Shopping for homes while hungry for yield – The Antelope Valley continues to be the top selling zip codes in Los Angeles County.
Investors for the last couple of years have had their eyes set on Lancaster and Palmdale. These two cities are the lowest priced locations in Los Angeles County. Sales have been hot in these markets yet prices have not shifted much in the last year even though buyer leverage has increased tremendously with lower rates on mortgages. It is interesting to note that Lancaster and Palmdale typically showed up as having the most sales during the boom and currently hold the record for highest volume areas even in today’s market. However, the shift that has occurred from say 2006 and 2012 is that we went from buyers unable to support their funky mortgage with investors trying to chase optimistic rental yields. Our example today shows both sides of this story. Since the overall market is providing a fertile ground for chasing yield I can understand the allure of places like Lancaster and Palmdale. Let us examine these areas in closer detail.
Top selling zip codes in Los Angeles County
First, let us examine the top selling zip codes in L.A. County:
Source:Â DataQuick
While these prices may seem normal to those out of the state, these are incredibly low for Southern California and seem even more dramatic for an expensive county like Los Angeles. I’ve talked with a few investors who have bought out in this area. Investors for the last two years have made up between 20 to 30 percent of all sales in SoCal. I imagine for a place like the Antelope Valley that investor volume is much higher.
You look at the figures of say a $100,000 median price in Los Angeles and investors have been running wild. Yet look at the year-over-year data. Over 100 sales is a good sample size for this zip code especially in the hot 2012 selling season. I’ve taken a look at these markets and from an investor vantage point I understand the desire to buy out here but see areas to be cautious:
-1. California is not rental property friendly. Property owners can see one to two years of gains wiped away with one bad tenant. Legal fees will be high.
-2. Commuter cities. Areas like the Antelope Valley are heavily reliant on cheap energy and even before the bubble popped and oil spiked, these markets were showing fractures earlier. The forecast for the week? 104, 104, 104, and 106.
Yet investors continue to buy out here just like they are in the Inland Empire. These markets are being driven by outside money. We also see this in Miami where foreign money is purchasing a good amount of property:
As Canada’s housing bubble hits an apex, how much money will continue to flow in once their bubble pops? Back to the data for Lancaster and Palmdale, those median prices do seem incredibly appealing.
Let us look at an example of what $1,000 will get you as a rental in Lancaster:
However in this neighborhood, you can see what current homes are selling for:
For comps, you are looking at a home price of $175,000 to $200,000 for a $1,000 a month rental. Most investors will not find this deal appealing. And if we look at the sales history we realize that these markets are still dealing with the pangs of the housing bust:
The $1,000 rental once sold for $331,000. What started a few years ago was simply idealistic investors diving in thinking they would get incredible yields with minimal work. Any property investor will tell you that rentals do require active management especially in more volatile markets. Even in the Inland Empire where deals are to be had you need to remember that there are many costs that come to being a property investor including; vacancies, repairs, taxes, insurance, and legal fees. I’ve notice many Californians buying out in Las Vegas thinking they can simply leverage their money from here and pay a property manager 8 to 10 percent and expect the money to flow in deep into perpetuity. Yet they rarely account for those odd times when multiple vacancies hit or when they get a bad tenant. After all, with the economy doing so well they think they will have 30 years of solid tenants with no issues. I think many investors are doing well but the fact that roughly 30 percent of all purchases in SoCal have come from the investors ranks, I believe people had bigger yields in mind when they saw these markets. You also have many “newbies†jumping in with expectations too high.
It is also the case that the giant investor groups think that money will flow in as easily as trading CDS products or slamming a few entries into a computer terminal. The successful investors that I do know understand how to build and fix-up properties and use this as a way to keep costs low. A minor re-model can cost you tens of thousands of dollars. They also understand how to manage a property wisely and are conservative in their estimates. When you hear that rents are going up you need to remember that this is an overall trend partly due to the constriction of inventory and some markets are not exactly booming even with low prices. Even in our example, it looks like they tried to sell the place for $189,000 but opted to go with a $1,000 rental. Is that a good deal as an investor?
