Thursday, April 3, 2008

Smokin' Deals

(If you've accessed this blog for the first time today because you've heard that it's entertaining and witty, DO NOT read this post! Click on any other link in the Archive column on your right.)

I wrote another reply in the thread about my blog on the San Diego Creative Investors Association yesterday, and someone asked me for examples to support my statement about breaking even or flowing properties in Riverside County. Ugh! Are you gonna make me do all that specific research when I'm not even in the market? I've just been playing with the numbers--nothing serious. Well, because I'm the kind of person that I am (no snide comments, please), I threw some quick listings and links together for your perusal and reading enjoyment. (Please note that none of my links are sponsored.)

These numbers have not been verified by lenders (interest rates), listing agents (HOA fees), or taxing authorities (tax rates). I've estimated using what little knowledge I have of the areas highlighted. If you find an error (because I write my posts in the middle of business calls, making meals, doing laundry, wiping bottoms, and a variety of other non-real estate related tasks), please be kind enough to let me know, and I'll edit the post to reflect accuracy.

Here's a house in Murrieta. As stated above, I'm going to guess on these numbers (if I were serious about buying, I'd have them all down to the penny). Let's say full price (I know that's crazy, but just to be safe) with 10% down at 6%, so your PI is $1,079. Maybe taxes there are a low 1%, so that's another $167/mo. Insurance would be high at $50/mo. Let's put the HOA at $100 and the management fee at $150. Total payment: $1546. Rent can be anywhere between $1,500 and $1,595 ($1/sf for these small houses in Murrieta is on the high side, but not unusual). If you want a zero vacancy rate, you offer them $160,000, and your PI drops to $863, taxes down to $133, PM fee becomes $140. Your payment and expenses are $1,286 and your rent is $1,395.

You can find rentals ads for most areas in Riverside and San Bernardino Counties on this Press Enterprise link.

There's a plethora of condos, but the HOA's can be $250 or more. That bugs me, so, until I can get past that sticking point, I won't consider them at this time--even though they can make sense.

Here is a house on a postage stamp lot. We owned two in Temecula very similar to this one. We sold one for $385,000 and the other for $405,000 in 2005. We would get anywhere between $1,595 and $1,695 for rent back then. Go back to the newspaper link above to see what the rents are like now.

Let's move to the deals in Lake Elsinore, where it seems that 99% of the houses are vacant foreclosures. This area was hit hard--and I have a rental there now.

This huge house is in north Lake Elsinore (not as desirable as the southern part). Let's say you had a brain freeze and bought it for full price, putting 10% down. Your PI would be $1,349. Insurance at $50. Your taxes will be higher than an older neighborhood in Murrieta--anywhere between 1.5 and 1.9%. At 1.9%, they're $396/mo. Doesn't mention an HOA. At this point, the payment and expenses are $1,795. You'd have no problem renting at $1,995. Add in the 10% PM fee of $200, and you're breaking even. However, you're not buying at full price, so your payment and taxes go down, rent stays the same, and HOA is still up in the air.

There are too many in Lake Elsinore to list. The investors will start coming in there again and there will be a glut of rentals, but that will smooth out as they become occupied. Just remember to set your price limit on each house so that you have wiggle room to reduce your rents to below market.

Here is one more for the road because it's just too good to pass up. You can probably snag this little puppy for around $200,000. PI: $1,079, Taxes at 2%: $333, Insurance: $50, HOA: $100, PM fee: $175 on rent of $1750. Expenses: $1,737 (taxes and HOA are estimated high).

Remember, this was a peek at Riverside County. If you move up to the high desert of Victorville and Apple Valley in San Bernardino County, you may find some that work up there, too. Also, the prices don't appear to be headed anywhere but down, so I would play hardball with the banks, and move on to the next one, if they're not willing to negotiate.

Note to agents: Please stop with the "At this price, it will go quickly." A) It's not going anywhere any time soon and B) Nothing is moving quickly, if at all. (While I'm at it, "separate" is spelled with an "a" after the "p". Remember, you never separate the "pa" from the rest of the family.)