Investing for Cash Flow in Irvine

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PANDA DREAMING OF IRVINE_IHB

PANDA DREAMING OF IRVINE_IHB

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INVESTING FOR CASH FLOW IN IRVINE

I am interested in investing in rental properties in Irvine and surrounding areas like (Lake Forest, Aliso Viejo, and Laguana Hills). The type of homes i like to invest as rentals are Single Family Homes or detached condos as the tenants seem to be easier to manage. I know that many can argue that commercial properties, duplexes, or apartments are better rental investments, however i just prefer the simple/modest Single Family Homes as investments.



My personal observations:

1) First it seems that investing in a rental properties in irvine (3bed/2bath) 1200 square feet is not the best way to go as you are directly competing with the newer Irvine Apartments. (Is this a FACT?) Also the high mell roos and high associations cuts heavily into the cash flow where it is difficult to be in cash flow positive.



2) I am liking the fact that many homes in Lake Forest, Aliso Viejo, and Laguana Hills has come down quite a bit. Though the homes are older, the association should be lower as well as no mell roos.



Among Irvine, Lake Forest, Laguana Hills, and Aliso Viejo, where would be the preferable place to invest for a 3/2 bath starter home 1200 square feet with a BIG LOTS. I like small tiny starter homes with BIG LOTS. Where would be my best chances to be cash flow positive with a 20% down payment?



What are the PROS/CONS of investing in SFRs in Irvine/Lake Forest/Aliso Viejo/Laguana Hills for the small starter homes i am looking to invest in?



I am a Newbie in investing in Real estate, but i do love it. I own just one SFR rental in the south, but i am sure the game is totally different investing in OC.

Is there any Irvine Real Estate Investing Moguls out there who can give me some sound advice? Thanks in advance.
 
Wait about 3 years. There are no properties in Irvine with positive cashflow. If there were, we wouldn't be talking about a real estate bubble.
 
IR,



What do you think about investing in Aliso Viejo, Laguana Hills, and Lake Forest for cash flow? Are we close to the bottom yet for these areas? I mean i am seeing some of the 3bed/2bath 1200 square feet starter detached homes in Aliso Viejo in the $200s. I don't know how bad the area is, but those prices look really cheap. Any ideas?
 
[quote author="PANDA LOVES IRVINE" date=1211265968]IR,



What do you think about investing in Aliso Viejo, Laguana Hills, and Lake Forest for cash flow? Are we close to the bottom yet for these areas? I mean i am seeing some of the 3bed/2bath 1200 square feet starter detached homes in Aliso Viejo in the $200s. I don't know how bad the area is, but those prices look really cheap. Any ideas?</blockquote>


I have been watching this area on South OC Tracker. There have been some properties at breakeven rental parity for an owner-occupant, but I don't see any of these being cashflow positive yet. It will happen there first, and you will probably find the best deals there overall. I would not be surprised to see GRMs around 100 for the less desirable condos.
 
IR,



Do you think it would be tougher to find tenants in irvine than finding tenants in Aliso, Lake Forest, Laguana Hills since you would directly competing with the new Irvine Apartments?
 
[quote author="PANDA LOVES IRVINE" date=1211267853]IR,



Do you think it would be tougher to find tenants in irvine than finding tenants in Aliso, Lake Forest, Laguana Hills since you would directly competing with the new Irvine Apartments?</blockquote>


I don't think it will ever be difficult to find tenants in Irvine. The fringe markets where prices will drop the most (think South OC) will have the most difficulty with keeping tenants. Like any product, if the price is right, someone will buy or rent there.
 
Has anybody done this????



I have my own business in ecommerce and thought it would be really cool to buy a second home (fixer upper) in irvine and make the entire house as my office space. Any upgrades or improvements to the house would be tax deductible as a business expense. You can buy the second home has a LLC and rent it back to your own S-Corp business? Is this a viable option in Irvine?



Curious Panda
 
[quote author="PANDA DREAMING OF IRVINE" date=1211272607]Has anybody done this????



I have my own business in ecommerce and thought it would be really cool to buy a second home (fixer upper) in irvine and make the entire house as my office space. Any upgrades or improvements to the house would be tax deductible as a business expense. You can buy the second home has a LLC and rent it back to your own S-Corp business? Is this a viable option in Irvine?