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56 Responses to “Shopping for homes while hungry for yield – The Antelope Valley continues to be the top selling zip codes in Los Angeles County.”
Oh to be a slum lord in Lancaster or Palmdale. I always question why would anybody in their right mind want to live out there? I guess if you are tied to this area due to family and can’t afford to live in LA…places like Lancaster and Palmdale are your ticket. You get the great weather, great culture and the great commute into LA. No thanks!
Phoenix “ditto”
Investors of today, become foreclosures of tomorrow. Never a better time to buy sand!
Being an I.E. resident, and familiar with both the I.E. and Lan/Palm, the I.E. is still much more desirable to live in. Specifically areas off the 15, from the rolling hills of southern Riverside city, to Norco, Rancho, and northern Fontana. These are the main commuter areas for people from LA/OC that make decent money but just not enough to make it go far in LA. I’d say household incomes between $75k and $150k.
These areas are closer to the beach than L/P, and have more amenities to offer. Riverside is a self sufficient city. Rancho has Victoria Gardens and Ontario Mills areas, and the schools are generally good, to outstanding in some areas. The weather is hot but not as hot as L/P. You are only 3 hours to Vegas and 5 hours to Scottsdale/Tempe.
IMHO, L/P is for wanna-be’s that can’t afford even Santa Clarita or Valencia, the last bastion of “white-ville”, lol.
As for Phoenix, there is nothing wrong with livable areas of Phoenix such as Scottsdale, Tempe, Avondale, and nicer parts of Chandler and Glendale. Phoenix is a cheap city for people that want to avoid snow, have cheap housing, and have most of the retail and food amenities that places like LA offer. In other words, they still have In N Out in Phoenix.
A good friend once sarcastically told me “not everyone wants to be somebody”. And in some ways, that is true. Not everyone aspires to run the streets of the Westside and make deals or “get discovered”. I myself love working 8 hrs a day cherish all the time I can get with my wife and kids. I don’t need an address or a fat bank account, just a decent 3/2 with a muscle car to wrench on in the garage and some weekends out to eat 🙂
That’s what’s up.
Perhaps a move to the Phoenix area could be a great choice for your family, Papa. Heck, here’s a random listing for you to view, Scottsdale is a great place!
http://www.redfin.com/AZ/Scottsdale/27171-N-64th-Way-85266/home/28256522
Am I sensing a tone of sarcasm? I’m confused. Regardless…
I’m a fiscal conservative. My SoCal budget, with decent job, is $225k for a SFR. Being as I’ve lived other areas, my “interior USA” budget is $150k.
http://www.redfin.com/AZ/Phoenix/3536-E-Le-Marche-Ave-85032/home/28159099
St Louis, Mo – http://www.cbgundaker.com/propertydetail.jsp?mls_num=12037215&type=res
No sarcasm, Papa…not sure what your family budget is, but someone paid 685K for that beautiful place in 2007…it will be a great house for someone. Prices are all over the place in Scottsdale, something for every budget.
Good luck with your house search.
I don’t think your friend was being sarcastic. Time with your loved ones is way more important that trying to prove your are “somebody” by the amount of “stuff” you accumulate! Eat Drink and be Merry (or work on your car on the weekends) for tomorrow we may die! Peace.
I AM Somebody!!! I got lots of tools, ( i am a tool) Plenty of kids, and enough musclecars to keep me bizzy til I Die!! Right-On Pappa!!
What’s wrong with white-ville? Oh, I forgot. That would be racist for whites to want to live around other whites. Lol
Thumbs up to that!
I might also add that Chino/Chino Hills is considered to be in the IE but a lot further west than Riverside, Norco, or even Rancho. In fact, we’re actually SOUTH of Pomona, San Dimas, and further west than La Verne and Claremont. Prices are reasonable here, and you save money on property taxes since we’re just across the SB County line.
That being said, if I was forced to choose between Lancaster/Palmdale and someplace like Eastvale or Moreno Valley, I would choose the Antelope Valley in a heartbeat. At least the air’s cleaner and the Antelope Valley gets snow (on occasion) in the winter.
