Investors

“Ninety percent of all millionaires become so through owning real estate” – Andrew Carnegie

OVERVIEW

Investors range from First-Time Investors to seasoned Rehab and Resell Investors who purchase large quantities of homes every year.  Investment strategies range from Repair and Hold for mid to long-term rental income to Rehab and Resell for short term profits.

You don’t have to be wealthy and have large amounts of cash to invest in real estate.  According to a 2009 National Association of Realtors study of investors, nearly half of all investors had an annual income of less than $75,000.  Down payment and closing cost funds came from traditional mortgages, home equity loans, Self-Directed IRA’s, Gifts from Family Members and partnerships.  Larger investors will often use short term hard money loans to leverage their investments and maximize profits.

Suitable investment properties can be found in the Multiple Listing Service (MLS), participating in private auctions and at Trustee Sales at the County courthouses.

Now is one of the best times in recent history to invest in Real Estate with prices and interest rates at all-time lows and with rental income dramatically increasing to meet the large demand caused by families displaced during the extended foreclosure crisis.

TYPE OF INVESTORS

  • First Time Investors
  • Move-up Investors
  • Portfolio Investors
  • Performance Investors
  • Rehab and Resell Investors

FIRST-TIME INVESTOR

The first–time investor has never purchased real estate as an investment vehicle but likely has purchased real estate as their personal residence.  This type of investor has a very low risk tolerance and little or no experience; however, this is the starting point for most investors.

MOVE-UP INVESTOR

The move-up investor either owns a home outright or owns a home with payments low enough to support becoming a rental property that cash flows at market rent.  Rather than sell the home currently owned, a move-up investor can rent the home, have a tenant pay for equity and cash flow, and then purchase another property. This type of investor has a very low risk tolerance and currently owns a home that can be rented.

PORTFOLIO INVESTOR

The portfolio investor purchases a property every one to three years.  This type of investor is typically conservative but understand the benefits of real estate and has incorporated into their long term investment plan.  This type of investor has a low risk tolerance and is experienced.

PERFORMANCE INVESTOR

The Performance Investor purchases at least one property to hold every year.  These are typical high net-worth individuals who understand the value of large cash flow real estate portfolios. This type of investor has a low to medium risk tolerance and is very experienced.

REHAB AND RESELL

The Rehab and Resell investor purchases property for rapid improvements and quick, but profitable sale.  This type of investor has a high risk tolerance compared to other types, is very experienced and is looking for Trustee Sale, REO, Short Sale or Probate properties that can be purchased typically 25-30% below market value.

BENEFITS OF REAL ESTATE INVESTMENTS

  • Cash Flow
  • Appreciation
  • Leverage
  • Taxes and Deductions
  • 1031 Exchanges
  • Depreciation

SOURCES OF INVESTMENT PROPERTIES

Finding suitable investment properties with enough margin or equity spread is challenging, especially now that the Los Angeles real estate market is at or near the bottom and prices are likely to begin appreciating.  During the last quarter, finding distressed properties (REO, Short Sale and Probate) thru the MLS has been frustrating for many investors having to deal with multiple offers and prices too high for a suitable margin, especially for Rehab and Resell investors.  This is especially true since investors who hold and rent are willing to pay higher offer prices because they have a longer investment horizon (5-7 years) to obtain a suitable return.

Besides the MLS, other sources for investment properties are Trustee Sales at the County Court Houses, Private Auctions, Public Auctions (i.e.:  Hudson and Marshall, Kennedy Wilson) and Bulk Sales thru Major Banks.  The Trustee Sales, Private Auctions and Bulk Sales typically are cash only transactions.

For those investors with cash resources or lines of credit with hard money lenders, Trustee Sales at the County Court Houses is the most popular source for purchasing investment properties, especially for Rehab and Resell investors.  The sweet spot for the current investor market is single family homes in the $400K-$600K price range; however, these properties are becoming more difficult to find with a suitable margin.  Some investors have changed strategy and are purchasing fewer homes at higher acquisition costs ($600K+) as the competition is not as intense on higher end homes and larger margins can be obtained.

SOURCES OF INVESTMENT FUNDS

  • Traditional Mortgage
  • Home Equity Loans
  • Home Equity Lines of Credit
  • Private Hard Money Lenders
  • Self-Directed IRA’s
  • Partnerships

TAX BENEFITS

  •  Depreciation allows yearly deductions on improvements to the property
  • 1031 Exchange defer capital gains taxes
  • Self-Directed IRA investment opportunity

To learn more about investment opportunities, contact us at Email:  Info@SummitRealEstateGroup.net or call 949.305.0121 for a Free Consultation.  Find out how First Time Investors can use real estate as a vehicle to establish a college fund and/or retirement income.