Christine Karpinski:  Today's guest is Mireya Schmidt. She is a real estate agent who sells vacation homes, second homes, and primary residences in the San Diego county area. She specializes in La Jolla, and of course, as most of our real estate agents that we bring on to the podcast, she has an interesting story. Besides being a vacation rental owner, she also has an interesting background.

Mireya, welcome.

Mireya Schmidt:  Thank you, Christine.

Christine:  OK. So, I know everybody is going, "Hmm, I wonder what her interesting background is?" Tell me.

Mireya:  Thank you. It's good to be here. Prior to becoming a realtor in La Jolla in San Diego, which I've been doing for eight years now, and prior to buying and managing our own vacation rental home in La Jolla and the coastal area, I worked in the banking industry. I have over a decade of experience and derivatives with management of foreign exchange.

I helped large corporations manage their foreign exchange exposure and enjoyed working in that capacity on Wall Street. I bring to my real estate clients these financial and negotiations expertise that I've honed over the years in that career. However, I really enjoy what I do now because it allows me more flexibility with my family, my children, who are teenagers, and to be able to live in La Jolla and live near the beach is definitely a plus.

Christine:  Yes, I mean, what a jump ‑ from Wall Street to real estate.

Mireya:  Yes. It was wonderful.

Christine:  You've been doing it for a while. You're liking it?

Mireya:  Hmm.

Christine:  Certainly, not a bad place to have to live. We went to La Jolla ‑ I guess, it was in the Spring of '08 ‑ and I just was just amazed at how pretty it really and truly is. It's so quaint, and I can certainly see why a lot of people want to move there as well as have vacation homes there.

Mireya:  Exactly, exactly. La Jolla is very special. It has seven and a half mile coastline. There's a beautiful European feeling to the village of La Jolla. It's the kind of place that's really become an international destination. We have a major university, UCSD La Jolla. We've got booming industry.

We've got Nobel Prize winners that live here. Diverse economy and the year round Mediterranean just perfect weather between 50 and 75 degrees. Mainly 60s and 70s, year round without humidity and not much rain. So there are obvious reasons why people love to come to San Diego and La Jolla. We think of this as the jewel. It really is a special place.

Christine:  OK. I'm packing my bags. I'm on my way. It really is. The other thing that I found rather interesting was all the restaurants were all so very different and just high end, really nice good food. You have a hard time finding great food, but La Jolla really has it all.

Mireya:  Yes. We've attracted chefs from some of the top restaurants in New York and other places. We definitely have wonderful, wonderful cuisine not only in La Jolla but also in downtown San Diego, in the Gaslamp District. We're very lucky that way.

Christine:  Yes. I just was so pleasantly surprised. I hadn't been there recently until this past spring. I just was so pleasantly surprised at how a lot of preservation has gone on. The Gaslamp District downtown, I mean, it's just really so pretty, definitely lots of things to do, nightlife. Of course, you've got that gorgeous beautiful beach right outside your doorstop.

Mireya:  Exactly.

Christine:  What's not to love?

Mireya:  Right. Right. Well I'll have to agree.

Christine:  Now, I'm sure with all of these what's not to love and painting this beautiful picture and a place that everybody wouldn't mind to live, there probably comes a pretty good price. I imagine it's pretty expensive to live there?

Mireya:  Absolutely. That's the down side. A paradise is expensive. The most desirable parts of San Diego which would be really La Jolla, Coronado, Del Mar, the coastal area and, of course, Rancho Santa Fe, which is a little bit inland but it's a lovely area of state homes.

It is pricey, median price of homes in La Jolla is about $2.5 million. The high end is anywhere from $5‑30 million. A starter home will be about $1.2 million in La Jolla, and that's a cottage. That's a cottage, not on the ocean. Oceanfront is anywhere from $10‑30 million.

Christine:  Holy moly.

Mireya:  Yes. It's expensive.

Christine:  Yes. It's definitely not the place everyone can go, although you can always go and visit. You can rent vacation homes there. They have lots of home; it's certainly a nice place to visit. But, if you're in the market and you want to buy, what's not to love? And the rentals in that market, I imagine, are probably pretty good as well. Right?