Section 8 is supplying the tenants for the low-end rentals. Govt subsidized rental units. You can buy a $175K house with 20% down and with a $140K loan at 4%. PITI comes in at approx. $9K/year. And rental income is $12K to $14K per year. So $35K in cash down can be yielding $2K to $4K per year (After all costs) or 5% to 7%.
While you might be right, any investor who isn’t abiding by the golden “1%” rule isn’t banking of appreciation. If your monthly rent isn’t at least 1% of your purchase price then generally your cash flow will be below 8-10% and it isn’t worth it. So people buying in L/P are either happy with a sub-par yield (from a true investor’s perspective) or they are banking on appreciation, which clearly isn’t going to happen for a very long time unless we get inflation, which I personally don’t believe will happen…
Good Luck To Everyone,
Investor J
http://www.meetup.com/FIBICashFlowInvestors/
http://www.meetup.com/investing-363/
In case you missed it, investors are now actually PAYING Swiss banks to HOLD their money rather than being paid ANY interest, hoping to just keep the bulk of their wealth! So to get a return of 5% or more is better than most investments these days. The home values are all being propped up via manipulations by the banks that caused the mess to begin with so as long as they are allowed to keep committing fraud and manipulations the housing market will bob along like a life raft in stormy seas. If the truth were told and the banks released all the toxic assets they are holding on their books to pretend to be solvent, we could buy house or buy a sandwich as the cost would be the same. So if the house of cards fails that would be a great time to buy a house. If the banks are allowed to keep this phony market going on their terms it will stay stagnant for 30 years.
Lynn,
While you’re clearly right that investors are paying (ie. negative yields) to store their money in certain cases, that truly only applies to people who aren’t true “investors” – meaning who aren’t full-time investors. When you’re looking at real estate you have to consider that many people putting cash into these properties are either full-time investors or at least sophisticated investors.
When a full-time investor like me hears about a negative yield it’s literally laughable. And yesterday I read that Google is buying auto loans from the large manufacturers to get a 2.34% yield. I literally laughed, sent the e-mail to a few of my few time investor friends, and we all had a great laugh together. The institutional money is flooding the markets with no place to go – hence the 2.34% yield for Google’s investment. But smaller investors like me who focus on this full-time are getting yields of 8% all day long, with 11% being my minimum target which creates more work/effort for me. And these are all relatively low-risk cash flowing opportunities.
It’s important to separate institutional money that has nowhere to go with non-institutional money that is represented by smaller investors – 2 very different stories. And anyone who thinks (I’m not saying you) that their savings account yield or treasuries are the old thing out there for them is either blinded by Fidelity’s (and everyone else’s) marketing so they can use your money to lend back to you at higher rates (think about that for a minute) or is so risk-averse that they’re going to get deflated away…
Sorry if I sound a little aggressive but it kills me to think about how many MILLIONS of people have succumbed to the marketing of Fidelity and others to their detriment. There’s amazing opportunities out there – you just have to network and be open enough to allow yourself to find them…
Good Luck To Everyone,
Investor J
http://www.meetup.com/FIBICashFlowInvestors/
http://www.meetup.com/investing-363/
What are you suggesting as non laughable “investments” in the current market? I am not looking for investment advise. I am just curious as to what you are talking about.
I will give you a quick example of an investment I am currently in that I consider to be a no-brainer from a risk/reward perspective. The full answer to your question is far too long so I’m just providing a quick example. And for disclosure’s sake – I am NOT an investment advisor – this is just an example of an investment I am currently in (among many, many others) that I figured everyone on this blog could relate to:
1) Short-term loans to people flipping houses (“Hard Money Loans”) – These are best made in less volatile pricing states (ie. NOT California, Nevada, etc) from a risk perspective. Typical return is 3 points + 12%. Typical timeline is 6-12 months. 6 month yield = 9% (18% annualized), 12 month yield = 15%. At a low loan-to-value (LTV) (typically 60%) and with the right borrower in the right location, I really like this because it doesn’t leave you holding the bag on a deflating property in the medium or long-term, if we continue our deflationary trend…
That’s just 1 example. There are MANY. I’m not saying these are easy to find, as you clearly can’t call Fidelity and order one up, but if you put the effort into getting out there, networking, and researching alternative investments further, you’ll find a whole new world out there that the Fidelitys of the world have lobbied for decades to hide from the public’s eye so they can continue to leverage the average person’s money. It’s all about networking, learning from others, and slowly trying things that are outside of the box. It take a LOT of work – I personally do it full-time – but it’s worth it if you have the motivation.
