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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Locating a Great Investment Property

When looking for your next investment property, how do you know you’re going to turn a profit? The best way to determine that is by using the 1% Rule.

When looking for a great rental property that you can purchase as an investment, there’s a tried and true trick to ensuring that you’ll get great returns. Before I dive into that, I wanted to help you get familiar with a few terms that we used in the investment world:

Capitalization Rate: The rate of return on a real estate investment property based on the income that the property is expected to generate, and is determined by taking the Net Operating Income / Current Market Value.

Cash Flow: Also called cash-on-cash, your cash flow is usually the proceeds from rent payments after you’ve subtracted any monthly expenses. This cash flow is the return on the money you put in as down payment.

Return On Investment: Every year you pay back 1.5% of your principal balance and add onto your equity.

"A good way to identify a great investment property is to look at the value of the property and use the 1% Rule."

A good way to identify a great investment property is to look at the value of the property and use the 1% Rule. For example, if a $500,000 property is generating $5,000 monthly in profit, or 1% of the total value price of the property, then it is considered a great investment property. 

If you find a “One Percenter,” you have an 8% capitalization rate, 12% cash flow, and 16% return on investment. These values go up if the original percentage is higher. However, in California, these types of properties are hard to find. In this current market, finding a property that is priced the same at $500,000 but is taking in $4,000 in monthly profit is still a great investment.

The reason for this is because many areas in California are not rent-controlled. This includes Los Angeles and parts of Southern California. When you invest in a property that doesn’t meet the original 1% Rule, all you need to do is improve the property and you’ll be able to raise the rent. Even so, without the improvements, a property like the one I described above is still seeing a 6.2% capitalization rate, 5% cash flow, and 8.9% return on investment. Those are great numbers.

So the only thing you need to do next is to start looking for those One Percenter investment properties. Even if you can’t find them and you land on a “Point-Eight Percenter,” I can help you restructure your investment to meet your 1% goal.

If you have any other questions about this or any other topic, please don’t hesitate to reach out to me. I look forward to speaking with you soon.

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!