The Best Opportunity I’ve Seen in Years…
81 Units in La Mesa Under Contract
Finding deals that pencil in San Diego has felt impossible for the past 2 years. We have acquired six properties in the last couple of years, but they have mostly been ground up ADU development opportunities.
I always look for a minimum of a 15% IRR (annual return for the life of the investment) to our investors and achieving this by buying existing multifamily properties in San Diego has been nearly impossible.
The housing supply increased dramatically causing rents to soften in most submarkets of the county, interest rates have held steady in the high 5s, low 6s, and most sellers have no distress here.
A significant portion of the investment properties in San Diego are owned by multi-generational families who have no debt on these assets. Whether the market goes up or down, they are still cash flowing.
That being said, there have been significant challenges in the past couple of years for every apartment owner in San Diego:
Insurance costs have risen rapidly (although the chaos seems to be over).
Utility costs have increased significantly while rent prices came down.
Tenants have held the power and landlords have had to offer significant concessions to get their places rented.
Construction costs have gone up.
In summary, expenses went up, while revenue went down. It has been a less and less profitable business as time has passed since 2022.
This is making more and more long time apartment owners sick of owning real estate while the stock market has been pumping. I know a few owners who have allocated a much higher portion of their wealth to the stock market and taken a lot of chips out of their real estate holdings.
Everyone wants to own SpaceX; no one wants to own apartments.
As you read the first part of this memo, you might be asking yourself:
“This sounds terrible, why would anyone want to own an apartment building in San Diego right now?”
Your feelings are valid, but remember this quote from the greatest investor of all time:
“Be fearful when others are greedy, and be greedy when others are fearful.”
- Warren Buffet
How does this quote translate for me in 2026? - I am afraid of investing in AI stocks and the stock market in general. That’s where all of the capital is flowing to right now.
The bubble is eventually going to burst.
There is significantly less investment capital going into Class B apartments in the US right now, and almost zero capital going into Class C apartments. We want to be greedy here at bargain prices.
If you have read “The Art of War,” you’ll remember this quote from Sun Tzu:
“In the midst of chaos, there is also opportunity.”
The apartment market in San Diego and several other parts of the world have been experiencing chaos since the interest rates rapidly rose in the summer of 2022.
This down market cycle has been a slow burn with banks extending all of their loans and pretending everything is okay, but the shit is finally starting to hit the fan.
We are underwriting opportunities and talking to brokers everyday because we do not want to miss out on the best buying opportunity since 2010.
During my few weeks learning at Harvard last month, I asked the most intelligent and well connected professor there about where they are investing their capital in the next 3-5 years:
“The smartest investors I know and myself are betting on real estate in the near and long term future.”
This conversation confirmed my thesis and got me even more excited about the opportunity that we can create for our investors.
In terms of San Diego specifically, there isn’t a city I’d bet on more than San Diego.
If you get off the plane here in January at 4 pm, it’s 68 degrees and sunny.
The job market is extremely diverse and stable. The US Navy and the medical field in San Diego County accounts for 32% of the job market.
New apartment housing supply is falling off a cliff in 2027. Fewer than 1,000 units are expected to be delivered. 6,200 units were delivered in 2025 (a 25 year high) and roughly 4,000 units are expected to be delivered this year.
The units being delivered in 2025 and 2026 are the developers who acquired those opportunities in 2021 and 2022 before interest rates went up.
With construction costs continually rising and interest rates holding steady, the ground up development business for institutional scale developers is not a profitable business anymore.
This is bad news for tenants, but great news for landlords.
Finally, look at the geography of San Diego:
You have the US / Mexico border to the south, the ocean to the west, the desert and mountains to the east, and a massive Marine Corps base to the north.
San Diego’s precious land with the best weather in the country is land locked and they aren’t making more of it.
People are making new AI companies every day, they’re not making more land with 70 degree weather year round.
Last, but not least, let’s talk about the specific opportunity I have right now.
The opportunity I have is an off market 81 unit apartment building in La Mesa, CA.
We sourced the deal through a broker relationship and the property never hit the open market.
We are in escrow right now for $15,700,000 ($193,827 per unit).
1 bedroom, 1 bathroom condos in the same location are selling for almost $400,000.
Every property that has sold in La Mesa has sold for under a 5.63% cap rate in the past 5 years. This property is a 6.3% cap rate going in with over an 8% cap rate upside in rents.
The property was also fully renovated from 2017 to 2019. There are no major repairs needed.
We will be increasing the gross rental income by adding amenities: washer and dryer in units, dishwashers, new outdoor common areas, a dog wash, and Tesla EV chargers.
In summary, we are buying a great asset in a solid location of San Diego County for a discount.
This is the playbook we used to consistently generate over 20% year over year returns on our portfolio since 2020. Keep in mind that we have been in a down market since 2023 and there are a lot more losers than winners in real estate right now.
It’s simple: Buy great, low-risk properties in good locations that are supply constrained and operate them at a high level.
Almost impossible to lose when our strategy is executed correctly.
If you are interested in learning more about this investment opportunity, reply to this email, and I will send you the investment memorandum.
Have a great week ahead,
Jason Lee