Which Irvine village offers best value for investment property?
- Thread starter Cornflakes
- Start date
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Yup. Published today. Timely for TI:
http://luckypeach.com/blood-sausages-of-the-world/
"Basically every place that has ever been concerned with stretching their food supply has produced some form of blood sausage. "
Good question.
My current investment property is outside OC. My pain points with that property is that it has high HOA and its far enough that I can't physically get there for every small issue here and there. I have to either rely on property manager or issue a AHS call, eating away the cashflow. The draw for Irvine would be to do 1031 exchange into a property that is physically nearby, and good potential for appreciation. To make any financial sense of this exchange, the Irvine property must not have significant HOA/MR and decent cap rate.
You can eliminate all of that hassle with a simple broad-based equities index fund with an expense ratio below 0.10%.
And deal with the whimsical volatility that HFT awards you? Not to mention the leverage that RE offers with relatively less volatility.
you mentioned leverage so I assume you would not be buying with cash. Lets assume 850K for a 3/3 sft detached, which is reasonable price. 25% down, 4% rates for investment property. Take 8.3% vacancy, property taxes, insurance, capEx costs, maintenance costs and you will cash flow negative 16400 a year. This is not calculating property management fees. I know, even if you do your own PM, this should be a calculated cost because time is money and money is time. This is how all RE investments should be thought of. So... yes I would take Perspectives recommendations of a volatile stock markets than deal with RE investments in Irvine just by pure numbers. This is without considering the headaches of being a landlord...
YellowFever
New member
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momopi said:
Yup. Published today. Timely for TI:
http://luckypeach.com/blood-sausages-of-the-world/
"Basically every place that has ever been concerned with stretching their food supply has produced some form of blood sausage. "
Perspective
Well-known member
"I'm 100% positive they are fudging their taxes when it comes to reporting rental income. Unethical? sure. Immoral?"
You forgot, "illegal and punishable by fines and imprisonment."
You forgot, "illegal and punishable by fines and imprisonment."
usctrojancpa
Well-known member
Best Villages would be Woodbridge, West Irvine, and Northwood in terms of a return.
Cornflakes
Active member
momopi said:
Good question.
My current investment property is outside OC. My pain points with that property is that it has high HOA and its far enough that I can't physically get there for every small issue here and there. I have to either rely on property manager or issue a AHS call, eating away the cashflow. The draw for Irvine would be to do 1031 exchange into a property that is physically nearby, and good potential for appreciation. To make any financial sense of this exchange, the Irvine property must not have significant HOA/MR and decent cap rate.
paydawg
Active member
By my back-of-the-envelope estimates, if you anticipate house prices to increase by about 1.5% a year, the ROI on renting out a property can be positive. It might not necessarily CASH FLOW positive because part of the economic equation would be the house value appreciation. This includes the newer neighborhoods like EW, CV, SG, WB where the HOA < $150/month and the MR is <$4K.
Assuming you can rent out a new detached condo, 3bdrm/3bath for about $3400/month. And the following costs: (1) House is $800K, $300K down and $500K loan with a 3.625% 30yr fixed (2) Property tax/MR after tax deduction about $700/month (3) HOA at $130month and (4) opportunity cost from not investing the $300K down with a 5% return. I'm guessing the property would be cash flow negative by about $9500/yr (~1.2% of the 800k house price).
Of course, I'm assuming you have a renter for all 12 months of the year.
Assuming you can rent out a new detached condo, 3bdrm/3bath for about $3400/month. And the following costs: (1) House is $800K, $300K down and $500K loan with a 3.625% 30yr fixed (2) Property tax/MR after tax deduction about $700/month (3) HOA at $130month and (4) opportunity cost from not investing the $300K down with a 5% return. I'm guessing the property would be cash flow negative by about $9500/yr (~1.2% of the 800k house price).
Of course, I'm assuming you have a renter for all 12 months of the year.
Perspective
Well-known member
Cornflakes said:
You can eliminate all of that hassle with a simple broad-based equities index fund with an expense ratio below 0.10%.
Cornflakes
Active member
Thanks PD for the calc.
Yet another validation that Irvine numbers don't work out. My current property is valued at $670K with 3400 rent. HOS is lightly higher but there is no MR. Even if I have to spend $100 bucks every paycheck to send handyman to take care of whatever needs to be taken care of, it would be less than MR.
May be I look outside Irvine but still within 20 miles where there is zero HOA and MR but gives me comparable cap rate.
Yet another validation that Irvine numbers don't work out. My current property is valued at $670K with 3400 rent. HOS is lightly higher but there is no MR. Even if I have to spend $100 bucks every paycheck to send handyman to take care of whatever needs to be taken care of, it would be less than MR.
