e-mail, and got three serious inquiries the first day I ran my ad: a young professional, PLNU students, and some hippies.

They all seem fine to me. I don't know much about PLNU other than it is very christian, expensive, and full of surfers. Sounds OK to me.

When I rented a cottage on an OB beach block, I did a walk by/window peak of the unit, realized it was extremely underpriced, and then immediately went to the property manager with a completed application, a cashier's check for two months' rent (which was not required) plus the security deposit, my last pay stub, and a printout of my credit report.

My rent was never raised so after a few years it got to the point that my cottage with two parking spaces and a small yard was $300/mo less than 1-bedrooms with no parking further from the beach on the same street.

Submitted by gzz on July 26, 2015 - 10:19pm.

My summer rental experience has been profitable, but it really is a big PITA to have the place completely clean every week. With taxes, credit card fees, etc plus a maid and vacancies, I can't imagine doing it year round when rates drop. I think my maid is hosing me a bit too but she knows I am charging a lot and can't find someone else I trust on short notice. She's probably getting $25-30 an hour v. the $18-20 she's been getting for years to clean my house.

I will finish up the summer to help pay for all the renovations and furniture, but it probably isn't worth the hassle to make an extra $2500 a month after expenses.

Part of the problem is that I feel that if you're paying $250-$400 a night, you should be getting a really good experience so that means extra efforts to make the landscaping nice, the toaster and oven clean, stock the fridge with water, half n half, etc.

I also get strange questions by people who contact me on VRBO. Like: is it close to LegoLand? Google Maps has been around for 15 years now and you have the address online of the house!

Playing e-mail tag with four people for every one who actually books is also no fun.

I might do this again next summer if I rent to the PLNU students and they move out, but that will be the last time if it does happen.

Submitted by gzz on July 26, 2015 - 10:22pm.

FlyerInHi, I appreciate the advice you gave me a couple months ago before I started the vacation rental.

Do you have a day job? That's my downfall, the money is fairly good but summer is slow and I am not getting the extra relaxing free time I did in prior years.

Submitted by FlyerInHi on July 27, 2015 - 10:02am.

I have a dayjob but it's flexible.
Thankfully, I have a retired guy who takes care of things for me, vacation rental wise.
It's hard to find the right cleaning person who is detail oriented (makes sure the towels and lines are sparkling clean and stain free, make up the beds properly, etc...)

I'm always on the move, mostly because I have to be back in San Diego periodically. So relaxing time? What's that? My attention span is so short that I don't ever sit down to watch a movie. Instead I'm searching online for things to buy, improvements to make, etc..

I don't recommended hands-on real estate investing for people who have family and kids and want a lot of relaxing time.

But if you have teenage kids, you could have them help you and train them to become mini Trumps, haha...

Submitted by barnaby33 on July 28, 2015 - 8:21am.

Real estate exceptionalism at its finest. Having spent a fair bit of time in OB, unless you are there to manage it, it is one hell of a risk. The types of people attracted to OB don't provide the best applicant pool. Your friend is extremely lucky in timing.

Is anybody currently buying properties to rent, especially on the coast?
Josh

Submitted by spdrun on July 28, 2015 - 8:37am.

Plenty of solid people in OB -- are you sure you're not thinking about PB?

Submitted by gzz on November 21, 2015 - 7:45am.

UPDATE ON MY FIRST RENTAL PROPERTY

Over the summer I made nearly triple my interest+tax+ins in short term rentals.

Then in Oct and early Nov I got zero rentals despite dropping the price a lot.

I used this time to do a lot of renovations and improvements and have out of town family and friends stay, so it was not a total loss.

I had it listed at a somewhat high price for a long-term rental. I gave a lot of tours but had no takers over two months. Rather than cut the price, I just kept making the house better.

I rejected a few renters because they had multiple large dogs or otherwise gave me some bad vibes.

Finally last week I got a long-term tenant at my somewhat high asking price with one sweet and quiet medium sized dog. They've been very nice to deal with, I gave them their first week free in return for putting up with me finishing renovations that are in progress.

