February 20th, 2018
Real estate investment can be a great opportunity financially, especially if you know what to look for in an investment property. There are many different types of investments and just as many financial goals to go along with it.
Over the years I have represented many investor clients. The majority of them have long-term goals in mind – purchase a well-maintained property at a great price, rent it out and let the equity build over the years. These are what I call “buy and hold” clients. I have also represented “flippers,” an investment category that has a lot of caveats and will only be profitable if you know what you are doing or have a reliable contractor who can walk you through it.
I am going to focus here on long term residential property investments, or “buy and hold” properties. Here are 5 tips to help you get started:
1. Sort out all the financial information. The first and most important step to investing is to figure out the financials. You need to connect with a mortgage professional (unless you are paying cash, of course) to find out not only what you can afford, but what your monthly payments need to cap out at to keep you in an income flowing position. This number needs to include mortgage principal, interest, HOA payments if any, taxes and insurance, as well as a maintenance budget and a vacancy budget (especially important if you are purchasing a property for vacation rentals).
2. Location first, then property. Not following this tip is a big mistake for first time investors. Keep in mind that it is not just a bargain you are looking for – the AREA is a major consideration as well. You need to look at appreciation and rental information in the areas you are considering for your purchase. Also keep in mind that location of course will determine rental value – this is important if you have the desire/opportunity to get into vacation rentals. You may find a good deal inland somewhere, but the rents will not be as high as what you can get if you purchase closer to the coast or in a desirable location. Pencil out all the numbers so you can see the profitability.
3. Get accurate rental information on potential properties. Find out what rent you can expect for properties in areas you are considering. Engage your real estate agent and find a property manager if necessary.
4. Factor in additional costs. Find out how much the current maintenance costs run annually. You will need to take into consideration the age of the property – is it getting close to needing a new roof, appliances; how about the plumbing and electric systems? Many of my investors like newer condos and townhomes because they do not have to worry about these things for a long time. If you are purchasing in a complex that has and HOA you need to study the financial information for the HOA and see if there are any assessments planned. The big ones are usually roofing, plumbing, exterior painting and maintenance. HOAs will assess property owners to get these items completed. Find out, especially in older complexes, what has been done in the last 5 years and what the budget will sustain moving forward, especially if anything has been identified as needing attention…which leads to the next tip:
5. Create an emergency account. Based on your research, you should plan to have about 2 months of payments for everything set aside, in case a tenant vacates and you cannot find a replacement right away. In today’s rental market, especially here in San Diego County, this is not so much of a concern but it still is smart to have an account for emergencies.
5. Understand the life cycle of your preferred location(s). This is another important factor. You need to know the phases of the areas you selected – are they slowly gentrifying or already there? North Park in San Diego is a great example – it has been transforming over the last 5-10 years and gentrifying. There are a lot of hip restaurants and shops, and many properties have turned over and are attracting a younger crowd. This renewal and regrowth will bring higher rents. The same is true of downtown Oceanside, which has been going through the regrowth and renewal process for about 10 years now. Those who invested 10-15 years ago in that area, when it catered mostly to the military and was not the tourist destination it is today, really made great investments. Rents are property values have soared.
6. Know the tax ramifications. It is important to consult with your accountant or financial advisor prior to purchasing investment properties. New tax laws could affect deductions and write-offs, especially if you are getting a loan for a San Diego property that is over $750,000. Make sure you understand what tax consequences you may face so you can factor them into your bottom line.
7. Buy with your head, not your heart. Most of my clients purchase property for themselves to live in, so the decision can be (and usually is) emotional. With investment properties you need to use your HEAD, not your heart. It is a completely different way of looking at the purchase. It is all about the numbers and not about falling in love with the property – in fact some investments I have sold were awful looking…but a smart investor sees the potential and knows through research that it will be a smart investment with a little TLC. You need to see the property from your future tenants’ perspective so that you can grow your wealth.
February 14th, 2018
Happy Valentine’s Day! There is no better day to say “Thank You” to my clients and friends, and to express the love and gratitude I feel for each one of you, and for your support.
