Best Ideas for Investing in California Real Estate
It has taken about five years for the California real estate market to stabilize. Back in 2004 or 2005, home prices were going up so fast that you could buy a house (with no money down) in January, do some cosmetic improvements, and sell it for a big profit in June. A few years later, the real estate bubble burst. Home prices dropped precipitously and foreclosures soared.
In the years that ensued, hedge fund managers and real estate companies swooped in and bought up thousands of foreclosures and distressed properties at bargain-basement prices. Prime waterfront property went first and then the professional real estate investors expanded their purchases to less expensive homes in different neighborhoods.
Today, in 2014, the housing market in California is much healthier than it has been in the recent past. Property values have gone up along with the recovering economy. The big real estate investors have largely curtailed their home-buying activity, but are still reaping the benefits of their previous purchases. In the last several years, those wise enough to invest in California real estate when it was selling at depressed prices have seen substantial growth in the equity of their properties. In addition, many investors are getting high rents while they build more equity and wait for the right time to sell.
If you want to buy a home along the California coast or in the most desirable areas of any major city in the state, it will not come cheap. If you want to live in a San Diego home overlooking the Pacific Ocean or a three-bedroom townhouse in an upscale section of San Francisco, a million dollar price tag is not at all unusual.
Prices are high in part because the demand for prime locations has been fueled by foreign buyers. High net-worth individuals from Europe, Asia, and South America have the means to spend millions on a second or third home in San Diego, LA or San Francisco. Prime locations are scarce. Some investors buy a million dollar home, tear it down, and build a five million dollar home in its place.
If you are looking to invest in California real estate today, there are still many good opportunities available. Whether you are buying a home to live in or as an investment, the one thing you can not ignore is location. Real estate investors have two ways of earning a return on their investment. Property can appreciate in value and property can be rented to generate current income. In California, median home prices have leveled off, but rents are close to historical highs. Buying multi-unit properties, or even single-family homes, and renting them, can generate enough revenue to cover your mortgage payment and also leave you some free cash flow. If you hold on to your property for a few years, it is likely that you will see your property appreciate in value and earn you a greater return on your investment when you decide to sell.
Investing in equities is another way to play the California real estate market. Blackrock, the well-known private equity firm is a major player in real estate. They were one of the major investors who acquired a large portfolio of homes at depressed prices and their efforts have paid-off handsomely. You can also invest in a Real Estate Investment Trust (REIT) or in a home builder like Pulte. Another possibility is purchasing shares in a company like Zillow, a leading provider of data to the real estate industry.
There are always great real estate investments. You just have to know how to find them. If you are interested in learning more about the many excellent investment opportunities in California real estate, please give me a call.