Home Buying in Sunnyvale>Question Details

Mastershifu, Home Buyer in Sunnyvale, CA

Things to lookout for before buying home for investment purposes.

Asked by Mastershifu, Sunnyvale, CA Fri Jul 6, 2012

We are looking to buy our first home, mainly becuase high rents and need for larger place. The decision was not straightforward, because we might have to relocate(outside US) 3-4 years from now. We want the property to be easily rented out while we are not here and the rent takes care of the mortgage. We are currently grappling with question of whether we should be looking for condo/single family home. The argument against condo is that since we dont plan to live there for long , it might not be wise to go that route as they dont apreciate much. I see that Sfh appreciate better, but would it be easy to find renters willing to pay higher rent as we want the mortgage costs to be covered by the rent? As you can see, though we don't expect positive cash flow, we atleast want the costs to even out while we not here. We are looking in Sunnyvale/Santa Clara area.

Thank you

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Robert Lei’s answer
The safest thing to do is to buy investments properties that you wouldn't mind living in yourself as a primary home. You should keep that flexibility to move into and out of properties to adjust to tax rules e.g. capital gain exclusion (live in as primary home 2 out of the past 5 years rule), etc.

Do you have kids? Will you someday possibly have kids? Many people buy their first home without considering kids, then have to move to a house with a nice yard once they do have kids. Nothing wrong with that. Everyone has to start somewhere.

Also, as I mentioned in another post, higher rent by a hundred or so is not as important as stability (keeping the place rented at all times and not vacant). Families that rent single family homes tend to be more stable than young single people who rent condos who eventually move out to buy their own place. Missing a month of $3000 rent to search for a new tenant is more painful. Even if you find the new tenant right away, that new tenant has to give their old landlord 30 days notice. You almost always end up with at least a partial month's lost rent every time you switch tenants.
0 votes Thank Flag Link Sun Jul 8, 2012
We plan to have kids in the future, but the need for good school district is not immediate, although good school district might make the property easier to rent, especially because we looking for 2+ bedroom house(assuming people renting such a house usually have kids). So, good school district will be good to have if we can find one within our budget of 400000-450000.

@Robert, Thank you for your opinion that you find single family homes have stable tenants, it was not obvious to me. Although the motivation for such people to move might be to go to a different school district or need for their own place. I will keep that in mind during our search.

Thank you all for your inputs!
0 votes Thank Flag Link Tue Jul 17, 2012
You're welcome. I know this all from personal experience.
Flag Wed Jul 18, 2012
Hello Shifu, and thanks for your post.

This is a great question and one, unfortunately, that does not have an easy answer especially since--unlike most investors--you actually plan to live in the home for some time. The reason I bring this up is that homeowner/occupants usually have a set of standards that are different from that of a pure investor. The investor is simply looking for cash flow, while the homeowner occupant is looking for a home that works well with the family, the environment, schools, etc. While these are also factors that the investor will review, it's not as important to an investor as it would be to a person who is planning to live in the home for several years. And you are already seeing some of these same issues crop up in your evaluation of condos versus single family homes or SFH. As a home buyer and occupant, the SFH is naturally more alluring than a condo, but from a purely investment standpoint, the condo or attached product in a planned development would be the investor's choice.

As Michael Cheng and the others have already astutely noted, condominiums have a better overall "payback" on the investment. You will not necessarily see a great ROI on the investment at cash-out, but it will be, far and away, be able to cover the costs of the investment better than that of a single family home. Further, if you're looking for something that is easy to maintain--in other words, you are not having to come here all the time to look at repairs or oversee repairs--then the condominium, again, wins, hands down. Also, as an investor, it's best to purchase homes that are newer so that the maintenance cycle can be delayed--and again, you're likely to find more attached product (planned units in a townhome style or condominiums) that meet those specific requirements.

Most importantly, find a great Realtor to assist you in your search. Good luck!

Grace Morioka
Area Pro Realty-People's Choice
0 votes Thank Flag Link Fri Jul 6, 2012
I specialize in helping property investors around the Sunnyvale/Santa Clara/San Jose area. The trade-offs between condo and SFH are simple in concept.

Generally, condos as a property class are much better suited for cash flow investing. I look for deals where my investors can cover all expenses and generate double-digit net cash flow returns. As for appreciation, the prices of these condos are being driven up along with the increases in cash flows, which are running in the double-digits at the moment.

A SFH is not as well suited for cash flow investing, for a number of reasons, and property investment in general (more maintenance and repairs, etc.). As you suspected, rents on a SFH does not generate much cash flow, if at all. In turn, appreciation is expected to be higher as a compensation, but it's not as predictable.

Beyond those general guidelines, there are multiple other factors at play. There are some condos which are delivering both net cash flows and appreciation in the double digits (20%+). And, just as many SFH which deliver neither cash flow nor appreciation. You really have to pick the right properties.
Web Reference: http://www.archershomes.com
0 votes Thank Flag Link Fri Jul 6, 2012
I would be looking at both condos and single family homes and run the numbers for each property. My main criteria would be bedrooms/bathrooms and school district. Having at least a 3/2 property in a good school district will be rentable to families with kids. This should provide you with better occupancy and will attract better tenants. A condo may also be easier to manage in terms of maintenance as the association will be taking care of things like roof, exterior of the building, landscaping, etc.
0 votes Thank Flag Link Fri Jul 6, 2012

What price range are you thinking about? Depending upon the price range there are many options and possibilities. For example, one might be buying a duplex.

If you want rent to cover the mortgage, that will imply purchasing in a community where you are not paying a premium for the school district. Do you have children that are attending school?

It sounds like your primary objectives are
- easy to rent to
- cover mortgage cost
- increase probability of equity gain by appreciation in value

Not, for example maximum rent $ per dollar cost to buy.

Is that true?

As you can see, many questions required in order to accurately assess your situation. If you prefer, feel free to call me.

Stu Carson
0 votes Thank Flag Link Fri Jul 6, 2012
Your budget is going to dictate what your cash flow will be.

The benefit of a condo/town-home is that the outside of the home is maintained by the association. But the negative is there is a cost involved in that. Also, the renter has to follow the rules of the community.
Appreciation is relavent to the market. In our area condos and town homes are viable for appreciation.

A single family home may be easier to rent out and at a higher price. Then again, you will pay more for the SFH. And you can hire a gardener to insure the grounds are maintained.
Web Reference: http://www.terrivellios.com
0 votes Thank Flag Link Fri Jul 6, 2012
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