Each of the candy hearts in the photo represents a home I have sold. Whether it was a purchase or sale, each has a story behind it that starts with people and building relationships.
I am blessed to have met such amazing people and to have been a part of such incredible stories and lives. Your trust and loyalty are beyond special to me.
So I thank you for filling my heart (pun intended)! I know as time goes on I will be able to fill my heart even more, and meet others who will touch my life.
I wish you a day full of love, today and every day.
January 29th, 2018
A lot of homeowners have been wondering whether to sell now or wait until Spring. While Spring and early summer are typically the best times to sell, when a large majority of buyers are searching for homes, this year there is no reason to wait if you are a seller…and here is why:
Low Inventory – although picking up in some places, housing inventory is still low. The last year has been challenging for those who are ready, willing and able to buy, since they are unable to find homes that meet their needs or desires. This puts sellers in a great position while it is still a seller’s market.
Mortgage rates will continue to rise – rates have risen once already and will likely do so twice more this year. Combined with low inventory this double whammy will effect homebuyers, effecting their purchasing power and pricing some out of certain markets. If inventory picks up and the rates rise it will start to shift to a buyer’s market, and prices could come down in the long run.
Here is an example I read on a lender’s blog: If rates increase by 1%, from 4% to 5%, a buyer will lose 10% in purchasing power. This means that if a buyer can afford to purchase a $600k home today, but rates increase by 1%, she will only afford $540k using the same monthly payment.
Borrowing is still cheap – from a historical perspective it is still inexpensive to borrow money.
Prices will likely continue to rise – most economists and those who watch the real estate market predict that despite rate increases, prices will continue to rise in 2018. In the last year prices in San Diego County increased 9.1% – this was higher than the yearly increase of 4.2% in 2016. Again, this could impact homebuyers in many areas of the county.
New tax laws will likely effect high-end borrowers – those who are obtaining loans for high end properties will be effected from a tax perspective, as the new laws cap the mortgage interest deduction and the ability to deduct state and local taxes. Therefore the higher end market will be impacted this year, but we will have to wait and see the extent.
Based on the above it is an ideal time to sell. There is a great demand out there – I get emails from agents every week asking about whether I have any upcoming listings in certain neighborhoods. Many homes are selling before they even hit the MLS, and many agents are choosing to put their listings on sites other than the MLS first, in order to try to represent both parties in the sale (so some buyers may not even be aware of listings in neighborhoods they like).
January 18th, 2018
Many home buyers considering attached home purchases – condos, townhomes or twin homes – often discover that HOA payments could alter monthly payments quite a bit more than anticipated, and may mean the difference between whether a purchase makes sense and if a loan will be approved.
HOA communities can often come with high monthly payments, especially in areas that are desirable such as those close to the beach, town centers, etc. Here are the things buyers should look into when deciding whether to buy a property with a high HOA:
1. What do the fees cover? Most cover exterior building maintenance and insurance, as well as the common areas (landscaping, pool and spa if they exist, gates and parking facilities). Home owners are responsible for insurance that covers the interior of the home, including all personal items. Make sure you understand exactly what is covered in the fee so you are not surprised.
2. CC&Rs. Usually a buyer cannot get copies of these until a contract has been negotiated and escrow opened. Once the documents are received make sure to read them thoroughly to understand owner responsibility and coverage. If you are thinking about making an offer and have specific questions, your agent can try to get the answers from the HOA or the listing agent/sellers. But if numbers work out for your loan and you love the home, make an offer and then you can get your hands on all the documents. You have a contingency period in which to review them so if you discover anything that concerns you, you have time to cancel the contract.
3. Assessments. The seller will be able to tell you if there are any upcoming assessments, but you will also be able to get an idea of what may pop up in the near future from the age and location of the complex. Make sure to take this into consideration – for example, if the complex is 25 years old you may surmise that in the next 5-10 years the roof will need to be replaced. Usually the HOA will assess homeowners to cover such a large expense. Payments will usually go up for a period of time until the money is collected. Some associations give a choice so the owner can break down the payments over time or pay a lump sum.
