Investment SFR in Irvine up to 1.5M - Anything??

rayzam

New member
Hi I need your help again! I usually buy multiunits for investment but I'm very uncomfortable with the current OC/LA markets and their overinflated asking prices, so I'm back in Irvine. Any good investment properties below $1.5M to consider in Irvine? I never even considered anything with cap below 5, but I did a quick check on Redfin and the cap rates on SFRs I see here are not higher than 3-3.5% (and even lower in newer places with higher MR) so I'm open to make concessions on cap if there is realistic hope of equity growth in long-term. Please advise. 
 
rayzam said:
Hi I need your help again! I usually buy multiunits for investment but I'm very uncomfortable with the current OC/LA markets and their overinflated asking prices, so I'm back in Irvine. Any good investment properties below $1.5M to consider in Irvine? I never even considered anything with cap below 5, but I did a quick check on Redfin and the cap rates on SFRs I see here are not higher than 3-3.5% (and even lower in newer places with higher MR) so I'm open to make concessions on cap if there is realistic hope of equity growth in long-term. Please advise. 

I think your best bet would be to buy a true SFR with lower HOA and lower Mello Roos.  Maybe an older home with a larger lot that you can update.  I'd focus on 4+ bedroom with a downstairs bedroom and full bath home (having a loft is a plus).  In 4-5 years, Orchard Hills/Eastwood/Portola Springs will be sold out of new homes and that will force many buyers into the resale market so I see Irvine home prices rising as new home inventory declines.  Are you looking to do a 1031 exchange?
 
I would pick this, you could get it under $1.5M I?m sure:https://www.redfin.com/CA/Irvine/45-Tesoro-92618/home/45376446

Location still wins real estate wars and this is coastal close but neighborhood feel is newer than older affordable turtles.  I still say Laguna Altura has some weird mojo to it, very calm and soothing/peaceful inside.  Feels like you?re at a forest near a beach with a cool breeze.  No i don?t live here.
 
USCTrojanCPA said:
I think your best bet would be to buy a true SFR with lower HOA and lower Mello Roos.  Maybe an older home with a larger lot that you can update.  I'd focus on 4+ bedroom with a downstairs bedroom and full bath home (having a loft is a plus).  In 4-5 years, Orchard Hills/Eastwood/Portola Springs will be sold out of new homes and that will force many buyers into the resale market so I see Irvine home prices rising as new home inventory declines.  Are you looking to do a 1031 exchange?
Thanks! By older homes with lower HOA/MR, are you referring to areas like Walnut/El Camino (e.g.https://www.redfin.com/CA/Irvine/5101-Bordeaux-Ave-92604/home/4681825)or Westpark/Woodbridge/TR (https://www.redfin.com/CA/Irvine/48-Sorrento-92614/home/4657588 orhttps://www.redfin.com/CA/Irvine/15-Marsh-Hawk-92604/home/4691162)?

I also see those built in early 2000 (e.g. Northwood/Woodbury - maybehttps://www.redfin.com/CA/Irvine/60-Bamboo-92620/home/5931309orhttps://www.redfin.com/CA/Irvine/45-Rising-Sun-92620/home/5950658).The MR is obviously higher but aren't they more likely to hold/gain long-term value?
 
aquabliss said:
I would pick this, you could get it under $1.5M I?m sure:https://www.redfin.com/CA/Irvine/45-Tesoro-92618/home/45376446

Location still wins real estate wars and this is coastal close but neighborhood feel is newer than older affordable turtles.  I still say Laguna Altura has some weird mojo to it, very calm and soothing/peaceful inside.  Feels like you?re at a forest near a beach with a cool breeze.  No i don?t live here.

Thanks for the suggestion! That's certainly a nice house to live in and I also like the areas west of 405. That street name actually brings many good memories (we bought our first home with help of USCTrojan ten years ago in a Newport community with the same name). How much do these go for rent? I doubt it will be much more than $5k. At $1.5M sales price and assuming a $20K tax bill, $3360 HOA, ~$1500 insurance and even no vacancy and all other major expenses covered by the builder warranty (do they still honor warranty on a rental?) the cap comes to around 2.3%. Not that bad compared with what I see in Irvine but it still has to have very good growth potentials to justify an investment. What do you think?
 
rayzam said:
USCTrojanCPA said:
I think your best bet would be to buy a true SFR with lower HOA and lower Mello Roos.  Maybe an older home with a larger lot that you can update.  I'd focus on 4+ bedroom with a downstairs bedroom and full bath home (having a loft is a plus).  In 4-5 years, Orchard Hills/Eastwood/Portola Springs will be sold out of new homes and that will force many buyers into the resale market so I see Irvine home prices rising as new home inventory declines.  Are you looking to do a 1031 exchange?
Thanks! By older homes with lower HOA/MR, are you referring to areas like Walnut/El Camino (e.g.https://www.redfin.com/CA/Irvine/5101-Bordeaux-Ave-92604/home/4681825)or Westpark/Woodbridge/TR (https://www.redfin.com/CA/Irvine/48-Sorrento-92614/home/4657588 orhttps://www.redfin.com/CA/Irvine/15-Marsh-Hawk-92604/home/4691162)?

