Anyone who has already gone through the process of purchasing a home or property may have a vague idea of what the process of investment real estate in San Diego is like. However, there are a lot of other elements to investment real estate that potential buyers need to be aware of before they even consider beginning the process of purchasing property as an investment. Not only are there different types of real estate investments, but there’s some distinct differences between owning a property for your own use and purchasing a property as an investment. Below we’ve outlined everything you need to know about investment real estate in San Diego before you begin your investment journey.
Before jumping into an investment as big as real estate it’s important to understand that there are different types of investment real estate opportunities out there. Investment real estate is popular in San Diego because it’s a city with a lot of growth opportunity and a constant stream of tourism coming in and out of different parts of the city. Most people love the allure of investment real estate in San Diego because it seems easy to understand and has a higher rate of return than other investments.
Residential properties fall into the category of homes, apartments, townhouses, and vacation rentals. These types of investment real estate properties are popular in the San Diego area and the income is based on the rental agreement between the owner and the renter. Halcyon Real Estate recently sold a piece of investment real estate in San Diego to be used as an Air BNB. These properties can be lucrative and require basic maintenance and upkeep. This is a great investment opportunity for someone with some extra money that wants to earn a fairly passive income on the side.
Commercial properties may create more cash flow and offer more stability than residential properties because it’s not uncommon to see multi-year leases, but they can cost more money initially. A commercial property is any property that someone purchases with the intent of renting the space out to a business rather than an individual. This may include office spaces, store fronts, or even skyscrapers. One of the bigger drawbacks to commercial real estate investments is that if the market increases substantially within a short period of time, the owner may not be able to increase rent because of longer rental agreements. However, these properties can still be a fantastic source of income for people looking to invest a bit more.
Industrial, Retail, and Mixed-Use properties also fall into the commercial sphere but refer specifically to businesses that will use the space to move consumer goods and services. These properties consist of warehouse spaces, shopping malls, strip malls, storage units, and distribution centers. It’s not uncommon for the landlord of a retail space to also take a percentage of the sales from the store as part of the rental agreement. A skyscraper may also be used as both an office space and a retail storefront if a business rents out one floor, and a restaurant rents out another. Often, properties will also combine things like shopping malls and retail spaces into one building to maximize profit. These are some of the more expensive real estate investments, but are lucrative to the right investor.
Most people know whether or not they can visualize themselves in a home from the moment they walk in. This is one of the biggest differences in purchasing real estate for yourself and purchasing real estate as an investment. Investment real estate is also ‘no strings attached’ real estate because the first rule of thumb is not to get emotionally attached to a property like you would when house hunting for yourself. Investing in real estate requires keeping a level head and looking at the purchase as business, not pleasure.
That being said, investment real estate also requires research. San Diego has a lot of different neighborhoods, and these areas all vary quite a bit. Understand what you want to get out of your investment property before you start looking, that way you can rule out anything that doesn’t fit your needs. Research the clients you want to work with and understand what they’re looking for in a property. In the case with the Air BNB investment we sold recently in Mission Beach, this investment required finding a space that would cater to incoming tourism.
Remember that the lower you purchase your investment property for, the more money you’ll make in the long run. For many in the commercial sphere, this sometimes involves purchasing land and building on it from scratch. For the residential sphere, building a home from scratch only to rent it out seems pretty silly. Real estate is a long term investment. Over the first couple of years your income may go back into the property as you pay off a mortgage, invest in upkeep, and pay for any expenses involved in running the property, but over the years you’ll start to see a return in the form of passive income.
Before investing you’ll want to make sure you can cover expenses like potential vacancy risks (if you go through a period where you can’t rent your property), upkeep costs, mortgage to income ratio, and even whether or not you have the time to be a landlord.