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3 Signs You’re Ready To Buy An Investment Property

Investment Property Definition An investment property is real estate purchased to generate income (i.e., earn a return on the investment) through rental income or appreciation. Investment properties are typically purchased by a single investor or a pair or group of investors together.  3 Signs You’re Ready To Buy An Investment Property First, know that the buying process is different for an investment property compared to a primary home. Before you invest in property, make sure you meet the following qualifications. 1. You’re Financially Stable Investment properties require a much higher financial stability level than primary homes, especially if you plan to rent the home to tenants. Most mortgage lenders require borrowers to have at least a 15% down payment for investment properties, which is usually not required when you buy your first home. In addition to a higher down payment, investment property owners who move tenants in must also have their homes cleared by inspectors in many states. Make sure you have enough money in your budget to cover the initial home purchase costs (like your down payment, inspection and closing costs) as well as ongoing maintenance and repairs. As a landlord or rental property owner, you must complete essential repairs in a timely manner, which can mean expensive emergency plumbing and HVAC repairs. Some states allow tenants to withhold their rent payments if you don’t fix broken home utilities on time. Make sure you budget more money than you think you need for regular and emergency home repairs. Investment property expenses don’t just begin when tenants move in. You also need to budget money for advertising and credit checks to make sure you take in the best tenants possible. A great set of tenants are an asset for your property, while bad tenants can increase your expenses dramatically. 2. The Return On Investment (ROI) Is There Real estate investors often see positive cash flow with their investment properties in today’s market, but the savviest investors calculate their approximate return on investment (ROI) rates before they purchase a property. To calculate your ROI on potential property investments, follow these steps.  Estimate your annual rental income. Search for similar properties that are currently up for rent. Find an average monthly rent for the type of property that you’re interested in and multiply that rent price by 12 for a year’s worth of income.  Calculate your net operating income. After you estimate your annual potential rental income, calculate your net operating income. Your net operating income is equal to your annual rental estimate minus your annual operating expenses. Your operating expenses are the total amount of money that it takes to maintain your property every year. Some expenses include insurance, property taxes, maintenance and homeowners association Do not include your mortgage or interest in your net operating expense calculation. Subtract your operating expenses from your annual rent estimation to find your net operating income.  Find your ROI. Next, divide your net operating income by the total value of your mortgage to find your total return on investment (ROI). For example, let’s say you buy a property worth $200,000 that you can rent out for $1,000 a month. Your total potential income is $1,000 × 12 months for a total of $12,000. Let’s also assume that the property costs about $500 a month in maintenance fees and taxes. $500 × 12 = estimated operating expenses of $6,000. Subtract your operating expenses from your total rent potential: $12,000 − $6,000 = $6,000 of net operating income. Divide your net operating income by the total value of your mortgage: $6,000 ÷ $200,000 = 0.03, which makes this property’s ROI 3%. If you buy a property in a solid area and you know that you can rent to reliable tenants, a 3% ROI is great. However, if the property is in an area known for short-term tenants, a 3% ROI may not be worth your time and effort. 3. You Have Time To Manage It Investment property management still takes a lot of time. You have to put up advertisements for your space, interview potential tenants, run background checks on tenants, make sure that tenants pay their rent on time, perform maintenance on your property and make timely repairs if something in the home breaks down. You also must do all of this while working around your tenant’s “right to privacy,” a legal standard that prevents you from dropping by unannounced without at least 24 hours of warning in most states. Before you decide to buy an investment property, make sure you have plenty of time to maintain and monitor your space.  