In today's economic downturn, real estate investors are coming out in droves. Why? Because it is truly a great time to buy residential property for their personal investment portfolio.
The mortgage interest rates are at historic lows. There's lots of inventory to choose from and there are plenty of motivated sellers!
Rents are holding steady because many potential home buyers are unable to secure financing or do not have a large enough down payment enabling them to buy a home. This increases the pool of renters and allows investors to get high enough rents to cover their debt. Most investors are looking at holding their properties for rental income and are not necessarily focusing on appreciation. Although, living in Pasadena and Southern California, means that appreciation will be there over the long term.
What are Pasadena real estate investors looking for?
- Properties that can be freshened up inexpensively - cosmetic fixers.
- Multi-family buildings - one to four units that qualify for conventional mortgage financing and spread vacancy risk across all units.
- Foreclosures, real estate owned (REO) - bank owned properties, and short sales - best prices and deals.
How do real estate investors find the properties to purchase?
- The first and most productive source for homes for sale is the Multiple Listing Service (MLS). Some real estate agent websites offer access to MLS home listings, but most are limited. I am happy to say that Pasadena real estate website now offers access to most Southern California MLS systems - including Pasadena Foothill Association, Arcadia Association of Realtors, CRISNET - San Fernando Valley Association, Orange County, Ventura and more. Feed free to set up as many searches as you'd like and access the MLS at your convenience. You can even program this MLS listing system to email you as new home listings come up on the market.
- Foreclosures, For Sale By Owners (FSBO), and new construction that isn't selling are all sources of viable investments.
- Connect with a trusted Real Estate consultant, banker, attorney or other investors. There are many "burned out" or inexperienced investors, or investors that have run into cash-flow issues and are unable to weather a problem with a property and are ready to sell. In most instances, they will contact a professional real estate agent to help them with the sale of their property. Most Realtors have a list of investors to contact who are waiting for these opportunities to come their way.
How do real estate investors pick their deals?
- Look for cash flow or break even investments - most real estate investors agree that purchasing an investment property is less about timing the market than good analysis.
- Look for homes in good areas with good schools, near jobs and shopping for a long-term hold.
- Some prefer smaller properties and single-family homes because there's greater opportunity for appreciation.
- Most prefer moderately priced property and stay away from luxury property as tempting as it can be. Moderate prices mean moderate rents, which means not only a larger pool of tenants, but also tenants who are less likely to buy a home of their own.
Where do real estate investors get their money?
- Established lines of credit with a lender.
- Solo 401(K) and Roth 401(K) plans
- Seller financing
- Most investors prefer 30 year fixed loans.
Additional tips for better investing:
- Think cash on cash - determine your return based on the equity you have in the deal, not the total price of the property.
- Make your money on the buy - don't make the mistake of believing that the asking price represents the final price or value. Do not expect short-term appreciation to bail you out. Do your analysis and negotiate at the point of sale.
- Get pre approved for a loan - this market is too dynamic and the lending requirements constantly change, ensure that you understand how much you can afford and the terms that are available to you. A strong buyer has more negotiating power.
- Don't buy more than you can manage.
- Protect your assets from lawsuits - discuss with your CPA (certified public accountant) or your attorney as to how best to hold your investment property to limit liability and protect your assets in case you are sued.
- Don't overlook deductions! Tax deductions for depreciation and expenses such as mileage related to managing your investment can reduce your taxable obligations even if your property is generating income.