Location is everything when it comes to flipping properties. Working in the right area will allow you to find better properties that will give you a chance at a much bigger profit when it comes time to sell. In a bustling housing economy like California, it can be hard to know if the area you have chosen is going to be the rght one for you. That is why we have put together this helpful guide to figure out where you should be targeting for your next fix and flip project.
2017 ended up being a very good year for housing markets across the country. Some of the key takeaways from the prior year included seeing an increase in property values, lower rates of foreclosure, and higher rental rates for investment property owners. In 2018, there are many different factors that could influence how the housing market and investment properties will perform.
It is widely expected that the housing market in 2018 will start slower than it has the last couple of years. While the Spring months have been hot the past few years, there are a number of factors that could slow it down. The main concerns have to do with the fact that buying a home this year will be more expensive than in the past. After the Fed raised key interest rates again, mortgage rates may continue to rise, which could make payments higher. Furthermore, the new tax laws take away some of the tax benefits that come with home ownership. All of these factors may give home buyers pause that could create a minor slowdown.
Another expectation in the coming year is that renting could become a better option in certain areas of the country. Due to the change in the tax law, people who live in high tax areas including New Jersey, New York, California, and Illinois could experience a higher personal tax bill and the tax benefit of buying a home is much lower. This could make many perceive buying a home to be a less attractive option. In these situations, renting a home may seem smarter even if rental rates increase. This could lead to a continuation of rental rate increases in these markets, which could be very beneficial for investment property owners.
One of the bigger concerns about the overall housing market has been the fact that millennials are less willing to buy a home than past generations. Part of the reason for this has been the fact that many are saddled with more debt than young adults were in prior generations. At the same time, it has been harder for someone to get a full-time job. If the overall economy continues to improve, unemployment rates should decline and salaries should increase. This is expected to lead to a bump in millennial homeownership rates by the end of the year.
You can keep up with the latest trends in the California housing market by checking out our housing market report.
The California real estate market has continued to be one of the top markets in the United States for the past few decades. Even during down times, the top markets in Southern and Northern California continue to thrive. This has made it ideal for people that like to fix and flip older homes. While fix and flip opportunities have provided plenty of earning potential over the past decades, rising housing prices in many of the top areas has made it harder to get into the industry. Fortunately, there are still several great up-and-coming areas in California that provide plenty of opportunity.
For those that are looking for a home to fix and flip, Inglewood should be near the top of the list. Inglewood is very centrally located in the Los Angeles area and is right near the 105 and 405 freeways. At the same time, the city will soon see a boost in real estate demand from the expansion of the Crenshaw/LAX line as well as the opening of a new NFL football stadium. This provides a lot of opportunity for buyers that can still find older single-family homes for under $400,000. Those that are willing to do the work could easily flip the homes for a substantial profit.
Cypress Park is an area of Los Angeles that is located about halfway between downtown and Glendale. Similar to other neighborhoods in the Los Angeles area, Cypress Park is seeing a lot of urban revitalization and is quickly becoming a hipster place to live. It is one of the few nearby communities that provides buyers with affordable home prices. Those that are willing to buy an older home that needs renovations can still find many properties that are priced affordably and provide opportunities for value creation.
Another Los Angeles area hotspot is City Terrace. City Terrace is located just outside of East Los Angeles and provides very quick access to downtown Los Angeles and many other top spots in the metro area. This area of Southern California is becoming a very popular option for younger buyers that want to purchase their first homes. Along with this trend of younger buyers, many new shops, cafes, and restaurants are beginning to pop up in the area. There are many smaller two and three-bedroom homes that are listed for around $300,000 and are poised for an increase in value after a renovation.
When looking to purchase an investment real estate property, finding an assetthat is well located in an area that will continue to see high occupancy and rent increases is very important. One factor that continues to drive real estate values and investment property cash flow are local public-school districts. For those that are looking to invest in the hot California real estate market, there are several locations in particular that continue to have some of the highest-rated school districts in the state and country.
One of the top rated public-school systems in all of California is the Palo Alto Unified School District. This school district has 19 schools in total, many of which are rated among the best in the country. Beyond the great schools in the area, Palo Alto also has a very strong professional economy due to nearby tech giants as well plenty of local amenities. However, along with all of these benefits, Palo Alto real estate is among the most expensive in the state.
Located just north of San Diego, the San Dieguito school district is another top-rated school district in the state. This school district serves a number of communities in the area including Solana Beach, Encinitas, and Del Mar. Similar to other areas of California, there are many expensive homes in the area. However, there are still many single-family home bargains that could provide value to those that are looking to renovate and flip an asset.
Another Northern California area that has a great public-school system is located in Mountain View, which is just south of Palo Alto. This area has many of the same amenities as Palo Alto and also has its own amazing school system. The Mountain View Los Altos Unified School district only operates three schools but is frequently rated as one of the top school districts in the state.
The fourth public school system in California that continues to be well-rated is the Coronado Unified School district. This school district has six different schools in total and pulls in students from Coronado and the surrounding area. The area is also one of the faster growing communities in the San Diego area, which provides plenty of value for those that are looking to invest.
It would be remiss not to mention other top school districts like Irvine, Hermosa and Manhattan Beach Unified, as well as Arcadia and Piedmont City Unified. These areas and school districts may be home to other potential flip projects. If you are considering investing in a California investment property, you should contact us to learn more about the market and factors to take into consideration.
