Johns Creek Homes and Real Estate

[panda]

Trojan,
I full heartedly agree with what the wise man had told you about that you should only buy rental properties that you yourself would be willing to live in if worse comes to worst. One of the top three criterias in my investment purchases is the school clusters. I do not buy nor own any properties located outside of a 9 or 10 school zones.

In OC/LA terms, I would much rather own 10 (B+ to A) class assets located in cities like Irvine, Mission & Aliso Viejo, Foot Hill Ranch, Ladera, or Lake Forest  vs 20 homes in places like La Habra, Santa Ana, or 30 homes in Compton. Over a 7-10 year horizon, I believe that appreciation is where the real wealth is built which will trump depreciation, cash flow, and tax benefits over a longer term horizon. Buying an investment property in Irvine may preserve one's wealth, but the upside is very limited from today's levels while the risk to reward ratio is stacked against you.
 

I don't foresee a 20-25% annual increase in home prices in Irvine or OC in the foreseeable future.  However, I do think we'll get a "pop" in resale Irvine home prices once all the new homes in OH, PS, and Eastwood are all sold in the next 5-7 years.  How much that "pop" will be is anyone's guess.  Irvine home prices from what seen since the last peak have outperformed most all of other cities in Orange County both in terms of lower price declines and higher price appreciation.  People that buy rental properties in Irvine are looking for preservation of capital (i.e. low risk of big price declines), higher quality of tenants, central location, very close to huge white collar job center, potential for future price appreciation, and not having to pay a property manager since the rental is so close to where they live.  Their main focus is not on getting the highest cash-on-cash return, but low price volatility and strong tenants who tend to turnover slower. 

A wise man years ago told me that you should only buy rental properties that you yourself would be willing to live in if worse come to worse.  I share that same advice with my clients who are looking for investment properties.  My worse performing rental property investments have been my Las Vegas 4plex and my Santa Ana condo (both properties I personally wouldn't want to live in).  My best performing rental property investments have been my Huntington Beach condo (where I used to live) and my Aliso condo (where I'd have been fine living in). 

 

[notTHEoc]

a

 

[panda]

i2,

Yes, it is the land that goes up in value, not the structure and construction. Atlanta, Dallas, Houston, Phoenix, Las Vegas, Denver are considered to be the second tier gateways whereas the first tier gateways are New York, LA, SF, Seattle, and Chicago. I like to think of first tier gateways as a developed country like United State and the second tier gateways as the emerging markets like India and China. You would think that the desirable coastal cities will outperform the second tier gate ways like Dallas, Houston, Denver, and Atlanta in the long term because that is what we have seen in the past. I would like to say that I do not believe that the past performance is indicative of future performance in the housing market for first tier gateways vs the 2nd tier gateways. For  example, I am highly doubtful that you will see another 300% appreciation take place in the Irivne housing market like you have seen from 1996 - 2006. It is very much possible that the appreciation numbers will decouple between Atlanta and Los Angeles between 2016 - 2019.

I think the challenge in investing locally in a place like SF/Bay area and LA/OC is that the asset values are too high, cap rates are too low with negative cash flow with 30% down. I know of an investor from the bay area who generates a $100,000 passive income from just three properties (2 located in SF and 1 in Lake Tahoe. The problem is the lack of diversification if one unit is vacant. He is now experiencing a turn over where his monthly rent from his tenant is $6000/month which will hurt is previous years of cash flow. The smallest maintenance issue or one month vacancy can wipe out 12 month of your cash flow in places like SF and LA.

In the Atlanta market, one can you still purchase in the 9/10 school zone and still see captial growth potential while cash flowing with 20% down which would be literally be impossible to do in the 9/10 school zones in the Bay Area/SF and OC/LA.

A prudent investor must study and understand the demographics of what are the key drivers for appreciation like population growth, job growth, Asian demographics changes, income demographics and predicting the next 10 rated school that has been undiscovered. The median home price / median income in Irvine is close to an 8 whereas the ratio is closer to a 12 in the bay area making majority of the households not being able to afford housing in the area. This is sort of the PE ratio when valuating individual stocks.

