My wife and I have invested in income property for 40+ years, providing us financial freedom and a good life. I earned the CCIM, the nation’s top designation for investment brokerage. I’ve taught on the national CCIM faculty and at several colleges. Based on what my clients and my family learned the hard way, I wrote Building Legacy Wealth, How to Live a Life Worth Imitating.
It hasn’t all been smooth sailing. In my career, I have seen more than 10% of apartment parcels above four units sell in a single year. In another year less than 1% sold. Most novice income agents don’t last two years; I have prospered through four recessions so far. Here are some observations from my 40-year career as a broker and rental property owner.
Why Investing in Apartments Beats the Stock Market
I meet many sophisticated people. Yet most owners don’t know why investing in San Diego apartments beats the stock market.
Historically, stock market investors are at the mercy of a market influenced by the world’s large, wealthy, high-powered investors: hedge funds, sovereign wealth funds, and mutual funds. A huge percentage of the trades are done automatically via computer. The speed is measured in microseconds. You’re competing with more than 10 million investors around the world. By contrast, less than 500 people in your metropolitan area will probably be active in your submarket within the next year.
In the stock market, the “retail investor” comes into the market when there are rallies and prices are high but is largely absent and almost irrelevant when prices have dropped. The apartment market might take 9- 36 months to move from down to hot again. Plus, investing in apartments is surprisingly simple compared to investing in the stock market.
Why San Diego Is a Great Place To Buy Apartments
There is an immense demand for San Diego County apartments. For a generation, the rental shortage has steadily increased. No one expects enough apartment construction to end the rental shortage within a decade. If you own apartments, that implies higher income for years.
San Diego has a lower risk than most markets. Warren Buffett built a world-class fortune with low risk. He buys businesses with a moat around them, some barrier, like a patent, that discourages competition. San Diego has many moats. The local government policies prohibit apartment buildings on 80% of the land. They charge development fees that block the construction of almost all affordable housing.
In many states, apartment prices go up and down, often down by a lot, over the course of a generation. In 25 of the last 35 years, San Diego apartments have sold for the highest price ever. The following year, the prices were even higher.
San Diego Rental Owners
Our wonderful county is far different from the stock markets. Local families own most rental assets, not some giant corporation or hedge fund. Here, most owners have a day job other than real estate or are retired. There are few full-time landlords. In other words, most of your competitors are like you, part-time owners with little market influence who cannot control rents or market values.
The two most common vocations for rental owners are retired people and teachers. Some might be “dusty rich,” but few are filthy rich. Elon Musk and Warren Buffet are not landlords. Rental owners are likely to be that “millionaire next door” you’ve heard about, like the couple I called “Mark and Sharon” in Building Legacy Wealth. They bought a property with the right things wrong with it, fixed it up, and sold it to move up to other assets. Then, they duplicated the process repeatedly.
I’ve learned from my experience as a rental owner, from my experience as a broker, and from my clients that investing in apartments in San Diego is a great way to build legacy wealth.
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What have you learned from investing in apartments in San Diego?
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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.”