Mireya:  They do well, they do well, yes. Now, here's the good news, though. Obviously, the whole country has experienced the downturn in the housing market. Well, the San Diego area has as well. We've certainly felt the softening in the market. Overall, we're probably down 25% from the peak in San Diego.

Christine:  Yes, but it's still a lot.

Mireya:  Yes. No, it truly is. The median price for all of San Diego is probably around $450,000 now. So there are affordable condominiums that are much less than the million dollar mark that I was just quoting in La Jolla.

So, prices have come down but now more than ever, the whole three most important roles of real estate certainly apply and that's location, location, location. But we've found if a coastal area is a desirable, close proximity to the water, locations have held their value especially in the single family home sector.

Christine:  Yes, and we're seeing that pretty much a lot of places just because, I think, there's only so much supply. There's only so much beachfront is always what I say.

Mireya:  Exactly.

Christine:  They're not making anymore of it unless you go to Dubai. Right?

Mireya:  Right, right. Exactly, exactly.

Christine:  So, it tends to hold its value a little bit better. As a rule, going in to say, La Jolla, you're not going to find it to be down significantly. It's not like an area where it's huge opportunity as far as, you know...

Mireya:  Right. It's relatively flat. I'd say we're back to maybe 2004 prices now in 2008, starting into the fall of 2008, we're back to 2004‑2005. 2006 was the peak for our prices. Right after the news about the Bear Stearns and the bailout, which was this year, St. Patrick's Day, that's when our market really started to turn because of the credit tightening situation. It became less easy to get 100% financing on a jumbo loan, kind of thing.

Christine:  Right.

Mireya:  So, but having said that, there are definitely opportunities, especially, for example, in the condo market. Condos have dropped substantially. A condominium that sold in the peak for $900,000 to $1 million is now at $775,000‑$750,000. The problem there is that I have found that if you want to really successfully run a home as vacation rental and really, truly offset your cost, it is better to have a detached home or a condominiumized detached home as opposed to a condominium that's in a complex.

Christine:  Interesting.

Mireya:  I know that it's different in Hawaii and Florida and other parts of the country. But in Southern California, most HOAs are very restrictive in terms of renting out condos weekly or nightly and they will shut you down. So we have more success with the single family home.

Christine:  I always tell people, when you're going to look for a vacation home, even the slightest option that you may rent it sometime in the future, you absolutely need to check to make sure that there's no restrictions against rentals.

Mireya:  Right.

Christine:  It sounds like your condominium complex is they have tighter restrictions than the town. Is that correct?

Mireya:  Absolutely. They tend to have at least one month minimum and some as many as three months and even a year. Many don't allow pets and they can be very restrictive. So I would encourage somebody, if you're looking for vacation rental home, take the step to really explore the detached home market. Even if it's just a little tear down cottage that you can remodel or, ultimately, build a larger town‑home there, you'll have more control of your situation. You'll be able to rent it out as you wish.

Christine:  Right. It makes sense. You can tell this to people a hundred billion times ‑ make sure to check this before you buy, before you buy.

Mireya:  Exactly, yes.

Christine:  Great advice. So then if you are saying that for the most part we probably should not buy a condo because you will not have the ability to rent, so let us talk about these single family detached homes, maybe a few blocks away from the beach away. I know you said directly at the beach they start at over a couple million. What about a few blocks away from the beach? What can I get in the market at? What are starter home prices?

Mireya:  OK. Just to clarify, ocean front in La Jolla starts at about $10 million. $10 million to $30 million.

Christine:  Oh, ten million, not two million. Sorry.

Mireya:  A few blocks away is really the pricing we were describing, the $1 million, $1.1 million. Sometimes you can pick up a little cottage for $850,000 or $900,000.

I think the best is to try to pick up something that is a really detached cottage on a small lot, or a two lot, a lot that is zoned for more than one unit, within 3‑4 blocks to the beach. And I would definitely try to choose a sandy beach: Trameline Beach, Quindency Beach, La Jolla shores. Families that are visiting usually have more children and they just want to put them in the wagon and take them to the beach and not worry about parking, which can be very difficult in the summer.

So you are looking at a starting price of $950,000 to $1 million, however, having said that you are going to the see immediate return because prices for rental in the summer are anywhere from $2,500 to $3,000 a week, three good months in the weeks of June, July, Labor day, the home will be full, so you can probably count on about $30,000 in the summer, and in the off‑season, remarkably, those same houses will bring in about $4,000 a month if they are fully furnished with TV and premium cable and Internet.

