My opinion of question #3: I think the bottom of the market has been reached. However, since the reporting of reported closed sales is published in the mainstream media weeks and sometimes months after the offers are written and negotiated, you will see reports that the market is continuing to slide because values continued to drop as we ended the year and began this one. Volume of sales has already started to pick up, and I do expect it will pick up in volume a little bit more in the sprig time. Prices however will be not be shooting up this year. I venture this opinion because I believe there is a lot of inventory that will come on to the market as prices stabilize, keeping supply adequate for the increased demand. The long term hold is the best strategy. I vote "stabilizing:
Question #2: You answered "easiest to rent out" yourself. Good schools, nicely kept nieghborhoods. These are going to be the towns and zip codes where the median prices exceed $200,000. These are the towns and neighborhoods where the investor competes with owner occupant buyers for the clean desirable houses. Funny thing....if you pay $300,000 for a 1500 square foot 3 bedroom 2 bath house with a two car garage. you cannot possibly collect as much rent as you can collect if you buy two $150,000 houses of the same size and attributes in a less desirable neighborhood.
The easiest house to rent out would be a $300K house as I described in a better neighborhood of a town like Roseville, Rocklin, Elk Grove, Mather or Sacto 95864, 95825, or 95821 - Maybe get about $1800 a month for it.
But if you do that, don't be jealous of local guys like me who braves the termites, the dry rot, the weeds, and peeling paint in the low income neighborhood, buys 4 houses for the $300K in 95838, fixes them, and collects twice as much rent in the poorer neighborhood.
It is OK for you to make the conscious decision to make the trade off of a lower return on your investment in exchange for peace of mind about the location and condition of the property, and lower repair and maintenance costs.
Answering question #1 would require some sort of survey to get you more than anecdotal information from individual agents, teams, and firms. The MLS does not have a field to search the owner occupancy status of recent sales. Realist county property tax site does have an owner occupant field so the answer could be obtained with a few hours of research. - If someone has the time to do that I think the answer would be interesting.
I suspect that it would be the low income zip codes where an investor can purchase with cash and earn 7 to 9% cash on cash. Or leverage with 25% or more down and have approximately the same percentage return on the cash invested.
The type of investment that I would reccomend for you (emphasizing clean, safe, desirable neighborhood as more important than profit) would have only about a 4 to 5% return for a cash on cash investor and by leveraging with 20 to 25% you would earn you only about 1 to 2 % return** on your down payment. You would however enjoy other benefits such as future appreciation, reduction of principal balance on your mortgage balance, income tax benefits. etcetera.
In my opinion, the appreciation alone on a five year + hold strategy justifies the nice neighborhood purchase tactic , even if cash flow is only break even.
**The reason for this is that if you pay the bank 6% for your mortgaqge loan, and you are earning only 5% on the money you borrow, then that extra percent of interest expense comes out of your profit. Leveraging only increases your profit when your return on the borrowed money exceeds the cost of the borrowed money.
If you are willing to settle for a break even or small negative cash flow projection, the nice neighborhood strategy works well. Do not be taken in by any dreamer who claims you can buy into one of these middle to high end neighborhoods with only 20% down and still have a reliable positve cash flow. Someone who tells you it can be done, would be sweet talking you, telling you what you want to hear, instead of the truth, in order to be chosen as your agent. They would have to switch the story to explain the income tax benefits, principal accumulation and future appreciation to justify the negative cash flow after you became a client.
Like I said, these benefits can justify the investment, but you need to know this coming through the front door.
Use this site for to get general information for housing trends, crime statistics, schools ect.. all based on county records. Can be broken into neighborhoods or zip codes to compare with rental trend info.
Check out the hud homes for sale....http://hud1.towerauction.net/CA.htm
http://reosearch.fanniemae.com/reosearch/r/CA/elk%20grove/-/-/-/- ..Fannie Mae homes
http://bankofamerica.reo.com/search/propertysearchresults.as ...Bank of America REOs for Sacramento county.
