Welcome to San Diego Blog | October 24, 2011
Investing in Condos
…Must know facts for investing in San Diego Condos
With the current state of the San Diego real estatemarket, prices have taken a huge drop since 2005 and this has attracted many investors. When you can buy a condo in downtown San Diegofor $250,000 with 25% down and get an immediate return on investment around 6%, it catches a lot of peoples interest.
Let’s be honest, the stock markets have been hovering around a 10,000 average for the last 10 years or so and have not been performing as well as most would hope. When stocks don’t perform, it always opens up the option to purchase real estate. What are some of the bennefits of purchasing Downtown San Diego real estate ?
- San Diego condos and lofts are low maintenance for owners.
- Current sales prices are much lower than the cost to build identical properties, this would suggest future appreciation.
- Vacancies are extremely low, rental have been on the rise and are projected to continue rising.
- What a great place to retire…you may just decide you want to live in your San Diego investment property at some point.
- Most Downtown condos were built in 2003-2007 so you are buying relatively new construction.
- There are plenty of real estate companies in Downtown San Diego that offer property management- we do so let us know if you need help.
“Only buy something that you would be happy to hold if the market shut down for 10 years” – Warren Buffet
Condo Investments – Downtown San Diego
If you are looking to maximize your investment opportunities for downtown real estate, then you should consider the following information:
For single family homes, when it comes to depreciating properties, you take the property value and subtract the value of the land and you are left with the value of the structure which is usually miniscule compared to the value of the land. For tax purposes and depreciation, you are only allowed to depreciate the structure, not the land.
On the other hand, with condos, you can actually depreciate 90% of the total value of the property because there is so little land shared among home owners. For investment purposes, this gives condos an advantage most people never even consider.
When you purchase a property via cash or financing, every owner needs to purchase and HO-6 walls-in insurance policy. You also want to make sure your tenant purchases a HO-4 contents and liability coverage. Why do you need 2 insurance policies when the building has their own insurance policy for a total of 3 policies?
Let’s answer this with an example because insurance is so darn tricky at times. Let’s say you own a condo property on the tenth floor of a building- let’s call it residence 1001. Your good neighbor in 1101 is in a rush to get to work, flushes the toilet and runs out the door. Their toilet overflows for the next 4 hours until somebody in residence 801 calls the HOA saying they have water coming through their ceiling. So what happens now?
The home owner in 1101’s insurance will cover their property, but it won’t cover yours. The building insurance does not kick in because the building didn’t have a leak that they are liable for. Building insurance covers inside the walls and since this leak didn’t come from inside the walls, that insurance would not cover a claim.
Your tenant’s insurance would cover their personal property and their own liablity in case they were the one to accidentally overflow the toilet, but their insurance is not going to cover damage to your floors, cabinets or any appliances that may have been damaged. This is where your HO-6 walls in policy comes into play; even though you had no fault in this accident, you would have to file a claim with your insurance to cover any damage to the actual condo including everything attached to the condo. If your insurance can go after the other insurance company, they will, but you still need to have insurance.
Many agents that sell property to cash buyers don’t explain this so their buyers are exposed to potentail loss which will eat up any profit margings they would have realized. For investing in condos in San Diego, its important to work with the best agents. It costs you nothing extra as a buyer to work with and agent that will maximize the perfomance of your real estate portfolio so give us a call : 619-309-8011