Investing rental property in OC - where are some good zip codes/areas?

H

huuur

New member
Hi, I am a newbie in real estate investing and want to do some research - appreciate your help!

With housing prices growing so much, are there still areas in OC that potentially can offer cash flow - or at least break even, and with good appreciation potential?

It seems when Irvine became more expensive, more people might choose to live in nearby areas - lake forest, mission Viejo, etc - are those good options for investment properties?

Also, how do you do research to estimate the rental price and how fast you can rent out? I checked on Zillow - is that a good reference?
 
huuur said:
Hi, I am a newbie in real estate investing and want to do some research - appreciate your help!

With housing prices growing so much, are there still areas in OC that potentially can offer cash flow - or at least break even, and with good appreciation potential?

It seems when Irvine became more expensive, more people might choose to live in nearby areas - lake forest, mission Viejo, etc - are those good options for investment properties?

Also, how do you do research to estimate the rental price and how fast you can rent out? I checked on Zillow - is that a good reference?
Click to expand...

Recommend looking into Riverside area w/ good school. You get better rental/home price ratio than OC nowadays.  Btw, are you still on waiting list for Fresco?
 
Anywhere that has B+/B schools around Irvine is good....parts of Lake Forest, parts of Orange, Aliso Viejo, parts of Mission Viejo, Laguna Hills, Laguna Niguel, etc.  A realtor can help you run closed rental comps as no website will give you closed rental comps, even Zillow.  The rental market is as strong as the purchase market and all my rental listings have rented out in days with multiple applications.  Remember that you'll need to put 25% down on a rental property purchase.  Stick to 3-4 bedroom properties so you won't be competing with apartment complexes and will get the move-up renters. That being said, the lower end of the market is extremely hot so you will competing against buyers who are looking to live in a home so prepare to bid aggressively.
 
Danimal said:
huuur said:
Hi, I am a newbie in real estate investing and want to do some research - appreciate your help!

With housing prices growing so much, are there still areas in OC that potentially can offer cash flow - or at least break even, and with good appreciation potential?

It seems when Irvine became more expensive, more people might choose to live in nearby areas - lake forest, mission Viejo, etc - are those good options for investment properties?

Also, how do you do research to estimate the rental price and how fast you can rent out? I checked on Zillow - is that a good reference?
Click to expand...

Recommend looking into Riverside area w/ good school. You get better rental/home price ratio than OC nowadays.  Btw, are you still on waiting list for Fresco?
Click to expand...

Thank you - will check out Riverside!

I am still on waitinglist for Fresco - good memory, but I haven't received call yet. I think it became harder because many people don't defer any more
 
USCTrojanCPA said:
Anywhere that has B+/B schools around Irvine is good....parts of Lake Forest, parts of Orange, Aliso Viejo, parts of Mission Viejo, Laguna Hills, Laguna Niguel, etc.  A realtor can help you run closed rental comps as no website will give you closed rental comps, even Zillow.  The rental market is as strong as the purchase market and all my rental listings have rented out in days with multiple applications.  Remember that you'll need to put 25% down on a rental property purchase.  Stick to 3-4 bedroom properties so you won't be competing with apartment complexes and will get the move-up renters. That being said, the lower end of the market is extremely hot so you will competing against buyers who are looking to live in a home so prepare to bid aggressively.
Click to expand...

Thank you for your insights Martin, helpful as always.

My guess is that the smaller SFH with 2~4 bedrooms - low HOA and low property tax, usually produce better cash flow. You are right - it is probably very competitive now.

Do good schools matter a lot? By Irvine standard, you need to have 9/9/9 schools. Is 6/7 OK for a rental property?
 
huuur said:
USCTrojanCPA said:
Anywhere that has B+/B schools around Irvine is good....parts of Lake Forest, parts of Orange, Aliso Viejo, parts of Mission Viejo, Laguna Hills, Laguna Niguel, etc.  A realtor can help you run closed rental comps as no website will give you closed rental comps, even Zillow.  The rental market is as strong as the purchase market and all my rental listings have rented out in days with multiple applications.  Remember that you'll need to put 25% down on a rental property purchase.  Stick to 3-4 bedroom properties so you won't be competing with apartment complexes and will get the move-up renters. That being said, the lower end of the market is extremely hot so you will competing against buyers who are looking to live in a home so prepare to bid aggressively.
Click to expand...

Thank you for your insights Martin, helpful as always.

My guess is that the smaller SFH with 2~4 bedrooms - low HOA and low property tax, usually produce better cash flow. You are right - it is probably very competitive now.

Do good schools matter a lot? By Irvine standard, you need to have 9/9/9 schools. Is 6/7 OK for a rental property?
Click to expand...

I think 3bd detached condos and small SFR homes will probably yield the highest return from both rent per SF and potential future appreciation.  In terms of schools, I'd aim to get all 7s or higher if possible.  Yes, Riverside homes may be cheaper and may have better rental cash flow but those properties have more price volatility meaning that when the market normalizes and/or dips those properties will under perform similar properties in Orange County.  Also, the average renter out in Riverside won't be as strong as what you'll find in Orange County.  There's always a balance between rental cash flow and future potential appreciation (Irvine would be on the side of appreciation but Santa Ana would be on the side of cash flow). 
 
