Friday, September 30, 2011

Fast Facts of California Housing Market - August 2011

Calif. median home price: $297,060
* Highest by region/county: Marin: $806,550
* Lowest by region/county: Siskiyou County: $116,670

Calif. Pending Home Sales Index: 125.3
* an increase of 12.6 percent compared with a prior year

Calif. Traditional Housing Affordability Index: 51 percent as of Q2

Mortgage rates: Week ending 9/29/2011
30-yr. fixed: 4.01% (Fees/points: 0.7% )
15-yr. fixed: 3.28% (Fees/points: 0.7%)
1-yr. adjustable: 2.83% (Fees/points: 0.6%)

Sources: California Association of Realtors and Freddi Mac

6 Mistakes Real Estate Investors Make

6 Common Mistakes Investors Make
Are you a seasoned investor? Or just a starter? Investing in real estate right now can be surprisingly profitable, IF everything goes as planned…

Here is the landscape of the current market. Rents are increasing in many areas. There will be more properties coming on the market according to the Housing Inventory in Major Markets published by the Wall Street Journal in March 2011. The Obama administration is likely to push for proposals to convert thousands of government-owned foreclosures into rental properties to help boost falling home prices.

Are there great opportunities here? Absolutely! But before you start scouring for deals, keep in mind that owning rental properties is can be challenging and post certain risks, like all investments do.  Knowledge is power!  If your intent is to invest, then knowing these pitfalls allows you narrow down your choices to a more qualified and manageable size enabling you to invest smarter:

Mistake 1: Confusing a cheap deal for a good deal.

While it may be true that you can buy some homes for a relatively low price, but that doesn't mean you can rent them out. Homes in deserted subdivisions aren't any more appealing to renters than they are to buyers. The same is true for less-attractive properties or those in less-desirable school districts.

When it comes judging the neighborhoods, you want to look for a neighborhood with amenities that can generate long-term value, like the proximity and variety of retail stores, low crime rates, parks, distinctive architecture, and good public schools.

Mistake 2: Overlooking key costs.

Knowing the potential rent isn't enough. Before you buy a property, you should also factor in closing costs, the costs to repair and maintain, and holding costs like property tax, insurance, taxation on your rental income.

Use this calculator to help determine your potential internal rate of return (IRR) on a property. But still, you should also consult your financial planner or accountant for other factors that may affect your investment decisions.

Mistake 3: Forgetting that time is money.

“Time is money!” You lose money when your property is empty, whether you are painting it or between tenants. You also lose if you buy in the fall and can't replace the roof until spring. You may be better off accepting a lower rent than waiting for a higher-paying tenant.

Mistake 4: Not knowing the local rental laws

Before you buy into any area, make sure you are familiar with the local rental laws. Is there rent control? If so, how would that impact your profitability in the long term? What are the rental ordinances and regulations? What is the eviction process? Evicting tenants can be a painful legal process that takes weeks or months and will cost you some attorney fee. You will need to screen prospective tenants carefully in the beginning of the process.

Mistake 5: Underestimating repair costs.

You may need to make repairs and/or enhancements to the property everytime there is a turnover. For example, carpet in rental homes typically needed to be replaced every five years and you may have to repaint after every tenant. It is recommended to set aside about six months of expenses so that you will have funds if a major repair is needed.

Mistake 6: Assuming that owning a rental is the same as owning a home.

You might put up with flaws in a home that a renter wouldn't tolerate. Be prepared to get calls from your tenants and provide repairs within a reasonable timeframe. A property manager can handle most of the headaches for a fee.

Equally important, having a good team of trusted professional working for you is winning half the battle when it comes to investing. Talk to a real estate professional about the market price and trends, potential rental income and exit strategy if you plan to sell in the future. Talk a certified public accountant about taxation impacts and/or benefits. Talk to a property manager about their services that allow you to have an ease of mind. And a real estate lawyer about local tenant laws.

In a nutshell, owning real estate investments is a not a decision to be taken lightly. Every investment comes with risks and rewards. By understanding the intricacies behind each investment, you are more equipped to make an informed decision.

Resource: The Wall Street Journal - "Six Mistakes Housing Investors Make", 9-10-2011.