Southern California is a major economic center for both the state of California and the United States. It is probably most known for its prime and expensive real estate.
Now, however expensive the area may seem, there is still money to be made in Southern California real estate. This is because interest rates are low, the economy is robust and diversified, the population is growing, and home values are increasing. And did we mention the high rental demand that exists? Renters are flocking to the area for the great weather, jobs, entertainment, and the myriad of attractions available.
It’s safe to say that investing in Southern California real estate is a no-brainer.
With that in mind, there are several things you should keep in mind before making the purchase. The following are tips to help you confidently buying an investment property in Southern California.
Buy the Right Property First and foremost, you should consider investing in a rent-ready property. This is especially true if you don’t have significant experience in large-scale home improvement projects. Without that experience, you could risk incurring unforeseen renovation costs. These delays also mean you can’t get renters into the property as quickly.
Besides buying a rent-ready property, you should aim to buy a single-family home because they’re easier to manage and in demand. Calculate the Expected Margins The goal of every real estate investor is to make money. As such, before closing on a deal, make sure you have an idea of how much ROI you expect to get from the property.
To calculate your margins, you’ll need to factor in two basic things, your potential rental income and the expenses.
Now, there are many ways to calculate your expected rental income, of them being the 1% Rule. The 1% Rule is a guideline used to determine the potential monthly rent you can earn from your investment property.
It states that the monthly rent should be equal to or greater than 1% of the total purchase price of an investment property. So, supposing your purchase costs add up to $200,000, then expect to earn at least $2,000 in rental income every month. Next, to determine your profits, you’ll need to factor in the expenses, and the 50% Rule can help you in this regard.
According to this rule, you should expect your operating expenses to be at least 50% of your gross monthly income. So, with the $2,000 in gross monthly income, expect $1,000 to go towards expenses. Note that this doesn’t include any mortgage repayments.
Understand the Risks Involved No investment is without risks, and real estate is no exception. You are bound to encounter certain risks that can lead to losses.
You may not be able to fill your rental vacancy. Buying an investment property doesn’t automatically guarantee you, tenants. Ask yourself:
Is my property appealing?
Is the monthly rent I’m asking for attractive to prospective tenants?
Is the rental property located in the right location?
The home could have underlying problems. You may come to realize that the home you bought has structural or immediate maintenance issues. In extreme cases, this could render your property uninhabitable as per California Codes.
You might rent to the wrong tenant. These could be tenants who fail to pay rent on time, cause excessive property damage, or cause issues with neighbors. To avoid these issues, make sure to conduct tenant screenings and familiarize yourself with rental laws.
Buy in the Right Location
When it comes to real estate investments, location is everything!
Buying in the wrong location can cost you greatly. So, before signing on the dotted lines, make sure you understand the neighborhood you’re buying into.
Consider:
The neighborhood’s appearance
Crime rates
The caliber of schools in the area
Accessibility and amenities
Plans for future development
Generally, the better the location the easier it’ll be to rent the home out and the more money you can get.
Beware of High-Interest Rates You’ll have different options to finance your purchase and each of these options will have pros and cons. The 3 most common financing options include tapping into home equity, seeking a conventional loan, and seeking lending from a private investor.
Most people who buy investment properties tend to finance the purchase through mortgages. Whatever your financing plans are, you’ll need to do thorough research beforehand. Make the Property Attractive to Tenants The Southern California rental space is a competitive one. Therefore, you’ll need to make your rental stand out from the rest.
One way to market your property would be to price your rental property. Carry out comparative market analysis and see how much similar properties are charging in rent. If this seems daunting, speak with a qualified and experienced local real estate agent for additional help and advice.
Another way you can make your more rental attractive to prospective tenants is by making your property look good inside and out. Improve the curb appeal, stick to neutral colors, and ensure everything is working properly. If you’re marketing the property online, make sure the interior is clean and well-lit in all photos.
Hire a Property Management Company If you are just starting out, hiring a professional property management company can be one of the best decisions you’ll ever make!
A good property management company can help you in all aspects of management. They can help you market your property, screen tenants, respond to tenant maintenance requests, and more to ensure your peace of mind.
In a Nutshell: Real Estate Investing Tips in Southern California The Southern California market is hot right now and buying a property here can set you up for success! With these tips, thorough research and a property management company by your side, you’ll be ready to invest.