Archive for the ‘Investor buyers’ Category
Tuesday, 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.
Tuesday, April 16th, 2013
This year much has changed in the real estate investment world, but where does that leave investors, and is it still a good time to purchase investment property? The answer really depends on the goals of the investor. Let’s look at a few different possibilities.
Buy and hold investors. Like the majority of my investor clients, many investors purchase with the notion that down the road the property will have gained equity, and at some point in time, a sale will net a nice profit. Most of these investors look for properties that are in good to excellent condition, and need very little work (such as paint and new appliances or possibly flooring), but they tend to stay away from major fixer properties. The goal is to purchase for a good price in a home that will command a good rent.
Most of these types of buyers have stepped back this year and are no longer looking for properties to add to their portfolios. This is because of the increase in prices due to increased demand and very low inventory. These types of buyers are not interested in getting into bidding wars and definitely do not want to pay prices that are above comparable market sale prices – like many purchasers today who are buying homes for their primary residences. For these folks the decision is not emotional, so they have or are no longer active in this market, at least until inventory levels rise and demand cools off.
Flippers. Flippers are still looking in today’s market, but it is harder to find the “gems” out there. Flippers come in many shapes and sizes…some do minor – what I call “bandaid” – work, and then sell. They are good at doing a minimal amount of work on the property to make it feel like a remodel. But if you look deeper you will see that they don’t tackle a lot of the things that the “heavy” flippers (my term) don’t. Heavy flippers don’t just slap on a coat of paint and throw in new appliances, they replace lighting and fixtures, surfaces and bathrooms, and repair other issues that need addressing (like installing new water heaters and HVAC units, etc.) It is really very property-specific, and obviously some properties need more work than others.
In today’s market it has become more difficult for the heavy flippers, as they usually need to purchase homes for low prices in order to make a decent profit. But I have definitely seen more and more bandaid flippers – some are willing to pay contract price, and then go in and do a minimal amount of work before putting the property back on the market. Many of these flippers likely make $10-15 in profits and are happy with that. So if you are a flipper or are thinking about becoming one, whether the market is ripe for doing so will depend on the specific area market, on your competition, and on what you plan to do to rehabilitate the property.
For many investors it is a difficult time to acquire property that is priced well without getting into a bidding war. And since paying over comparable sales is usually not a good business goal for an investment, it has become a difficult time for many buy and hold investors. Similarly, flippers are faced with challenges in finding properties they can buy for prices that are low enough for them to make a profit on the flip side.
It is important to keep in mind that every real estate market can be very different from the next, even neighboring complexes or cities may be different in terms of value and comparable sales. So before you venture out there to buy investment property, make sure to do your homework and work with an experienced local area agent. Have no fear – when inventory increases once again there will be more opportunities for investors.
Monday, January 28th, 2013
If you’ve been to San Diego you know what a wonderful place it truly is, and how much it has to offer. Both full-time residents and part-timers love to live here, and it continues to be one of the top vacation destinations in the country. San Diego is also on the top ten list for international buyers. If you haven’t been to San Diego and wonder what makes it so special, and a great place to invest in property…here are my top 4 reasons:
1. Appreciation Factor. The San Diego real estate market is a special one. Sure, it has ups and downs like any market, but the location and weather make it a desirable place to own property year-round. The proximity to the coast will always be a strong factor. If you plan to hold onto the property over time you will find your investment is sound, and you will profit. This is prime coastal Southern California real estate territory.
2.Â Rentability. If you are planning on renting out your property you are in luck. Rents have risen over the last few years, inventory is scarce, and San Diego rental property is always in high demand. If you purchase property along the coast you may be able to rent out your property as a vacation rental, which can be a strong source of income. High end rental properties can even be a sole source of income in some situations. In the last several years I have seen rental properties rent very quickly, with multiple applications.
3.Â The Weather! Nowhere else has weather like San Diego. With an average year-round temperature of 72, San Diego is the quintessential vacation destination. Many “snowbirds” come to San Diego in the winter to escape the cold elsewhere, and those living in places that get a tad too warm in the summer, like Arizona and Nevada, love to call San Diego home during summer months.
4. So Much to Offer. San Diego has the best of everything: theater, music, dining, museums, culture, parks, sports and sports venues, shopping, and beaches. There is something for everyone in San Diego, and it will continue to be a vacation destination. In a word, it is paradise…wouldn’t you love to have a home in paradise?