Take the first step toward buying a house. Get preapproved to see what you qualify for.Start My Preapproval Things To Consider Before Buying An Investment Property Time, down payments and returns are just a few pieces of the investment property puzzle. Here are some other considerations to think about before you invest. What Are The Housing Market Trends? You want to choose a property that rises in value over time. But how can you tell which areas will become the next best places to invest in real estate? The only way is to watch an area’s housing market indicators and rental trends over time and compare the direction of previous property prices and taxes to where they are now. A home purchase is a major investment, so don’t be afraid to take plenty of time to do your research and to analyze market trends to find the perfect area before you dive into a loan. Should You Buy With A Partner? A partner might seem like a great idea – you can pool your money, split maintenance costs and requirements and combine your home repair skills to save money on professional contracting costs. However, buying with a partner also splits your potential profits in half and puts you in the position of sharing legal liability with another person. For example, if your tenants tell your partner about a pest problem and your partner doesn’t fix the issue in a timely manner, your tenants may sue both of you because you are both landlords and you are both equally responsible for providing a habitable environment. You should also remember that if something goes wrong with your partner and you split the cost of the home equally, you’re both equally legal owners of a single property. Make sure that the person you choose is trustworthy, responsible and proactive when it comes to maintenance if you decide to go in on a rental property with someone else. How Much Will Property Taxes Be? Property taxes are taxes that homeowners pay to support their community and local government. Property taxes fund fire departments, public schools, libraries and other local projects. The amount you pay in property taxes is directly related to the value of your home. If your home is worth more money, you pay more, and vice versa. Local governments set their own property tax rates, so the specific amount you pay in property taxes depends on your house’s location. Speak with a local real estate agent or mortgage lender to calculate how much a certain house will require in property taxes. No estimate is going to be perfect because every homeowner qualifies for different levels of exemption as well. Should You Hire A Property Management Company? You need to decide whether you want to handle property repairs, tenant management and maintenance yourself or if you’ll hire a property management company to manage the daily maintenance on your behalf. Property management companies take both scheduled and emergency repair calls and check up on your property with both drive-bys and scheduled visits to make sure that tenants respect your space. They can also collect rent on your behalf. Some property management companies also offer tenant placement services and eviction processing for an additional fee. In exchange, the property management company takes a percentage of your monthly rent. If you live far away from your property or you don’t have the home repair skills to fix your own property, hiring a property management company may be a great choice. Applying For Investment Property Loans: How To Prepare Mortgages and loans for investment properties – such as a non-owner-occupied mortgage – work a little differently than those for personal homes. Investment Property Loan Requirements If you have a mortgage for your primary residence, you probably know that most mortgage lenders no longer require a 20% down payment to get a loan. Lenders are stingier with loans for investment properties, however, because the risks of foreclosure and default are higher. Most fixed-rate mortgages require at least a 15% down payment with a 680 qualifying credit score for a one-unit investment property. Your credit score should be at or above 620 if you’re applying through Rocket Mortgage®. Lenders want you to put down 25% with a 620 or higher interest rate on two- to four-unit investment properties. Pre-Approval It’s a good idea to get preapproved for a mortgage before you start searching for homes so you know how much home you can afford. You can apply online with Rocket Mortgage to get a preapproval. A preapproval is different from a prequalification. A prequalification only tells you how much money you might be eligible for – it’s not as strong. A preapproval requires your financial information so the mortgage company can provide a solution that’s customized for you. While prequalification only looks at your credit and your inputted estimate for income and assets, preapproval involves a hard credit pull and proof of income and assets. …

