Let me tell you a true story. Some of the details are modified to ensure privacy.

“Bob” and “George” have been friends longer than either of them has been married. They were in each other’s weddings. When they were young and stupid, they did young and stupid things together, but they didn’t get hurt or caught. Now they are mature and careful. They have each told their kids not to do the kinds of things that they did. So far, their kids have not gotten caught or really hurt.

Bob and George have vacationed together. Neither guy likes to give public speeches. Yet both men and their wives know that when one passes, the other will speak at the funeral or memorial. You know two guys this close. Maybe you and your dear friend are like them.

About six years ago I met one and shortly thereafter the other. They and their wives asked good questions, plus all the usual ones. What if interest rates increase? Or a recession happens? Rents are so high; how can tenants afford them? Millions have left CA, what happens when renters leave? California and the local governments are nibbling away at landlord rights. During covid governments told tenants they could not be evicted for not paying rent! Other states seem to offer higher cash on cash returns. If values shrink can the bank call my loan?

Both couples learned about the 100,000-apartment shortage. They had access to the housing studies done by the San Diego Association of Area Governments (SANDAG) that noted for 30 years the county had built fewer apartments and condos than were needed by the young adults who were ready to leave their parent’s home for their own place.

George thought that fact was immensely important. He figured that if things went badly, he could sell the income property and recoup most of his equity. Bob thought the rental housing shortage wasn’t worth any special weight. They and their wives looked at property in various zip codes. Both wrote offers.

Well, it is now roughly five years after George bought his first building. His monthly cash flow has almost tripled. His equity has more than doubled.

Bob still does not own any apartments. He talks about what he “woulda, coulda, shoulda” done. The two men occasionally work on George’s building.

In many markets being a rental owner carries substantial risk. Few metropolitan areas have such an intense shortage of rentals. Detroit is bulldozing buildings because there are not enough tenants with jobs to fill them. San Diego’s diversified economy is rare. Our recessions have been shorter and milder than the nation or the state. That is almost unique among the other top 100 cities.

The biggest risk is not what the government or the economy, or tenants might do. The biggest risk is not buying.

Only one of my clients lost money investing in San Diego County apartments. He chose a low-fee property management company that did what they were paid for, not much. Then he selected another discount fee, low service group that also mismanaged the property. Finally, he gave half his equity to a more experienced landlord who stabilized the property and then bought the other half based on the previous poor cash flow and accumulated deferred maintenance.

All the “usual questions” are legitimate. Due diligence is important. Most local buildings are bought by investors who already own and who want more. In 28 of the last 35 years, investors have paid the highest price ever for local apartments. In 25 of the 28 years, the following year the apartments were worth more. Investors in other markets don’t believe our remarkable truth. Limited supply and immense demand are San Diego’s unique advantages.

In San Diego County, government policies have created a rental housing shortage, which will last for at least a decade. Supply and demand economics means that people who buy San Diego rentals will probably have superior results. George is one of those people. He is now looking for his second investment property.


What risks and or opportunities matter to you in your investments?


Terry Moore, CCIM, is the author of Building Legacy Wealth: How to Build Wealth and Live a Life Worth Imitating. Read his “Welcome to My Blog.

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