Investing

Thinking of Investing?

Year after Year San Diego has been proven to be an obvious choice for Real Estate Investors. Our City has many unique real estate investment opportunities. Whether it’s your first investment, or you are interested in a 1031 Tax Deferred Exchange, we have the experience to to get it done. From “buy and hold” to “renovations and flips,” Andrew Grinnell and his team are highly experienced in helping investors like you.

Down Payment Percentages

Mortgage Insurance is not available for Non-Owner Occupied investment properties. At least 20 percent down payment is required to get traditional financing. An increased down payment can result in a better rate. Also, loan costs are generally higher for investment properties.

Maintenance

Choosing to be a landlord brings with it lots of challenges, including making repairs. Make sure to choose a Property Management company that can handle any unexpected repairs, accounting and maintenance. Sunset Realty is a part of Sunset Property Management and Realty. For our clients who use Sunset Realty as their Broker, we are more than happy to offer lower fees for both Realty and Property Management services

Income Variation

Tenants come and go, and it may take a while to rent out a just-vacated unit – especially if it needs substantial repairs or rehabbing, reducing your income. But you’ll still have to pay the bills, including mortgage, property taxes and insurance.

Property taxes

Property tax assessed is usually based on the value of the property (including the land) you own and is assessed by local governments. Generally speaking, the value of property taxes is determined by multiplying the property tax rate by the current market value of the property in question, which is periodically recalculated by municipalities. In some states, property taxes are based on the purchase price.

Fixer-uppers

If you’re new to investing in real estate, beware of taking on a bigger challenge than you can handle financially.. Unless you have a plan and budget forlarge-scale improvement– or know someone who does quality work at bargain prices – you’ll likely want an estimate from a contractor before moving forward with a purchase. Sunset Maintenance offers options for investors who are looking for upside properties.

Start small

While repairs present a challenge, so can buying a larger property than you’re ready to handle. Starting small – purchasing a single apartment, condo or duplex, is always a great suggestion. Sunset Realty and Sunset Maintenance can help you get a solid foundation in investing in real estate and decide whether it’s really the right step for you.

Why do families and investors contact Sunset Realty:

Property values are peaking:

Prices of apartment building are at an all-time high in San Diego. If our considering selling, now is the time to speak with us about the value of your building.

Interest rates are rising:

The Federal Reserve is increasing interest rates, which means property values have peaked. Values will have an adverse effect and will decline as rates rise.

Your equity is no longer working for you:

You may not be utilizing your equity efficiently. Just like leveraging a banks money should provide you increased utility and money, so should your cash or equity invested into the property. What is the opportunity cost of lost income on our current investment when your cash can be placed in a similar property with better returns?

Exchange into more units with greater cash flow potential:

Sell your property and enter into a 1031 exchange (tax free) into a building with more units. Raising rents on 20 units is far more profitable than raising rents on 10 for example. We can help you find apartment buildings with more units to exchange into.

Restart the depreciation scale:

Are you out of, or in jeopardy of being out of depreciation expense write-offs? 1031 into a another like kind property and restart the depreciation clock and regain your depreciation tax write-offs to shelter your cash flow.

CAP Rates are low:

CAP Rates are at an all-time low in our neighborhood and are averaging in the 4.5-6% range

Understanding industry Terms: In order for investors to evaluate potential income producing real estate opportunities, the following terms will help investors understand a potential investment and ask the right questions.

Cash-on-Cash Return is ratio and/or rate or return critical to any real estate investment decision, and is used to measure whether an investment is successful as related to cash invested. To calculate the rate we divide annual before-income tax cash flow Net Operating Income (NOI) by the amount of cash invested, including down payment and/or equity. Alternatively, you can think of it as NOI minus debt service, capital expenditures, and leasing costs all divided by the equity amount of the purchase price.

Actual CAP Rate as a ratio relates a properties success directly to the Net Operating Income (NOI) over a 12 months of operations. To calculate CAP Rate we divide NOI by the purchase price (including all costs and fees). Lower CAP rate indicates that there is lower NOI, meaning there is less income available to distribute to owners/investors as a cash-on-cash return. CAP rate is the primary indicator of a properties potential to produce a certain cash-on-cash return.

Pro-Forma Cap Rate calculates future rate or returns and cash flow using projected NOI for the upcoming first year of operations after the property is purchased and is based on many assumptions.

Net Operating Income is the annual cash flow from collected rent and other income, minus any operation expenses, but before income tax deductions.

Vacancy Rate also called vacancy allowance or vacancy loss. It is normally shown as a percentage of the potential gross income. If a building is expected to be 95% vacant for the upcoming year it will have a 5% loss in Gross Income of a 5% vacancy loss.

Operating Expenses include costs associated with service contracts, maintenance agreements, utilities, landscape, 871pmanagement fees, real estate taxes and insurance.

Rate of Return is your return on investment. Real estate involves taking a degree of risk and as a result you may not achieve the rate of return indicated when you purchase the investment. As in any investment, higher risk properties or products provide a higher rate of return. However, higher risk investments generally have a lower probability of meeting projected returns in the long run. In summary, risk can be considered as the probability of receiving the projected returns.

Relying on Ratios alone is actually not how seasoned investors and Brokers approach every property. Assuming no intentions to renovate or improve after purchase, If two closely comparable properties have a 10% projected return you could just flip a coin. Conversely, If one property has a 10% return with a 50% chance of meeting the return; and property B has a 8% return, but is 80% likely to meet that return, then property B is likely the best choice.

Contact us today with your questions.

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