Home Buying in Mountain View>Question Details

Nigel, Home Buyer in Cupertino, CA

700k Investment property (serious buyer)

Asked by Nigel, Cupertino, CA Mon Nov 19, 2012

I'm looking for an investment property in the bay area to rent out. Any advice around what area , property type and things to look out for. Because I'm an out of state buyer I will need a property management firm to help manage the property.

Also wondering what the typical ROI would be.

Thank you

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Michael Cheng’s answer
Nigel,

There are many variables for an investor to consider before I can provide any advice.

First, ROI is a very generic term which has caused much confusion for new investors. For my investors, I provide simple metrics like cash-on-cash returns to give them an idea of how much cash they should expect to pull out each year for every dollar of initial investment. Since appreciation is not dependable, I advocate that investors seek good cash returns.

Second, the cash return target determines where and what you should look for. If you're looking for modest returns of 4-6% per year, then duplexes and 4-plexes make sense. If you'd like to push for leveraged returns of 20% or more, then other properties make more sense, including condos.

If you have $700K cash, then you can get a few good units in the South Bay.
Web Reference: http://www.archershomes.com
2 votes Thank Flag Link Sat Dec 15, 2012
Hi,
what is your minimum ROI requirement?
what is your minimum IRR requirement?
are you paying all cash or what is your down payment %?
are you loan preapproved? learn more here
http://americarealtyonline.com/RealtorWebPage?custompage_id=…

good luck!
BUYER CASH REBATE 50%-60% / SELLER DISCOUNT 50%

Flavio Tejada, MBA-Finance, Realtor, Broker/Owner
(415) 305-2958
Web Reference: http://americarealtyonline.com/
0 votes Thank Flag Link Sun Jan 13, 2013
Assuming the rental income is $2500/month you paid $700,000 for an average 4/2 SFH the roi is 4.2%.
However, there is 1.25% property tax and closing cost. Therefore you are getting ~3% assuming full occupancy. The aggressive landlords charge above going rate loses tenants right after lease expiration.

A better deal is a lower priced home in the 400s. It makes more economic sense but it is harder to acquire since every mom pop investor is interested.

You also need to look at cash flow. Property managers charge 7-10% of rent-full service. Many realtors or property management company (pricer) will handle it for you.
0 votes Thank Flag Link Sat Jan 12, 2013
Hi Nigel

There are many fine areas in the valley.

Prudent to go with either single family homes in areas such as Campbell, Cambrian, or with town homes in areas such as Sunnyvale, Mountain View, Palo Alto, Los Gatos, Saratoga.

Check out: http://www.trulia.com/blog/perry_mistry/2012/12/cambrian_san…

http://bayareahomesandrealestate.blogspot.com/

http://www.trulia.com/blog/perry_mistry/2012/12/cupertino_to…

With regards to the trends and ROI:

http://www.trulia.com/blog/perry_mistry/2012/12/santa_clara_…

Get in touch if you need more market data or home search

Cheers mate.
Perry
Web Reference: http://ruthandperry.com/
0 votes Thank Flag Link Fri Dec 14, 2012
I agree with Bill, if you can find a duplex or four plex that would minimize your vacancy.

Purchasing an investment property is very different than a single family home. The current property financials may not be accurate or reflective of how you would manage the property. I agree with you that you should have a property manager since you would not be able to watch the property from out of state. Some investors will offer a tenant the opportunity to manage for a reduced rent and that can be problematic.

Rentals are in high demand now, and ROI is going to vary by property, how you finance it, and what calculations you use for cash flow. Are you looking for a property to cash flow, or one that will appreciate over time while your tenants pay your mortgage?

As for areas, Santa Clara, parts of San Jose, Milpitas, for starters.
Web Reference: http://www.terrivellios.com
0 votes Thank Flag Link Tue Nov 20, 2012
I strongly advise you to concentrate on a multi family property i.e. Duplex/triplex/4plex close in to one of the major employment centers. This allows you to minimize the inevitable occasional loss of income when tenants move out. With a single family home that is 100% of the rent while empty vs only 50% with a duplex for example.
The hottest rental locations at present are in Santa Clara, San Mateo, Southern Alameda, and Contra Costa Counties.
In order to estimate you ROI I would need to know how you plan to finance the property.
If you are planning to get a mortgage be aware that banks typically require 25% down payment on Investment properties i.e. Rentals and the interest rate will be about 1/2 higher than on an owner occupied property.
A full service manager will probably cost 7 to 9%.
Another issue you should be considering is the tax implications of this venture. For example, should you depreciate the property or not.
Investment Real Estate has allways been a good long term investment strategy but does require that you get fully educated before looking for property.
In my experience the most productive rental properties are NOT in the most desirable parts of town. I don't mean the slums, but the blue collar neighborhoods.
Good luck,
Bill
0 votes Thank Flag Link Tue Nov 20, 2012
I would look at 2-3 bedroom condos in a better school district. You probably will be able to find 2 condos for this price in some places in Bay Area but you won't get the same quality tenants.
Web Reference: http://talisrealestate.com
0 votes Thank Flag Link Mon Nov 19, 2012
Hi Nigel,

I recommend you invest by buying a nice newer construction condo in a central location with resonable HOA for the following reasons:
1. Low vacancy rate
2. Higher annual return for your investment
3. Low maintenance expenses
4. High financial profile of potential tenants, therefore less complicated
5. High demand for rental

I have couple of locations to suggest for you, with your budget you can buy at lease 2 of those.
If you prefer to purchase one single family home I advise to purchase next to good schools where the rental rate is higher and the length of occupancy is longer. Another way to go is to buy a home on a bigger parcel with subdivision potential in the present or the future.
You can contact me via http://www.doritalon.com

Good luck
Dorit
0 votes Thank Flag Link Mon Nov 19, 2012
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