One of the my favorite investors of all time is Jim Rogers. His investment philiosophy is also my investment philosophy at the core. Here is his quote:

"The way you become a successful investor is by investing only in what you yourself have a wealth of knowledge about. The fundamental strategy is this: stay with what you know and expand on it. Concentrate on what you know and any changes you see - you will see a major change coming long before I ever will, long before anybody on Wall Street will, because "X" is your passion; they are what you are sitting around reading and researching about all the time. "

If you understand the history of the Irvine housing market, it is not very difficult to understand the Johns Creek housing market and predict where things are headed in the North Atlanta market. Out-of-state investors get in trouble when they are not concentrated in their investments chasing the next hot real estate market with higher yields and appreciation or partnering with a bad property manager who will take advantage of you. You minimize your risks with the Law of Concentration. 

Usually when the area is well known.. the opportunity capitalize on it usually is too late.

Population Growth Figures:

Locations (i.e. land values) appreciate while construction value at best remains flattish long term. So I would expect gateway and desirable coastal cities to outperform places like Atlanta long term.

Panda - what do you think of agglomeration economies? To me it helps explain why prices in places like SF and Silicon Valley can be justified. And is one reason I doubt Atlanta will do as well as coastal cities. 

 

[usctrojancpa]

Another problem with investing in out of state properties for someone like me is that I have to hire a property manager which will cost me a minimum of 6-8% of the rent potential each month (whether the property is rented or not) and puts a dent into the big cash-on-cash returns from buying in places like Texas, Florida, or Georgia.  I personally like self managing my own rental properties and save the property management money so another to buy locally.

 

[panda]

Trojan. What does your monthly Hoa look like for your two condo rentals in Aliso and Huntington Beach? What kind of monthly cash flow are you getting on these two rentals? What is your loan to value look like?

What would be really interesting would be to compare the proforma analysis for your rentals over there vs my neck of the woods. For condos I would think you are paying  at least 200 /month for HOA. Is your property tax just 1% on those two rentals? In terms of classification, would you consider these rentals a A,B or C asset class?

-panda

Another problem with investing in out of state properties for someone like me is that I have to hire a property manager which will cost me a minimum of 6-8% of the rent potential each month (whether the property is rented or not) and puts a dent into the big cash-on-cash returns from buying in places like Texas, Florida, or Georgia.  I personally like self managing my own rental properties and save the property management money so another to buy locally.

 

[usctrojancpa]

Trojan. What does your monthly Hoa look like for your two condo rentals in Aliso and Huntington Beach? What kind of monthly cash flow are you getting on these two rentals? What is your loan to value look like?

What would be really interesting would be to compare the proforma analysis for your rentals over there vs my neck of the woods. For condos I would think you are paying  at least 200 /month for HOA. Is your property tax just 1% on those two rentals? In terms of classification, would you consider these rentals a A,B or C asset class?

-panda

Another problem with investing in out of state properties for someone like me is that I have to hire a property manager which will cost me a minimum of 6-8% of the rent potential each month (whether the property is rented or not) and puts a dent into the big cash-on-cash returns from buying in places like Texas, Florida, or Georgia.  I personally like self managing my own rental properties and save the property management money so another to buy locally.

Huntington Beach condo has an HOA of $188/mo with an LTV of 60% and the Aliso condo has two HOAs totaling $174/mo with an LTV of 65%.  HB doesn't have MR and the Aliso condo has MR of about $500/yr.  I'm about $600/mo positive cash flow on the HB condo and $350/mo postive cash flow on the Aliso condo and both are B class.  The HB condo is 3-bed and attached and the Aliso condo is 3-bed and detached.  I did sell my Santa Ana condo (C class) earlier this year for a gain of about $50k after spending $40k on a full renovation while cash flowing about $200-$250/mo when it was rented.  The sales of those proceeds went towards my Tustin Ranch home purchase.  I'll be looking to sell my West Irvine home next month once the renovations are completed on the Tustin Ranch home.  If I don't get what I want for it, I'll rent it out.