No matter who you are or how you like to relax and play, you will find it in San Diego. If you are looking for investment property this is a great place, whether your goal is to have a home to escape to, or one that will be a source of income. If you have questions about investment property in San Diego County, please feel free to contact me. There are properties and locations for so many types of investments, and I will be happy to assist you in finding the right one.
Monday, October 8th, 2012
Many real estate agents, mortgage professionals and economists have been saying it: “now is a great time to buy.” In fact, those cries have been echoed for the last year or so. Interestingly, there ARE many ready buyers out there, but inventory is so low and it is very difficult to be the lucky one whose offer is chosen, as many homes that are listed on the market obtain multiple offers, often in the first day or two.
So what makes now such a great time to buy real estate? There are 3 main reasons:
1.Â (Still) historically low interest rates. The interest rates are still at unprecedented lows. Part of this reason is because there is little inventory in most markets. As prices climb, inventory will rise (because sellers will see a good reason to finally sell again) and in turn interest rates will likely rise. It’s a Catch-22, but if you want the best rates, the end of a long downturn is a great time to take advantage.
2.Â Prices are rising in many markets. Many buyers have been waiting, some for a long time, until the market “bottomed out.” Well folks, we have reached that point and are now on the upswing. Prices in north county have risen, homes are receiving multiple offers, and the condo market is officially a seller’s market. Single family homes are soon to reach that level as well. If you are a buyer who has been “on the fence,” now is definitely the time to climb off and start looking, lest you find yourself facing higher prices and more competition as we head toward the Spring/Summer selling season.
3. Distressed inventory is down. Foreclosures have slackened off since the start of the summer, mostly in part to lenders embracing short sales and other programs, like loan modifications or sales to third party investors that help people stay in their homes. With less distressed inventory prices can continue to rise at a steady, “normal” pace. Note that even if you live in an area where there are still a lot of short sales, the jump in averages prices in those neighborhoods will cause lenders who hold paper on the distressed properties to seek prices that are more in line with the comparable sold properties, and since many lenders are trying to close short sales quicker and are being stricter with prices they will accept, it is likely such sales will not have a substantial effect on comparable properties.
4.Â Rents continue to rise and rentals are harder to find – great for investors, not so great for those seeking to rent. Rents have risen over the past year and are at a 10 year high, according to research reported in the Wall Street Journal. One study by Trulia even found that it is cheaper to own rather than rent in many markets. Not to mention the rental market is so hot, that it requires much luck to even find a rental and be chosen as a renter, since there is so much competition. I have had renters call on all my listings over the past year, asking if the sellers were willing to rent instead of sell – people are desperate. One of my investors just leased out a newly purchased property – the same floorplan I sold last year to a different investor – and he was able to obtain a monthly rent almost $100 higher per month than the first investor.
5. Low inventory. Low inventory in most markets means much greater competition amongst buyers. How, you say, is this a reason to buy now? Well, since competition is so high and prices are rising, if you are lucky to be the chosen buyer on a property you will likely end up paying less than when there is more inventory. There is only less than a three month supply of inventory on the market now in San Diego. If the many buyers out there looking cannot find a home to purchase now, and hold off until there is more inventory (usually after the holidays), there will also be more competition, as you will also get the buyers at that time of year who want to make a move after school gets out for the summer. Also, you will likely get a lower interest rate if you buy now rather than down the road, as many economists predict interest rate increases as inventory rises.
Do you need a few more reasons? How about this: housing statistics have been and continue to be on the rise. Building statistics are up in many areas, and many markets are becoming seller’s markets. So remember that “now is truly a great time to buy” may sound like an old cliche, but truly makes sense right now. If you are serious about buying now, make sure you understand the importance of writing a strong offer – click here for some great tips. Happy house hunting!
Friday, July 6th, 2012
Housing Affordability is Up: The National Association of Realtors has reported that housing affordability is at it’s highest level since the 1970s, when such record-keeping started. The Housing Affordability Index measures the relationship between median home price, median family income, and average mortgage interest rates. As the index climbs higher, household purchasing power grows. An index of 100 is the place at which a household with median income is able to qualify for a purchase of a median-priced home; the index in January scored 206. Great news for buyers.
Vacation and Investor Purchases Grow: Rising to the highest level since 2005, vacation home and investor purchases are heating up the market. The National Association of Realtors (NAR) reports that investment purchases rose over 64% last year from 2010 levels. Vacation home purchases rose 7% from 2010. I have definitely felt this to be true, as the majority of my sales in 2011 and again this year have been to investors and those purchasing second/third homes – it’s a great time to negotiate for these buyers.
