Home Buying in South Natomas>Question Details

Ray, Other/Just Looking in Sacramento, CA

Is this really an investor's market?

Asked by Ray, Sacramento, CA Sun Jun 22, 2008

So I have some money to invest. Some friends have advised me to buy a house or two in the Natomas area. A friend bought a 5 bedroom 4 bathroom 3800 sq ft house in 2004 for about $700,000, and it is now valued at $450,000. He is optimistic that the market will go up in a few years. So with houses at these low prices (I saw a 4 bedroom 3 bath for $250,000 recently), can we reasonably expect the market to rise in the near future? Is this just a normal cyclical fluctuation? Basically, would now be a good time to invest? I know no one can answer these questions with certainty, but any advice would be greatly appreciated.

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Don Tepper’s answer
With the caveats that I don't have a crystal ball and I don't know the Sacramento area at all....

Sue's advice is right on target. Look for something that will cash flow now, but that offers a longer-term possibility of good appreciation. Her point regarding the cashflow analysis (and the opportunity costs) are especially valid.

Longer term, of course, your real profit is going to come from appreciation, not cash flow. But the cash flow will give you a reasonable return on investment now, and the appreciation will give you the major return at your end.

A couple words of caution: First, make sure you know what a property's real value is, not just what the discount might be from a few years ago. There are plenty of houses in Northern Virginia, for example, that were bought for $525,000 in 2006 that are being offered as short sales at $350,000 today...but which really aren't worth any more than $300,000.

Another word of caution. In your question you say your friend is optimistic that the market will go up "in a few years." You ask how much you can expect the market to rise "in the near future."

Few years? Near future?

Again, no one has a crystal ball. But the investors I know in California are buying with the anticipation that they'll be holding the property for 7-10 years. They hope it'll be less of course--maybe 3-4 years. But they're structuring their financing and doing their business models on the assumption it'll take at least 7 years for the market to bottom out, stabilize, then recover. Don't misunderstand: They think it's a fabulous time to invest in real estate. They love it. But they're not expecting big profits "in the near future."

Hope that helps.
3 votes Thank Flag Link Mon Jun 23, 2008
Don Tepper, Real Estate Pro in Fairfax, VA
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The link below is for a web page with beautiful crystal balls for sale from $8 to $200, Including Swarovski Austrian crystal balls and natural crystal balls. Since jewelers have so many crystal balls available why do so many Realtors willingly forgo crystal ball ownership?

I predicted the Sacramento real estate crash in the spring of 2005. I now predict a protracted (as in long drawn out and slow, with some fits and starts and the dead cat bounce. ) recovery. Values and prices will go up over years. Your friends house should be worth $700K again in about 2018, maybe as early as 2016.

I could get more specific, but I would have to dig my Ouija board and Tarot cards out of the closet.
2 votes Thank Flag Link Mon Jun 23, 2008
Jim Walker, Real Estate Pro in Carmichael, CA
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Darin made a good point. I prefer to buy in the winter months, when I think less buyers are out there, and that's not based on specific stats but because our general buying trend is that more families buy in the spring/summer if they have school aged kids to have them settled for the new school year. In Sacramento, with holidays and lots of rain in the winter, there's less people who want to schlep through houses in the rain.....but see, there's always a response that buyers don't like to go out when it's really hot either. That's just my own personal opinion on when I like to buy as an investor....

Sue Archer
Realtor, GRI, ABR, SRES
The Galster Group
(916) 847-9686
Web Reference: http://www.suearcher.com
2 votes Thank Flag Link Mon Jun 23, 2008
Personally I think it's an investor's market, which is why I'm personally looking...but the key is cashflow, not appreciation. And then there's your personal preference on area. Elizabeth had made some good points on selection based on age of home (thus requiring less maintenance). My criteria is a little different- My focus is both cashflow and future resale value (which affects the TYPE of home I'd buy, not what I think the future value will be). I am looking for ones in the immediate area (vs. my properties in Las Vegas), and am now focusing on ones that are NOT traditionally in a rental type neighborhood. In that way, when I decide to sell, I would attract both investors and first time homebuyers. I am looking for homes between 1200-2000 square feet as well because there is a bigger market for that size home than others (in my opinion), no pool or water feature, and a lot size under .20 acres.

