The current Real Estate market in San Diego represents an opportunity for Investors to purchase homes and turn them into income producing properties. There are several factors that have come together to create the current positive investment climate for rental properties in San Diego. This article will analyze some factors that have contributed to a positive Real Estate investment potential in San Diego.
The most important fact contributing to our theme is the fall in Real Estate prices in San Diego. The following graph depicts how home prices have performed for properties in San Diego over the last five years, with a peak in prices occurring in the first quarter in 2006 and the low occurring in the second quarter in 2009.
Two other factors contributing to our discussion on Real Estate in San Diego is the low interest rates on mortgages and the demand for rental properties in the area.
The data above was compiled from CPI data available from the U.S. Bureau of Labor Statistics, Freddie Mac historical mortgage rates, home prices based on S & P Case-Shiller index and rental rates for a typical 4 bedroom home in a neighborhood located in Northern San Diego. The total home expense includes HOA fees, hazard insurance, mortgage payment and property taxes. Mortgage payment assumes the prevailing interest rate at the time of purchase with a 30% down-payment. Annual return is the return of investment (computed in an annual basis) to the initial down payment.
As shown in the above chart, as property prices have decreased rental incomes have moved in the opposite direction. With the addition of favorable mortgage rates, a situation with positive cash flow can be realized on an investment property with annual returns approaching 9.00 % per year. With interest rates locked and rental income likely to increase year over year, the potential for an increasing annual return to the initial investment is extremely promising.