 

[notTHEoc]

a

 

[lnc]

It's well documented Atlanta is the most sprawling metro in the country. Open land there is abundant and worth very little so you're basically buying construction. If one suburb gets a bit pricy, they will just clone it and build another suburb 10 miles down the road. Rinse and repeat decade after decade. That's why I expect Atlanta to underperform land-constrained areas along the coasts and why I asked Panda about agglomeration economies. I don't see any for Atlanta. Housing on the coasts and housing in Atlanta are different asset classes and not really comparable IMO.

Totally agree.

There are not many city in the world like Irvine with almost all the neighborhoods are master planned community.  Combines with good weather, near coastal location, high paying jobs, foreign investment, and California's prop 13, I expect Irvine to continue outperform many other cities.

Currently, national housing prices still have not reach pre-housing bubble peak but Irvine already surpass that 18 month ago.  Irvine peak about $400/s.f. during the bubble and down to around $330/s.f. in early 2012. (This is base on my observation on the both new and existing listing prices, might be a little different with actual sales stat).  And now, many home have reach over $500/s.f., that's 20% above the housing bubble peak.  I haven't seem too many cities withstand the downturn of the great housing bubble (which probably is once in a life time event) so well and rebound right back so quickly like Irvine does. 

 

[panda]

Inc and i1,

I am not going argue that land suppy limitation will keep prices up like San Francisco where you have water north, west, and east. If you read MoreKaos's post about Texas, more and more companies are leaving California for southern states for the lower cost of living and pro business environment. The land canvass of Atlanta is similar to that of Dallas/Fort Worth. There is a lot of land up north but inside the perimeter the land is scarce which is why Buckhead is considered to be the Beverly Hills of the South. Here in the Atlanta market, it is the school cluster and private golf course communities, proximity to jobs, affluent demographics that determine the value, appreciation, and demand for real estate. For example, let's say that you owned a home in the border of Uni High and Santa Ana high. If your home was suddenly rezoned to Santa Ana high from Uni High, your property value, demand and rent prices will drop instantly. This is why school clusters are so important in the Atlanta market.

Am I trying to say that real estate is better in Johns Creek vs Irvine... Absolutely not. That is like saying that Indian blue chips stocks are better than American blue chip stocks like GE, Apple, etc. However if you were ask me which stock market I am the most bullish and will bet on in the next 15-20 years... It isn't the U.S. Blue Chips, I would buy and hold the leaders in the Indian banking sector like ICIC Bank and HDFC.

I just want you guys to have an open mind. To say that Atlanta and Dallas has experienced appreciate rates between 3-4% in the past 15 years, does not necessary mean that we will only see these type of appreciation in taking place in the next 15 years. We have many large companies relocating to Atlanta. Mercedes headquarters is now here, Porsche headquarters is now here, NCR is now here etc.

There are only three msa that I know of that has experienced a net positive population growth over a million in the past 10 years and these three MSAs are Dallas, Houston, and Atlanta. Notice the Dallas market between 2006 - 2011 during our last financial and mortgage crisis vs Atlanta and Los Angeles. Last year, Dallas Homes appreciated 9% while homes in LA and Atlanta appreciated 5%. Just like they say about the stock market, whatever happened in the past is not indicative of what will happen in the future.

It's well documented Atlanta is the most sprawling metro in the country. Open land there is abundant and worth very little so you're basically buying construction. If one suburb gets a bit pricy, they will just clone it and build another suburb 10 miles down the road. Rinse and repeat decade after decade. That's why I expect Atlanta to underperform land-constrained areas along the coasts and why I asked Panda about agglomeration economies. I don't see any for Atlanta. Housing on the coasts and housing in Atlanta are different asset classes and not really comparable IMO.