Just running as a vacation rental. We have a strong year‑round market, because we do get a lot of winter people, people from Canada and New York, Chicago, Boston, retired, coupled, who come with their pets and stay for two or three months to get out of the winter weather. We have local families that are re‑modeling their homes or selling their homes, between escrow. So, it really turned into a year around business, which certainly helps to afford the high cost of the mortgage.

Christine:  So, it will support the high cost of the mortgage, but probably would not pay all the mortgage, right?

Mireya:  Well, if you are looking at the ton of $1 million to $2 million purchases, if you are putting 25 percent down, you are looking at probably $6,000 a month, so $72,000 a year if you are taking in $60,000. Oh, I can think of one property right now where there are two little houses on one lot.

The front house is a three‑bedroom, two bath, the back house is a one bedroom, one bath house. I think one could generate $60,000 a year from the front house, $30,000 from the back house, so $90,000 in vacation rental income and if you are putting down a large enough down payment as most lenders need to see in their requirement...

Christine:  These days [laughs].

Mireya:  These days, right. You are going to end up putting $250,000 or $300,000 down on that at a point of a $1.2 million purchase, then you are going close to break even.

Christine:  Wow, that is actually encouraging, that even with those high prices, you know the sticker shock, that there is the ability to actually break even. Now, that is with a caveat of course, that is doing it by yourself.

Mireya:  Absolutely. You are absolutely right.

Christine:  You can not even dream of breaking even if you are going to use a property manager, that is taking 30, 40, 50 per cent.

Mireya:  Right. Well in La Jolla there are property managers that will do this for 20 per cent.

Christine:  OK, so that is not so bad.

Mireya:  Right, it is not so bad, but it will lead to falling profits. I encourage people to manage their own properties. I love doing it and I think it is the only way to really make this business work and to come out with a positive cash flow.

Christine:  Well, I certainly think the same thing [laughs]. Oh, of course, can you hold on a second, we just need to take a break for a word from our sponsors.

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Christine:  It is interesting, because a lot of times you get stuck on that sticker shock going, “Oh my gosh! I can't even get into this market under $1 million.” However, if it is a market like that, now, it would seem to me that San Diego having consistent weather throughout the year, obviously summer time is always going to be busy, regardless of pretty much most of the destination.

Summer is their peak season. However, I think a place like San Diego having good year‑round weather would also rent pretty good year round. And as we see the airline flights, the prices are getting to be much more expensive. People who would otherwise perhaps gone to Hawaii or some other islands, may end up looking for places like this for vacation. So you just never know.

Mireya:  Exactly. Now that is where we are actually very fortunate. We have a couple of major, what we call, theatre cities. Tucson, Phoenix, and Las Vegas are all within six hour drive. So those vacationing guests who may have gone to Europe, may have gone to Hawaii, are choosing instead to pack up the SUV and come to La Jolla.

A four hour drive and there is 120 degree weather and they are certainly in paradise. So that is certainly our bread and butter and we certainly saw that most of the summer, most of our summer traffic comes from the desert, major theater cities. And that did not slow down.

Christine:  Right. Yeah, I mean even people that can afford to spend $10,000 a week to rent a place, if they got three or four kids it is going to be easier to pack them in the SUV, drive six hours, than it would be to pack all this stuff, get on a plane, you know what I mean. So it does make sense. Properties within driving distance to major metropolitan cities typically have a little bit more security against the economy I would say. As opposed to being an island, you know.

Mireya:  Exactly, and you know what, we are somewhat recession‑proof. I do not know for recession, it is too soon to tell; we certainly are having a good year this year and have not felt the decline that other areas are feeling. Also, we are not feeling the declines that hotels are experiencing.

There was an article today in the Wall Street Journal about the travel slump and that a lot of hotels are cutting their rates to stay competitive and try to increase their occupancy rates and interestingly when we had the U.S. Open here in La Jolla in June, it was an article about the local hotels not really feeling a huge surge, an increase, because of the U.S Open, everyone that I know that had a vacation rental home was fully booked and said, “We are overbooked. I had to move out of my home and live with my brother for a week, because we had booked one a year ago and had forgotten about it.”

