Clients Who Can Still Make Money in San Diego Real Estate

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People looking for a place to live for several years: The market is unstable right now, and is likely to fall further. It may not, however. But you still need a place to live, and if you're going to be in the property a few years, you will quite likely be able to sell for more money than you would get in the stock market. Here's an ten year analysis (including selling costs) of how well you'd likely do versus an idealized investment in the stock market - Assuming the place loses $50,000 in value the minute you buy it, and only recovers 5% per year. Values may or may not go down further, and historically California has averaged about 7% per year.







Year

0

1

2

3

4

5

6

7

8

9

10

Value

$450,000.00

$420,000.00

$441,000.00

$463,050.00

$486,202.50

$510,512.63

$536,038.26

$562,840.17

$590,982.18

$620,531.29

$651,557.85

Monthly Rent

$2,200.00

$2,288.00

$2,379.52

$2,474.70

$2,573.69

$2,676.64

$2,783.70

$2,895.05

$3,010.85

$3,131.29

$3,256.54

Equity

0.00

-25,570.39

179.98

27,324.92

55,942.58

86,115.68

117,931.86

151,483.93

186,870.25

224,195.02

263,568.72

Net Benefit

-31,500.00

-64,726.15

-50,417.66

-34,996.85

-18,380.23

-478.02

18,806.31

39,576.60

61,944.50

86,030.16

111,962.80





As you can see, you start out negative, but within a very few years, you end up better than even a tax free 10 percent per year from the stock market - and both the equity column and net benefits column take into account the likely cost of selling the property at that point!



People who can fix up run down properties: These hardworking folks can always find a project home that they will be able to fix up and sell for a profit. Unlike most speculators and flippers, these folks really do add value, and they are paid handsomely for it. When speculators and flippers are always looking for the next hot market and are S.O.L. if they can't find one that's appreciating twenty percent per year, these folks can always find estate sales, older properties, and stuff that just wasn't taken care of to turn from eyesores into very attractive properties that they can sell at a handsome profit. Plus they have a place to live while they do it.



People who can work the distressed situations market There are always people who have bad things happen to them. They lose their job, get transferred, or whatever, and have to sell right now so more bad things don't happen to them. What happened to them is not your fault, and most of them are very grateful to people who rescue them from the situation. There's also a good opportunity to make money at it. Distress Sales, Foreclosures, Real Estate Owned by the lender. Particularly if you can hold on to it for a couple years, you can do very well even in the current market. Doing this requires a certain amount of ready cash, but not as much as you might think.



Anybody with a stable positive cash flow You have a five year or longer fixed term remaining on your loan, and the cash flow from renting the property covers all expenses. Your payment isn't changing. You've got money coming in every month. You're sitting pretty no matter what the market does, and you have the luxury of dictating the terms of any transaction. You don't have to sell, because you're making money every month. So you make money if you sell, and you make money if you don't. I love these kinds of choices. Don't you?



Commercial Commercial and Industrial real estate are always more expensive, and require a bigger down payment. But they're not overheated the way the residential market is, and these lots are always more scarce than residential ones. Somebody looking to open a business in a particular area are often faced with one property to choose from, or even none at all! Depending upon the exact zoning, there can be immediate demand, either for tenant landlord or for people looking to open their own business or people looking to buy a building for their existing business. This ties in well with the stable positive cash flow, and also with the fixer-upper buyers. Unattractive properties that no one wants can be fixed up into turnkey condition and sold for a tasty profit to merchants who just want a great looking place for their clients to come.



Apartment buildings. If you have twelve or sixteen units on one plot of land, bought for a million or so, it's sometimes kind of hard not to make a monthly profit. The catch here is the down payment (and the ongoing work of having tenants), but if you've got that, it can be extremely lucrative.



Dan Melson

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This page contains a single entry by Dan Melson published on May 24, 2006 10:01 AM.

Do You Have a Bad Loan? was the previous entry in this blog.

The California Mortgage Loan Disclosure Statement (MLDS) Part I is the next entry in this blog.

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