An associate of mine currently has 5 hot properties for sale at below market value in the following Southern California cities:
Los Angeles - Condo for $190k (Market Value $220k) in a building with renters on a year long waiting list. (will rent for $1200 to $1500 a month easily.)
Corona - SFR for $246k (Market Value $270k) is currently vacant but will rent for $1800 easily.
Pasadena - SFR for $610k (Current Market Value $640k)
West Covina - SFR for $190k (Current Market Value $220k)
If you are a serious buyer (cash buyers preferred) please e-mail me for the details on any or all of these properties.
Congratulations on your deal, but what does that have to do with this post? And why does the fact that you happened to get a better deal make this deal bad? And why do you even feel the need to take time to comment on this post? Is there a reason why you are trying to deter people from doing business with me?
I appreciate your opinion, but if you aren't interested then just move along.
And to Rian,
If you are looking to flip, then no, there isn't much value. But believe it or not, there are actually investors in the world that have MONEY who aren't just out to wholesale, who are looking to buy and hold and make a monthly cash flow as the property appreciates.
And again, if YOU don't happen to see much of a deal, then just move along. No need to spread your negativity.
Out of curiosity, how many deals have you closed in your illustrious career as a titan of the real estate industry?
No need to get angry and defensive. I was not being negative just not understanding where the discount was at, which was exactly why i worded it with a ? mark. I work with extremely well off cash buyers but just have never heard of buying at such a high retail price in my area or surrounding major city's. Not saying its not possible just curious if these deals are actually moving and if this is common in LA market place. Maybe i could have worded it better but a simple, "yea doesn't seem like much but actually going price around these parts" or " these prices might not make sence in area but these are actually solid deals in this area". In turn i would have been more than happy to run them buy some Investors i have who buy in that area and another who's looking to.If i would have known such a harmless comment would bring out so much hostilty as to feel a need to try and get personal, trust me i would have past. My apologies.
The 50% "Guideline" is only for investors who plan to LIVE OFF THEIR CASH FLOW. Many of the rest of us simply want our rentals to pay for themselves long enough for appreciation and inflation to produce some powerful returns.
I meet many investors who have only been in this business for a few years, which is great, but they haven't yet realized what TIME can do for their investment. I have a condo that has been a rental for over 12 years. It's still worth twice what I paid for it (was worth well over triple the price paid at the top of the market) and the rent has nearly doubled as well, all while the mortgage has stayed relatively the same. It took a little time, but it's a great money maker now and hardly anybody else in the neighborhood can compete with me, so it's never vacant.
Sure, you can buy that little Memphis or Ohio property for $30,000, rent it for $600-800/month (or whatever the heck it takes to get your $100/month in cash flow AFTER the 50% "guideline"), but what is that property's value going to do over the next decade? Double? Great, you made $30,000 in appreciation and another $12,000 in cash flow. When the OP's LA condo doubles in value (yes, "when" not "if"), the investor will make almost a quarter million! How many months of $100/door will it take to see that kind of money? :wink:
I get that Mitch. The OP mentioned the cashflow. I was just saying that $1800/mo isn't a great return for $246k.
My point was that there was no cash flow, and no real discount. Without one or the other, I might as well go buy any house on the market and wait 20 years.
Just for the sake of splitting hairs and being anal, no, he did NOT mention cash flow - only estimated rent. Unless you know how much the buyer is putting down, you can't compute the cash flow.
This property sold back in 2006 for $325,000. There's the discount! :mrgreen:
Mitch
I was born and raised in Orange County, California, specifically, Garden Grove. As a matter of fact, I am moving back there in November. I was a Real Estate Broker for 16 years in Orange County, starting in 1982. So I know the market pretty well.
There have been numerous discussions on BP about "Appreciation vs. Cash Flow" so I won't go into details about that, but just to say that all Real Estate Investors have some percentage of both in mind when they invest. It may be 99% Cash Flow and 1% appreciation or just the opposite.
Personally, I wouldn't touch anything in California right now UNLESS it was at least 50% below the 2006/7 sales price. My cousin's son and his wife are top Realtors with Seven Gables Real Estate in Tustin and they have a contract with FNMA and FDMC to market their REO's. They keep me well abreast of market values. They said that the amount of foreclosures in the pipeline will keep prices low for at least another decade, maybe two, in Southern California.
You stated that the LA Condo would return nearly a quarter million dollars. Maybe, but probably not until you are a great grandfather. Most condo's have a $400 to $600 monthly HOA fee, some a lot higher than that. So let's use $500 a month, or $6,000 a year. In ten years, that is $60,000, but probably more as HOA fees always go up. Property taxes are probably around $5,000 a year (not sure if there is still Mello Roos or not), so in ten years, that is $50,000. Insurance at $1,000 a year. Repairs and vacancies are unknown. So just a rough estimate, the $250,000 "profit" in ten years would most likely be about $100,000, but probably much less than that when it is all said and done. If it were 20 years for it to double, there would be no profit at all.
