Property Q&A in San Jose>Question Details

Debbie, Home Buyer in San Jose, CA

What do you think about this property as an investment? Would it be easy to rent? Will it appreciate?

Asked by Debbie, San Jose, CA Sat Jan 3, 2009

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This question is about this property: http://www.trulia.com/property/1072804768-611-N-17th-St-San-…

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Hi again Debbie,

I'll shoot through your questions, kind of fast, but you can email me for any clarifications.

You say "Price too high." -- are you working with an agent who has given you recent comps? you need to look through those and evaluate your fair price. Don't rely on seller or sellers agent.

Foreclosed properties as is -- in buying any property you should hire inspectors, contractors etc to point out what may or does need to be fixed. For a few hundred dollars you can get a home warranty which may help, but never rely on this instead of inspections.

Strong rental market -- limited property in bay area and high home prices will in general keep rental market strong. Your pricing is important too. craigslist is a great tool to evaluate current conditions.

Appliances-- a couple ways to look at this. No appliances equals no repair costs, but you may have to lower your rent to compete with other nearby rentals. If you have washer dryer hookups you could let renters purchase or bring their own. They could bring an old set and if it breaks you don't have to repair. If a tenant leaves behind an old set make sure to either take out or tell (in writing) new tenant they are responsible to replace if they break. Garbage disposal not too expensive and easy enough to install. You could also take out some of the kitchen cabinets and sneak a dishwasher in there fairly easily.(measure counter height first to be sure they are standard) Then you might have to add some extra cabinet space elsewhere. If you make your tenants happy and they have everything they need they will be less likely to move. A lost months rent pays for aplliances.

You probably already have, but run your numbers to make sure you have enough for repairs, taxes, mortgage, vacancies etc. You don't have to hire a manager, but you do need to treat it as a business. It isn't easy money, but in the long run, you can do well with it and its a smart decision to pursue.

Glen
Broker
http://www.maui4rent.com
http://www.coastalrentalslp.com
0 votes Thank Flag Link Sun Jan 4, 2009
Hi Debbie,

Crunch the numbers - you need a 30%+ down to just break even, which means the only way you'll make money is if the market comes back really strong. It's a beautiful place - probably sell to someone that wants to owner occupy it.

I have one on S 10th for $350K. It's closer to SJSU - where student demand is high - and it's almost half the price. It'll cash flow with 20% down but probably need 30% down just to get a non owner occupied loan.

If you are going to be a landlord you also need to be a member of tri-county apartment association in addition to finding an excellent property manager.

If you treat it as a business, you'll make money.

Good Luck!

Rebekah
0 votes Thank Flag Link Sun Jan 4, 2009
Hi Debbie, looks like a really nice place. Have you been preapproved for a loan? In today's lending market, for non-owner occupied property, you are going to need good credit report along with a 25-30% down payment. If you have that, good for you! Check Craigslist for 2 bedroom/1 bath rentals in downtown San Jose and that will give you a good idea of what you can get for rent at this duplex. If the front unit is larger, you may get more rent for that one. Also, check the terms of the current tenants in the back unit. Do they have a lease? Are they month-to-month? Whatever terms of the existing tenants, is what you will "inherit" upon taking new ownership of the property. There are a lot of considerations and things you should look out for, especially if you have never been a landlord before. Have you? Nolo Press is an excellent resource for landlords. Check out this website that might be helpful to you:
http://tinylink.com/?F170Irc1fu
I shortened the URL through Tinylink, but that will take you Nolo Press landlord section.
As far as an investment and will it appreciate? If I had a crystal ball, I'd be rich :-) Most real estate in the Bay Area has a history of being a good investment over the long term. Also consider that when selling an investment property you are going to have to pay capital gains taxes. That is unless you do a 1031 exchange (like kind) for another investment property.
0 votes Thank Flag Link Sun Jan 4, 2009
It is a good rental area, that is certain. Here are my responses:

-Washer Dryer is a must

-I would look for a duplex that has room for a dishwasher. Now, in this market, you can rent without a dishwasher without any problem. However, if the rental market shifts, you want to emerge as a top option. With no room for dishwashers, I would see this as a flaw. My brother is a 25-year broker who only purchases rental properties and rents them, and he always looks for a dishwasher or installs one. He feels you can get the best market rent when you have one. So not necessary, but a good idea.

The garbage disposal is relatively low cost (under $100) so I would not base an investment decision on this.

As for foreclosures, you would still conduct inspections so you would know the nature of the problems that exist. You may be able to find one that has little work needed -- I would not assume that because the seller could not afford the payments the place is a total wreck! Now, some are!

And finally, whether you buy a nicely maintained property or a foreclosure, you will still want to invest around
$500 to $1,000 in your inspections. These include pest (termite) and property. The property inspection shows what is working, and what is not. These are done prior to release of contingencies in most purchases, so you want to think about planning for the inspections.

Those are some of my thoughts! Feel free to call to chat further, 408-416-7090.

Erica Nelson
0 votes Thank Flag Link Sun Jan 4, 2009
The property is in really good condition, but we also believe the price is much too high. We don't want to do buy a fixer-upper as we live in/own another house and that keeps us quite busy. We're also concerned about foreclosed or bank-owned properties since we hear you have to buy them as-is. We are not fixed on this area, but it's the nicest duplex we've seen in this general range. The street looks nice and Glen, it sounds like you think the rental market is strong in this area?

This is our first rental property. Can you provide your thoughts on how important the following are to renters: a) washer/dryer - there is space for them but we would need to purchase--another expense! ; b) garbage disposal - we would need to install; c) dishwasher -- no room for one.

Sorry, lots of questions here, but I appreciate your insight!
0 votes Thank Flag Link Sun Jan 4, 2009
While the photos of this home show a well-maintained property, the days on market (100) point to the price still being high for the market. Also the rents are not showing up on the MLS, so it is not clear what each would rent for.

You can find single family homes for $250,000 and there are foreclosed duplexes within a few blocks of this one that are selling in the $350,000 range. So my take would be that this is not the strongest investment opportunity available in downtown today.

At close to $600,000 in this neighborhood, I would not anticipate appreciation initially. You would be safer with a lower priced duplex if immediate appreciation, or short term appreciation, is a key component of your decision.

You may want to focus on duplexes where the ratio of rent - to - purchase price are stronger. You also may want to look at your own ability to "fix" and upgrade. Typically it is a good idea to purchase homes that are not quite as well remodeled as these and manage your own upgrades, getting in at one of the lowest prices in the area instead of highest. This will give you the most ease of liquidity (that is ability to sell) down the line, should you wish to do so.

If you are strongly interested in this property, or others like it, the next step is to contact the listing agent (or have an agent do this for you) and ask what the rents are presently. Without this detail is it tough to make a sound investment decision.

Good luck!

Erica Nelson http://www.EricaNelsonEstates.com
ericanelsonestates@gmail.com
408-416-7090
Web Reference: http://www.ericanelsonestates.com
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0 votes Thank Flag Link Sun Jan 4, 2009
Rents are still very strong. Have you seen the inside? What kind of shape is it in?

Glen Mitchell
mitchellinvestmentsandrealty@gmail.com
0 votes Thank Flag Link Sat Jan 3, 2009
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