As for cash flow, lenders require a minimum of 15% on a loan for non-owner occupied homes. I still calculate the cost of that downpayment into my cashflow analysis. (I would at least be making 2% if I had it sitting in a CD so there IS a cost to that downpayment money in lost opportunity) If you want more detail on analyzing cashflow, just ask. It's outside the scope of your question here.

Sue Archer
Realtor, GRI, ABR, SRES
The Galster Group
(916) 847-9686
Web Reference: http://www.suearcher.com
2 votes Thank Flag Link Mon Jun 23, 2008
Yup, it's tough without a crystal ball. I tell my investors to look for the biggest square footage, the largest number of bedrooms and the newest home. If you can buy that home in Natomas for cash flow with 20% down, and plan to hold it for a while, it doesn't matter too much if the market turns around. Cash flow is cash flow, and homes that require little maintenance are even better.

Natomas is closer to downtown than Elk Grove which, in my mind, makes it a better investment. But as to when the market will turn around and you'll spot the sparkling appreciation rate many hope for, I wouldn't count on any of it. That's not investing in my book, that's speculation.

Investing is cash flow.
2 votes Thank Flag Link Sun Jun 22, 2008
I like the humor Jim, but you don't need a crystal ball or tarot cards. Anybody with a good understanding of macro-economics can make a resonable calculation about future market trends.

Basically, as soon as forclosure velocity and home inventories retrace 25 percent from recent levels, that will be the signal of stablizing home valuations. These indicators coupled with median price/income relativity will signal an uptick in sales overall.

D
1 vote Thank Flag Link Sun Jun 29, 2008
My personal opinion is that this winter will be a great time to invest. We are watching house prices come down further. This summer is the best shot at selling for a little while, but some sellers have refused to come down to where they should be...this winter will be an opprotune time.

Be patient.
1 vote Thank Flag Link Mon Jun 23, 2008
Update on this old thread, I bought 3 houses in late 2008, Flipped one, then rehabbed and rented two out, Bought a fourth one this year and will buy a fifth rental house as soon as that one gets rented.

I put my money where my mouth was.
0 votes Thank Flag Link Mon Jan 25, 2010
Jim Walker, Real Estate Pro in Carmichael, CA
MVP'08
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Get back to the basics. Find the deals that will cash flow for you now. No one truly knows what will happen next. If your property has cash sustainable chas flow you should be OK.
0 votes Thank Flag Link Sun Jan 24, 2010
Right now you can buy a fourplex for only $250,000 when 2-3 years ago these same buildings were purchased over $500,000. You can buy a home at $150,000, fix it and sell it and make a profit. There are so many different kinds of deals right now. With credit line loans so low, interest is low and you can buy property and sell it with cheap interest payments. If you want a home that does not need work, there are homes that are bank owned selling for higher. It depends on how much of a project you are looking for.
Web Reference: http://realtyaid.net
0 votes Thank Flag Link Tue Jul 1, 2008
Two words: "For about" as in approximately. It is still slightly more expensive to own, in most neighborhoods, than it is to rent a similar house. I think it always will be. Enough people are willing to pay a small premium for the security of knowing that they can't be evicted from their home because the landlord owner has decided to sell.