I rolled ALL of my money from stocks/bonds starting in 2002 (from my Fidelity account!) into alternative cash flow relatively low-risk investments and I haven’t turned back since. I’m averaging around 15% annualized per year in terms of cash flow and around 20-22% total return per year. It’s the only way to keep up with true inflation, which is running at around 11% these days. So even I, after tax, am barely keeping up with true inflation…
Good Luck To Everyone,
Investor J
http://www.meetup.com/FIBICashFlowInvestors/
http://www.meetup.com/investing-363/
Investor J, I’m interested to learn about the different options available in the alternerate investment arena. You mind giving me some direction? mitesh_damania@yahoo.com
Investor J, you suggested a good strategy, but I think most people on the blog lack the sophistication and experience to apply it with confidence and precision to good effect. Having said that, I too agree that mutual funds are a Ponzi scheme to transfer and keep track of the wealth of the middle class and subtly transfer it to the financial class over time. It is much better to be off the radar screen as you are. It is also a very good thing to be in a cash business for many reasons as you know.
At the same time, I think that rental properties with a (relatively) good location that are fixer uppers and at a low multiple of city household income – say, .8 to 2.2 median income for the city – can be a good bet. This is most true in areas where the market has been allowed to crash, i.e., IE, L/P, etc. The choice of tenants is key here, but if this can be done well, it is not unrealistic to expect 1% rental income plus 3-5% price inflation a year over the medium term.
I personally love “investors” buying up the overpriced real estate in my area. I am a rent/own agnostic and will pick the best deal for me. I am just now starting to see the effect of these “investors” on the rental market. The rental market in the south Santa Cruz has historically been tough. Rents have risen dramatically over the past 3 years. Now, there are more and more SFR rentals coming on the market. There are only so many folks in this area that can afford $3,000 a month. More and more “investors” chasing the same dollars has what affect? That’s right, lower price!
Where’s all this cash coming from? Homes are around a million bucks in a lot of coastal areas of California. That’s a lot of money!
That is what I can’t figure out. I mean, I can see cash buyers galore 3 miles from the coast, cash buyers all over the place for 500 and 600K homes 15 miles out? Are there really that many people with cash?
I think the FED is written all over this.
One example of how the FED could be involved is……….you have a hedge fund that was formed to buy Ca. realestate for long term appreciation and immediate yield in the form of rental income. You have two or three large unknown investors who want to invest a billion dollar each. The unknown investor could easily be the FED.
I know cash buyers were always out there but they were usually limited in the 100K to 200K range. Every house I have been interested in in the last 6 months has had at least one cash buyer all the way up to 750K.
I know there are those who sold before the peak but you would think the vast majority of those have already deployed the money by now.
Unfortunately, in todays world, a mysterious buyer who turns out to be the FED has the same immediate and long term impact on housing as a normal buyer would, the FED can hold forever and doesn’t care if it wins or loses so in many ways the impact from FED buying may be amplified. The game may be rigged but it is what it is.
Have you followed up to see who’s buying the homes with cash? The corporations which the hedge funds who move money through have a Board of Directors. Some information muast be public.
The FED doesn’t have to create a hedge fund. They have Fannie and Freadie and all the MBS’s they can buy with money they created out of thin air…
“I think the FED is written all over this.”
Nothing to think about, Martin. More like ‘definitely’, lol. I just did a Harp-2 refi. The ink was barely dry on the loan docs when I got a letter from Fannie Mae saying that had purchased the loan, but the entity that did the refi would continue to be the loan servicer.
