It would not be fair to have a discussion about investing in San Diego single family homes without covering the negatives also. Every investment has some drawbacks, no investment is “perfect”.

1. MANAGEMENT- All real estate requires management, either by you or a professional management company. There are more headaches involved with real estate than with simply putting your money in a money market account or mutual funds. San Diego single family homes are more difficult in some respects because they are spread out. 

This makes it harder for showings and repairs versus an apartment where all the units are in one location. There is also more paperwork, because each house has its own mortgage, property taxes, insurance, etc. Management takes some time, but if you develop a system and stay on top of it, it is not all that hard.

2. VACANCY - All San Diego real estate can suffer from vacancy from time to time.  With a single family home, if it’s vacant, the whole thing is vacant. With a 10 unit apartment, if you have a vacancy you still have the other 9 units producing rental income. By purchasing the right properties in the right areas and charging fair rents, you can minimize the vacancy rate so it isn’t a big problem.

3. REPAIRS - Any real estate is going to require repairs occasionally. Single family homes each have their own furnaces, air conditioners, roofs, etc., unlike an apartment building. Houses may therefore have more repairs, although they will generally be less expensive repairs than for a larger building. 

Apartments also require things like landscaping maintenance, things that a tenant often does in a single family home. In addition, tenants in San Diego houses often perform a lot of minor repairs themselves.

4. Getting the Property to Cash Flow - The rental market in San Diego has not kept up with the increase in property values. The medium price home (condo and detached home) in San Diego County as of this writing (11-6-05) is about $500,000. 

With an 80% loan ($400,000), 6% interest 30 year fixed rate the monthly mortgage payment would be $2,398.20. Add $520.83 for prorated real estate taxes and insurance (estimated at 1.25% of purchase price) and another $200 for Home Owners Association Dues and the total monthly payment comes to $3,119.03.

Fair market rent for a $500,000 home is less than $2,500 per month.

Of course you could always get an interest only negative amortization loan and perhaps get the property to cash flow but that would be risky since property value appreciation predictions are that 2006 through 2010 will be flat or may even decline.