A landlord rang me last month, properly puzzled. Their two-bed condo off Camino de la Reina had sat empty for five weeks at $3,200, which is exactly what the comps said it was worth. The comps weren't wrong. They were just answering the wrong question.
Walk five minutes in almost any direction in Mission Valley and you'll pass a new apartment building with a banner out front. Six weeks free. Eight weeks free on select units. Those buildings list a two-bed at, say, $3,400, and that's the figure that ends up on Zillow and in every rent estimate a buyer pulls. But six weeks free on a thirteen-month lease works out to roughly 11% off. The tenant is really paying something nearer $3,000.
Your condo isn't competing with $3,400. It's competing with $3,000 and a rooftop pool.
This is the bit most investors skip. The pro forma uses asking rent, the asking rent is propped up by concessions, and the maths only falls apart after you've closed. I spent years as a financial planner before real estate, and the habit I never dropped is modelling the ordinary bad year rather than the hopeful average. In Mission Valley right now, the ordinary bad year includes a lot of new supply. Riverwalk, on the old golf course off Fashion Valley Road, will keep adding homes for years, and every lease-up phase brings a fresh round of free months.
So here's how I'd run the numbers before buying a rental here:
- Pull asking rents from the two or three newest buildings within a mile. - Ring their leasing offices and ask what the current special is. They'll tell you. - Convert it to effective monthly rent, then knock another 3 to 5% off, because a private landlord can't offer a gym and a package room. - Budget a full month of vacancy a year. Not half.
If the deal still stacks up after that, you've likely found a good one. If it only works at the Zillow figure, it doesn't work.
I'll be honest, I think plenty of buyers here are underwriting with the wrong rent and then blaming the market when the cash flow disappoints. The market told them. It was printed on the banner.
Sellers and owner-occupiers get something out of this too. The concession wars pull new renters into the Valley every year, and some of them do the sums and realise a condo payment isn't far off what they're effectively paying. They're your buyer pool for the next resale.
As for the landlord on Camino de la Reina, they dropped to $3,050 and offered a flexible move-in date. It leased in nine days.