3 Clever Ways to Invest in San Diego Real Estate

If you’re looking to buy an investment property in San Diego for cash flow purposes, here are three clever ways to do so. Because San Diego is both an attractive vacation destination and a popular relocation destination, your investment options are wide open. Consider each of the following ideas to see which one might be right for you.

1. Single Family Home Rentals

Single-family home rentals in San Diego are almost always a sound real estate investment. There is a steady stream of families looking to rent a single family home instead of an apartment. They may be seeking a more permanent solution to house their growing family, or they may desire the outdoor space and added privacy that typically go along with single-family rental homes. Whatever the reason, it’s unlikely that you’ll ever have a problem finding tenants for your single-family home investment.

Some things to look for in a suitable single-family rental property are a safe neighborhood, possibly a fenced-in yard, proximity to a park or playground, and proximity to a bus line for tenants who may need to commute. A single-family home rental investment offers you several tax breaks. You can deduct the cost of property management fees, county property taxes, repairs and related expenses and, especially, depreciation.

2. Vacation Home Rentals

San Diego is a mecca for vacationers from around the world. You won’t have any trouble renting out your San Diego vacation home by the day, week or month. Vacation rentals can be very lucrative as far as rents go. People on vacation expect to pay considerably more than you would get for a long-term lease rate on that same property. When seeking out a suitable vacation home rental property, consider your family’s own desires. Remember that one of the greatest benefits of this type of San Diego real estate investment is that your family can use the property when it’s not being rented out. This means you get, not only an investment property that provides you with cash flow; you also get “free” vacation accommodations for you and your family. Even if you already live in San Diego County, your vacation property could be a terrific retreat for your family if it’s located in an area far from your home. Try to think like a vacationer when choosing the property to invest in. You might consider a beachfront property, since those kinds of vacation homes typically rent out first, and at the best rates.

As far as taxes go, as long as you stay at your vacation rental property for 14 days or less, you can treat it as a vacation rental property and deduct expenses like repairs, property management fees and maintenance costs. You’ll also be able to leverage the depreciation against other gains on your tax return. If you or your family members use the property for more than 14 days, that makes it a second home in the eyes of the IRS, with a very different set of tax regulations that aren't so attractive.

3. Duplex Rentals

If you can’t yet afford a home plus an investment property, consider investing in a duplex rental home in San Diego. One advantage to this type of investment is being able to live on one side of the house (or above, if the duplex is up and down), while you collect rent for the other half of the house. This type of arrangement cuts your portion of the mortgage payment in half. Another benefit is that you can keep an eye on your property to ensure that your tenant is treating it with respect. For a first time landlord, this will be very reassuring. You may even be able to forego the services of a property management company since you’re also living on the premises. When you’re ready to purchase your own single family home, you can simply rent out the other half of the duplex.

Finally, the tax breaks on an owner-occupied duplex, where you live in one half of it, are nearly as generous as if you owned a single-family home rental. You’ll be able to deduct for expenses incurred on the half that’s rented. You’ll be able to deduct half the amount on shared expenses (for instance, if you have to repair or replace the roof). The property tax benefit and mortgage interest deductions would also be halved.

There are tremendous benefits to investing in San Diego real estate as a landlord. Even if you’ve never been a landlord before, it’s worth considering. San Diego is a very hot market right now, and property is at a premium. Depending on which kind of investment you choose, there are financial pros and cons, which you should discuss with your tax accountant. One thing’s for sure, though. The San Diego real estate market isn’t showing any signs of slowing down. This is a great time to get on the real estate ladder in San Diego County.