Investing in rental properties OC or IE ?

Hi , I am looking to invest in a rental properties and deciding between OC or IE.. I realize I am late to the party, but I am looking to hold it at least for 10 years.. couple things 1) If you were to predict , do you see values going up/ holding value through next 10 years 2) I am seeing better cash flow in IE properties and some in North OC. I understand OC market is relatively stable compared to IE.. If it were you , would you consider investing in OC or IE for rental properties at this point in real estate cycle?

Appreciation wise, in general, OC probably is better.  However, depends on which IE and OC city you are comparing to, cash flow varies. 

Real estate are very location specific.  Its difficult to compare the entire IE to the entire OC.  Irvine for example, appreciation is good but majority of cases, the cash flow sucks. 

And if you can hold it for 10 years or longer, anything in the entry price level property will do significantly well.  It's hard to predict the economic situation 10 years out but one thing will happen for sure it's the demand.  There's a significant millennial population boom, and they will hit the prime house hold formation age about 10 years from now.  We should expect to see an even higher demands and most likely another significant up housing market.
http://www.calculatedriskblog.com/2017/03/demographics-renting-vs-owning.html

thanks , good info. OC areas I am looking at is Cypress, Fullerton, Yorba Linda, Brea and IE areas I am looking at is mostly Riverside city.

On the topic of demand from millennials over next decade - I would think more inventory will be coming to market over time as baby boomers sell their houses and move to senior housing which may balance the demand(from millennials)/supply (from baby boomers), thoughts?

I don't think the baby boomer housing inventory will raise to any meaningful numbers especially here in CA.  Things is that majority of them are just not selling.

CA's prop 13 actually makes their home cheaper to stay then to down size and buy another home.  And a lot of home they bought years ago has no MR, that will makes buying another smaller but newer home more expensive to maintain even with the Prop 60/90 transfer. 

A lot of them will transfer the home to their children and their children will continued to live in that house with significant financial advantage.  With CA's prop 58, the children who inherited the home and keep the home as their primary residence, will pay the property tax base on the originally establish property tax value, not the current market basis. 

And here's a good article from Washington Post:
https://www.washingtonpost.com/real...6cbec161973_story.html?utm_term=.f066a212500b

In a report prepared this summer, Fannie Mae?s Patrick Simmons, an economics and strategic research group director, said that there?s no statistical evidence that boomers are reducing their single-family occupancy rate, trading down to homes with fewer rooms or pushing up demand for apartments. Between 2010 and 2013, he said, ?the number of boomer apartment renters did not change significantly,? but the number of millennial apartment dwellers increased by an average of nearly half a million a year.

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Another thing is that builder are simply not building enough entry level homes.

Due to high demands and high cost of land, builder simply choice to build more expensive home with higher profit margin. 

IE still have a lot of land to go but not so much in OC.  The demands for starter home is very high right now but it will get even higher in the years to come.

I would also consider areas like Tustin/Tustin Ranch, Lake Forest/Baker Ranch, and Aliso Viejo for a rental property.  I would STRONGLY recommend buying a 3+ bedroom property as you will not have to compete against apartment complexes which typically only have 2 bedroom units as their largest floor plan.  They are a perfect move-up property for a renter and a buyer. 

californian said:

Hi , I am looking to invest in a rental properties and deciding between OC or IE.. I realize I am late to the party, but I am looking to hold it at least for 10 years.. couple things 1) If you were to predict , do you see values going up/ holding value through next 10 years 2) I am seeing better cash flow in IE properties and some in North OC. I understand OC market is relatively stable compared to IE.. If it were you , would you consider investing in OC or IE for rental properties at this point in real estate cycle?

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Wait to see the impact of the new tax code before you speculate.

eyephone said:

californian said:

Hi , I am looking to invest in a rental properties and deciding between OC or IE.. I realize I am late to the party, but I am looking to hold it at least for 10 years.. couple things 1) If you were to predict , do you see values going up/ holding value through next 10 years 2) I am seeing better cash flow in IE properties and some in North OC. I understand OC market is relatively stable compared to IE.. If it were you , would you consider investing in OC or IE for rental properties at this point in real estate cycle?

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Wait to see the impact of the new tax code before you speculate.

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I doubt they'll make any changes that'll effect investment properties.  One thing that they could do is allow landlords to deduct their tax losses against their ordinary income regardless of income and if they are a real estate professional.  If they did that, on man watch prices clime as more investors get into the resale market.

californian said:

thanks , good info. OC areas I am looking at is Cypress, Fullerton, Yorba Linda, Brea and IE areas I am looking at is mostly Riverside city.

