Advantages of Buying a Home for Investment

Even with a lack of inventory in our Costa Mesa real estate market right now, the time is right now for investing. Are there advantages of buying a home for investment? As I mentioned in my post yesterday, there are good opportunities in Costa Mesa real estate right now. I want to look at two specific examples, the first today – buying a single family home for investment. In tomorrow’s post we will look at buying a triplex.

 

 

Let’s look at the important parts first, on what are the advantages of buying a home for investment:

 

1. Prices – The numbers suggest that prices have bottomed out for Costa Mesa real estate. We have seen a couple of upticks in value recently. I think we will see numbers that go back and forth for several months, and value should remain fairly flat/stable.

 

2. Interest Rates – Recently at an all-time low in the 3% range. Still in the low 4% range as of this posting. The difference in buying a $400,000 home with a rate of 4% vs. a rate of 6% is enormous, $1527 vs. $1918 (assuming a loan of $320,000). Four hundred dollars a month covers any and all taxes you would have on that property. That is a significant advantage.

 

3. Return from other investments – Trying to squeeze more than 1% out of a savings account right now is pretty tough. Why not look at an investment that can produce more like 6% annually?

 

4. Cash? Again, it is hard to get a return on cash right now. However, buying a property with cash can produce a significant return, and you can normally expect a small discount on your purchase price. An annualized return on a $400,000 home bought with cash could easily produce a 7% Return on income (ROI). Assuming $2800 rent/month, taxes of approximately $4500, and repairs of $3000, you can quickly realize a 7% return.

 

5. Cashflow – Most investors judge properties based on positive cashflow, or all the money leftover after you pay mortgages, taxes, insurance, and expenses. It is relatively straightforward to produce a return in the 6% range buying lower priced Costa Mesa real estate right now.

 

 

Here’s a quick case study on a home that my client bought last year.

 

• 4 bedrooms, 2.5 baths, approx 2000 sq.ft.; Purchased for $425,000. Rehabilitation costs of $25,000 (property was a dump!)
• After total improvements, $450,000 of money is into the house.
• We just rented the home for $3000 per month. After taxes are paid (approx $5,000), there will be a net income figure of $31,000 for this home ($3,000/month x 12 months – $5,000 taxes). This return on investment is now at a rate of 7%, and rental rates are slated to continue to rise.
• This home was purchased in Mesa Del Mar, and there are costa mesa homes for sale in that and other Costa Mesa neighborhoods just like it that can produce a similar return.

I would be happy to consult with you on purchasing a Costa Mesa real estate home like this as a rental or as an investment. Please call me at (714) 743-9882 or E-mail me here to reach me.