Realistically, if you are thinking of buying a home to live in, you can figure it will cost you a hundred or two more in monthly payment than what you are paying if you are merely trading rental apples for ownership apples.
0 votes Thank Flag Link Mon Jun 30, 2008
Jim Walker, Real Estate Pro in Carmichael, CA
MVP'08
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Sb, I think your market in LA is different than Sacramento. We can cashflow a property now....meaning, they can buy for about what they pay in rent. Not only that but with the FHA programs, they can get in for close to nothing down, vs. paying first month's rent and security when they rent. Maybe it will be even better in a year, maybe not. We're there now where it's worth considering, here in Sacramento.
Web Reference: http://www.suearcher.com
0 votes Thank Flag Link Mon Jun 30, 2008
Short answer...no Wait at least a year and ask that question again the house now valued at 450 will more than likely become 250k....here's a good rule of thumb if it's cheaper to rent in the area it's a bad time to buy...
0 votes Thank Flag Link Mon Jun 30, 2008
What is Boca Raton doing in Sacramento?
0 votes Thank Flag Link Mon Jun 30, 2008
Toda's market is really good to buy/invest, however we can not predict how long it will take to bloom again.
0 votes Thank Flag Link Mon Jun 30, 2008
Yeah, well it's not removed. :( Maybe the Trulia police are eating donuts.
0 votes Thank Flag Link Mon Jun 30, 2008
Elizabeth, If Kallen's spam is removed then my retort won't make any sense.
0 votes Thank Flag Link Mon Jun 30, 2008
Jim Walker, Real Estate Pro in Carmichael, CA
MVP'08
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I reported this posting as spam yesterday, Jim, so I wonder what it's still doing here.
0 votes Thank Flag Link Mon Jun 30, 2008
Kallen's website is based on a hoodwink. Saying that you can buy a property for 20 to 50% under current market value is only possible if youfirst inflate the number (s) you assign to "current market value. "

The truth is that anyone can buy property for 20 to 50% under peak value. One hoodwink is that a website promoter advertises inflated values as being "current market values" and then presents properties that are pirced in line with current values as if they were discounted. Another approach to the hoodwink is to collect auction priced listings that are priced FOR OPENING BID at a huge discount to market value.
While starting bids at auctions may be only a small fraction of market value, there are usually reserve prices that must be met, which prevents deep discounting, the final winning bids are much higher, in many cases at a premium to what a property would sell for through traditional buyer agent showings and negotiations.
0 votes Thank Flag Link Mon Jun 30, 2008
Jim Walker, Real Estate Pro in Carmichael, CA
MVP'08
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The lowest prices in recent history... still very good interest rates...I doubt that it will get much better. Having said that, it also depends on your financing. Loans are difficult at best at the moment...appraisals are getting to be a real road block. If you have an ample down payment, it will help with your appraisal and your loan. Also, be prepared...if you are looking at REO property, many of them have deferred maintenance that you will have to deal with. Be sure to have a good reserve set aside for bringing the home up to normal condition. Good Luck!
0 votes Thank Flag Link Sat Jun 28, 2008
->>>$525,000 in 2006 that are being offered as short sales at $350,000 today...but which really aren't worth any more than $300,000....


Bingo.!


-
0 votes Thank Flag Link Mon Jun 23, 2008
Hi Ray--market timing is very important. Check out the graphs on my website for the Sacramento market specifically. You'll find them on the tab on the left for "Market Condition." I hope this helps.

P.S.--we have seen 50% median price declines in Natomas.
Web Reference: http://SoldByErin.net
0 votes Thank Flag Link Mon Jun 23, 2008
Hi there Ray, I have a great chart that shows CA real estatepricing trends for the last 20 years. If you drop me a line and I will send it to you. Again nobody has a crystal ball and can see into the future. All we can predict is trends. Real Esate does appreciate over time . Not sure how much time you are willing to invest. Ask someone you know who bought their home 10 years ago are they happy they bought and what is their home worth today compared to when they bought it. I would agree with previous answer, be prepared to hold onto it for a few years. Get the largest and highest number of rooms is good. Also pick an area that is in progression. If you an hold onto a property for the lobg term , the better appreciation you should see

Hope this helps
Michael Barron
Realtor/MBA
First Team Real Estate
0 votes Thank Flag Link Sun Jun 22, 2008
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