Just like you, I don't like the $30,000 Ohio, Indiana, Tennessee properties either. But I don't like the $300,000 OC properties as well. For me, I like the $100,000 to $150,000 Texas, Oklahoma, Arizona properties that rent for $1,100 to $1,700 a month. I make $600 to $1,000 a month per door and there is a strong chance for appreciation. It is the best of both worlds. And buying properties less than 10 years old, I average closer to 40% costs instead of 50%.
I determine cash flow based on the purchase price of the property, with 100% financing. This allows you to judge whether it's a good return on your money. Jon has a more thorough method, going so far as to figure your % earned on your money.
Using your definition (monthly payments after down payment?), a person could pay cash for $2MM home, and rent it out for $400/mo and it would cash flow. While it would put money in your pocket every month, I don't know anyone here who will argue that it's "cash flowing."
If I have my terms incorrect, hopefully someone will help me out.
This condo in LA was recently offered on the MLS at $150,000. That satisfies your "50% below the 2006/7 sales price". Why it's being offered at $190,000 by the OP's associates, I'm not sure. It sounds like they're trying to wholesale the property, which is curious as wholesaling properties off the MLS makes about as much sense as buying jeans at the mall and trying to resell them on eBay with a 30% mark-up.
Well, we'll just have to wait and see about that, won't we? Historically, California properties have never lost value for more than 7 years. Does that mean everyone will be back to 2006 levels in 3 years? I doubt it as the recent meltdown is unprecedented, but I don't think it'll take 20 years either especially in light of the Baby Echo Boom. The economy will pull out this slump eventually and jobs will return (to believe otherwise is to have lost all faith in the US) and demand for housing will increase once again, especially in SoCal where millions are still expected to emigrate to in the next 10-20 years.
Mike, your methodology is above reproach, but the numbers you are using are gross over estimations. The HOA dues on this property are $272/month. Property taxes are typically 1.1% of the purchase price and you won't find Mello Roos tax in the middle of LA. Finally, I pay under $400/year for insurance on my larger condo in San Diego.
As I said in my PM, let me know when you get back to Orange County. We can discuss the recent changes in the real estate landscape over a beer or two. :D
Why it's being offered at $190,000 by the OP's associates, I'm not sure. It sounds like they're trying to wholesale the property, which is curious as wholesaling properties off the MLS makes about as much sense as buying jeans at the mall and trying to resell them on eBay with a 30% mark-up.
Mitch,
I can't get into specifics, but I promise you that although this property is listed at $150,000 on the MLS, you can not and WILL not get it for that price. You can certainly try though.
Obviously, it would take an idiot to think that they can just pick any property off the MLS and mark it up and hope that the buyer doesn't have MLS access. Please do not make the mistake of assuming that my associates and I are that stupid.
I don't think it is possible to buy property anywhere near Los Angeles with the sort of cash flow you can get in Michigan.
Investors in California are doing something else to make money.
However, I invest in an area with high prices and low rent, where cash flow isn't going to happen, and I wouldn't even look at a property with such a small discount off the current fair market price.
It doesn't matter how much cheaper it is now than it was 3 years ago. I can't sell it for what it was worth 3 years ago.
I like to get about $80k-$100k instant equity at close of escrow. But, I don't know the LA market, so maybe those are considered good deals in that area. All real estate markets are local.
No worries, Joe. I can think of numerous reasons why this condo was listed at $150k and is now being offered by your associate at $190k, so I don't expect you to share them unless you want to. The important thing is whether or not it's worth the $190k, and based on comps in that area (a very nice one BTW), I think that price is very fair. It's not a steal, but it's not overpriced either. ($150k would be a steal, almost criminal). :wink:
What we're trying to nail down right now is what we can reasonably expect for rent in this building. $1,500/month would not be enough to even cover our basic expenses, so we may stick to the San Diego area where $190k can get us a nice 2 BR condo that will out appreciate this little guy, or Riverside County where $190k can bring in around $1,700+/month. But still, it's definitely a really nice place for a person who needs/wants to live in LA. We're just not sure it's the best investment we can make in SoCal.
I completely understand. In all reality, these are the worst deals that my associates currently have which is why they asked me to assist in helping move them.
If you and your associates are still looking for good deals on properties in So. Cal, let me know and I will put you in touch with my guys who have a ton of stuff they need to move that are probably better suited to what you and your partners are looking for.
