Buying For Appreciation
I am buying a house in central CA with a real estate agent friend of mine. Theres a university being built and she bought less then a year ago with amazing appreciation(if it doesn't we are prepared to ride it out/hold it) What questions should I be asking (besides the obvious one's). I hear people talk about running the numbers, what does this mean? Is there a formula I should familiarize myself with? If so, what is it? Do any of you go straight to lenders and avoid mortgage brokers? if so, where would I find a listing of such lenders? We are not able to get a loan with less then 20% down, we would like to put 15% down, any advice? What numbers should I be plugging in to make sure we break even? We plan selling or assesing our situation in aprox 3 years. Thanks a bunch.
cheers,
sarah
Are you going to be renting the house out i hope?
yes, the sellers will more then likely be renting back from us. Until we sell we will be renting.
I ALWAYS try to use a mortgage broker. Going direct is almost always the worst way to get good financing. They can't be creative. The loan officer at the bank is representing the bank, the mortgage broker is representing you.
I saw and responded to an earlier post of yours regading this situation. It sounds lie you may want to learn a little more about real estate and investing before you you go out of your area and give it a try.
The L.A. Times had an interesting article today that you should probably read
http://story.news.yahoo.com/fc?cid=34&tmpl=fc&in=Business&cat=Real_Estate_and_Housing
Also, horror stories are coming out of Las Vegas now. Do your research and go to an rei meeting in your area and the area where your thinking about investing.
Sarah, I am assuming you are talking about Merced. The only problem I see with Merced is there is little to no cash flow so you are totally banking on the appreciation. Which is not my strategy but I know many that do that. I almost bought a home in Merced a year ago but when I ran the cash on cash ROI, it was far too low so I decided not to do it. I highly recommend you get involved in investment groups and learn from others' experiences both good and bad. Merced is hot and if you can afford the risk, go for it -- watch the neighborhoods though for rent values. Probably once the university is up and running, it won't matter where the housing is but obviously the area that is considered downtown may be a bit harder to rent due to proximity. BTW, I also totally agree with shopping around more for a loan. You can absolutely do better than an 80/20.
L
Thanks so much for both replys. I will be moving to CA in January, so I will be living there soon. The problem with that and investing is that the prices are so high in most areas. The central valley is the only place I could afford. Yes, Merced is the area. The only reason we are investing there is because the university is being built. What formula can I use to "run the numbers"? What are the specific things I need to know to do this? How do I calculate ROR? I will also look into investing groups in the area. You live in San Jose, what do you do about investing in your area when prices are so high? Thanks a bunch.
cheers,
sarah
Hi,
It might be helpful to see this discussion going at
"Owning 20 SFR And Dealing With Negative Cash Flow". Investing in CA.
Good Luck!
Is that an article or under what topic is that posted?
Hi Sarah:
I would not recommend you purchasing for long -term investment in California right now as the market is going to correct. Guaranteed!
Before you start investing, I would recommend you take some courses. There are some basic things you need to learn about:
-Cap Rate
-Cash on Cash return
-Different Types of Markets
-Buyers Stage 1
-Buyers Stage 2
-Sellers Stage 1
-Sellers Stage 2
When someone asks do the numbers work. What they mean is after you pay the mortgage payment, 10% for repairs, 10% for vacancies and pay your property taxes, etc.... are you making any money? If after running these figures you are upside down, meaning you are in the negative, then it does not make sense or pencil.
I would recommend David Lindahl's courses. They can be found at www.ReMentor.com.
The key is to educate yourself before jumping into unfamiliar waters that you know nothing about...
Best Riches,
Jeff Adam
[addsig]
Thanks so much Jeffery. I appreciate the direct, specific advice. I will look into that course ASAP. What about the University thats moving in. Doesn't that say something about potential appreciation?
Thanks
Sarah
Sarah:
I just think California is at the top of the market right now. Unless you are getting a great deal like 70-80% of market value with a good cash on cash return and cap rate, then I would not buy.
I believe there will be a teleconference with David Lindahl on this site in the next couple weeks. Will be very informative.
I think you are on the right track in investing in multi-family units, just get into the right market and educate yourself.
Best Riches,
Jeff Adam
[addsig]
Hi,
To see the discussion, go to this link: http://comm.thecreativeinvestor.com/ViewTopic37977-24.html
Like you, I think California is a great place to invest in and I agree with you that appreciation is the name of the game. You have to be in the right place at the right time to succeed.
Many people are safe being in a pessimistic mode, If you never buy, you'll never lose or succeed. I think these people are the ones that never make it big.
Study the market and if you think and feel good about it, JUMP IN and take the chance. Buy while it's still cheap. I missed many opportunities in CA few years ago when prices were more than half today's prices. At that time these same people were thinking the same way about this BUBLE, they never bought and now they wait for the "correction" to happen. I think even if the correction comes, they still wont buy because they think it's still expensive.
As for us who bought or think about buying, like you, and a correction happens, just make sure you have enough cash reserves to hold on for the turnaround. And if the correction doesn't come, YOU ARE RICH BABY
Good Luck!
I truely appreciate both perspectives. Although there is a risk, I think I am going to take the leap. My friend has made 100% in a year and right now my goal is to make money so I have money to reinvest. The worst that could happen is the bubble bursts and we either ride it out or sell and lose alittle. I need to learn more for the future so when I get out to CA I plan on getting involved with an REI group. Any more info is always welcome.
one quick question: is there more then one way to run the numbers? if so specifically what are they or where can I find out?
Thanks again,
cheers,
sarah