Tuesday, September 23, 2014

Real estate investors homework .. Where to buy?

Many of my clients have invested in real estate to balance their investment portfolio, as I have done myself.  To piggy up on my last blog on the subject dating back to July (Investing in real estate), when people contact me with this goal in mind, their first question is: where should I invest?

Indeed, this is the first step: decide what should be your main goal with your real estate investing.  Is it to maximize appreciation, or is it to maximize returns?  Typically, where there is appreciation, the return on investment (ROI) is lower, and vice-versa, where there is a large return, appreciation is lower.  There are so many areas in the US to choose from...  and it would take a long time to go and visit each place of interest, and compare.

The Bay Area has always been expensive, and by the time you have purchased a condominium or a house, you have spent so much money that the return after finding a tenant is going to be around 3% to 4% maximum in the best case.   - Although for those who have bought before 2012, their return has gone up quite a bit due to the extreme increase in rents that we have seen since then: what used to rent for about $1900 about 5 years ago now fetches easily around $2,800, and even $3,000.

In Texas in the area of Dallas-Fort Worth one may buy a 4-bedroom house in a pretty nice neighborhood for say, around $150 to $160K, and the monthly rent is going to be around $1400.  With these kinds of figures, the return jumps to 10 or 11% very easily.

So where should one go?

I came across an interesting web site offering a lot of property management resources: http://www.allpropertymanagement.com/
and they have already done a lot of the research, by tracking a number of different metrics, from rental vacancy rates and home values to regional job growth, for 75 different metro areas in 5 regions of the country. They use that data, along with input from their nationwide network of over 5,000 property managers, to produce their quarterly Rental Ranking report, which measures a city’s attractiveness for real estate investment. 
Here is a link to their "All Property Management Q2 2014 Rental Ranking Report".   According to the data, San Jose is the second-strongest rental investment market in the West Region, and the fifth-best in the nation.

Finding the right place to invest also depends on where you live: sometimes, closer to you is better because you can manage the properties yourself, which can have huge implications for taxes, and also for the maintenance costs.

Once you have found you path, let me know: I can help you purchase the better property, or properties.  Whether it is in my backyard (including San Jose) or not, I can help you personally or I can find you the right agent through my network.  And should you end up in Dallas, I can also recommend a great management company there.

Thanks for reading,

Silicon Valley real estate specialist
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