Totally agree.

There are not many city in the world like Irvine with almost all the neighborhoods are master planned community.  Combines with good weather, near coastal location, high paying jobs, foreign investment, and California's prop 13, I expect Irvine to continue outperform many other cities.

Currently, national housing prices still have not reach pre-housing bubble peak but Irvine already surpass that 18 month ago.  Irvine peak about $400/s.f. during the bubble and down to around $330/s.f. in early 2012. (This is base on my observation on the both new and existing listing prices, might be a little different with actual sales stat).  And now, many home have reach over $500/s.f., that's 20% above the housing bubble peak.  I haven't seem too many cities withstand the downturn of the great housing bubble (which probably is once in a life time event) so well and rebound right back so quickly like Irvine does. 

 

[jmoney74]

Indian banks stocks eh?  Tell me more

 

[panda]

Trojan,

Thanks for answering as I think this will be educational for others on TI to learn from. I have couple more questions for you.

$600 and $350 a month are great cash flow numbers, especially in Southern California. If I remember correctly these investment properties were not bought in the last 5 years right but a while back perhaps 15 years ago?

What was your purchase price and what year did you acquire them? What is the combined annual tax including mello roos, and what type of loan and interest rate do you have against these properties? 5 year, 7 year, 30 year fixed? What are the market value of these homes today? How much are you currently renting the HB and Aliso properties out for? On average what is your annual % vacancy rate and your annual maintenance costs?

Thanks,
Panda


Huntington Beach condo has an HOA of $188/mo with an LTV of 60% and the Aliso condo has two HOAs totaling $174/mo with an LTV of 65%.  HB doesn't have MR and the Aliso condo has MR of about $500/yr.  I'm about $600/mo positive cash flow on the HB condo and $350/mo postive cash flow on the Aliso condo and both are B class.  The HB condo is 3-bed and attached and the Aliso condo is 3-bed and detached.  I did sell my Santa Ana condo (C class) earlier this year for a gain of about $50k after spending $40k on a full renovation while cash flowing about $200-$250/mo when it was rented.  The sales of those proceeds went towards my Tustin Ranch home purchase.  I'll be looking to sell my West Irvine home next month once the renovations are completed on the Tustin Ranch home.  If I don't get what I want for it, I'll rent it out.
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[notTHEoc]

a

 

[irvinehomeowner]

In the end, although more expensive, the way of life in SoCal is > than SoGia (which is why it's more expensive).

I'd rather invest in housing in Corona than Johns Creek.

 

[eyephone]

I'd rather invest in housing in Corona than Johns Creek.

I don't know about that

 

[panda]

That is okay. Coming out of IHO's mouth, I was expecting him to say that he rather buy a house and raise his kids in Compton or Nickerson Garden vs buying in Johns Creek. Haters will always hate and that is the fact in life.

IHO, a BIG Shout out "HELLO" from Johns Creek Elementary School.

I'd rather invest in housing in Corona than Johns Creek.

I don't know about that

 

[acpme]

Very different investment strategy.

Adjusting for cost of living, Corona is a value play. Riverside is its own MSA.

Johns Creek is an affluent suburb of Atlanta. 30 minutes from Buckhead, which is the white collar hub of Atlanta metro. However, there are also plenty of other affluent suburbs more infill, which makes Johns Creek a bit out there.

So would you rather invest in the closest suburb just outside the metro area or a more affluent suburb but at the far edges of the metro. Putting it on an apples to apples basis, a good comparison would be whether invest in Yorba Linda or Corona. Considering this is an investment, so your cost basis matters, its a tough call.

 

[irvinehomeowner]

Sorry Panda, it's not just about the Wessayeed... but if I live in SoCal and I had to invest in housing, I would do it somewhere that is relatively close by and has a chance of appreciation.

