We Specialize In These SoCal Area Communities

Alhambra - Arcadia - Duarte - Azusa - Pasadena - West Covina - Chino Hills - Diamond Bar - Glendora - Fullerton - Rancho Cucamonga - Brea - Walnut

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7 Reasons Why Buying an Investment Property Is a Smart Move

Today I’m going over the top seven reasons why now is the best time to take advantage of an investment property.

In my last couple videos, we went over the market conditions to see if we are headed for a crash in next couple years. The answer is no. We are going to see a healthy market with a steady 5% to 6% appreciation instead. With that in mind, I want to share with you how to increase your wealth by investing in real estate.

There are seven reasons why now is the best time to take advantage of an investment property. 

1. Leverage. By putting the 25% down for an investment property, you have one-to-four leverage, or 25% controlling 100%.

2. Tax shelter.
You have 27.5 years to depreciate the value of the building. Let’s say it’s a $1 million purchase and the building value is 80%. That 80% value divided by the 27.5 years gives you a $29,000 write-off. Even though the building is breaking even, that $29,000 write off offsets your other income.

3. Cash flow. With most of the properties you can buy right now, you will see 5% to 6% on the first year’s return. The next year, with a rent increase, you’ll see more.

"Now is a great time to purchase an investment property."

4. Appreciation. Historically we have an annual appreciation rate of 6%. That means your $1 million building will be worth $60,000 more next year.

5. Inflation protection. This goes hand in hand with appreciation. The average depreciation has been 6% in California, while the average inflation has been 3% nationwide, so that’s great protection of your earnings and assets.

6. Mortgage paydown.
The mortgage paydown is roughly 1.5% every year, and that will give you back the principle. You’ll pay that 1.5% each year for the first 10 years and it will add to your equity.

7. Tax deferred exchange. In real estate, you can protect your gains and move it to another property without having to pay a tax. 

If you have any questions about investing in real estate or if you are looking to buy or sell a home, feel free to give me a call or send me an email. I look forward to hearing from you.

A Great Rent-to-Own Program in Southern California

There's a great rent-to-own program available in the Southern California market that's new, innovative, and a great option for many different types of buyers and renters.

As a result of the housing crisis, there was a program built to help homeowners who lost their homes to foreclosures, short sales, and bankruptcy. Currently, this program has a good application for upwardly mobile people, as well as anyone looking to rent in the Southern California market. This is mostly because we're seeing very few opportunities in the Southern California market where people can rent a property with the option to purchase it at a later time.

This program allows you to use the whole MLS and have all homes for sale at your disposal. It's a great option for people who are relocating, new to the area, people unsure of how long they'll be in the area, and millennials who like to be a lot more mobile. This option lets you try out the location and see if you want to stay longer.

"It's a great option for anyone relocating to our area."

The program lets you rent with an option to buy and is backed by a big financial company. You can use the whole MLS to find a home or area you like, then engage a real estate agent to make an offer for you on behalf of the company. Then, the company buys the home of your choice in cash. After they buy it and go through the regular escrow period, you are then renting the property once it closes.

You'll sign an agreement in regards to the program, and once the property is purchased, you'll make a deposit for the rent when the down payment is made on the home. You then move in as a renter, but the good news is that you're not obligated to purchase the home after one year if you don't like it.

You can option up to five years as well. This makes the program especially appealing to upwardly mobile people because you can move after one year if you get a new job, for example.

It's a great program that I'd love to tell you more about. If you have any questions, don't hesitate to give me a call or send me an email. Until then, stay safe and stay happy!

Are We Really Headed for Another Market Crash?

Though many are worried about another potential market crash happening in 2017, the numbers say otherwise.

Is our market headed for another crash in 2017? There are six different factors we must look at along with the statistics they reveal to answer that question:
  1. Number of months of unsold inventory
  2. The number of trustee sales
  3. The amount of new home construction
  4. The sales of existing homes
  5. The unemployment rate
  6. Affordability of homes
What do the numbers tells us about these different factors? How do they compare with the last downturns our market experienced in 1989 and 2008 and the years that led up to them?

Let’s start with affordability. Affordability is based on the standard 20% down payment at the median home price, which is $435,000 here in California. At the time of the 1989 crash, our affordability index was at 17%. In 2006, it was at 11%. Right now, our affordability index sits at at 30%.

As far as the number of months of unsold inventory goes—or however many months it takes to sell a home—for the last two years we’ve been hovering around two months. In 2015, the average days on market was 61 days. In 2016, it was 58 days. At the beginning of this year, we had 1.5 months of unsold inventory. From 1989 to 1991, the number of months of unsold inventory jumped from 5 months to 13 months. From 2005 to 2008, it jumped from 2.5 months to nine months. As you can see, in contrast to these last two eras, our inventory is decreasing—not increasing. 

The number of trustee sales has to increase drastically to produce a downturn. From 1989 to 1992, there was a 400% increase in the number of trustee sales. From 2006 to 2008, there was a 1,600% increase. From 2015 to 2016, the number of trustee sales decreased 20%.

New home construction is always a good barometer for our market. We need new home construction—not excessively, but intuitively. This is because it creates more jobs and helps drive our economy. From 1989 to 1991, the number of new home construction units decreased from 161,000 to 77,000. From 2005 to 2008, the number of units decreased from 155,000 to 33,000. Right now, we have roughly 50,000 units being built in California. The number of permit pullouts for new build construction has remained steady at around 40,000 the last few years, which is the lowest it’s been the last 40 years. 

What about the sales of existing homes? Is that number declining or not? In 2015 and 2016, our sales of existing homes stayed flat. Prices have increased somewhat, but the number of sales has stayed flat. From 1989 to 1991, the number of homes sold in California decreased from 423,000 to 330,000. From 2005 to 2007, it decreased from 610,000 to 350,000. For the last five or six years, we’ve been hovering around 400,000 units being sold. 

Lastly, let’s examine the unemployment rate. From 1989 to 1991, the unemployment rate rose from 5% to 8.4%. In 2006, it jumped from 4.9% to 9.3%. Right now, our unemployment rate is 4.8%

"You will not see a market crash in 2017 or 2018."

Based on these factors and the statistics they reveal, you will not see a market crash in 2017 or 2018. You might see an adjustment, but nothing crazy. You can expect a 4% price appreciation, and we’re still in a good market for rentals because the homeownership rate will definitely not increase. Right now we’re at 63%, and we’re predicted to drop another few percentage points in the next 10 years. 

If you have any questions about our market, please don’t hesitate to call me. I’d love to have a conversation with you!