Curious Panda</blockquote>


Wouldn't the LLC be paying taxes (double on corporations) on the rental income, outweighing any deduction windfalls?

Why not just KIS and rent?
 
The closest I see is a Santa Ana property on <a href="http://www.redfin.com/CA/Santa-Ana/1311-S-Ross-St-92707/home/3080892">Ross St.</a> (sold at $552K in 2006)



and is now at $357,700 asking



20% down = <strong>$71,400</strong>

opportunity cost of $71,400 at (2.5% in a CD) = <span style="color: red;"><strong>$148.75</strong></span> monthly

80% financed = <strong>$285,600</strong>

interest only @ 6.75? (need help on right investment rate, maestro, if you're there) = <span style="color: red;"><strong>$1,606.50</strong></span> monthly

or

interest only @ 7.50 = <span style="color: red;"><strong>$1,785.00</strong></span> monthly

taxes = 1.06% = <span style="color: red;"><strong>$316</strong></span> monthly

insurance = roughly <span style="color: red;"><strong>$100</strong></span> monthly



This means you'd need to rent the 6 bedroom home for $2351/month to break even at the 7.5% rate.

When you prepare for the possibility of 10% vacancy, that brings you up to $2612/month for break even.

When you add a management fee, another 6% takes you up to <span style="color: green;"><span style="font-size: 13px;"><strong>$2,779/month</strong></span>, </span>(or just under $465/room.)



I see two 3-bedroom homes in the last 6 months leased for $2100/ and $2300/month at 1100 and 1650sqft respectively in the vicinity on Van Ness and Normandy. $2800 to $3000 doesn't seem unreasonable in the condition this home appears to be in.

You also have to factor in maintenance... but if you get a good mgmt company that should be minimal.



I would think this home could be cash-flow positive, even without tax benefits of mortgage.



edited to add:



or... you can back into the numbers with GRM 160 = $2235.63/month?



IHB thoughts? Bring out your bears.
 
[quote author="IrvineRealtor" date=1211277825]The closest I see is a Santa Ana property on <a href="http://www.redfin.com/CA/Santa-Ana/1311-S-Ross-St-92707/home/3080892">Ross St.</a> (sold at $552K in 2006)



and is now at $357,700 asking



20% down = <strong>$71,400</strong>

opportunity cost of $71,400 at (2.5% in a CD) = <span style="color: red;"><strong>$148.75</strong></span> monthly

80% financed = <strong>$285,600</strong>

interest only @ 6.75? (need help on right investment rate, maestro, if you're there) = <span style="color: red;"><strong>$1,606.50</strong></span> monthly

or

interest only @ 7.50 = <span style="color: red;"><strong>$1,785.00</strong></span> monthly

taxes = 1.06% = <span style="color: red;"><strong>$316</strong></span> monthly

insurance = roughly <span style="color: red;"><strong>$100</strong></span> monthly



This means you'd need to rent the 6 bedroom home for $2351/month to break even at the 7.5% rate.

When you prepare for the possibility of 10% vacancy, that brings you up to $2612/month for break even.

When you add a management fee, another 6% takes you up to <span style="color: green;"><span style="font-size: 13px;"><strong>$2,779/month</strong></span>, </span>(or just under $465/room.)



I see two 3-bedroom homes in the last 6 months leased for $2100/ and $2300/month at 1100 and 1650sqft respectively in the vicinity on Van Ness and Normandy. $2800 to $3000 doesn't seem unreasonable in the condition this home appears to be in.

You also have to factor in maintenance... but if you get a good mgmt company that should be minimal.



I would think this home could be cash-flow positive, even without tax benefits of mortgage.



edited to add:



or... you can back into the numbers with GRM 160 = $2235.63/month?



IHB thoughts? Bring out your bears.</blockquote>


Seriously, WTF is wrong with people in SA? Those rents are way too high for that location. Do they enjoy overpaying for SA?



Looking at rates, 6.375%, at least 1% point in fee, for a 30 yr fixed conforming, payment of $1782. Or, for 10 yr I/O, 30 yr fixed, around 1% point in fee, 7%, for a monthly of $1666.



Okay, aside from monthly payments, your vacancy rate/get burned because no have money is kinda low. Just speaking from experience, it is a lengthy process to find quality tenants, and even more so in SA. I would factor in 20%, and the lender will factor in at least 25% to 30%.



