Just wondering what people are doing here in Califonia right now in terms of beginning REI. I’ve talked to a few people similarly situated and they are losing money hand over fist flipping properties. The cost of property (especially in the bay area) does not seem to lend itself to lease optioning. Others I’ve talked to are just building up cash reserves in the hopes of the upcoming increase in foreclosures. Thoughts? Wait & see? Commercial REI?
If I accidentally found myself living in California - I’d MOVE! I heard on the radio yesterday that California had a new initiative to reduce carbon dioxide. Maybe if everyone held their breath! No wonder things are expensive in California!
Mike
We’re investing out of state. But we’re keeping a lookout for something local as well. There’s still money to be made in REI in CA, but I think it requires a lot of cash, ie 20% and higher downpayments for mulit-unit properties.
The Bay Area is as robust a market as ever. Friends of mine have been outbid on every property they’ve made an offer on. Selling prices are still going 10-30% above asking, if the place is right.
Appreciate the responses: How is out of state investing working for you? There are certainly a lot of annecdotes on this message board about naive Californians who are throwing money at AZ & TX and failing miserably - and as a beginning investor no desire to fall flat on my face initially.
It’s going well for us. We bought in the Portland/Vancouver area. You can still get SFH’s there around the 200k mark that will cash flow. Appreciation is solid, lots of demand for quality rentals, property management is affordable. What’s not to like?
We were also smart enough to do our homework and identify growth markets. We didn’t chase the dream into AZ or Las Vegas. We’re also looking at North Carolina and Arkansas for future investments. They may not sound sexy, but we like the market indicators in those areas.
Well you know, Arnold has to do something to look like he’s done anything…
I’ve been told that if I wanted to invest in California to look in San Bernadino and basically in growing near desert areas. I’m really interested in doing something out of state as well, but curious how do you gage appreciating markets or how good a price you are getting when you aren’t on the ground? Do you just trust a real estate agent? I’ve been growing interested in preconstruction because it sounds like you at least often have a built-in discount from stuff that’s already built…
I am also interested in preconstruction - the bay area (not san francisco) has a lot of new construction in surrounding areas + new construction for senior citizen housing which I was also looking into investing in.
However, cash flow SFH & apartments, just won’t happen in my local area. Love living here personally, just can’t invest really in RE here…sucks to know that a “great deal” on a SFH is 650K, and the max rent you can get for it is ~2k.
Sounds like home ;D
I would say that people going out of state particularly from Calif are losing money becuase they don’t understand what they are doing. A blind monkey could make money in California (particularly SoCal) in the last 5 years; even a tool shed with termites and a bad roof on sloped lot went up in value.
As for San Bernardino (I have and currently hold some property in that area for quite ahile; also sold a lot), the market inventory in that area is up over 2x and still climbing. I think you could see some the biggest drops in SanBernd and Riverside Co. With that said, the Inland empire is become its own entity and its the future growth area for the LA metro area.
The only people I know making money in Calif at this point are people doing preforeclosure buyouts and even from what I heard there are a lot of “dry holes” becuase people have little or no equity.
I’d love some suggestions?
I live in So. CA and also invest in TX. If you know what you’re doing, you are not going to lose. Rental for positive cash flow is almost impossible here. Holding and flipping requires you to have money in the bank for holding costs (and nowadays, you have to account for at least 4 to 6 months), and just finding a “good” deal is not as easy because fixers are starting at $400K, even in the ghetto. The only way I see to make money in CA in this market is to wholesale, but ALL the numbers have to work - including YOUR assignment fee, and in the end, your bottom line offer price won’t even be entertained by the seller.
I’m looking at other states too. If the deal makes sense and is a money maker, I’ll be all over it.
In Northern California, particularly my neck of the woods, Sacramento, foreclosures are at an all time high. some builders have stopped their large projects because the housing bubble is bursting.
Bay area buyers flocked to Sacramento with cash money in hand and bought everything that was hitched to a horse and buggy. Now that the prices are over 50% of what they should be and Equity Lending has topped out a lot of home owners, we are left with a lot of upside down loans.
There was an article in the newspaper about a real estate investor who found himself 40,000+ in the hole on two properties and was attempting a short sale supposedly he had been doing his flipping thing for about 4 years and is now in HOT SOUP!!
Short Sales are on the upswing in this area.
You are so right about short sales on the upswing. What I’ve found was that many of them moved out of state, bought their home in that state while they still qualify, then started to stop making payments on their home in CA and listed them with Realtors as a (possible) short sale. I guess they figure since they already purchased their homes to live in, they would take a hit on their credit for a few years b/c it was bound to happen anyway if they couldn’t afford CA payments.
let a property go into foreclosure does not seem like much of an investment strategy.
