Sunnyvale Real Estate Blog

The secret is that not all properties hit rock bottom at the same time. Many properties have already hit bottom and they have already been purchased. Somebody else got the deal. Some properties will never hit bottom; the sellers will simply remove them from the market and re-list then in better, more expensive times. You can describe the market like this: If you threw a handful of small rubber balls in the air, they would not all hit the ground at the same time. They’d all bounce at different times, just like individual house prices.

Not every seller will come to the same conclusion at the same time. A     property is not worth what the seller wants, what the seller paid or what somebody else paid. A property is worth what a willing and qualified buyer will pay today, and not a penny more. The good news is sellers are starting to figure that out, one at a time.

The trick is identifying the bounce — and when to buy a specific property. This is particularly important with investment properties. As an investor looking to maximize profits, the price of a specific property is at rock bottom when the return on investment is better if you buy the property than if you leave your money where it is. Compare the real estate rental income and positive cash flow to the other investment options we all have, i.e. stocks, bonds, savings accounts, etc. As real estate prices come down, and consequently the mortgage payments and taxes come down, while at the same time the demand for rentals is growing, at some point the positive cash flow will make the investment irresistible. That is the bottom for an investor.

You must ignore everybody else and their investments. What we see now in hindsight is that many people paid too much when they invested in a seller’s market. Remember, for you to win, somebody else has to lose. Because so many people are losing so much of their equity, it makes your ability to win much easier in a buyer’s market like we’re in right now.

In a stable market, real estate prices are not driven up by investors. Home owners should be the predominant driving force. When a renter sees that their rent is higher than what they would be paying if they were to buy a similar property, the tenants tend to once again convert to homeowners. That is the bottom line for tenants. We know not all tenants have what it takes (income, savings and credit) to secure the American dream of home-ownership. Consequently, there will always be tenants and they will always need investors like us to provide them with a home.

It’s been years since we’ve seen prices low enough that we could invest in nice properties in great locations. If you’ve ever been tired of hearing, “I remember when I could” or “I should have bought them all when I had the chance.” Now you can. You have a second chance — take advantage of it!

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The government’s proposed economic stimulus plan could greatly effect prices for homes here in Sunnyvale, California.

Associated PressAll Associated Press news

WASHINGTON (AP) - A component of the government’s tentative economic stimulus package announced Thursday would give an immediate lift to buyers and sellers in higher-priced housing markets.

The package agreed upon by Democratic and Republican members of the House would allow government-sponsored Fannie Mae and Freddie Mac to buy mortgages up to 75 percent more expensive than the current $417,000 limit. The Senate and White House still must sign off on the proposed stimulus plan, which also includes tax rebates for Americans.

Raising the limit on so-called conforming loans will allow a larger pool of borrowers to find lower rates when buying a new home or refinancing an existing mortgage…Read entire article.

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Would you recommend I buy investment property here in Sunnyvale, elsewhere in Santa Clara County, or out of the area?

We STRONGLY recommend purchasing investment property; we cannot think of a better or safer way to gain wealth, in the long run, than to own more real estate! Where you should buy is the better question.

OK, so where should I buy and how do I go about it?

The first thing to decide is whether you are more interested in positive cash flow or overall appreciation. This will help in determining where you should look to make your purchase.

Buying real estate in the Sunnyvale area, or really anywhere in Santa Clara County, would be a purchase based on overall appreciation. This is because a home’s value here in Sunnyvale is very high in relation to it’s rental value; but, it can provide excellent appreciation in the long run.

For example, let’s say you buy a four-plex in Sunnyvale for a purchase price of $1,000,000. With 25% down ($250,000), your monthly payment for principal, interest, taxes, and insurance will be in the range of $5900 per month. You’d also have to add another $400 per month for expenses like water, garbage, and landscape maintenance, bringing your total cost to $6,300 per month. Since it’s local, you could likely manage it yourself, saving the property management fee.

Current rents for the four units would probably total in the range of $5,300 per month, so you’d have a NEGATIVE cash flow of about $1000 per month. To make this purchase profitable in the long run, you’d need the property to appreciate enough to overcome this negative cash flow AND provide a decent return on your investment (the down payment).

For example, if your desired return is the equivalent of 8% on your money, you’d need the property to appreciate an average of $2666 per month; the $1,000 negative cash flow PLUS $1666 per month (the return on $250,000 at 8%).

Now, contrast that with a positive cash flow investment (not really possible in Sunnyvale), for which you’d have to look out of the area.

As an example, in Cincinnati, Ohio, today you can purchase an apartment complex of 34 one-bedroom units for a purchase price of $750,000. With a 25% down payment, the total cost for the loan, utilities, taxes, property management, etc. would be in the range of $11,000 per month.