Even if the home is in good shape, it is older, and you never know WTF someone might try to flush down the toilet. You have to factor in maintenance of at least $300 a month, or give them a lawnmower and hope they will mow once a quarter after you get the city sending you a note.



All in all, it sounds like a lot of risk to bear (pun intended) for a possible couple hundred bucks a month. If you value your time, then the number crunching may not get paid back for a while with that profit margin.



I think you will be able to find better, or at least less risky homes than this example.
 
graph - while I appreciate your conservative approach, I have to point out that people ARE jumping over themselves to buy homes with large #'s of bedrooms in this and other (historically) low-income areas.

Case in point: <a href="http://www.redfin.com/CA/Santa-Ana/1001-N-Evonda-St-92703/home/3477345">Evonda </a>in Santa Ana. We wrote an offer Sunday night at $400K ($10K over list) and were <strong>outbid by 18 other offers in the first 5 days on market</strong>.



(the listing agent showed me the stack of offers and laughed at me today. I've got some shrimp paste with his car upholstery's name on it, but that will be later.)



I'm fairly certain that this one will close at over $450K with broken mirrors, windows, front door, and graffiti throughout the unpermitted back rooms.



Doesn't make Ross look too bad in comparison.
 
[quote author="IrvineRealtor" date=1211287944]graph - while I appreciate your conservative approach, I have to point out that people ARE jumping over themselves to buy homes with large #'s of bedrooms in this and other (historically) low-income areas.

Case in point: <a href="http://www.redfin.com/CA/Santa-Ana/1001-N-Evonda-St-92703/home/3477345">Evonda </a>in Santa Ana. We wrote an offer Sunday night at $400K ($10K over list) and were <strong>outbid by 18 other offers in the first 5 days on market</strong>.



(the listing agent showed me the stack of offers and laughed at me today. I've got some shrimp paste with his car upholstery's name on it, but that will be later.)



I'm fairly certain that this one will close at over $450K with broken mirrors, windows, front door, and graffiti throughout the unpermitted back rooms.



Doesn't make Ross look too bad in comparison.</blockquote>


This actually happened to me too a couple of months back. It was a beat up house in SA. I made an honest offer on what I'd thought the house was worth. It had broken windows, grass as high as 5 ft. and so on. The listing broker replied via email with a scoff and basically told me to F. off.



I thought that was extremely unprofessional to say the least. If you don't like an offer just turn it down. There's no need to be crude.



So yeah, I am packing a jar of shrimp paste in the trunk just in case. Hahahaha! :lol:
 
[quote author="IrvineRealtor" date=1211287944]graph - while I appreciate your conservative approach, I have to point out that people ARE jumping over themselves to buy homes with large #'s of bedrooms in this and other (historically) low-income areas.

Case in point: <a href="http://www.redfin.com/CA/Santa-Ana/1001-N-Evonda-St-92703/home/3477345">Evonda </a>in Santa Ana. We wrote an offer Sunday night at $400K ($10K over list) and were <strong>outbid by 18 other offers in the first 5 days on market</strong>.



(the listing agent showed me the stack of offers and laughed at me today. I've got some shrimp paste with his car upholstery's name on it, but that will be later.)



I'm fairly certain that this one will close at over $450K with broken mirrors, windows, front door, and graffiti throughout the unpermitted back rooms.



Doesn't make Ross look too bad in comparison.</blockquote>


Wow, 18 offers? Why did you think 1001 Evonda was a good investment at $400k? Other than having more bedrooms than normal, why would this attract so many offers? There is another Evonda REO on the market right now for around $320k, but that one is just a 4 bedroom.



You probably know this already IR2, but comparing the Ross home to Evonda would be like comparing Quail Hill to College Park. Little Saigon now borders Evonda so there is a larger Vietnamese population there; whereas Ross is smack dab in the heart of Hispanic Santa Ana. Investment wise, that Evonda area has a better chance of holding its value than Ross. Still, I'm pretty amazed a house in that condition would have that much interest. You think its possible that realtor was falsifying offers to make it seem there was more interest in the property?
 
