What is a good ROI for rental property?
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A good rental property ROI depends on your strategy: Cash-on-cash return: 8-12% is considered good. Cap rate: 5-8% in most markets. In San Diego, cap rates are typically 3-5% due to high property values, but appreciation and tax benefits often make up the difference.
What is cap rate vs cash-on-cash return?
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Cap rate = Net Operating Income / Property Value (ignores financing). Cash-on-cash return = Annual Cash Flow / Total Cash Invested (accounts for your financing). Cash-on-cash is more relevant to your actual returns since most investors use leverage.
How much should I put down on an investment property?
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Investment property down payments: Conventional: 20-25% minimum. Portfolio loans: 15-20%. House hacking (FHA): 3.5% if you live in one unit. Putting more down reduces monthly payments but lowers your cash-on-cash return due to more capital tied up.
What expenses should I include in my ROI calculation?
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Include: Mortgage payment, Property taxes, Insurance, Property management (8-10%), Vacancy (5-8%), Maintenance (5-10%), Capital expenditure reserve (5-10%), HOA if applicable. Many new investors underestimate vacancy and maintenance costs.
Is San Diego a good market for rental investing?
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San Diego offers strong appreciation (historically 5-8% annually), high rental demand (military, tech, biotech), and limited housing supply. Challenges include high entry costs and lower cap rates. Best strategies: house hacking, ADU additions, and value-add properties in emerging neighborhoods.