4. Dues increase. Note that HOA dues are subject to increase on an annual basis, or whenever the board feels it is needed in order to cover increased expenses. As a potential homeowner in the complex it is important to keep this in mind, especially if the price of the dues is already stretching your budget. Make sure to talk this over with your real estate and mortgage professionals.
5. HOA strength. One of the most important things to find out is just how strong the HOA reserves are – this will obviously carry it far if an unexpected expense does arise. If the reserves are low they would have to raise the dues a lot in order to cover unanticipated expenses. One great way to make sure the board is doing thing correctly is to get on the board! I have a friend with an accountant background who got on her board when she moved into the community – she found it many ways to save money and helped bring it back to a healthier place, reserve-wise.
6. Lawsuits. Check to see if there are any lawsuits against the HOA, as this could effect your purchase. Discuss with your mortgage professional.
No matter what type of home you purchase the bottom line is that you will have to be comfortable with expenses, including any that may not be forseeable. It is important to scrutinize HOA documentation so you are familiar with where the money is spent.
December 28th, 2017
It is amazing that 2017 has come to an end, and it has certainly been an interesting year in real estate. Low inventory, rising prices and high buyer demand all made for some tough times for buyers and advantageous times for many sellers.
Moving forward into the new year I forsee the following:
Price stabilization: I stand by my comments over the last months that prices should start to calm down. We have already seen that in many areas here in San Diego county. HOWEVER, if the inventory levels remain low and demand high then we could see increases in some high-demand neighborhoods. But I do not think that will last for long.
Inventory increases: With the still high prices and coming market changes – likely interest rate increases, mortgage rate increases and new tax laws, hopefully we will see an increase in properties for sale. Many sellers will likely want to sell prior to tax changes and rising rates, and while demand is high, before such changes could effect net profit margins.
Mortgage rate increases: The last several years have proved positive for sellers with very historic low interest rates. I believe those rates will start to rise as we head into the new year, and that we could even see several increases in 2018. For those who have been pondering purchasing property now is a great time to start looking.
No matter what the new year brings it is still evident that the real estate market remains strong. As I have always believed, you cannot go wrong purchasing San Diego real estate. We have the most beautiful weather, you are never far from the beach, and we have an amazing outdoor, healthy lifestyle here in San Diego county.
Happy New Year to all of you, and I hope that you have a year blessed with good health, lots of laughter, success and much time spent with those you love.
December 21st, 2017
The new tax bill finally passed both house and senate. Here are the ways it will effect homeowners and those planning to purchase homes in the near future:
1. Property tax deductions: If you live in a state with high property taxes, like California, you may be in for a higher tax bill. The deductions for state and local income, sales and property taxes will now be limited to $10,000. If your state, like California, allows advanced payment of property taxes, you may want to consider paying the second installment now before the end of the year in order to deduct them on your 2017 taxes – ask you accountant.
2. Mortgage interest deduction: This could be lost if you live in a state with high real estate values: Yes, California is one of those states. The current cap for mortgage interest deductions is limited to mortgages valued up to $1.1 million, but the new bill caps out at $750,000.
3. Home equity deduction changes. The deduction for home equity loans will be limited to $100,000.
4. Capital gain exclusion: Thankfully this has been left as is, which is a big boost for homeowners wishing to sell. The law remains that if you have lived in your home 2 of 5 years prior to the sale date, you WILL be able to avoid paying capital gains taxes on the sale (see below). The capital gain is the difference between what you paid for your home and what you sold it for. For example, if you paid $300k and sold it for $400k, the capital gain is $100k. If you lived in your home at least 2 years you will be able to avoid paying tax on up to $500k of the gain – which will be considered as income – ($250k for married couples filing separately).
5. Second home mortgage interest deductions: You will still be able to deduct interest on mortgage debt for both your primary and second homes, but the interest deduction has been reduced from $1M to $750k ($375k if married and filing separately).