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Is It Time For a Change In The Housing Market?

  As Peggy Huang drove through the hills of Yorba Linda, she passed ranch-style homes with backyard stables.  White picket fences lined equestrian trails snaking through the Orange County city, whose motto is the “Land of Gracious Living.”  Farther uphill, newer houses were closer together but still featured the open space most suburban residents desire, with trails, parks and churches nearby.  Huang, a city councilwoman, wants Yorba Linda to stay this way.  Along with officials in many other O.C. cities, she is fighting a state mandate to build new homes — more than 183,000 countywide over the next seven years. The requirement, called the Regional Housing Needs Assessment, dates back more than five decades, with new goals set for each city every eight years. “I’m not a NIMBY,” Huang said, using an acronym for “not in my backyard.” “I just think it’s important for people to understand that one size fits all doesn’t work, and that’s the very policy Sacramento is pushing on us.” As home prices climb, fueled in part by a long-standing housing shortage, the stakes have never been higher for well-heeled suburbs like Yorba Linda. Many young couples can’t afford to buy homes. Low-income workers are struggling to pay the rent. Homeless people are pitching tents in places where poverty had never been visible. The argument is about how many units of new housing each city should be required to accommodate. It is also about the essence of Orange County, which is becoming more racially diverse, more politically liberal — and more crowded.  Some say that change is inevitable and the burden to create affordable housing must be shared by all communities, not just those that are already densely packed.  But residents fear that what they love about Yorba Linda — the pastoral landscapes, the wide-open boulevards, the privacy — could be lost if too many others join them. “There’s this idea that Orange County is a cluster of suburban communities far away from the ills of the big city,” said Elizabeth Hansburg, co-founder and executive director of People for Housing Orange County. “It has a nostalgia for low-density suburban development, where everyone has their single-family home, but we don’t have that kind of space anymore. We have to build higher-density housing and in a way that really violates Orange County’s sense of self.”  In every eight-year cycle, cities are assigned a certain number of new units under a complex formula that anticipates future housing needs. A state agency specifies an overall number to regional planning agencies, which then divvy up the units among cities and counties in their jurisdiction. In 2020, the Southern California Assn. of Governments was responsible for distributing 1,341,827 units of new housing among cities in Los Angeles, Orange, Imperial, Riverside, San Bernardino and Ventura counties. The association calculated that O.C. should zone for about 183,000 new units. Yorba Linda’s share was 2,400 of those units, with about half for low- or very low-income residents.  To fulfill the requirement, cities identify areas where zoning can be changed to allow new development.  Yorba Linda officials recently identified 27 sites —including church parking lots, an event venue and a hotel — for possible zoning changes. They were hoping to decrease their requirement to between 70 and 211 new homes. Nearly half of O.C. cities, including Yorba Linda, filed appeals with the association asking for their numbers to be reduced. Nearly two dozen cities in L.A. County also appealed. Some cities argued that the bulk of new homes should be placed near jobs and public transit or in places that have more open space to build. After the appeals failed, the Orange County Council of Governments sued the state and the Southern California Assn. of Governments, arguing that the number of new units in the six-county region should be 651,000.  Redondo Beach, Lakewood, Torrance, Cerritos, Downey and Whittier were also plaintiffs in the lawsuit, which was dismissed in November by a Los Angeles County Superior Court judge.  The O.C. Council has said it plans to appeal. In O.C., some city officials see the building requirements as overreach by state officials who haven’t spent time in the area and aren’t familiar with the geographic limitations. Newport Beach Councilwoman Diane Dixon says she wants to maintain Orange County’s character.  “Who wants to live in a congested urban environment?” she said. “That’s why people move to Orange County in the first place.”  Dixon, who is a member of the Orange County Council of Governments, is concerned that the state housing mandates will result in rapid growth, ultimately stripping away cities’ control over development. Newport Beach, which like many O.C. cities has little undeveloped land, must find room for more than 4,800 new homes.  That means construction would have to spread upward, not outward, resulting in a more urban landscape.  But others say more growth in suburban communities is necessary to combat the shortage of available homes and the upward trajectory of housing costs. “Supply and demand tells you that more houses will help ease upward pressure on prices,” said Jan Brueckner, an economics professor at UC Irvine. “California doesn’t have enough houses at the moment compared to its population and the purchasing power of the population.” Hansburg, the housing advocate, points to the divide between homeowners trying to preserve their lifestyles and renters dealing with rising prices in an already unaffordable market.  “They’re saying this isn’t an Orange County problem, and what I’m saying is it is as much an Orange County problem as it is a problem for any other place in California,” she said.  The last Regional Housing Needs Assessment plan required Yorba Linda, which has a population of about 68,000, to create 669 new housing units. The city exceeded that, issuing building permits for 932 units between 2014 and 2019.  In a commercial and office hub called Savi Ranch adjacent to the 91 Freeway, two new apartment complexes were welcomed by many locals, partly because there are no single-family neighborhoods nearby.  All of the roughly 120 units are priced to be affordable for people making 30% to 60% of the area’s median income. “They kind of fit there,” said longtime Yorba Linda resident Dee Dee Friedrich. “If you have to have it, that seems to be a better place.”  But Friedrich and others don’t want their own quintessentially Yorba Linda neighborhoods to change. Friedrich moved there nearly 40 years ago, mainly because the lots were large enough for horses, which she had always dreamed of owning. Recently, she has been concerned that someone might buy on her street, where each home sits on a half acre, and build multiple units. “That’s just not why we live here and moved here and worked our whole lives to be able to afford to live here,” she said. “We like that we can have a little space between us.”  Residents and city officials are also concerned about wildfires.  When the Freeway Complex fire tore through the hills in 2008, thousands piled belongings into their cars and fled. Yorba Linda Boulevard was gridlocked. Then came the Blue Ridge fire in 2020, which renewed residents’ concerns.  Huang, who was born in Taiwan and is a state deputy attorney general, fears that the more people there are, the harder it will be to evacuate when the next fire ignites.  “With more housing and more density, how are we supposed to make sure people can get out safely?” she said. Fry, Hannah. “Amid Housing Crunch, Officials Want Orange County to Stay the Way It Is.” Los Angeles Times, Los Angeles Times, 22 Jan. 2022, …

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Housing Market Competition Doubles

