What areas in California would you recommend buying an investment property?

This is a question for which I have to define the scope: Investments, even rental income, can include 1-4 units, multi-plexes, vacation rental, college housing, build-small=home-on-vacant-land (my favorite), plus others.

I’m defining it assuming a fixed income requirement, likely for a first-time investor.. So, will narrow it to 5-6% yield generating, low-maintenance 1-4 units.

Given the above self-constraint, The answer is actually not really that hard, you can start trying to answer on your own: Look at areas around you that HAVE NOT appreciated, maybe  where properties stay on market for more than 2 open-house weekends? Well.. for San Diego, Los Angeles suburbs, SF Bay Area friends: Please don’t laugh.. I know you think none such pockets exist anywhere in California.. Not true, though in those areas you are unlikely to stumble upon one easily, if you work with a good Realtor (or advanced Redfin user), you will find opportunities.. But, as general guide, suggest gong 40-50 Miles away from any major metro/city, except Sacramento suburbs, and you will start seeing a steady stream of properties (Condos esp), that will start to look attractive; these need to be supported by a local job economy (blue or white collar), low-crime, low-litigation etc. BUT, I’ve seen pockets in Oakland, Hayward, San Jose, down to Universal City, La Jolla neighborhoods, that are fairly attractive…

I’m definitely going to put a plug here for a Real Estate agent, who knows local pockets well, as they themselves are on look out for personal investments, is good to team up with them, if they are in your social circle..

I know the above might sound too broad a guide, less of an enumerated list of areas/cities.. But, that’s intentional:  a) To provide as a starting point for an in-depth conversation with me or with a Realtor, b) I truly believe there are opportunities everywhere, you can develop a skill to identify even with the areas you know..

I’m going to switch gears a little bit, focus on an International investor pitch, keeping in mind my summer of traveling to various pockets globally where there are opportunities. We will come back to California market and nuances of investments after a few global-focused blogs.

My next topic: Global Curiosity: How’s the Real Estate Market in India? China? Dubai?

 

Is there still value in SF Bay Area real estate buying?

I’m going to answer this question, assuming ‘value’ means appreciation value.. there is always value in a rental income property, SF Bay Area of anywhere else, but think the question most asked is about appreciation of a property bought for residential use..

Well… A no-frills answer is NO. As in values have gone up so much that (as of August 2017), if your prime consideration is upside, of a residential unit, I would like to think they have 5-6% more upside, but tough to get more. I know there are a lot of follow-up questions. For e.g

1) Does it mean it’s due for  correction: Not at all.. at least not necessarily anytime soon.. (I’m happy to discuss more in-person, is too many factors to describe here).

2) Does it mean I shouldn’t buy now, continue to rent? Not at all.. Rental values are going up big time (for other factors), so Rent Vs Buy is a different analysis. As also is the tax advantages of a residential home.. so.

 

Back to SF Bay Area: The popular wisdom in Real Estate Broker circles is that residential inventory is low, prices are going to be 5-7% trending for next 2 summers, with seasonal (year-end) adjustments.. I concur.

If you are buying a single family home for a rental income, depending on your tax considerations, like 1031 exchanges, highly recommend looking at North Hayward.. Still a lot of value there, good schools, a lot of local infrastructure being built next 2 years.

This is a topic where a lot of folks have varying opinions.. The above is a point of view, starting point for am in-depth debate, that will be personalized. Not a decision making factor I hope 🙂

I’m going to jam through a series of short blogs next 2 weeks, so pardon the brevity.. Contact me anytime via email for more…

Next Topic: What areas in California would you recommend buying an investment property?

 

 

Does it matter if I only have $50,000 to invest? What’s the minimum I need to invest?

Firstly, It does matter how much you invest in the sense that without a minimum 25% down-payment or if the minimum isn’t in synch with your long term investment plan, you are at a disadvantage from the beginning..

But, the spirit of the question and the context it is usually asked is from first time investors, in California, asking what is the recommended minimum.. I’ll examine the question in that context.

My advice is to not think the amount as small or big, but about the asset size you are taking on and your cash flow requirements: For e.g. IF you are buying a $250k condo in Sacramento, putting 25% down, $7k more for closing costs, i.e. a total of $70k approximately, you really need to be making $1400+ in monthly rental to make your investment meaningful.. But that same $70k can buy you a decent piece of land in other areas of California, which over a 7-10 year period, can give you very decent return, but no immediate cash flow..

So it is really your cash flow requirement and asset quality in the portfolio you intend to accumulate, over successive years of dollar-cost-averaged investing, that are the key factors..