On the topic of demand from millennials over next decade - I would think more inventory will be coming to market over time as baby boomers sell their houses and move to senior housing which may balance the demand(from millennials)/supply (from baby boomers), thoughts?

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Very good topic.  One things that you don't see being spoken about are the buying trends of millennials, whats important to them and how to position yourself to invest accordingly.  A client/friend of mine restores historical buildings in the venice areas and all the tech-companies are choosing the older buildings rather than the brand new glass towers built for them. 

Getting back to your original question on investments.  OC's values tend to climb faster from low to higher markets.  Also in a market fall-thru like we saw in 2008, the dip tends to not nearly go as low in the OC as compared to Riverside.  However with that being said, one thing that never goes down in an up or down market are the prices of rent. 

I have a handful of clients looking at apartments right now, in cost vs rents, they are tending to like Riverside.  Have more questions, feel free to reach out. 

ochomes said:

I have a handful of clients looking at apartments right now, in cost vs rents, they are tending to like Riverside.  Have more questions, feel free to reach out.

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No serious investor is currently looking in OC for buy and holds (unless they are getting something off market that is way below market value).  As you stated the cost versus rent is too high in the OC.  OC rentals are a play on appreciation and hoping for appreciation at these high prices is a gamble in my opinion. 

Californian,
The chart shows an interesting demographics shift in Irvine between 1980 and 2015. In 35 years, Irvine's Asian demographics grew from 8% to 45% between 1980 - 2015 while the White demographics shrunk from 85% to 40% in the same time frame. I am believe that the demographic shift that took place between 1980 - 2015 in Irvine will also take place in present day Forsyth County. Forsyth County's population currently sits at 221,009 as of 2016 from 175,511 in 2010. The white population decreased from 85.4% to 83.7% and the Asian population grew from 6.2% to 10.3% between 2010 - 2015. Forsyth County is currently the wealthiest county in the state of Georgia and 19th wealthiest county in the nation with the median income of $87,657 similar to that of Santa Clara County. Forsyth County is also the 7th fastest growing county in the nation. My personal end game is a 100% Forsyth County real estate investment portfolio.

Georgia is a landlord friendly state, whereas being a landlord in California or Cook County, IL is a whole different ball game if you have bad tenant who knows how to work the system. I personally have made a vow to myself to never own rental properties in the state of California or Cook County, IL.
https://www.census.gov/quickfacts/table/PST045216/13117- Forsyth County Statisticshttps://en.wikipedia.org/wiki/Forsyth_County,_Georgia- Forsyth County Statistics

Compare the demographics stats of Northview High School in Johns Creek vs Northwood High School in Irvine. The Asian demographics shift in Johns Creek changed much faster than I had anticipated. Northview High today looks a lot similar that of Northwood High today. The path of progress in terms of school clusters starts from Northview, then to Lambert, then to South Forsyth, then to West Forsyth, then to North Forsyth. 

I invest in Riverside County.  Be warned the price can drop from high to low by as much as 2/3.  Traffic on the 91/15 is unpleasant and the train ride from Riverside to Irvine in the morning can be standing room only.

If you buy low it is actually easy to make good cash flow, but now is not a good time to buy there (IMO).

Scary time to buy

x

two in a row.. nice.

x

momopi said:

I invest in Riverside County.  Be warned the price can drop from high to low by as much as 2/3.  Traffic on the 91/15 is unpleasant and the train ride from Riverside to Irvine in the morning can be standing room only.

If you buy low it is actually easy to make good cash flow, but now is not a good time to buy there (IMO).

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IE, RiverSide, prices haven't reached 2006 peak yet. Do you think prices wont even hit 2006 values?

OCLuvr said:

momopi said:

I invest in Riverside County.  Be warned the price can drop from high to low by as much as 2/3.  Traffic on the 91/15 is unpleasant and the train ride from Riverside to Irvine in the morning can be standing room only.

If you buy low it is actually easy to make good cash flow, but now is not a good time to buy there (IMO).

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IE prices haven't reached 2006 peak yet. Do you think prices wont even hit 2006 values?

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It just doesn't have the jobs to support those prices. Rent is still kind of cheap out there.

For South Riverside County area the SFR prices has doubled from 2009-2012 levels.  To reach 2005-2006 peak it would need to go up ~50% in value from today.

Roughly:
2005-2006 high:  $300K
2009-2012 low:  $100K
2017:  $200K

Nicer SFR's in good school districts will carry additional premium.

Would it not be better to invest in lower cost real estate in the OC than Riverside?

I don't know what the rent to cost ratio is... like a how much a $200k home in the IE compares to a $400k home in the OC.