I also see those built in early 2000 (e.g. Northwood/Woodbury - maybehttps://www.redfin.com/CA/Irvine/60-Bamboo-92620/home/5931309orhttps://www.redfin.com/CA/Irvine/45-Rising-Sun-92620/home/5950658).The MR is obviously higher but aren't they more likely to hold/gain long-term value?

For older areas, I would stick homes with good floor plans in Turtle Rock, Northwood, University Park, and Woodbridge.  Another type of home to focus in on is a single story home, they have appreciated at a slightly higher rate than 2-story homes (they have in my tract in Tustin Ranch).  Having a good floor plan and location will be the 2 biggest drivers for future price appreciation.  Also, buying something that needs some TLC provide more value after remodeling it before you sell it.  Never buy the nicest house on the block.
 
Thanks! I'll keep looking, keeping your suggestions in mind. Btw sorry I forgot to answer your question: It's not a 1031 exchange and I'm buying with conventional financing this time. Thanks! 
 
rayzam said:
Thanks! I'll keep looking, keeping your suggestions in mind. Btw sorry I forgot to answer your question: It's not a 1031 exchange and I'm buying with conventional financing this time. Thanks! 

Feel free to reach out to me anytime if you want a copy of floor plans before looking at homes as I have access to just about every floor plan in Orange County, including Irvine.
 
no disrepect but there is nothing worth buying in Irvine for an investment, especially at the 1.5M range.  Unless you expect massive appreciation, this will be a money drain.  The numbers simply wont work out especially with conventional financing as you mentioned.  Just a rough estimate, 1.5M home will put you back about 8k a month with 20% down.  rents for these homes will likely fetch about 5k a month.  assuming no major repairs, no vacancies you will be 3k negative on cash flow each month.

Im sure you have done well in the past with other real estate investments, but this is a different time now.  good luck.  you will need it.
 
Thanks so much USCTrojan! You've always been so incredibly helpful to me!

@meccos12: I couldn't agree anymore that cash flow is quite pathetic here in Irvine. I usually put down a bit more (35-50%) so the monthly numbers will be better, but still it's money out of my pocket that goes to down-payment.
My concern is that the multiunit market is even riskier. I purchased a 4plex in Anaheim last summer for around $900K (regular sale with financing) and the same type of property is frequently listed for $1.1-1.2M now. There is nothing in this economy that justifies a 20-30% appreciation in just one year. Compared with that, the Irvine market seems to be a lot more restrained. That's why I thought maybe an SFR here makes sense now as the supply of the new homes is putting pressure on the prices of existing homes. Not sure really...   
 
Seems like new construction in Irvine has enjoyed the 20-30% type appreciation in last one year. Delano and Piedmont (SFR) in Eastwood village have seen a minimum of 20% appreciation. Probably same for Trellis court in Cypress village.
 
I agree with meccos12. There is nothing worth buying in Irvine for an investment, especially at your price range. This is a terrible entry time for an Irvine RE investment. The high carrying cost plus the low rent will heavily eat into your profits. I think most would agree that the biggest price gains had already taken place. I have been helping my "Irvine or bust " parents find a property for a 1031 exchange over the past 6 months and it's hard to pull the trigger. Even with depreciation benefits, nothing makes financial sense when we breakdown the numbers. And you are not doing a 1031 exchange & going with a conventional loan would make the numbers look even worse.

But if you must buy RE now, I would recommend looking at Eichler homes. These Eichler homes are rare and the demand for them is huge. They trade at a super premium (over $500 per sqft in 2015  :eek: ) and have a cult like following like Tesla but crazier.
https://www.redfin.com/CA/Orange/1789-N-Shaffer-St-92865/home/4350221


USCTrojanCPA said:
Never buy the nicest house on the block.
If you are crazy enough to buy one of these, I would even recommend going against above professional advice. Buy the nicest Eichler, these are almost like collectibles. The nicest Eichler will generate the biggest premium.
 
Kenkoko said:
But if you must buy RE now, I would recommend looking at Eichler homes. These Eichler homes are rare and the demand for them is huge. They trade at a super premium (over $500 per sqft in 2015  :eek: ) and have a cult like following like Tesla but crazier.
https://www.redfin.com/CA/Orange/1789-N-Shaffer-St-92865/home/4350221

Regarding to Eichler homes:

$1 million Eichler: Orange house by midcentury developer is said to break sale record:https://www.ocregister.com/2017/02/...ntury-developer-is-said-to-break-sale-record/

And here's an realtor specialized in Eichler homes: http://www.eichlersocal.com/
 
Rayzam,

I think you are much better off parking that money in a few homes with Panda in Georgia.  You will cash flow there and there is room for appreciation there in my opinion.  Plus you will be diversified outside of Ca where you have crazy swings in home prices.
If I had that much cash and wanted to park it in real estate, that is what I would consider doing.  Just giving you options.