[quote author="IrvineRealtor" date=1211287944]graph - while I appreciate your conservative approach, I have to point out that people ARE jumping over themselves to buy homes with large #'s of bedrooms in this and other (historically) low-income areas.

Case in point: <a href="http://www.redfin.com/CA/Santa-Ana/1001-N-Evonda-St-92703/home/3477345">Evonda </a>in Santa Ana. We wrote an offer Sunday night at $400K ($10K over list) and were <strong>outbid by 18 other offers in the first 5 days on market</strong>.



(the listing agent showed me the stack of offers and laughed at me today. I've got some shrimp paste with his car upholstery's name on it, but that will be later.)



I'm fairly certain that this one will close at over $450K with broken mirrors, windows, front door, and graffiti throughout the unpermitted back rooms.



Doesn't make Ross look too bad in comparison.</blockquote>


I'm not saying it is a bad idea or bad investment. Without going into ethnic stereotypes, (I leave those sh*tstorms for BK to handle), this could work out very well due to the potential tenants. My neighbor owns a few props in SA, and he loves his tenants. I also have a good friend who owns a few props in the less desirable areas of Orange and she to loves her tenants. I also have heard nightmare situations from amateurs, who think it is a cake walk and wonder why the closet was used as toilet because they kept trying to jack the rent and never could keep a tenant.



Don't get me wrong, these are good rental properties, for the right owner and right tenant. I may sound conservative, but it is more that I am selective of the area and type of rental property I am looking for. I want 4 units or more in Orange or Costa Mesa. I already have CM, and my tenants are great and I plan on keeping it that way. I am just trying to keep a level headed perspective on this idea/thread. Be sure to let me know when something like that comes up, if it cash flows. I know a few that are in trouble, and I expect more to come with the amateurs that bought the last few years. It was the depreciation they were buying for, not the cash flow. They missed that point in Rich Dad.



And, you better hope momopi doesn't catch a whiff of this thread (hard to do now, and gawd... I unfortunately know), otherwise you have some shrimp paste with your name on it.



Also, I am sending you and Ipop a PM, $450k for that place is a joke when it could be had for $250k these days. It will be great when you can laugh at the other broker for killing his comp.
 
[quote author="QHBruin" date=1211292606]You probably know this already IR2, but comparing the Ross home to Evonda would be like comparing Quail Hill to College Park. Little Saigon now borders Evonda so there is a larger Vietnamese population there; whereas Ross is smack dab in the heart of Hispanic Santa Ana. Investment wise, that Evonda area has a better chance of holding its value than Ross. Still, I'm pretty amazed a house in that condition would have that much interest. You think its possible that realtor was falsifying offers to make it seem there was more interest in the property?</blockquote>


Yes, it's clear that the two are very different, ethnically. All 19 offers, including ours, on Evonda represented Vietnamese buyers. The other offers were very real, and the fact that we didn't even get a counter (at above asking) makes it pretty clear that they were legit.



The point I'm making is that the thread is begging the question about where to invest <strong>right now</strong> for cash flow. I agree with IR that South County is getting closer, but turning heads to the other side of Irvine, the prices on some are there <strong>already</strong>.



I'm not the speculator, though. My job is to pass out the shovels and pans to the real gold-miners.
 
[quote author="IrvineRealtor" date=1211287944]graph - while I appreciate your conservative approach, I have to point out that people ARE jumping over themselves to buy homes with large #'s of bedrooms in this and other (historically) low-income areas.

Case in point: <a href="http://www.redfin.com/CA/Santa-Ana/1001-N-Evonda-St-92703/home/3477345">Evonda </a>in Santa Ana. We wrote an offer Sunday night at $400K ($10K over list) and were <strong>outbid by 18 other offers in the first 5 days on market</strong>.



(the listing agent showed me the stack of offers and laughed at me today. I've got some shrimp paste with his car upholstery's name on it, but that will be later.)



I'm fairly certain that this one will close at over $450K with broken mirrors, windows, front door, and graffiti throughout the unpermitted back rooms.



Doesn't make Ross look too bad in comparison.</blockquote>


With the level of kool aid still flowing in the market, I am not surprised you would get multiple bids on what appear to be cheaper properties. If you factor some amount of appreciation into your calculations, then these investments look very attractive. And since many knife catchers out there expect double digit appreciation to return soon, anything near breakeven cashflow will get attention.
 
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