No, not create a hedge fund, buy into an existing one. An investor into a hedge fund is not public information and the FED could easily set up a straw investor so even the hedge fund doesn’t know the REAL buyer is actually the FED. MBS purchases by the FED are certainly supporting the housing market but a direct cash investment via a hedge fund is definitely a higher level of intervention.
The FED has publicly stated that it would use “all means at its disposal to support asset markets” and I do think that would include buying houses. Is there proof? No, but one has to wonder where all this cash is coming from. I mean after all, the bubble popped because it was unsustainable during a good economy, now during a bad economy prices seem to just glide up with such ease. Something is up, yes I know it is along the lines of a conspiracy theory but things kind of add up.
YES! You hit the nail on the head. You can go to the Fed website and read about the programs for institutional investors only (god forbid the ripped off borrower from the last equity stripping ponzi scheme could get in on these deals). It’s one big fat criminal enterprise designed to steal the wealth from the average joe and transfer it to the fat cat crimeys. Biggest Arms dealers, drug dealers and thieves in the world!
@Martin PS. You do not sound like a conspiracy theorist. You sound knowledgeable and informed. Anyone that thinks he sounds like a Conspiracy Theorist need only Google LIBOR scandal! Read it and weep and then get mad! First you HAVE TO GET MAD!. These are criminals through and through.
Let me say this one more time – THESE ARE NOT HEDGE FUNDS. Hedge funds are fairly liquid vehicles and most of them are both long and short various related assets (hence the term “hedge”). Buying homes and renting them is NOT a remotely liquid strategy. You also have a high probability of nastiness shorting anything related in the liquid markets if it goes against you and you need to raise cash from your illiquid side – maybe rates but this isn’t an easily hedge-able strategy nor liquid. Any pooled investment doing this is likely organized as a limited partnership or offshore corp for tax-exempt…hedge funds are too but not all LP/Ltds are hedge funds.
Reality is that this is a long-term investment partnership far more similar to private equity (also LP/Ltd based) than a hedge fund. Probably organized to flow cash yield on rentals also. I realize this is an insignificant nuance for many people but it’s flat out wrong just as using the term “mutual fund” would be for this (although hedge fund is marginally closer given LP/Ltd capsuled entity).
Even here in So. Pasadena, homes that are asking $700K and up go pending within days or weeks. I do know that a lot of people in the film industry are buying here now.
Oh wow! The film industry! Man those westside people sure do think they are all so cool…man all us south bay, orange county, and inland empire people dream of the day we can even drive up to the westside let alone actually be a part of it. So COOL!
:-7
Some of what seems like ridiculous pricing has to do with the schools which are viewed as top notch. If you have two kids in private schools on the West side, another $100K for a house in SP is a real bargain.
I’ve heard the same justification for buying in some of these areas with the best public school systems. As time goes on, there seems to be more separation between the good, bad and ugly schools in this city. If you have several children that are just starting school you have the following options:
1. Overpay for the premium neighborhood with the best public schools.
2. Buy in a mid-tier neighborhood and roll the dice on the public schools.
3. Buy in a lower-tier neighborhood and send kids to private school.
4. Buy wherever you please and home school.
If you have several children I imagine the cost of private schooling (until college) would be several hundred thousand dollars. That might be your cost premium there. Not to mention, the premium neighborhoods offer more safety and better quality of life. I’m starting to sound like a NAR shill. 🙂
Investors tend to flock to sub $400k (ie. sub FHA) price areas because the rent to price ratios are better, which essentially translates into higher cash flow. Most investors target a minimum of a 1% ratio between monthly rent and purchase price and generally anything above $300-400k doesn’t pencil out. As for the cash itself, not only is there a LOT of cash locally but CA tends to attract outside investors from other states and other countries. If you look at the objective statistics then you’ll see that foreign investors tend to get a lot of press, as it makes for a sexy story, but in reality it doesn’t comprise nearly as high a % as one would think…
Good Luck To Everyone,
Investor J
http://www.meetup.com/FIBICashFlowInvestors/
http://www.meetup.com/investing-363/
Investor J – your 1% analysis makes the only sensible relationship, yet I have never seen that in southern California, particularly San Diego county. EVER. I am 51 years old
At best I see present day 650K – 800k trying to rent for 3200- 4000 per month. Am I off base, but isn’t that .5% at best if they get that. those types seem to turn over every year for sure, so there has to be about a month’s vacancy too
I have watched homes purchased in 2010 being turned over on what looks like their second tenant now.