I haven't been to Corona in years but recently went out there to visit a friend and seeing how they are fixing up the freeway, renovating the Main street area around where the train circle is, building new housing projects, it looks like an area where prices could appreciate. It will be easier to manage due to proximity and even though it's hotter than OC, it's not ATL hot and at least it has some benefits of being close to Vegas and also OC/LA/SD.

To what acpme is saying, I'm not sure if they are still building in Yorba (other than the Black Gold area) whereas I think Corona still has lots of areas to build.

 

[panda]

IHO, you talk about the weather a lot. Call it global warming, but i have been tracking the Irvine weather for the past 10 years and the summers are getting a little hotter every year. Right now it is the hottest month in Hotlanta and the weather in Johns Creek is one give or take 7-8 degrees hotter. It is brown this time of the year in Irvine whereas it is fresh green here in Johns Creek. It is rare that the temperature reaches above a 100 degrees here in Atlanta like Vegas, Dallas, Corona, Phoenix. You talk about the humidity.. I don't see a huge radical difference from my chart above.

I am more data and numbers guys. Numbers speak to me. You claim that Corona has a lot of appreciation potential? Tell me why? What are the diifferent factors that causes one area to appreciate faster than another?

Give me your numbers and data to back up what you are saying. What does the cash flow numbers look like in Corona? What are Cap rates in Corona? What kind of jobs are moving in Corona? What does the demographics look like over there? What is the net population growth in the past 10 years in Corona?

You fail to mention about the air quality in Corona or vulnerability to fire in Corona.



"it looks like an area where prices could appreciate."
"even though it's hotter than OC, it's not ATL hot and at least it has some benefits of being close to Vegas and also OC/LA/SD."

Sorry Panda, it's not just about the Wessayeed... but if I live in SoCal and I had to invest in housing, I would do it somewhere that is relatively close by and has a chance of appreciation.

I haven't been to Corona in years but recently went out there to visit a friend and seeing how they are fixing up the freeway, renovating the Main street area around where the train circle is, building new housing projects, it looks like an area where prices could appreciate. It will be easier to manage due to proximity and even though it's hotter than OC, it's not ATL hot and at least it has some benefits of being close to Vegas and also OC/LA/SD.

To what acpme is saying, I'm not sure if they are still building in Yorba (other than the Black Gold area) whereas I think Corona still has lots of areas to build.

 

[irvinehomeowner]

Heh, I think you are missing the point of location and distance to where I currently live.

Why aren't you buying up homes in other areas than Georgia? Because it's easier for you to manage your renters closer to you.

I think acpme is probably right that Yorba is a better investment than Corona, but if I were looking to buy multiple homes on the cheap, Corona comes to mind only because I was out there recently.

Sorry, I don't have any hard data for you... ain't got no time for that.

 

[panda]

IHO,
I agree with you here. A lot of out-of-state investors fail either because 1) they are chasing returns and speculating on appreciation in a MSA housing market they know nothing about. 2) They partner with the wrong broker/agent or property manager who are dishonest and will take advantage of you. 3) Looking to investing in real estate, but not willing to learn, research, and study the market they are investing in.

If homes in Fullerton, Yorba Linda can cash flow with 20-25% down, there is absolutely no reason why anyone should look outside of state borders. The problem is that you cannot cashflow with any of these parameters anywhere near you. I hope Trojan would chime in here about his rental properties in Aliso and HB with very nice cash flows, but I am thinking he bought these homes 15 years ago shortly after college when the numbers made sense.

If I was living in Irvine today, I would invest out of state as most of the numbers will not make sense within 1 hour radius from where I live. 

Heh, I think you are missing the point of location and distance to where I currently live.

Why aren't you buying up homes in other areas than Georgia? Because it's easier for you to manage your renters closer to you.

I think acpme is probably right that Yorba is a better investment than Corona, but if I were looking to buy multiple homes on the cheap, Corona comes to mind only because I was out there recently.

Sorry, I don't have any hard data for you... ain't got no time for that.