May be I look outside Irvine but still within 20 miles where there is zero HOA and MR but gives me comparable cap rate.
Cornflakes
Active member
Perspective said:
And deal with the whimsical volatility that HFT awards you? Not to mention the leverage that RE offers with relatively less volatility.
Cornflakes said:
you mentioned leverage so I assume you would not be buying with cash. Lets assume 850K for a 3/3 sft detached, which is reasonable price. 25% down, 4% rates for investment property. Take 8.3% vacancy, property taxes, insurance, capEx costs, maintenance costs and you will cash flow negative 16400 a year. This is not calculating property management fees. I know, even if you do your own PM, this should be a calculated cost because time is money and money is time. This is how all RE investments should be thought of. So... yes I would take Perspectives recommendations of a volatile stock markets than deal with RE investments in Irvine just by pure numbers. This is without considering the headaches of being a landlord...
Perspective
Well-known member
I think investing in real estate is great for folks whose household income is near the median +/- 50%. This can provide a path through much sweat equity to increasing their net worth to a level un-achievable otherwise.
For folks well above the median income, already working many more than 40 hours weekly, investing in real estate seems to just distract them from their primary wealth builder - their professions - and creates a major hassle in their lives.
For folks well above the median income, already working many more than 40 hours weekly, investing in real estate seems to just distract them from their primary wealth builder - their professions - and creates a major hassle in their lives.
Cornflakes
Active member
Good to see you are back hello.
Lanelgn
Member
When I making any invastment decision, I not really that care about the +or - cash flow.
I am looking if this area has great potential in the future.
I know the cap rate in Manhattan and San Jose are low when comparing to Atlanta and Houston....I will still choice the "potential".
I am looking if this area has great potential in the future.
I know the cap rate in Manhattan and San Jose are low when comparing to Atlanta and Houston....I will still choice the "potential".
panda
Well-known member
Garren,
The most important aspect of real estate investing is first cash flow, than appreciation. Appreciation will build wealth, but cash flow will allow you to hold the property with 20% down payment with 80% leverage. Leverage, amortization, and the tax benefits is what makes real estate investing attractive.
Purely investing on appreciation along is speculation. To accurately predict the future of real estate prices and to find the right investing opportunities, one must study the demographics profiles, population growth, inventory levels, job growth / unemployment numbers, school clusters, macro economic trends, and the HI ratio (median household income / median home price.
Below you can see the how all the MSA cities have performed until Dec 31, 2015 which was posted on the Real Estate Analysis thread. Imagine that each of the MSA cities are blue clip fortune 500 company stocks.:
Below is the performance of the MSA cities below. The top performing MSA cities are Denver (11.6% above previous peak value), Dallas (10.2% above previous peak value), Portland (2% above previous peak value), and Boston (0.2% above previous peak value). San Francisco is very close to its previous peak value at -0.2%, and Charlotte is also very close to its previous peak value at -0.4%.
Below you can see the performance of the various MSA cities. At rank #8, Atlanta is currently 7.9% below the previous peak on July 2007. Los Angeles ranks #12, which is currently 12.2% below its previous peak. With job data, uemployment, and the perferomance of Russell, we should be able to see some correlation to predict where the real estate values are headed in Los Angeles.
Comparison of Case Shiller Data for Atlanta, Los Angeles, and S&P 500.
The most important aspect of real estate investing is first cash flow, than appreciation. Appreciation will build wealth, but cash flow will allow you to hold the property with 20% down payment with 80% leverage. Leverage, amortization, and the tax benefits is what makes real estate investing attractive.
Purely investing on appreciation along is speculation. To accurately predict the future of real estate prices and to find the right investing opportunities, one must study the demographics profiles, population growth, inventory levels, job growth / unemployment numbers, school clusters, macro economic trends, and the HI ratio (median household income / median home price.
Below you can see the how all the MSA cities have performed until Dec 31, 2015 which was posted on the Real Estate Analysis thread. Imagine that each of the MSA cities are blue clip fortune 500 company stocks.:
Below is the performance of the MSA cities below. The top performing MSA cities are Denver (11.6% above previous peak value), Dallas (10.2% above previous peak value), Portland (2% above previous peak value), and Boston (0.2% above previous peak value). San Francisco is very close to its previous peak value at -0.2%, and Charlotte is also very close to its previous peak value at -0.4%.
Below you can see the performance of the various MSA cities. At rank #8, Atlanta is currently 7.9% below the previous peak on July 2007. Los Angeles ranks #12, which is currently 12.2% below its previous peak. With job data, uemployment, and the perferomance of Russell, we should be able to see some correlation to predict where the real estate values are headed in Los Angeles.
Comparison of Case Shiller Data for Atlanta, Los Angeles, and S&P 500.