[quote=HLS][quote=kev374]yes, but the properties I am seeing are NOT cash flow positive so I am wondering HOW on earth are investors buying them. I am thinking they are just speculating on future price or rent increases that may not pan out. This is quite a big risk.
For instance, the rents in Orange, California for a 2bd, 950sqft condo with garage is around $1400/month. To be competitive this is what you need to expect…no more.
2bd condos with 1000sqft have asking prices north of $250,000 and some are even asking $300,000. Just do the math… $250,000 with 20% down, $200,000 financed at 4.6%, $1025 PI, $210 property taxes, $100 maintenance, $275 HOA = $1610 and that is in a perfect situation, what if the property remains vacant for a few months of the year? And HOAs and property taxes rise with inflation as well.
For investment it does not pan out at current prices.[/quote]
Kev, You are way too logical about this. I TOTALLY agree with you by the way…. BUT, you need to accept reality and that what something is selling for does not mean that it is ‘worth’ it.
Houses, shoes, meals, etc, etc.
BUT if you want to buy one, the price is the price, and if you aren’t going to buy it, perhaps someone else will. It doesn’t make them any smarter, richer, nicer or better looking than you.
Without low down payments & low interest rates (backed by govt subsidies) prices would be nowhere near where they are today.
The value of a commercial building is based on its income/cash flow/cap rate. Someone might be foolish to buy a bldg with a 1% or 2% cap rate, and if they have the cash they could if they wanted to, but they might have a hard time getting financing. It’s based on reasonable rental income & expenses.
If the same metrics were applied to residential housing, values(& prices) would be considerably lower in many areas and higher in some others.
Most people DO NOT know the value of a house in dollars, (it has a different value to them) but most know the price.
If you want a good ROI, look out of state. Lots of different areas to consider. Get a property manager & some cash flow & depreciation. When you travel to check on your investment you can write off the trip. *consult your tax advisor for details ;-)[/quote]
All good advice, HLS, but Kev has been shopping in desirable established areas of the OC … most of them a stone’s throw (no fwy commute needed) from good, white collar jobs and FULL of established residents with paid-for and almost paid-for homes. There are just so many properties for sale at any given time due to Prop 13 and its progeny. The average house in his price range (or a little above) in his target areas is likely ~50 years old.
Your typical male “boomer” buyer, a 1971 graduate of Buena Park HS 🙂 who has a toolbox in his pickup bed and a toolbelt lying on his front seat doesn’t mind buying a house in his “home turf” (fixer preferred) and working on it while he lives in 1-2 rooms for awhile. Either for an investment or to eventually re-establish himself back into his “hometown” for retirement.
Regardless if he ends up renting it out or moving into it himself, he’s not going to be making mtg payments and he’s not going to be hiring too many contractors.
This buyer cohort (and there are more of them than you might think, folks) AND the local and possibly national REITS are kev’s competition for a home in his chosen shopping areas.
HLS, kev is not shopping in a typical “flyover America” market (which were included in your article). He’s shopping in the close-in urban OC, state of CA and there is only ONE in the country. It is what it is.
From his several prior threads here complaining about this same issue, I just felt kev was being too “picky” (or not being proactive) when the prices were lower than they are now but that he can still buy a home … if he really wants to.