So I think that we are actually taking business away from the hotels and that is our major competition.

Christine:  OK, so then that brings me to another topic. Taking the business away from the hotels, hotels typically have deep pockets, they have got lobbyists, they have power in politics. Are there any issues with regard to any bans, restrictions, anything going on, trying to stop people from renting their vacation homes?

Mireya:  We have heard some noise in that direction. A few months ago, in North Pacific Beach, some attempts were being made to shut down the vacation rental business, and also in Luana Beach, however the Pacific Beach situation it turned out that home‑owners, the community, really was misguided in what their objection truly, truly was.  They felt that maybe the vacation rental people were loud and they partied and made noise and disrupted their community. Well, as it really turns out it is not the vacation rental guests. For the most part we found that our guests are families, they come to SeaWorld, they spend the day at the beach, they spend the day at the Zoo, they go to Legoland, they come home, they are exhausted, they go to bed by nine.

They are very nice, quiet families. The problem really were the landlords who were taking this three‑bedroom home, adding a wall or two, making this a five bedroom home and turning their homes into mini‑dorms, renting them out to college students who were having outrageously loud parties. So once that was cleared up, the issue has gone away.

Christine:  Oh, great!

Mireya:  What we've done is that whenever we buy a home, we move into it. We get to know the neighbors. My kids, they were ruining their childhood, but that's OK.

Christine:  [laughs]

Mireya:  Someday, maybe they'll be grateful. Now that they're teenagers, and their rooms are their sanctuaries, we've backed off on that a little bit. We have moved into every house that we own, and we get to know the neighbors.

Christine:  Oh, neat.

Mireya:  I give them my cell phone number, and I tell them I want to hear from them if there's ever a problem, and we follow up with them.

Whenever I'm there to move the garbage can, or to check on the Jacuzzi, I ask them, "Have you had any bad experiences? How are the neighbors?" What we find more often than not, is that the kids that live on the block have gotten along very well with the other children that have come to visit and made fast friends, and they'd come year after year.

So it's about getting to know your neighbors, being honest about what you're doing, having that open line of communication with the community, and to being respectful.

Christine:  Right.

Mireya:  So, I think that the issue with bans has been, for now, tabled, and hopefully that's the case. I think also, as more and more homeowners understand the business, and they file the Occupancy Tax and they pay the city the Occupancy Tax, we'll be a stronger group.

I mean, the city will suddenly look at the revenue stream that they're getting from responsible vacation rental owners, and will not want to see that go away.

Christine:  Right. Once they have the money in their hand, it's really hard to give it back.

Mireya:  Right.

Christine:  When you have all the homeowners collecting and paying those sales taxes, then the city has a gauge on it as well, like "Wow, this is a real impact on the community financially." They're not just looking at those sales tax dollars that you, collectively with the other owners put in.

They also have smart people that work for them, that look into it and research it and figure out, "Wow, for every traveler that comes, they're spending 'X' amount of money in restaurants, and grocery stores. They're buying stuff at the local shops, and they're buying gasoline."

So, there's a huge economic impact to the traveler that comes into the community, and we as vacation homeowners sometimes are shortsighted with regards to that sales tax. By collecting and paying that sales tax, we are adding validity to the whole industry within our community.

Mireya:  Absolutely. We become contributing members, and then it's harder for them to want us to go away. I mean, it just doesn't make sense anymore.

Christine:  Yeah, and it's a mistake. I see a lot of homeowners, they try to be hush‑hush about it and like, "Well, I don't want to raise any flags or anything." I'm like, "No." Collectively, when they see how many people are doing this, then you begin to have a lot more rights.

Mireya:  Exactly, exactly.

Christine:  Well, that's neat. I'm glad to hear that the problems have resolved themselves. Certainly your insight has come into play to help homeowners understand the importance of talking to their neighbors, and getting to know them and being upfront and honest.

Now, what about other sorts of issues in the area? Are there any environmental issues? Like, we're talking California. Obviously people think "California," they think "Mudslides, wildfires, and earthquakes." You don't really have problems with hurricanes there. What about environmental issues when you are going to buy a property there?