Current rents for the units would be in the range of $13,000 per month, so you’d have a POSITIVE cash flow of about $2000 per month. While the investment is not likely to increase much in value (appreciation), the return is realized on a monthly basis, through the cash flow. A return of $2000 per month on an investment of $187,500 equals a 12.8% annual return on your down payment, even if the property doesn’t appreciate. You’d of course have to factor in a vacancy rate, so the return would likely be a little less.

We welcome you to post your comments and/or questions regarding these or any other real estate investments. If you’d like to discuss them in person, or get more information about anything real estate related, please give us a call at 861-4813! We have specialized in selling residential real estate in Santa Clara County, and specifically in Sunnyvale, since 1984. We’ve successfully sold over 1200 homes in Santa Clara County; you won’t find anyone more knowledgeable about the market here!

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It’s January 2, 2008, and you’re in the market to buy a house in Sunnyvale, California (or any of the surrounding cities in Santa Clara County). But you have concerns; is it the right time to buy a home? Will real estate prices or interest rates begin to go up again soon? What is the market going to do in Sunnyvale, over the next six months? If I wait to buy a home, will prices be lower in a few months? These are all legitimate questions, so we’ll share our opinions, and invite your feedback!

When the housing market slows down, buyers often choose to wait on the sidelines for a clear sign that the market has recovered. The problem with this strategy is that you can only know for sure that a market has turned through hindsight, AFTER there is proof that it has turned. In other words, you can’t time the market (sound familiar?).

A slow market is perceived as an opportunity by some buyers, as it takes longer for listings to sell. The inventory of unsold listings tends to grow, giving buyers more choice than is the case in a hot seller’s market, when listings sell quickly. In a high-inventory market, there are usually fewer multiple offers so buyers can cut a better deal with the seller.

OUR ADVICE: It’s a buyer’s market. Which means, it’s a great time to buy!

The major risk of buying in a slow market is that the value of what you buy might drop before it rises. Or, prices could stay flat for some time, which means that you won’t build equity unless you pay down principal on your mortgage. If you in turn need to sell at a time when prices are soft, you might not be able to sell for the amount you paid.

OUR ADVICE: To decrease this risk factor, don’t buy for the short term.

The least expensive home in an area may not be the best investment. Unless you are a contractor with years of experience fixing up properties, you should look carefully at the condition of a property before you buy. Many home buyers, particularly first-timers, don’t give enough attention to the cost of maintaining a home. Home maintenance is a necessary part of home ownership. It can be expensive, particularly if you need to hire others to do the work. Some homes require more maintenance than others.

OUR ADVICE: Always have the home professionally inspected before you’re committed to the purchase. A good inspector should be able to give you a good indication about how much work a home needs now and how much it will need on an ongoing basis. Buying a well-maintained home that will also have relatively low ongoing maintenance is one way to keep your overall housing costs down.

Inexperienced home buyers should resist buying a fixer-upper just because it’s offered at a cheap price for the neighborhood. It’s difficult to get a firm grasp on renovation costs during the inspection contingency period, particularly if it’s a big job.

And keep this in mind: remodeling projects usually run over budget because of unanticipated problems like faulty electrical or plumbing, or an old furnace that goes bad. Or the city inspector could require that you do additional work to correct non-code-complying improvements done by previous owners. These sorts of costs can mount up so that you end up with far more invested in the property than it’s worth on the market.

OUR ADVICE: try to avoid buying a home that has an incurable defect. This is something that you can’t change, like a location next to a freeway. In a good market, anything can sell. However, these homes don’t hold their value well when the housing market softens, and become much more difficult to sell.

Give careful consideration to how you finance your purchase. Stay away from mortgages that have short due dates and balloon payments. If the market in your area stays soft for longer than anticipated, you don’t want to be caught having to refinance at a time when your home might not appraise for the price you need to complete the transaction.

OUR ADVICE: use a reputable mortgage broker, with a good track record and years of experience. They’re worth their weight in gold.

Please share your thoughts on the above and any other real estate topics that you’d like to discuss; we invite your feedback!

Gary J. Shapiro and Robert A. Gosalvez
The SV Home Team at RE/MAX
Direct 408.861.4813 Office
Email Team@SunnyvaleRealEstate.com
Web www.SunnyvaleRealEstate.com

Portions of the above are excerpts from an article written by Diane Hymer in The Inman News, 2007.

The SV Home Team has specialized in helping buyers and sellers in the Sunnyvale, California real estate market since 1978. We have combined full-time experience of over 60 years, with over 1200 successful transactions; more than half being right here in Sunnyvale.

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