 
@Rayzam, you should also look into investing in syndications for diversity.  You can invest in large MF buildings, student housing, assisted facilities, commercial buildings, etc.  Yield is generally around 5-7% and IRR is low teens.  OOS investing is not without hassle and projected returns can easily be wiped out by a single bad tenant.
 
@Irvinehomeseeker: I was under the impression that the high appreciations were mostly limited to new builds. It's quite a common practice for builders to price the earlier phases at lower numbers to test the market or generate excitement and once the people keeps coming in, they jack up the prices. I don't usually see annualized appreciations around 20% or so in existing homes in Irvine in the past few years. We bought a relatively new single level SFR in North Park with USCTrojan back in 2012 (a short sale) for around $900k and looking at the comps today, I don't think it goes for more than $1.3M now, so that's around 45% appreciation in 6 years or 7-8% annual.       

@Kenkoko/Inc: Thanks for sharing the info on Eichler homes. I'll look into them. I thought I knew a thing or two about RE but I guess I still have a lot to learn. I know the 4BR/2Bath single-level SFRs were quiet the norm in the 60s here but not sure why someone rebuilds a house from the ground up now and doesn't add an extra bathroom or at least a powder room. 

@meccos12: Thanks, I think I'm not ready for OOS investment yet, but do you have links to a few sample listings there? Just want to get an idea of the type of the products you're referring to.

@woodburyowner: Thanks, I did buy a commercial plus a few multi-units (10-20 unit properties, some section 8) in South Bay/Hawthorne/north OC area in 2010-2012 and they have been generating solid >9-10% cap plus nice appreciation (comps more than doubled in today's bubble). But I cannot find anything with caps over 4-4.5% today. If you look at their numbers, they commonly take the inflated pro forma rent and not the actual ones, artificially lower the expenses (e.g. take the current tax bill vs. the newly appraised value after the sale) and then multiply the "net" by 20-25 to be able to claim a 4-5% cap while in reality the cap is much lower. At least that's what I'm seeing now in this market...     
 
rayzam said:
@Irvinehomeseeker: I was under the impression that the high appreciations were mostly limited to new builds. It's quite a common practice for builders to price the earlier phases at lower numbers to test the market or generate excitement and once the people keeps coming in, they jack up the prices. I don't usually see annualized appreciations around 20% or so in existing homes in Irvine in the past few years. We bought a relatively new single level SFR in North Park with USCTrojan back in 2012 (a short sale) for around $900k and looking at the comps today, I don't think it goes for more than $1.3M now, so that's around 45% appreciation in 6 years or 7-8% annual.       

@Kenkoko/Inc: Thanks for sharing the info on Eichler homes. I'll look into them. I thought I knew a thing or two about RE but I guess I still have a lot to learn. I know the 4BR/2Bath single-level SFRs were quiet the norm in the 60s here but not sure why someone rebuilds a house from the ground up now and doesn't add an extra bathroom or at least a powder room. 

@meccos12: Thanks, I think I'm not ready for OOS investment yet, but do you have links to a few sample listings there? Just want to get an idea of the type of the products you're referring to.

@woodburyowner: Thanks, I did buy a commercial plus a few multi-units (10-20 unit properties, some section 8) in South Bay/Hawthorne/north OC area in 2010-2012 and they have been generating solid >9-10% cap plus nice appreciation (comps more than doubled in today's bubble). But I cannot find anything with caps over 4-4.5% today. If you look at their numbers, they commonly take the inflated pro forma rent and not the actual ones, artificially lower the expenses (e.g. take the current tax bill vs. the newly appraised value after the sale) and then multiply the "net" by 20-25 to be able to claim a 4-5% cap while in reality the cap is much lower. At least that's what I'm seeing now in this market...   

Rayam:
https://www.talkirvine.com/index.php/topic,3823.0.html
 
I agree with the purchase of a SFR with lower HOA and MR as the best strategy but not sure you need to go all the way to 1.5. I think you should target 1.00-1.25. Remember return goes up as rents go up and tax rate stays lower and increases slower.

My friend owns three homes purchased in 2014, 2015, 2016. There has been considerable appreciation on all in just a short few years. Minus that the rents have also increased. I'm not talking about the multifamily garbage in the news where people are talking about rents going up 30 or 40% from the year before (which is not cool) just your standard 3% increase.
 
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