It's exciting to flip a home for a profit, but real estate investors avoid potential pitfalls by avoiding cities with a low ROI (return on investment). According to a study by WalletHub, some of the areas to be cautious for 2018 fix and flip projects include San Jose, Los Angeles and Oakland, California. Of course, there are some areas better than others when fixing up a home to sell at a profit with a timeline of one year or so sooner. The study looked at several factors related to home flipping profits: quality of life, cost of renovation, and real estate market potential. San Jose and Oakland ranked as the worst 10 for market potential, while Oakland, San Jose and Los Angeles ranked in the top 10 worst for renovation and remodeling. Some of the negative factors associated with quality of life included crime rate, schools, job growth rate, median salary and family friendliness.
If you find the right home and neighborhood, it's possible to make money in San Jose. For some, the area conjures up images of hipster hotspots and preppy areas. Some of the areas to avoid when flipping homes in San Jose include Buena Vista, Fairgrounds, Burbank, East San Jose, Edenvale-Seven Trees, Alum Rock-East Foothills, Downtown, North San Jose, North Valley and Santa Teresa. Some of the neighborhoods have higher unemployment, while others have a high crime rate and low population density.
While Los Angeles is a popular community for home flipping, avoid some of the areas with higher crime including Chesterfield Square, Harvard Park, Vermont Knolls and Vermont Vista. Other areas that flippers avoid include the Fashion District and Wholesale District-Skid Row. It's difficult to market a home in areas that haven't yet experienced gentrification or people associate with danger.
When flipping a home in Oakland, avoid areas that don't measure up to the city's reputation. Some struggling areas include the Oakland Airport area, South Stonehurst, Woodland, Coliseum, East Peralta, North Stonehurst and Columbia Gardens. Before choosing a particular community, check the unemployment rates, median income, crime, home values and population density. If the home values are low, it's best to avoid the area for fix and flip projects. Even landlords don't want to own rental homes in areas notorious for squatters and delinquent tenants.
]Are you considering adding real estate to your portfolio? Before you do, make sure you know exactly what you want to achieve: Are you looking for a short or long-term investment? How much risk are you willing to take? And, how much time and energy are you willing to use? With these ideas in mind, you can decide if you are going to “repair and resell” or “invest and rent.” Let's take a look at these two wealth building methods.
There are a couple important details to keep in mind if you wish to profit remodeling houses.
This may sound a little simple, but it is worth asking – Are you capable of “fixing” the property? Part of your profits depends on your ability to estimate repair costs and complete them within budget. This budget won't have to be as high if you are capable of doing work yourself, or have a reliable network of tradesmen. Investors with a history in construction have a significant “edge” using this method. Are you able to compete with professionals who have twenty plus years’ experience in the industry? These guys are able to get material and labor at discounted prices. Plus, they understand all building codes and have friends in the inspections department. Remember at the end of the day, you will be competing with them because they will be reselling similar homes in the same area.
Do you believe property values will increase in the short-term? Half of the profits from the “fix and flip” method come from the ability to speculate. Here are some items to consider:
How well do you know the market?
Do you have any inside knowledge on new developments like schools or businesses?
One last item to consider is how much risk can you handle? It is important to understand these questions:
How long can you afford to hold your investment? Not every “fix and flip” is a winner.
Are you in a financial position to take a loss?
Can you keep making loan payments if nobody buys the house?
If “fix and flip” don't sound like a fit, you may wish to try investing in rental properties.
This method is a long-term investment. Since you will be turning these properties into rentals, you can handle long periods of low property values. With “buy and hold” you are investing for renters as opposed to buyers. This means you should invest in a market with many people coming and going, like college towns.
Renters are looking for the most “bang for their buck.” They are more interested in the number of bedrooms than the floor tile. Some houses will make good rentals, others are best for reselling. Investing in real estate is a business. You need to understand how you are going to beat your competition in order to profit. Simply put, offer more for less – either by selling beautiful homes or renting them at a competitive price. If you are interested in getting started in either strategy, please contact us for financing. Trust Deed Capital specializes in hard money lending for residential “fix and flip” and “buy and hold.”
Owning investment real estate can be a great long-term investment. While investment real estate properties are intended to be long-term investments, there will come a time when you eventually should sell the property. While determining the exact date when you should sell the investment property can be challenging, there are several tips that you can follow that can help you to better determine when it is time to sell the asset.
The first situation in which you may want to consider selling your investment property is if you have already created value in the asset. If you have purchased an asset that needed to be repositioned in the market through renovations or other changes, you could end up creating a significant amount of value once the changes are implemented. If you have suddenly much more equity in the asset, it may make more sense to sell the property and then invest into another asset while following a similar strategy.
Another sign that you should sell your investment real estate property is that your tax benefit is running out. When you buy an investment property, you can depreciate it over a 27.5-year schedule on your taxes. This can greatly reduce your tax liability on an annual basis. If you have held the real estate for a long period of time and have had it fully depreciated, your net cash flow each year could be reduced due to the higher taxes. Because of this, selling the asset may be a good option.
Another situation in which it may be a good idea to sell your investment real estate is if you have achieved your financial goals with the investment. When you purchase a property, you should have a long-term goal for how much money you want to make on the investment. If you have already achieved these goals due to cash flow and value appreciation, you may want to consider selling the asset and finding a new investment as a new investment could provide an even higher ROI.
If you have owned an investment property but have not hired a property manager or leasing agent you may find that ownership requires a lot of work. In these situations, it may make sense to sell the property if you no longer have the time necessary to manage it properly. Another option may be to hire third-party help, but you will have to carefully consider the costs of hiring those services.