Fixed Mortgage Rates Keep Falling: Fixed rates have continued to drop, according to a Freddie Mac survey, with a fall again this week for 30 year fixed rates, to 3.62% (compared to 4.60% this time last year). Similarly, 15 year fixed rates and 1 year ARMs also dropped. For more details click here.
California Homeowner Bill of Rights Closer to Approval: The California Homeowner Bill of Rights -which actually encompass two bills – passed by the State Assembly and Senate on Monday, and now go to the Governor for final approval.
The bills will address two main issues: (1) protection from foreclosure of homes while homeowners are working with their lenders on modifications (allowing them to stay in their homes), and (2) establishing a single point of contact with lenders for homeowners in their communications (so they are not passed around to numerous people while trying to work out their modifications – an act that would have a big impact on getting these modifications approved).
The bills will also prevent robo-signing by imposing fines on the lenders for filing any unverified documents, and will allow homeowners to sue before a foreclosure. Lenders of course have been fighting these laws and are against passage. The laws are expected to be passed and would take effect January 1.
California Officials to Use Eminent Domain to Help Restructure Underwater Mortgages: Eminent domain, the process by which the state can take your property for public use, is being considered in a new light in an attempt to help underwater borrowers. The plan would allow seizure of underwater mortgages at a low price, based on fair market value, and would then refinance them (to the homeowner) at a slightly higher amount. The venture capital firm that is financing the seizures would make a profit on the new mortgages, and homeowners would be allowed to participate if they were current on their mortgages. Homeowners would stay in their homes and have new mortgages based on current market values. It will be interesting to follow the path of this clever but controversial plan.
Photo courtesy of Dreamstime
Friday, December 16th, 2011
In the last several months I have seen my investor clients face some big challenges in purchasing condominiums. I have had two sales almost fall apart in the 11th hour – luckily both buyers were able to close with cash at the last minute. There are a few roadblocks investors need to watch out for if they are considering condo investments.
1.Â Owner occupancy rates below 51%. This issue is the most frustrating. In order to get a loan a complex must have an owner occupancy rate above 51%. Many complexes in the lower price ranges do not, and they are magnets for cash investors because of the low prices. If your investor needs to get a loan the lender needs to establish the occupancy ratios. The problem is that many times the information from the property management company confirming this is not received in a timely manner.
No matter what the reason, this is becoming a bigger problem for investors who need to obtain loans to purchase income property. I spend a lot of time conferring with my title representative to get owner occupancy information for complexes BEFORE I write offers. But today a mortgage colleague pointed out to me that the title companies may not have the most current information, and that I need to obtain that from the management companies. This creates another issue – many of these companies charge for this information, sometimes around $50. So who is to pay this money – the Realtor, the buyer? What if you have to research 5 or 10 different complexes to find one that will work…this could add up to a lot of money out of pocket.
There simply has to be a better way to find out this information, other than writing an offer and wasting everyone’s time (plus taking the property off the market, which precludes other offers the seller may have been able to obtain during that time).
2.Â HOA lawsuits. This is another sale killer, and one that an investor client of mine just experienced – luckily she too was able to close with cash. The problem here is when the HOA is named as a defendant in a lawsuit, the lender likely will not issue a loan on the property. In my case, the HOA was suing a former owner for back HOA dues, and he in turn countersued the HOA, claiming it told him his dues would be waived in lieu of doing some construction work on the complex for the HOA. Apparently this was never in writing, so it could be a frivolous suit, but the lender still sees it as a suit against the HOA, which makes it a risky loan. It is unfortunate they cannot look at individual circumstances, but that of course would be time consuming.
3.Â Too many mortgages. If an investor buyer has several mortgages s/he may have problems with financing a subsequent property. Buyers and agents need to speak with mortgage professionals before writing any offers, to make sure they understand whether they will qualify for another loan. Even so, I had one investor buyer who was told he would qualify, and in the 11th hour it did not work out. You need to be careful and allow time to research these things.
If you are an investor buyer, or if you are a real estate agent who works with one, you need to be careful and discuss these potential pitfalls with your client(s), as they can definitely create problems. Best to be prepared and try to gather as much information as possible before your client makes an offer. If you have any stories of failed investor purchases please share them below.