It is a relief to have it rented now, the short term rental was profitable but a giant hassle. More the constant "reservations desk" work with potential renters online and on the phone than dealing with the actual people in person. Customer service work dealing with semi-rich people (it was $320-400 a night plus tax) is no fun at all.

Submitted by svelte on November 21, 2015 - 8:19am.

After helping my father with his rentals when we were college students, my wife and I decided we never wanted to own rental units. The crap my dad put up with was unbelievable. I actually ended up serving papers for him a few times. And the filth people left behind I wouldn't have believed if I didn't see it with my own eyes.

As it turns out now, if we had them I think relatives would have been wanting to rent if we owned one, then things would get even stickier if they fell behind on rent/maintaining the premises.

Reflecting on it all, I think I might have owned rentals if my wife wouldnt/couldnt work full time. Having her deal with the phone calls to rent and maintain the properties would be a way to have her earn money while being at home. As it is, she works full time like I do so neither of us want to deal with rental hassles.

Submitted by Coronita on November 21, 2015 - 10:38am.

svelte wrote:
After helping my father with his rentals when we were college students, my wife and I decided we never wanted to own rental units. The crap my dad put up with was unbelievable. I actually ended up serving papers for him a few times. And the filth people left behind I wouldn't have believed if I didn't see it with my own eyes.

As it turns out now, if we had them I think relatives would have been wanting to rent if we owned one, then things would get even stickier if they fell behind on rent/maintaining the premises.

Reflecting on it all, I think I might have owned rentals if my wife wouldnt/couldnt work full time. Having her deal with the phone calls to rent and maintain the properties would be a way to have her earn money while being at home. As it is, she works full time like I do so neither of us want to deal with rental hassles.

Rentals aren't for everyone. And I use to think the same way. But after lengthy conversations with sdrealtor in the past, it really got me thinking on a few things, and I changed my mind a bit. I think what helped me out a lot is where the clientele is and the type of property, because with the right property, the "pain in the ass" factor drops off significantly.

There's probably an inverse relationship between maximizing cash flow/rental returns versus "tenant pain in the ass factor". And for me, it was trying to figure out where I felt comfortable playing in my own little world.

From what I'm experiencing, renting small condos in a good prime location with a lot of professionals helps out a lot to reduce the PITA factor. First for small condos, there's not a lot of things that can go wrong. And renting to professionals, one typically doesn't have to deal with people who aren't going to pay. The cashflow isn't as good as if you can get a good SFH, just because of the higher costs with a condo (HOA/etc)...But, the SFH is a bigger pain in the ass for me, because especially if prices get really high, tenants expect the world from you, but fortunately it's in a decent place of professionals, so there is less of a problem with people not paying.

Some people here have claim that there isbetter cash flowing property in other areas, areas that I would consider to have a much bigger PITA factor than I am comfortable with, so I'm not interested. So as long as your honest with yourself as to the level of "pain in the ass" you're willing to deal with, it's all good. That level might be 0% for some people, which is fine.

The other thing that helps out a lot is if you use a trustworthy property manager. Sure it costs money, but it saves you a lot time and saves you a lot in the PITA factor too.

sdrealtor has been great for helping find good properties and spotting opportunity. He's been a great friend and advisor. For that, I am thankful for the opportunities I have now.

urbanrealtor has been great for helping me manage the condo that I don't want to deal with logistically. And I am thankful that I don't have to go deal with everything that breaks or needs attention down south.

Submitted by Hatfield on November 21, 2015 - 12:29pm.

Have two rental units in OB. Overall it's been a very good experience but I've been very very picky when screening tenants, and I always charge a premium but then never raise the rent. So my tenants stick around a long time (typically 6-8 years) as a result, which is great. You never make money on turnover.

The tax benefits are outstanding - you have a property that's appreciating, but on paper the dwelling is losing value. I can't believe it's legal, lol.