In our 300-450k neighborhood, in SD county, 2200 to 2300 is the best realistic rent to expect/hope for, which is .6% – .7%.
Writing this, of course, the only reason it seems to buy in a the high price turkey neighborhood, is the dream random run up that used to occur when they lowered rates. Hmm, now rates are 3%.
It just seems like musical chairs to me.
Kerri,
I am honestly not familiar with California rent to price ratios, as I have never invested in this state (even though I live here!) for the exact reasons you mentioned above. That being said, I would be surprised if it wasn’t achievable in the “very low end” areas in Los Angeles (ie. where home prices are $150k or less) at this particular time in history. But I agree – overall it’s not usually achievable here, which is why I honestly don’t understand California investors in general! For a cash flow investor like me, it’s all about investing in less price volatile states where the rent to price ratios are more favorable the odds of a property losing a LOT more of its value is much lower due to the non-volatility of the market…
All of that being said, I’m happy to lend money (“hard money”) to a local flipper and earn 3 points + 12% in 6-12 months so I’m not holding the bag, which is one of the many investments I am involved in…
Good Luck To Everyone,
Investor J
http://www.meetup.com/FIBICashFlowInvestors/
http://www.meetup.com/investing-363/
There are a lot of folks with decades worth of savings that are very leery of today’s stock market, and aren’t able to make interest on safe investments (CDs, savings accounts, bonds, etc.)
If you’re sitting on a pile of cash that isn’t doing anything, you may as well buy yourself a nice place to live – so goes the mentality.
+1. Excellent analysis.
What?, I love and miss Santa Cruz. I visited that area several times. Who can afford $3k rent on a 50k/yr salary?
You have to drive over the hill to San Jose for income…
Very true, I’m an example. We live in Aptos, and I work over the hill.
And I agree with your observations, rents and prices are way too high for most families who live and work in Santa Cruz County.
Funny, I live in Aptos as well… I have watched the local market for years and have noticed some very strange activity this past summer…
We’ve seen some strange activity too. Lots of pendings, off listings, back on listings, price increase, price drops…all on the same home(s).
I’ve been saying this for a while, but it looks like certain areas around us are on the verge of cracking…hard.
If……..IF…the housing sector bounce is real and not just a dead cat bounce, you would think the banking sector would benefit in a huge way.
I would argue that the current housing bump is a combination of market manipulation along with a large dose of desire from the general public to go back to the days of collecting income from an appreciating asset. I do not believe this current “bounce” would be possible without both players. So, I would say that it is both real and a dead cat bounce. However, the current market is not sustainable under the current economic climate. So, in the end housing will come in line with income in real terms. I have no idea what amount of the correction will be in nominal prices versus devaluation of currency.
My first argument with the “inflate our way out of this†approach is that I cannot see how we can create wage inflation when we have slack in labor and globalization. The other problem with inflation is that it causes nominal interest rates to rise because anticipated inflation is one of the components of market interest rates. This is an added cost to capital investment which would be a drag on economic growth (see stagflation 1970’s). The government is able to manipulate the interest rates on home loans because they control the GSE’s. Private banks would never hold a 30 year mortgage on their books for 3.5%. I would argue that this is a negative real return (aka loss) if you include interest rate risk plus anticipated inflation plus loan risk.
“These days man knows the price of everything, but the value of nothing.â€
Oscar Wilde
I remember when a house was viewed as a place to settle down,raise a family,etc.