I agree with Martin on several points in regards to Riverside homes. I live in Eastvale and own a rental in Lake Elsinore.

During/After the 2008, homes in Riverside dropped 40%-50% in value. Homes in OC didn't drop this much.

Future appreciation in OC is also going to be more than Riverside.

And not only is the average renter in Riverside not as strong as one in OC, but the rental market is also a lot stronger in OC.

Basically, when I move to Bluffs 2 in the summer, I will sell both my Lake Elsinore and Eastvale homes. I've already gone through one crash on the Lake Elsinore home and it's finally above water again after 15 years, so I can't get rid of it fast enough. And I expect the housing market to cool down and stabilize soon, so I'm going to cash out on the Eastvale while it's actually make some money. I just hope that the housing market is still near the peak this summer.
 
Good to know, thank you for sharing!

How do you think about the appreciation of Eastvale? It actually has been branded among agents the "next Irvine", saying it has good schools, companies are moving in, etc.

CalBears96 said:
I agree with Martin on several points in regards to Riverside homes. I live in Eastvale and own a rental in Lake Elsinore.

During/After the 2008, homes in Riverside dropped 40%-50% in value. Homes in OC didn't drop this much.

Future appreciation in OC is also going to be more than Riverside.

And not only is the average renter in Riverside not as strong as one in OC, but the rental market is also a lot stronger in OC.

Basically, when I move to Bluffs 2 in the summer, I will sell both my Lake Elsinore and Eastvale homes. I've already gone through one crash on the Lake Elsinore home and it's finally above water again after 15 years, so I can't get rid of it fast enough. And I expect the housing market to cool down and stabilize soon, so I'm going to cash out on the Eastvale while it's actually make some money. I just hope that the housing market is still near the peak this summer.
Click to expand...
 
huuur said:
Good to know, thank you for sharing!

How do you think about the appreciation of Eastvale? It actually has been branded among agents the "next Irvine", saying it has good schools, companies are moving in, etc.
Click to expand...

I think there's a lot of truth to Eastvale being the Irvine of Riverside. There are companies moving in to Eastvale, but also to neighboring cities (Chino and Ontario). Appreciation of Eastvale had been good compared other cities in Riverside, I would say. My current home was estimated at around $600k a couple of years ago and now it's estimated at $870k. Schools were rated 8-9 about 10 years ago, but I think currently, they're 7-8. Still pretty good.

Eastvale used be rated a very safe city, but crimes had been increasing recently. I've read some news about increasing number of pot growers in the area.

All in all, I still think it's a good city to live in, just not as good as it used to be.
 
huuur said:
Also, how do you do research to estimate the rental price and how fast you can rent out? I checked on Zillow - is that a good reference?
Click to expand...

There is a website called www.Rentometer.com that I used to use and found to be pretty accurate for comparable rents.  Eventually, they switched to a subscription model (no longer free) and I wasn't a heavy enough user to justify paying, but if you need to look up a lot of properties in different areas, it could be a good resource for you.  I think they might still give 1-2 free reports so you can try the site out.

I would not trust any numbers published by Zillow.

 
That's super useful website, $59 per year doesn't feel a lot if they give a good rental estimate, thank you!


Liar Loan said:
huuur said:
Also, how do you do research to estimate the rental price and how fast you can rent out? I checked on Zillow - is that a good reference?
Click to expand...

There is a website called www.Rentometer.com that I used to use and found to be pretty accurate for comparable rents.  Eventually, they switched to a subscription model (no longer free) and I wasn't a heavy enough user to justify paying, but if you need to look up a lot of properties in different areas, it could be a good resource for you.  I think they might still give 1-2 free reports so you can try the site out.

I would not trust any numbers published by Zillow.
Click to expand...
 
So I begin to learn to analyze some potential rental properties --

For example, a 2b2b condo like this one in lake forest can rent $2500 per month, and the monthly mortage/HOA/Tax = $2400, but if you add maintenance/vacancy (20% of rental price), your cost is $2900 per month, so -$500 per month.
https://www.redfin.com/CA/Lake-Forest/21991-Rimhurst-Dr-92630/unit-F/home/177990633

A 4b 3.5B SFH can rent $4100, and the monthly mortage/HOA/Tax + maintainace/vacancy = $4000 + $860 = $4860, so - $760 per month
https://www.redfin.com/CA/Lake-Forest/25432-Elderwood-92630/home/4809650

Seem like initially south OC wouldn't have positive cash flow - these are just based on the asking price. And you can invest the same money to buy 2 condos, or 1 SFH, which is better?
 
huuur said:
So I begin to learn to analyze some potential rental properties --

For example, a 2b2b condo like this one in lake forest can rent $2500 per month, and the monthly mortage/HOA/Tax = $2400, but if you add maintenance/vacancy (20% of rental price), your cost is $2900 per month, so -$500 per month.
https://www.redfin.com/CA/Lake-Forest/21991-Rimhurst-Dr-92630/unit-F/home/177990633

A 4b 3.5B SFH can rent $4100, and the monthly mortage/HOA/Tax + maintainace/vacancy = $4000 + $860 = $4860, so - $760 per month
https://www.redfin.com/CA/Lake-Forest/25432-Elderwood-92630/home/4809650

Seem like initially south OC wouldn't have positive cash flow - these are just based on the asking price. And you can invest the same money to buy 2 condos, or 1 SFH, which is better?
Click to expand...

