This articles is meant to help you find multifamily investment success in Ocean Beach/Point Loma and Imperial Beach. For several months we have been touring various actives apartment submarkets. This month, we discover value increases above 30% in three beach zip codes south of downtown: Imperial Beach, Ocean Beach and Point Loma. Surprisingly the neighborhoods grew at significantly different paces.
You recall that we will review value trends since 2011, considering the areas, reviewing the numbers and then put the numbers into perspective.
Three Beach Submarkets
These tenants have above-average income and education. Crime rates are lower than average and management is considered easier. Premium areas carry premium prices.
Imperial Beach, IB, is the most southwesterly city in the continental US. Roughly 27,000 people live there. IB is one of three county cities with a majority of rental housing. For decades investors have recognized that IB values would jump because its quality beaches and convenience to downtown. Within the last few years a world class resort was built and that brought attention, more investment and a fresh look at the area. Values are up more than 30% in the last 5.5 years.
Ocean Beach, OB, has about 30,000 residents. Its laid back beach welcomes surfing, and sun bathing around the pier. Many enthusiasts like its previous generation tone and relative lack of national franchises and abundance of locally owned surf shops, taco stands and antique malls. It is nestled between the San Diego River and the hills of Point Loma. It is more bike-able and walk-able than most other communities.
Point Loma sits on a hilly, seaside peninsula. This community is bordered on the west and south by the Pacific Ocean, the east by the San Diego Bay and Old Town, and the north by the San Diego River. Population is near 20,000. Three Point Loma features are Liberty Station, Cabrillo National Monument and Point Loma Marina.
Let’s “Do The Numbers”
Appraisers and investors, you recall looking at three measures of value. Gross rent multiple (GRM) is how many times the annual potential income the buyer pays for the building. Dollars per unit ($/U) is just what you expect. Dollars per square foot ($/SF) ignores garage and balcony space. Premium areas, like beach zip codes, cost more than similar properties 10 – 20 miles inland. The measurements enable people to understand the scale of the premium for the upscale areas.
Imperial Beach had 35 sales with useable data. Price per unit climbed from $184,500 to $191,000, a four percent gain. Dollars per square foot soared from $137 to $230, a 68% rise. GRM began at 10.9 and ended at 13.2, a 21% climb. The blended rate was 31% or an average increase of 5.6% annually.
Ocean Beach and Point Loma had 39 sales from 2011 through June 2016. Cost per apartment jumped from $212k to $327 — an increase of 54%. Dollar per square foot climbed 44% from $289 to $415. Gross rent multiple started at 12.8 and rose to 17.6, as 38% increase. The blended increase was 46%. On an annual basis that averages 8.3% for the blended rate. That is a big jump.
Beach properties require bigger down payments than less expensive inland zip codes. Federal lending regulations require that lenders focus on the cash flow. Areas with higher GRMs have lower cash flow. Banks will loan a bigger dollar amount, but a lower percentage in fancy areas, like the beach than in ordinary neighborhoods. The higher down payment for beach assets, in effect, means that the return on equity was less than say, National City and El Cajon or City Heights.
Why did Ocean Beach and Point Loma outperform Imperial Beach?
Point Loma and OB have a greater number of single family homes and higher percentage of home ownership. In contrast, IB has a majority of rental units and the average home value is lower.
That is the history; what is best for you?
Wise people study history to understand the past and make smart choices about the future. No matter where your equity is, we hope it has grown. The real question is whether the equity will do better in the current units or in some other investment. Annual physicals are prudent for your personal health. Periodically reviewing your financial situation is also wise.
Curious about your property’s value?
As an SDCAA member you can receive a complimentary, confidential value estimate. Our team will value 100 buildings this year. Our team is focused on your success. Learn what your asset is worth.
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For more than a generation Terry Moore, CCIM has benefited from and contributed to SDCAA. He is a principal of ACI, the firm which has closed more apartment escrows than the number two and three companies combined.
Contact Terry at 619-889-1031, or tmoore1031@gmail.com or SanDiegoApartmentBroker.com