Yes, btw, I would definitely recommend first time investors buying land, especially if is within city parcel, residential zoned.. these parcels, in outer metros, tend to be good starting points for investors who don’t have a lot of time to manage properties, don’t need the cash flow near term.. You ALWAYS have the opportunity to build on the land later, convert it into a rental income property.

There are a lots of ways of getting started, some more creative than others, of course more risk-loaded than others as well.. Let me know if you need ideas to get started with your investment 🙂

call/txt me @510.676.1940

Till next time… I will answer another hot topic: Is there still value in SF Bay Area real estate buying?

 

 

Do I Buy Cash or Finance my investment property?

Along with cash or finance, related questions I get frequently are: How do I finance my investment? What rates can I expect (if I finance it)?

Caveat: Although I have an active NMLS license (i.e Mortgage Loan Officer), I’m not a practicing loan agent; a precise answer to the questions above tailored to each individual are best given by a Mortgage Expert.. but, some principles I can point at from personal experience..

Firstly, the obvious answer: if you can afford to do cash, ALWAYS do so.. leveraging debt to do investments automatically adds risk to any portfolio, instantly becomes a risk-management exercise to account for market downsides and interest rate fluctuations, to name a few.. There is a more subtle angle to cash investments, especially for first time investors, that is to do with learning curve around valuation.. per my earlier blog, you want to get into income properties with a long term game plan, a dollar-cost-averaging mind-set; to develop a long term eye for IRR, cash-flows, or more sophisticated models you will encounter later on: Is LOT easier if you don’t get into the challenges of evaluating a second loan in your overall portfolio from the outset.. let’s chat more if unclear..

How do I finance, what rates can I expect?: Again, the most popular way to get an investment mortgage (similar to the home-ownership model). Typically you will need to have 25% or more as down-payment, pay a small premium on prevailing interest rates, depending on you credit risk, financial asset strength. There are other ways to finance your investment property, will get into it next time..

Let me know if you need recommendations for good lenders who specialize in investment property loans?

Happy to chat more.. call/txt me @510.676.1940

Till next time… I will answer another question: Does matter if I only have $50,000 to invest?  What’s the minimum I need to invest?

What if any are the tax advantages to buying income properties?

Tax questions are best answered by a CPA or a CFA (Certified Financial Advisor).. Setting that caveat aside, I can speak from more of a personal experience, as well from years of advising & transacting with Clients of a Real Estate Brokerage..

The biggest advantage to owning  rental income properties comes from the tax treatment if you own them for at least 2 years and it has been rented out (not your residence).

You are allowed to roll any profits from the transaction into a tax-deferred account, from which, if you re-invest the same amount or higher, you can get by without any immediate tax hit on your profits. This is officially called a 1031 exchange.. I’ll have more to say on this in a later blog, will try to get a specialist to cover this in detail. There are several fine-prints and gotchas of course!

But, this tax deferred exchange, along with a long term investment plan, can help build a steadily growing ‘wealth fund’ that increases in magnitude every time you re-invest, to take advantage of market highs and lows.

There are other advantages to rental income properties if titled under a company or a trust, as they can be used as POFs (proof of funds), can come handy for tax write-offs on expenses.. These are definitely topics for your good CPA to be actively involved in.

Let me know if you need recommendations for good CPAs & CFAs in Northern California?

Happy to chat more.. call/txt me @510.676.1940

Till next time… I will answer another question: Do I Buy Cash or Finance my investment property? How do I finance my investment? What rates can I expect?

-YS

 

Should I buy Rental Income Properties in California?

Rental Income properties are a great way to generate a steady income flow for your future.. with savings accounts yields at abysmally low rates, generating 6% or more in interest income, plus long term inflation adjusted appreciation is definitely worth looking into..

But is the California market saturated? Are yield curves flattening?

To me the answer is straightforward: If you live here, say in SF Bay Area, you obviously know that home values have gone up 30-35% past 6 years..yield curves in key urban pockets will likely flatten from an investment perspective…but outside of the ‘hot’ job market areas,  the actual appreciation has been slower (10-15% ave), at a Lower purchase price… in part due to the drought..

But, as the demographic is aging, home equities at an all time high, broad band connectivity improving leaps and bounds, I think there is significant investment upside as well as life style benefits for moving to outer areas, away from traditionally dense urban centers.

Which areas? That’s a somewhat subjective question, depending on the investors risk appetite, long term financial goals. 

Happy to chat more.. call/txt me @510.676.1940

Till next time.. I will answer a question I get asked a lot: What if any are the tax advantages to buying income properties?

-YS