I hear a lot of talk about doing short sales, but what percentage of offers actually get accepted. The market right now is NOT that bad; really just get back to a “normal” state of being. I guess that skeptical that banks are already willing to take deep discounts to unload properties; my point being that even a short-sale price might be over paying is some markets. Anybody got live-fire war stories in that area (it not my bag, baby!)
These people are homeowners in trouble, not real estate investors. The properties here were just overbid from the bay area cssh crowd now everyone is suffering because the equity refinance boom took their property above the real price. These folks don’w have an exit strategy they just have house payments that are too high!
Ginasands - are you finding its worthwhile to do the short sales in Sacramento? When i drive through there is SO much newly developed property that is vacant and for sale - are you hearing that the value of these houses is going to reach even current short sale prices any time soon? What I haven’t figured out about Sacramento also, is with all this inventory - is there any market for rentalers of SFHs to generate some income? Obviously - as a bay area resident myself - Sacramento is an ideal location - I just can’t figure out if it will be a good investment a few years down the line - or if the boom up there was just a phase that fizzled in 2003.
Rents in Sacramento are far below what’s needed to cash flow SFH’s, unless you want to put 100k down. The boom just fizzled this year so I wouldn’t buy for holding anytime soon. The consensus I’ve heard is that this winter will be bleak for sellers and prices will decrease further. Some say it will continue for a couple years, others say next spring things will level off.
I don’t think the banks are ready to short sale at too much of a discount yet. I’ve seen a couple short sales listed with realtors where they list the house very cheaply, like 200k with a date to accept offers, then let the investors come in and bid it up, then counter and counter until some overpays.
I saw this kind of thinking back in late 2000 (re: semiconductor industry; hey, the market is just pausing and it will be better next year). I think thats a rather optimistic viewpoint (IMHO). Particular in this case since the time scale that the housing market operates on this very different (longer) than equity markets. Thus the “correction” and associated reboudn will take longer play out.
Hello ajackson: I think Sacramento has a long dry haul in the future. Some agents think that the housing prices are 59% higher than they should be so prices are falling and falling fast. Some developers have
pulled out of deals to build more SFH. We are overbuilt and overpriced so the future looks a little bleak. However, the foreclosure market is ramped up because with the the last few years appreciation, homeowners took all they could out of the house and now for a lot of them there is no more to get and the mortgage is too high to pay.
I think its time to get into multi-dwellings for cash flow because cashflow in SFH is not going to be there for a while here in Sacramento. There is going to be a glut of houses for rent and the rental prices will become more competitive.
Gina, I believe that you are mistaken about Sacramento. The paranoia is going to end when people begin to realize that the economy is quite good in many ways.
California has more people than any other state. The second runner up is Texas, which has about half as many people as California. The population in California is increasing at a faster rate than any other state.
The value of real estate is affected by the overall economy, jobs, and inventory. Corporate profits in American companies are at an all time high. Personal wealth for the citizens of America is at an all time high. The 1990s flattening -and that's all it was- came to pass with the perfect storm of a statewide recession, local military base closings, job losses and higher costs of borrowing. In contrast to that, California's current economy remains strong, unemployment declined to 4.2% in May, minimum wage is going up, and there is still a healthy migration from the bay area and the silicon valley where inventory is low, demand is high, and prices are still comparitively much higher than Sacramento.
The market may flatten due to the combination of uncompromising prices and rising interest rates, but the consensus is that interest rates are high enough to control unsustainable growth in real estate.
The combination of paranoid sellers and a 4 year high in inventory in the Sacramento area has inspired a new trend of seller carryback which was unheard of 2 years ago (try getting 80 15 5s with the 15 as a due and payable carryback 5% fixed for 5 years)
Before you complain about cash flow, be sure to calculate depreciation for rental properties, which is the improved value of the land divided by 27.5. You can reduce your taxable income by that number, which can put you into a lower tax bracket. You may reduce your taxable income by $30,000. Of course, you should check with an accountant before assuming anything, but I believe that you will see that what initially seems like a sea of red ink acutually cash flows.
REI strategies in CA? Buy real estate, even if you take a negative cash flow, and have multiple exit strategies. Frankly, if people study their loan options, I'll bet they could find properties in CA very affordable for a positive or only slightly negative cash flow. The real money will come with appreciation which WILL happen in CA.