Mireya:  Well, earthquakes are always an issue in California. I think it helps to work with a realtor that understand the topography of the land, the disclosures, all of that. There is a fault line that runs in La Jolla. It's the "Rose Canyon" fault line. It's in an out area, that's above the Mount Soledad. We also had a sinkhole recently on Mount Soledad.

The news about that fault line and the areas where you might potentially have landslides, is that's all in the hilly area. That's really not the area that's of interest to the vacation rental clients, the guests. They want to walk to the beach.

So when I'm directing somebody who wants to buy a second home, with the added ability to be able to rent the house as vacation rental, I just try to keep them focused on staying within walking distance to the beach and the flatland, if you will.

Christine:  Right.

Mireya:  Even an ocean view is not as desirable as the proximity to the water. That can be proximity to the ocean, proximity to the bay, in Mission Bay and Pacific Beach, and proximity to the sandy beach, like Tourmaline Beach or be it La Jolla shores, or Wind 'n Sea, as opposed to a rocky beach.

So it really is all about the location that is chosen, and that will determine the success of the vacation rental home, and the appreciation value that one will see. Now, there's some gorgeous homes up in the hillsides in La Jolla, and many very, very expensive homes.

That sinkhole was a one-off situation for the most part. We haven't had a major earthquake in San Diego. We've had little rumblings, and we do feel them occasionally, but that's just the reality of living in coastal California, in California in general. I think it's not a huge, huge risk, the earthquake portion of it.

Christine:  Right, right. Now, what about insurance? Do you have to get special types of insurance, or is it just the same as buying insurance for any second home?

Mireya:  No, absolutely. You have to have on your home—you have to have vacation rental insurance, you have to let your insurance company understand that you are renting it out as vacation rental home.

I would advise anybody who takes this on to get a Bella Policy, to protect your self against any kind of potential liability. Especially if you have a Jacuzzi, or hammocks, or swings, I mean things can happen. You just want to make sure that you protect yourself.

Christine:  Right. Whenever anybody's coming into your home, it's always a great idea. Let's face it, Bella Policies are really pretty inexpensive to purchase, and the protection that it gives is just huge. So, I mean you absolutely should do that.

Mireya:  Right. The relative cost of the premium is very low compared to the protection that it offers.

Christine:  Right, right. Yeah, your exposure is huge whenever you've got people coming into your home.

Mireya:  Right, but it can be the same if you have a friend; children that come visit for a birthday party. So, it really is no different. You just begin to think about it a little bit more when you are renting out your property, and being paid to have somebody stay in your home.

Christine:  Right.

Mireya:  Any of us that ever have a stranger come into our home are exposed, so it's an issue.

Christine:  Well, it looks like we are running short on time, but boy! This was a really good podcast, and I certainly learned a lot. Before we close, Mireya is there any other things that you'd like to add about buying vacation homes in the La Jolla or San Diego area?

Mireya:  I would just want to add, that it's really, really a great time to buy right now. I mean the credit situation is certainly tight. It takes a good credit score and good income, and obviously a better, a larger down payment to get into the market.

The days of funding a million dollar purchase with nothing down are pretty much gone, but if you have the wherewithal, the La Jolla and the coastal area is a wonderful place to invest, to build wealth, to see true appreciation. In the meantime, you can get a place that you will enjoy year after year, wonderful weather and a vibrant community, that's truly an international destination.

Christine:  Just a great place to visit.

Mireya:  It is, so do come back!

Christine:  Yeah. OK, now if people want to get a hold of you, you've got a website. What's your website?

Mireya:  I do. It's www.lajollacottages.com.

Christine:  OK, let's spell that just in case you don't know how to spell La Jolla. It's www.lajollacottages.com, and as always, we will have the link on the Owner Community. So if you want to get a hold of Mireya Schmidt you can, and certainly it's a great place to visit. At least go check it out, because it really, really is beautiful.

Mireya thank you so much for joining us.

Mireya:  Thank you for having me, it was a pleasure.

Christine:  Well, that wraps up this episode of the How to Rent Vacation Properties by Owner Podcast. I'd love to hear your feedback, remember my email address is OwnerCommunity@HomeAway.com. Thanks to HomeAway.com, our producers, Leah Carroll and Kristin Dorsett, our announcer, Amy Ashcroft Greener, and our sound engineer, Larry Seyer.

Happy renting by owner! Don't forget to take sometime to enjoy your vacation home yourself!