6. Moving expense deduction: Under current law these are allowed for some moving expenses, if you are moving for job purposes. But the new law will allow ONLY active duty military members to use this deduction.
If you have any questions or concerns about the new tax laws, please contact your tax professional. Make sure you understand how you will be affected prior to purchasing or selling real estate.
December 11th, 2017
If you are a future home seller the new tax plan will affect your taxes, so pay attention. Both the House and Senate bills plan to extend the tax benefit that home sellers receive, and this can hurt your bottom line.
The current law allows home owners a tax break upon resale of their property – primary residences only– if they lived in the home for at least 2 of 5 years. Both new plans will increase that to 5 of 8 years. The House and Senate plan to straighten out the differences in their respective plans by the end of the year, and new laws will likely take effect January 1, 2018. Even if the changes are not made until after the first of the year they will likely be retroactive to January 1.
What this means is that sellers who are thinking of selling their primary residence home in 2018, who have not lived there at least 5 years, will not be able to obtain the current tax benefits allowed to those same sellers who have lived in the home at least 2 years.
If you are thinking of selling your primary residence in 2018 and have not lived there at least 5 years, it is advisable to speak with your accountant to find out how much you will need to pay in taxes. Your adviser may need to wait until the plan is approved in order to calculate this number.
December 1st, 2017
There is some good news on the real estate horizon for borrowers – the Federal Housing Agency (FHA) recently announced that the maximum conforming loan limits will be increased for Fannie Mae and Freddie Mac mortgages in 2018. High balance/super conforming maximum loan amounts in San Diego County will be $649,750.00 for single unit properties. (See below for all types of properties).
Maximum conforming loan limit for single unit properties across most of the country will increase to $453,100 in 2018. This is an increase from the current maximum of $424,100. Some counties will go up to $679,650 for single unit properties. Anything above this will be considered jumbo financing.
It is important to note that the above rates only apply to conventional loans, not to FHA and VA. But my mortgage professional tells me that those will soon change as well.
Here are the new Conventional Loan Limits for San Diego, California:
2018 Loan Limit – 1 Unit
2018 Loan Limit – 2 Unit
2018 Loan Limit – 3 Unit
2018 Loan Limit – 4 Unit
If you have any questions you can contact my mortgage broker extraordinaire, Elvin Wesley with Ranch and Coast Mortgage, at 760-580-1733.
November 30th, 2017
Sales in North San Diego have jumped considerably between October 2016 and October 2017. The chief economist for the California Association of Realtors predicts that sales will be up 8% for the year. For 2018 the prediction is a 4.2% in appreciation and a slight increase in sales volume.
Here are the statistics for North County coastal zip codes from October 2016 to October 2017, for both single family homes (SFR) and condos:
November 21st, 2017
Sometimes it is hard for us to remember that there is so much to be thankful for…in a world where there are economic, social, political and personal problems on a daily basis, many of which we cannot escape being thrown in our faces through media and social media….BUT…
Although it may be difficult at times to focus on the positive and wonderful parts of this world and our lives, Thanksgiving gives each one of us pause to reflect on the things for which we are thankful.
Here is my list of things that every one of us can be thankful – you can of course add your own details but there is no excuse to NOT be thankful for the following:
2. Love (self love and the love of others)
4. Nature (sky, air, trees, flowers, animals, water, go crazy here but there is beauty everywhere)
5. Laughter (if you don’t have this in your life, or not enough, find it!)
6. Relationships (people, animals, memories)
Ok so I know this list is very broad in scope, but since I didn’t think anyone wanted to hear my personal details I thought this was a great way to get you to start filling in the blanks. There is not one person who cannot be thankful – whether they are ill or homeless or lost everything important…we are here for such a short time and if we do not make the most of each moment we are not truly living. It starts with appreciating breath and loving ourselves. If we have that we can make our lives beautiful.
Happy Thanksgiving to everyone! To my family, friends, clients, colleagues and acquaintances – you all inspire me to grow, achieve and to make my life better on a daily basis, and for that I thank you. To all of you, I wish you a beautiful holiday and beyond.