“California Dreamin” – Real Estate Investing In High Dollar Areas

3 min read
Karen Margrave Read More

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HIGH DOLLAR MARKETS – DO THEY MAKE SENSE FOR YOU?

When the real estate market crashed we left the area where we had done business for over 30 years and moved to southern California.

The area we moved from had an unemployment rate just under 20%, and the prospects for the future of real estate seemed bleak. Without buyers working, they couldn’t qualify for the loans on the new homes we were building.  Having been through a few recessions in our time, we knew that southern California would be the first place to rebound, due to the overall strength; and diversity of the economy.

I know that many investors on BP got their start by taking advantage of the foreclosures, buying up REO’s fixing them up; and reselling or holding as rentals. It was a great opportunity.

Our original thought was we would relocate to southern California; and get in on the fix/flip market buying REO’s.  We were wrong. That market evaporated quickly. We soon realized that with all the hype, there were huge numbers of investors jumping into the market; and often bidding up prices far higher than the markets justified.

At the same time, we noticed that rentals were in high demand in certain areas, and they were bringing very healthy prices.

To us, it seemed like ideal conditions to start new construction. Following is a partial list of the things we took into consideration, which help drive the demand for real estate. Though the list is specific to Orange County, you can look for the same in your local markets.

Area, Demand, Values, Economy, Appreciation, Etc.

  • The economy in Orange County is a low 4-5%, and is broad based (from retail to high tech)
  • Southern California is popular with people from around the world
  • Aside from the economics, there is perfect year-round weather
  • Orange County has some of the highest valued real estate in the country.
  • There are world class educational institutions, state of the art medical facilities, amusement parks, cultural offerings, shopping, major sporting events, natural resources, etc.
  • Anything you want to do can be found in southern California, meaning high demand and top rates for short term rentals, as well as long term housing, and commercial space.
  • Though the demand is high for all types of housing, new construction (not in a planned community) is rare, meaning less competition.
  • High demand in an area creates rising appreciation.

Related: New Tax Developments for California and California Related LLCs

Having been involved in real estate development for many years, we knew that these conditions were the perfect storm. Southern California will always be one of those areas that draws people, equating to long term future demand.  Though prices in areas such as Orange County, CA may be high, they may never again be as low as they are now!

If you are in an area such as southern California, or another high dollar area of the country (Texas, New York, Virginia, Washington D.C., etc.) you may not want to rule out investing until you look at all of the options available to you.

There’s several ways to get into higher priced markets, and earn a very high return on your investment dollars, even if you aren’t a builder, broker, or ability to do it all on your own. Sometimes investing in an area you are familiar with and know, though more expensive, may be the best choice for you.

Here are a few ways you can participate in higher priced areas:

  • Participate as a lender in a new development
  • Joint Venture a project or property with another investor or builder
  • Rather than a home, consider a condo (possible vacation rental by the beach) or possibly a mixed use unit (live work, retail, etc.) that have lower entry prices than SFR.
  • Participate with other investors and pool funds in a syndication, allowing you to get in on a larger property and share long term ownership, or to remodel a property and sell, etc.
  • Crowdfunding of local real estate projects

Related: The Missing Ingredient to Wildly Higher Prices

The point is, in areas where there is strong demand and a good economy, there are many opportunities to get involved. When the economy is strong in an area, people can afford higher rents, qualify for loans, and support local businesses, creating opportunities for investors in many niches.

As always, before investing your hard earned dollars, thoroughly investigate the project, those involved, and seek advice from your attorney and accountant.