All found using the Bank REO sites.....http://www.mortgagenewsdaily.com/wiki/REO_Database_List.asp
Hope this helps, Dunes
I live in Bay Area, but I don't have the capacity and time to handle any problem that might happen with the property and tenant. So I'm willing to pay a little extra just to minimize those risks and make my life easier, especially when I plan to hold it for long term. That's why I want the neighborhood to be safe, clean and desirable, looks like there might be some opportunities that fit my wishlist.
A few more questions:
1. Which areas have been bought mostly by investor as rental properties in the past 12 months?
2. Which areas are easier to rent out?
3. Are the prices still coming down? or stabilizing?
It is a great time to buy investment property!
The price of your potential rental is going to dictate your cash flow, as I am sure you know. So a good rule of thumb in our area is to keep the purchase price under $150k. I would also note that you should expect to put 25% down for an investment property in today's market. Recent guideline changes added more fees to investor loans, forcing more down payment from the borrower.
Todd and I have been running Investor Bus Tours in the Sacramento area for about a year now! In regards to Elk Grove... I never really was a fan of Elk Grove for investment property. Recently, we toured several homes in the Elk Grove area and I think I may have a different perspective now that the market has continued to deterate.
I think Elk Grove is a very desirable area to live in with every amenity one would need. Maybe I am partial because I live here!
Now that you can get a home in our area for around 100-125k... they go quick though... the numbers really start to make sense. Because the area is so desirable, my research shows that Elk Grove has a slightly elevated rent than other nearby areas.
Once resource I can give you is to do some research on http://www.Zilpy.com. This website will give you the cost of rent per square feet by zip code. You can compare that to the cost of square feet in acquisition to help you pin point which zip code provides you a better return.
A good investor friendly Realtor can assist you with the analysis. Please, let me know if you would like a referral.
If you are ever in the area and want to join us on our next Investor Bus Tour, just let me know. This way you can get a sample of the best rental areas... as far as return on investment... so you can decide where you want to target you efforts.
Your price range after that will determine where you can look for your investment. My recommendation to you if you are serious is to get connected with a Realtor that works with investors and who is also a real estate investor. If you are not quite ready to purchase now, then you can search the zip codes that Jim suggested on Realtor.com. You'll notice a link to the area demographics on that website that will answer a lot of the questions you have along with some questions investors should ask. You can then search on the school district for that home and do further research on the school district.
As far as Elk Grove is concerned for investment, I don't like the fact that there are 72 vacant rentals in Elk Grove as compared to 10 in Granite Bay. If you don't mind waiting for awhile to get your investment rented, then Elk Grove would be okay for you. Your maximum purchase price will be a very strong determining factor as to where you "can" purchase.
Good luck. Happy hunting.
In an investment property. you don't live in it yourself and you are not sending your own children to school from your rental address - Most investors will ultimately choose good positive numbers over good schools and nice middle class values. You don't have to become a slumlord to invest in low priced properties. Poor people need clean safe rental units as much as middle class people do. Investors who serve the needs of the poor are rewarded with higher returns percentage-wise on their cash investment.
Though the cash cows of 95815, 95838, and 95820 may be too scary for you. Zips of 95660, 96841, 95842, 95833 and 85834 can cash flow positive with 20% to 25% down
Elk Grove could be considered if you were looking for more newer homes, that are larger square footage. Natomas area also has the newer homes so both areas were hit harder from a foreclosure market standpoint. Then you have North Highlands with homes under $100,000 purchase but they're older, more established neighborhoods and has a higher concentration of people that rent homes.
I think there's more discussion needed as to what else you consider important in your selection because there's so many to choose from.
But that was just referring to bank owned homes. I have been even more successful in the last month in obtaining short sale homes for my clients. YES! If you read many of my earlier responses I recommended staying away from short sales but banks are now responding, and my system is working....and I have little to no competition in my offers.....but that's another story.
Jmail, now is the best time to determine what area(s) you want to focus on because we are still anticipating the release of a large onslought of bank owned homes to the market in the next month or two. Learning the specific area market now will have you prepared to respond quickly when those homes are released.
Good luck and have fun!