Sacramento Real Estate Gal: More Real Estate Investing...

Wednesday, July 11, 2007

More Real Estate Investing...

I've always maintained that I am a real estate investor first and a Realtor second. This might come as a shock to some people, but I think it's almost impossible to sell something if you don't have a passion for it. And if you have a passion for it, well, you're going to buy it yourself.

I can't tell you how many times I've told my buyers I would buy the house they were previewing. And I would. But I don't compete with my buyers. There's too much of a conflict of interest there. But if I see a good deal, I tell them. If it's a bad one, I tell them that too. I would hate to cut some real estate investor's career short by selling them a bad deal.

So, today I spent my morning at Borders looking for good investment books. I noticed this interesting dichotomy (and perhaps it's just Borders, but I think it is really a commentary on our investing psyche): the real estate section was inundated with "fix and flip" books and the personal money section was inundated with "be careful - save, save, save, skip a latte, etc."

See the deep valley in between that almost no one wants to talk about? What about more sophisticated investment techniques? How about seller financing? What about buying discounted mortgages? Options?

Is fix and flip all we're left with besides reading about million dollar deals? Is this all people buy in book stores- the choice is between Donald Trump and Suze Orman? If that is true, it means that television and print media has a lot more control on what people believe than I previously thought. And that's downright scary.

And, in a way, it explains the anger that just came boiling out of everyone reading a few days ago. Watch the news and tear down bloggers. Why? Because you can't talk back to the news? Or because it comes out of 52 inch screens and you accept it as reality?

If this post bothers you out there, good. Let it be an inspiration to learn more and do your own research the next time.

6 comments:

Anonymous said...: Well that's great, why don't you give some examples of your investments?

Why don't YOU buy one of the great deals you're offering right now if you think they're such great deals and that Sac market is on its way up?; July 11, 2007 4:09 PM
sacramentorealestategal said...: Actually, I would - except that would defeat the very purpose of the post, which is that I want YOU to think of what your best investment would be. My scenario is different and so my investments will be different from yours.

And about buying one my great deals, I'm working on it.; July 11, 2007 4:17 PM
John Lockwood said...: Purva, speaking of good investments, I found a great three bedroom condo recently with about $32,500 of built in equity, even assuming doing $3,000 of work and doing a full price offer (which most people wouldn't do). I'm hoping my buyers will go for it but if you have investors who want it I'll tell you about it if they don't.; July 11, 2007 11:17 PM
bogonflux said...: Purva,

Why don't you post on what you consider to be a sound investment strategy for buying homes in the Sacramento area?

As a real estate investor, my perception is that it is a BAD investment to buy-and-hold single family homes in Sacramento (and indeed in all of California) if you do not actually live in the house.

This is based simply on GRM and cashflow projections. Owning a property here simply costs a lot compared to the rent that one can collect!

That said, if you can improve a property and have an exit strategy that keeps you from holding and bleeding cashflow for too long you can still make a profit. To do this you need to add value or to speculate on market prices going up. Flipping and Wholesaling are two strategies like this.

So when you say "I would buy this home as an investment" what is your criteria and plan? What level of market appreciation are you counting on just to break even?; July 12, 2007 8:01 AM
sacramentorealestategal said...: Bogonflux,

You've got it exactly right - in California it IS extremely difficult to make a property cash flow. If you break even, you get the depreciation on your taxes, which could be considered one way of cashflow, but it usually doesn't make a lot of us happy.

I'm working on the strategy post and will have it on here soon.

But here's what I think is so exciting about the market today. Today, you CAN buy a home and have it break even between the rent and mortgage. In other words, you CAN have the rent pay the mortgage. There ARE properties out there which will fit the criteria in the right neighborhoods.

You just have to go look for them.; July 12, 2007 8:17 AM
bogonflux said...: Purva wrote:
>But here's what I think is so
>exciting about the market today.
>Today, you CAN buy a home and have
>it break even between the rent and
>mortgage. In other words, you CAN
>have the rent pay the mortgage.
>There ARE properties out there
>which will fit the criteria in
>the right neighborhoods.
>
>You just have to go look for them.
In CA? Show me the numbers!! If nothing else, tell me the sales price and the anticipated rental income. The gross rent multiplier (GRM) alone will quickly indicate if cashflowing is possible.

What I strongly suspect is one of the following:

* You are buying the property for significantly under it's market value. If so, great, but that profit could be realized via a flipping strategy rather than a buy-and-hold strategy. Wholesale the property instead.

OR

* You need to use an unreasonably large down payment (eg > 20%)

OR

* Loan terms are negam or subject to market pricing risks (eg ARMs or owner financing with a quick balloon). The deal won't cashflow with a 30yr fixed non-OO mortgage.

OR

* Projected expenses are significantly off. Common examples:
** only PITI (principal interet taxes and insurance) considered
** missing or lowballed property management costs
** missing or lowballed maintainence budget
** missing or lowballed vacancy allowance
** lowballed tax costs (eg. the seller's tax bill rather then the one you would see)

OR

* The place has serious issues that should not be tollerated without remedying them (if it is even possible to remedy them). Operating it as a rental without first improving or replacing it would make you a slum lord and also significantly increase the risk that BAD THINGS (tm) could happen.

OR

* The property really and truely is depreciating. As an example, it might be a cheap construction triple net building where it is expected that the structure will need to torn down and replaced within the next 15 years.; July 14, 2007 12:01 AM