Welcome to our “PWR’s Experts” column, where we highlight some of our favorite industry experts. As Financial Planners, we have met many smart and talented people who are experts in their own fields. We have used them as resources for our clients and sources of knowledge for ourselves. We hope you enjoy our expert series!

Our expert today is Jennifer Campos, Real Estate Advisor for Pacific Sotheby’s International Realty

We wanted to interview Jennifer because she has a broad knowledge of the real estate market in San Diego and has done research on the investment and rental markets in San Diego and beyond.

Almost all of our clients either hold real estate directly or want to know if investing in real estate is good for their financial future. Many of our clients want to hold rental properties as part of their investment portfolio and we thought a great way to share more information was to get Jennifer’s take.

About Jennifer Campos

As a San Diego native, and second-generation realtor, Jennifer’s passion is helping clients buy and sell real estate with the highest level of service, professionalism and confidentiality. With over 17 years of industry experience, Jennifer was exposed to San Diego real estate at an early age through her parents, both within sales and lending of residential and commercial properties. Jennifer has helped countless individuals, families, trusts and investors buy and sell properties in and around San Diego County. Through Jennifer’s knowledge, she has a strong business sense, fierce negotiating skills and compassion for her clients which eludes a worry-free and seamless experience.

So Jennifer, how do you know if a rental property is a good investment?

The decision to invest in a rental property should be driven off of the client’s goals and objectives. Are they looking for an income producing rental property or a property with long-term appreciation? The investment itself should provide an investment rate of return that is sufficient to compensate for the risk and the lost opportunity for your investment dollars that could be used elsewhere.

What criteria should be used to analyze an investment property?

This depends on the clients goals. The financial analysis most people start with is the cap rate; this is annual rate calculated by taking the net income from the property divided by the purchase price. The higher the cap rate, the better. In today’s environment, a 5% or 6% annual cap rate would be very good; keep in mind there are many factors that influence an acceptable cap rate for an investor, i.e. property condition, how many units there are and location. Also, these annual cap rates of 5-6%, do not take into consideration your income tax benefits and potential appreciation of the property. Lastly, looking at recently sold properties is a great way to get an idea of what other investors are accepting for cap rates in a given market.

What is a good rate of return on a rental property? Is the 2% rule a good rule of thumb?

With regards to the 2% rule (obtaining 2% of the purchase price in rent per month), especially in San Diego, this is very difficult to achieve in today’s market and most investors have moved away from this rule. More often than not, I see local investors breakeven on income. They are able to cover their monthly costs and instead gain traction on the appreciation side.

I do have a robust investment property search across top cities in the nation that will be able to research all components in making a decision for this process. If you are considering the purchase or sale a property please let me know so we can discuss further what is important to you.

Many of our clients are looking to upgrade their current homes and keep their previous home as a rental, is this a good idea? Is San Diego, in general, a good location to own a rental?

In San Diego, most investors will have to see their rental properties as appreciation assets at the beginning rather than income-producing assets. Rental prices, however, are estimated to appreciate around 8-9% on average for San Diego by year-end. With the appreciation in rents, most investors start to see their properties become cash positive after a couple of years. If investors are diligent with paying down their rental mortgage (and not taking out lines of credit, etc against the property) they will begin to see additional income flow through. Though, they have to be able to withstand the negative cash flow in the beginning,

Depending on how long the investors hold the property they could achieve a good amount of appreciation when they sell. Although price appreciation throughout San Diego has simmered down to 3-4% through 2019, it is still a great place to invest given the rental market, employment and overall demand for the area. San Diego is a high demand city and I don't see that changing any time soon.

Also, there are a lot of people moving to San Diego, but the ability to purchase in San Diego is becoming harder for many people. San Diego has one of the highest median sales prices in the nation, those moving here often can't afford to buy, so they have no choice but to rent. The higher the demand for living results in higher rental incomes.

What cities or states have you seen have good rental property markets outside of San Diego?

There are a few. You should know what to look for when investing outside of your hometown, including; growth, jobs added and/ or planned, vacancy rates and current home prices. Think of areas where large businesses are moving to or expanding like Google, Amazon and FedEx. Cities that have high employment centers and low property costs work really well for investors.

One of the top-ranking states for residential rentals is Florida (i.e. Orlando, Tampa and Jacksonville) because of a combination of low property values, low taxes and insurance, no income tax, and almost perfect weather. Florida is in demand for many people, including baby boomers retiring, yet many people are choosing to rent. I’ve also seen many good investments throughout the state of Utah and North Carolina as growth and infrastructure continues to expand.

What are the benefits and drawbacks of owning a rental property in another city or state?

If you own real estate in an area other than where you live, you need to own enough units so that you can realize an economy of scale. This would include items like having a property manager. It wouldn’t be very practical to own one or two units in a different area and try to manage them yourself from a distance.

What are the benefits and drawbacks of owning multi-unit rental properties versus single-family homes? Have you seen one be a better investment?

When compared to multifamily residences, single family homes (SFR) and condos typically do not give you a high enough return to make good investments because the acquisition costs are so high. Multi-family units area ideal (2-4 units) and there are some really good deals out there if you have the financials. The challenge with SFR’s is you can buy and hold them over 5-10+ years and get about 10% rate of appreciation, but you must have an exit strategy.

In my opinion, multifamily properties are the better of the two because you can obtain a sufficient number of units to achieve better cash flow and with a good amount of units you don’t feel the pinch as much when you have a vacancy. If a client is looking for a property and has an immediate income need from the property, I would recommend looking outside of San Diego to make sure expenses are covered and sufficient income is produced.

Lastly, why do you love being a real estate agent?

I genuinely like helping people achieve their goals and objectives when it comes to real estate and how that affects their overall net worth. Real estate has become most people’s largest asset. There are many emotions involved when it involves purchasing and/or selling real estate so I try to take away as much stress from my clients and really use my knowledge, experience and compassion to ease their journey. At the end of the day when the clients have achieved their goal, it makes it all worth it for me.

If you would like to learn more about Jennifer's business and how she evaluates real estate investment and income properties, you can visit her website or contact via phone or email.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.