On the other hand, your mutual fund will never call you on a Friday night and tell you the water heater is broken.

Submitted by Coronita on November 21, 2015 - 1:18pm.

Hatfield wrote:

On the other hand, your mutual fund will never call you on a Friday night and tell you the water heater is broken.

True, but you usually won't log into your account holding your rental income and seeing it down by 15-20% in a week because of some analyst downgraded you and/or some hedge fund went heavy into a short position and spends considerable amount of time trashing the company on PR newswire. Ever since I see how some of these hedge fund companies play, I really don't like buying individual stocks anymore.

Submitted by gzz on November 22, 2015 - 2:34am.

I think the bigger costs/hassle of renting a SFH may be offset by the better appreciation. The number of SFHs on non-shared lots goes down every single year in central and coastal San Diego as multi-family slowly replaces them.

Submitted by Coronita on November 22, 2015 - 9:21am.

gzz wrote:
I think the bigger costs/hassle of renting a SFH may be offset by the better appreciation. The number of SFHs on non-shared lots goes down every single year in central and coastal San Diego as multi-family slowly replaces them.

Definitely true.

Submitted by Hatfield on November 22, 2015 - 10:45am.

Yep. There was a big wave of multi-unit condo conversions in OB a few years back. I haven't noticed so many in the past year or so, but maybe I just haven't been paying attention.

Submitted by gzz on June 23, 2021 - 12:03pm.

Fun to reread this thread. I think I might know the complex EP refers to, on Cape May Ave. How many four two-bed cottage complexes on 7000sf lots could there be on a beach block in OB?

Small 2/1 fully detached on shared lots in OB now are more like $2600 with basic interior and no parking to more like $3000 with an off-street space and fully renovated with granite kitchen etc.

Sounds like EP's bud was undercharging even then, and market was $2200, and is now about $2800 after 6 years, so rent growth of about 5% a year.

My large rental house has had the same tenant and rent for 5 years now. I am OK with getting less than market rent for a zero-stress experience with a tenant who keeps up the place.

My other OB rental also is below market but stress free. I just had to replace the 50 year old oven the condo was built with. It was a split separate range and oven setup that looked really cool, but would have cost $4000 to replace, so I went with a normal combined oven and range.

The chip shortage has even hit the oven market meaning I had to pay nearly full retail price with little selection, but it still looks and functions great and was a free delivery and painless install from Home Depot. It has a built-in air fryer, which is cool and work very well according to the tenant, who helped me pick it out.

I was bummed the one I wanted more, a GE in a brushed brown metal slate color, was not only sold out, but back ordered for 3+ months minimum. It looks more modern and understated than stainless IMO:

https://www.geappliances.com/ge-applianc...

Submitted by trex on June 29, 2021 - 8:40am.

Yes but.... the S&P 500 returned 17,316% over the same 40 years when dividends were reinvested, with no tenant issues, weekend calls, or any of that...

Submitted by sdrealtor on June 29, 2021 - 11:36am.

trex wrote:
Yes but.... the S&P 500 returned 17,316% over the same 40 years when dividends were reinvested, with no tenant issues, weekend calls, or any of that...

Leverage and preferential tax treatment

Submitted by gzz on June 29, 2021 - 2:07pm.

Were there ultra low fee index funds in 1981, which automatically reinvested dividends?

Also, to be a true apples to apples comparison, the excess rent over expense would also need to be "reinvested." Otherwise you are giving the S&P 40 years of compound interest but no interest whatsoever counted in favor of the housing investment.

Submitted by XBoxBoy on June 29, 2021 - 2:25pm.

gzz wrote:

Also, to be a true apples to apples comparison, the excess rent over expense would also need to be "reinvested."

If some of the excess rent was used as down payments on new properties, then it was reinvested. And if you're doing your own property management, you'd want to include a cost based on that time. So doing an apples to apples is pretty darn near impossible given all the little details that add up. (I'm sure there are even more details that I haven't thought of.)

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