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,
Francis


Silicon Valley real estate specialist
Detailed, local trends etc...
Current mortgage rates

2013 Cost vs Value Report

When you are thinking about selling your house, one of the first questions that will come to mind is: "what should I do to increase the value of my home?", which quickly becomes: "if I remodel, how much will I recoup"??

The Cost vs Value report is published every year and a lot of good information can be accessed from this article by Sal Alfano of the Remodeling Magazine of Jan. 2013.

Typically the data is sorted by project (kitchen remodeling, bathroom, etc..) and by region within the US.  (there are 4 regions).  Overall, the first thing that jumps out in the most recent report is that the ratio that one recoups has gone up, because of the recovery of the real estate market.

Results of the report are also summarized on NAR’s consumer website HouseLogic.com, which provides information on dozens of remodeling projects, from kitchens and baths to siding replacements, including the recouped value of the project based on a national average.

In my experience however, the return of a lot of these remodeling projects is much higher in our area, the Silicon Valley, than one can read in the Cost vs Value report.  I cannot put  an exact value on it of course, since each property is going to be different, but it is my experience that most buyers in the Bay Area are willing to pay a major premium for a property that has been remodeled and is ready to move in. 
Imagine a property worth $600k, that is in need of a new bathroom.  If you'd spend around $10k to remodel a bathroom (hypothetically), that would buy you a fairly nice remodeled bathroom.  The sales price is most probably going to be more than $610k in that example.

I believe that in this area, the Silicon Valley, if you know a contractor that will do a good job, for a reasonable price, and you have the time to stay involved in the project to monitor it, you would be better off with the remodel.  I also believe this is why there are so many purchases here which are investor-driven, and why there are so many multiple offers on "fixer-uppers".

Do you have any experience on this matter?  Let me know!

As always, thanks for reading!,
Francis Rolland

Silicon Valley real estate
Local market: Smart graphs

Note:  our next free E-Waste collection and shredding event will be on:
Sat. 4/6/13, at our Coldwell Banker office at 161 S. San Antonio Rd, Los Altos.
Times:  E-Waste  9am to 4 pm.  Shredding:  10 am to 2 pm.

Fewer first-time homebuyers.

Is it a sign of the times?  Real estate fares much better today than last year, but a new trend emerges:
first-time buyers are fewer...

A survey by the NATIONAL ASSOCIATION OF REALTORS® found that only 31 percent of their sales were to first-time buyers. Normally, first-time buyers represent closer to 40 percent of the market.
More details about this (sad) trend on this article of the New York Times.

Thanks for reading!
Francis

Silicon Valley real estate
Smart graphs...

Current Mortgage rates

Non-profit organization worth noting: Partners for New Generations.

Homeownership cheaper than renting nationally

To piggy-back on my last blog, this is another take on the subject, which fascinates me, in this area where most real estate seems so expensive for a lot of people.

Trulia’s Summer 2012 Rent vs. Buy Report, which provides information on whether buying a home is more affordable than renting in America’s 100 largest metropolitan areas, found that homeownership is cheaper than renting in all of the 100 largest U.S. metros by a wide margin.

However, relative affordability depends largely on location. Buying a home is 24 percent cheaper than renting in Honolulu, 28 percent cheaper in San Francisco, and 31 percent cheaper in New York, but is 70 percent cheaper in Detroit. However, the actual dollar amount reveals that despite a low 28 percent difference in buying versus renting in San Francisco, the monthly dollar savings is big ($899) because rents and prices are so high in this region.

Note: Cost of homeownership assumes that the home is sold after seven years and includes closing costs, maintenance, insurance, property taxes and other costs. Cost of renting includes security deposit and renters insurance. Monthly costs are based on net present value of costs averaged over seven years, and based on the average across all properties listed in the metro area, including those for sale and those for rent, in summer 2012.

More info on this article from Trulia.

Thanks for reading, your comments are always welcome!
Francis

Silicon Valley Real Estate

Local market trends

useful links

A noteworthy web site: junk mail reducer: Catalog Choice

Bay Area Investors...

Investors: the trend continues in the Bay Area with a lot of buyers investors:

- 17% in the County of Santa Clara,

- 21% in San Mateo County - 27.5% in Solano County
- 25% Contra Costa County.

Over 20% of all purchases are all cash, with no loan involved.

In fact, an interesting phenomenon occurs in some depressed areas:
in some condominium complexes, where over 15% of the units are delinquent, (typical) banks will not lend…  So this leaves only cash buyers as potential buyers of these properties.  Obviously these buyers purchase the units for the long term, hoping that the real estate market will improve enough that the complex will go up in value.  The rents have increased so much in the past 2 years that the return on investment makes it a very viable deal.

An other problem can occur there though: if more than 50% of the units in a complex are non owner-occupied, loan are also almost impossible to obtain - or more expensive.  One of the rules of most lenders is that this important percentage has to be over 50%.  So that would leave future buyers and future homeowners in those complexes with a difficult situation: potential buyers who need a loan may not want to pay the extra fees and rates in order to get these loans.

Do not underestimate the need for good advice when you purchase a condominium.  A seasoned agent is a must, to make sure you are informed.  Here is a good informational page on this "condominium"subject.

Thanks for reading.
Francis

Silicon Valley Real Estate

Local market trends

useful links

Mortgage rates