Now,most are overleveraged places of shelter waiting to cross the line into Albatross territory.Thanks to the FED,nobody has any idea what paper money is worth.This whole economy has been built on credit and consumption,not actual productivity.I think we need to heed the signs seen at most amusement parks,KEEP HANDS AND FEET INSIDE THE CAR,BUCKLE THE SEAT BELT,THE RIDE IS ABOUT TO BEGIN
If I could sum it all up in one sentence, you just nailed it. “Thanks to the FED,nobody has any idea what paper money is worth.”
I don’t have a clue if cash is king and a powder keg of opportunity down the road or simply a rapidly depreciating asset. Economic signals that usually would give you an idea have been destroyed by the FED as well. We are literally the blind in the dark and the FED is doing its best to get rid of our hearing as well.
Most of the investors buying now are idiots.They are just chasing prices higher.Most will take a loss.As Dr Housing stated most are not figuring in the hidden costs and pitfalls.
Who, having the power to create trillions of dollars with a keystroke, would resist the temptation?
Beware of Palmdale and Lancaster … high concentration of sex offenders. Check the Megan’s Law website before you buy … you may not want to move in next door to that neighbor.
I looked at Palmdale awhile back and the heat out there is brutal and little air flow….it’s stifling to say the least. And with reports of the Fukishima radiation flowing via the air stream to the West Coast, I’d rather pick a location where the winds are stronger.
As far as being a landlord for the rental income; I would not recommend it. I have tow experiences both miserable. I once owned a portion of an apartment complex and helped manage it. Located near a high end university we thought it would be nice and produce nice returns. It is hard to describe how much damage a student and one professor did to the place. All it takes are a couple of bad tenants and your slim profits are lost for years. I won’t describe the damage that occurred to a house I rented out….over $8k in damages + the cost (and major hassle) to evict.
I know investors are desperate for yields but being a landlord is very risky in my experience. There are safer alternatives. Good luck to those who try it! BTW, I enjoy reading other people’s experiences and really enjoy the Dr.’s in depth analyses/articles.
P and L are shitholes. Hot, dirty, hellish.
Beware the “good schools” scam! First, look at this:
http://www.pacificresearch.org/publications/not-as-good-as-you-think-why-the-middle-class-needs-school-choice-2
I agree with the poster above on schools, except I would put “home school” on top, both for quality of education, savings on family budget, and quality of family life.
Look up Waypoint and Billco. These two groups are buying a lot of properties right now in the lower cost CA areas.
Good news everyone! The housing market is back! Fannie May and Freddie Mac reported profits! We are on the road to recovery baby! Yippie!!!
I was an owner of some rental units and a rental house, for 10 years, but sold them. I could tell you stories for hours about evictions, vacancies, tenant theft and destruction. I will never own rental properties directly again. I see people every day that are buying for the first time that do not know what they are getting into, both from the tenants and financially. Hiring a manager costs too much of your rent and they hire expensive maintenance guys, and let your place sit vacant if you are a small landlord. Everyone thinks they will get perfect tenants and have no vacancies. They do not factor in replacement reserves, and seem to forget about big repairs when calculating their “cash flow.”
In Southern California here, you only make money if you buy at the right time and sell at the right time. You are lucky to have your rent cover most of your expenses, repairs and major replacements, mortgage, taxes and insurance. Yes, there is leverage and depreciation. But I can tell you about people I know that owned 3,4,or 5 properties at the peak and now own none and have declared BK.
Then you have the overly protective tenant laws. Never, never, never , ever buy a rental property in the city of Los Angeles for example. I could take hours telling you why. Trust me.
The reason you buy rental property is to make money. You want to make money for improved quality of life. If owning them diminishes your qualify of life from the risk, stress and time involved, then no good. I could buy several properties now for cash, but life is too short to suffer like I did before………….
SL is right. Being an absentee small landlord is not a way to make money at all! We own houses in Oregon that are part of a family inheritance. Right now, the market is so in the toilet there that you don’t even get lowball offers if you try to sell. We just want to hold out for another year or two and hope for a small recovery so we can sell out.
Joe
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