The spring market is already blooming, and so is the competition. Buyer competition intensified ahead of spring in February and likely will intensify further over the next few weeks and into summer. On average, there were nearly five offers for every home sold in February, higher than in recent months, according to the February 2022 REALTORS® Confidence Index Survey. Real estate professionals who were surveyed reported more than five offers, on average, in Massachusetts, Georgia, Texas, Colorado, Utah, Washington, and California. Nationwide, 48% of buyers’ offers were above the list price, according to NAR’s data. On average, those offers were about 2.9% above the list price; on the median-priced home, that would be about $10,000 over the asking price. However, 13% of the offers were 10% above the list price. Real estate pros report that in general their buyers typically lose two homes before succeeding on the third try, according to the study. Homes are selling quickly under the intense competition. Eighty-four percent of listings were on the market for less than a month. “Competition could intensify in 2022 before waning in 2023 as home buyers compete to lock in at the current rates,” Gay Cororaton, a research economist for NAR, writes on the association’s blog. “Mortgage rates may rise more steeply in 2023.” View the latest on …

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Rising Rent Across The Country

Renters in California aren’t the only ones feeling pain in their rental market. Rents Climb To ‘Insane’ Levels Across U.S. Rents have exploded across the country, causing many to dig deep into their savings, downsize to subpar units or fall behind on payments, and risk eviction now that a federal moratorium has ended. In the 50 largest U.S. metro areas, median rent rose an astounding 19.3% in December 2021 from a year earlier, according to a Realtor.com analysis of properties with two or fewer bedrooms.  “Tampa, Orlando, and Jacksonville — and the Sun Belt destinations of San Diego; Las Vegas; Austin, Texas; and Memphis, Tenn., all saw spikes of more than 25% during that period. Rising rents are an increasing driver of high inflation that has become one of the nation’s top economic problems. Labor Department data, which cover existing rents and new listings, show much smaller increases, but these are also picking up. Rental costs rose 0.5% in January from December; the Labor Department said last week. It was the most significant increase in 20 years and probably will accelerate. Economists worry about the effect of rent increases on inflation because the big jumps in new leases feed into the U.S. consumer price index, which is used to measure inflation. Inflation jumped 7.5% in January from a year earlier, the most significant increase in four decades. Although many economists expect that to decrease, rising rents could keep inflation high through the end of the year because housing costs make up one-third of the consumer price index. Experts say many factors are responsible for astronomical rents, including a nationwide housing shortage, extremely low rental vacancies, and unrelenting demand as young adults continue to enter the crowded market. Whitney Airgood-Obrycki, the lead author of a recent report from Harvard University’s Joint Center for Housing Studies, said there was a lot of “pent-up demand” after the initial months of the pandemic when many young people moved back home with their parents.  Starting last year, as the economy opened up and young people moved out, “rents really took off,” she said. , According to the U.S. Census Bureau, rental vacancy rates during the fourth quarter of 2021 fell to 5.6%, the lowest since 1984. Meanwhile, the number of homes for sale has been at a record low,contributing to ballooning home prices that have caused many higher-income households to remain renters, further increasing demand. Construction crews are also trying to bounce back from material and labor shortages that made a preexisting shortage of new homes even worse at the start of the pandemic, leaving an estimated shortfall of 5.8 million single-family homes, a 51% leap from the end of 2019, Realtor.com said. And compounding all of this is the increasing presence of investors. A record 18.2% of U.S home purchases in the third quarter of 2021 were made by businesses or institutions, according to Redfin, as investors targeted Atlanta; Phoenix; Miami; Charlotte, N.C.; and Jacksonville, Fla. — popular destinations for people relocating from pricier cities. Let us help you find the perfect rental property in your budget.For more information on real estate investment; or to see what your rental may be worth with a rental rate calculator, contact True Property Management today – …

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SOUTHERN CALIFORNIA’S BUSIEST MARKET IN OVER A DECADE

Year-end figures show it was the busiest year for home sales in over a decade years, with the biggest price leap on record. In December of 2021, the median price of a Southern California home hit a record high for the 10th time in the past 12 months, figures reported by DQ News on Friday, Jan. 21.   Sales in December moderated, as they usually do in a typical year. However the total for the year was the highest since 2006. Home prices had an annual gains of 16.3%, not just in December but in 2021, meaning last year had the highest price appreciation rate since 2013. Record high median prices also were recorded in four of the six counties in the region: Los Angeles ($805,000), Orange ($935,000), Riverside ($550,000) and San Bernardino ($485,750). The reasoning for the current state of the housing market in Southern California the demand far out weighs the supply. As well, agents have tagged the three main reasons for 2021’s extreme performance: record-low mortgage rates, record-low for-sale inventory and very high demand, driven by millennials aging into their prime home-buying years. State-wide 72% of home are being sold for above asking price, this is resulting in many potential buyers have turning to renting until the market calms down. …

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