Are you using a 25% down payment and an interest rate that is 3/8% higher than a primary residence rate?  Using a 20% expense for vacancy and repairs seems high in this market.  The optimal rental property to buy is a 3bd condo with a lower HOA and no Mello Roos (preferrably detached) which will get you the maximum rent per SF.  You'll pick up move-up renters and then it'll be a great property for a move-up buyer when it's time to sell.
 
USCTrojanCPA said:
huuur said:
So I begin to learn to analyze some potential rental properties --

For example, a 2b2b condo like this one in lake forest can rent $2500 per month, and the monthly mortage/HOA/Tax = $2400, but if you add maintenance/vacancy (20% of rental price), your cost is $2900 per month, so -$500 per month.
https://www.redfin.com/CA/Lake-Forest/21991-Rimhurst-Dr-92630/unit-F/home/177990633

A 4b 3.5B SFH can rent $4100, and the monthly mortage/HOA/Tax + maintainace/vacancy = $4000 + $860 = $4860, so - $760 per month
https://www.redfin.com/CA/Lake-Forest/25432-Elderwood-92630/home/4809650

Seem like initially south OC wouldn't have positive cash flow - these are just based on the asking price. And you can invest the same money to buy 2 condos, or 1 SFH, which is better?
Click to expand...

Are you using a 25% down payment and an interest rate that is 3/8% higher than a primary residence rate?  Using a 20% expense for vacancy and repairs seems high in this market.  The optimal rental property to buy is a 3bd condo with a lower HOA and no Mello Roos (preferrably detached) which will get you the maximum rent per SF.  You'll pick up move-up renters and then it'll be a great property for a move-up buyer when it's time to sell.
Click to expand...

Yes, I am using 25% downpay,  4% interest rate
 
huuur said:
USCTrojanCPA said:
huuur said:
So I begin to learn to analyze some potential rental properties --

For example, a 2b2b condo like this one in lake forest can rent $2500 per month, and the monthly mortage/HOA/Tax = $2400, but if you add maintenance/vacancy (20% of rental price), your cost is $2900 per month, so -$500 per month.
https://www.redfin.com/CA/Lake-Forest/21991-Rimhurst-Dr-92630/unit-F/home/177990633

A 4b 3.5B SFH can rent $4100, and the monthly mortage/HOA/Tax + maintainace/vacancy = $4000 + $860 = $4860, so - $760 per month
https://www.redfin.com/CA/Lake-Forest/25432-Elderwood-92630/home/4809650

Seem like initially south OC wouldn't have positive cash flow - these are just based on the asking price. And you can invest the same money to buy 2 condos, or 1 SFH, which is better?
Click to expand...

Are you using a 25% down payment and an interest rate that is 3/8% higher than a primary residence rate?  Using a 20% expense for vacancy and repairs seems high in this market.  The optimal rental property to buy is a 3bd condo with a lower HOA and no Mello Roos (preferrably detached) which will get you the maximum rent per SF.  You'll pick up move-up renters and then it'll be a great property for a move-up buyer when it's time to sell.
Click to expand...

Yes, I am using 25% downpay,  4% interest rate
Click to expand...

I have to agree as well - A conservative vacancy would be 4% or one month every two years of rent collected.  Repairs/maintenance are going to be lower for a condo because you are not responsible for maintaining the outside.  If the condo is in good shape to begin with, your biggest expenses will be the occasional appliance that goes out or a re-carpet/re-paint when tenants move.  It also helps if you can do small repairs yourself instead of hiring a handyman.

One advantage to a pricier market like OC is that repairs tend to be smaller as a percentage of the rent collected compared to the Inland Empire.  I had a beach city condo from 2006-2017.  It was my primary residence and converted to a rental in 2010.  I tracked all expenses and market rents over that time and my repair/maintenance expenses were kept at 4.25%.  It helps if you can keep long term tenants; I had only one set of tenants for seven years and never re-painted or carpeted.  When small things would break, like the garbage disposal, I would fix them myself.  And if appliances stopped working, I would buy discounted replacements at Sears Outlet.

For your calculation you might want to figure up to 10% of rents, but make adjustments up or down based on assumptions of whether you would be able to do some things to save money, or if you would need to hire professionals to handle repairs, thereby driving up costs.
 
Liar Loan said:
huuur said:
USCTrojanCPA said:
huuur said:
So I begin to learn to analyze some potential rental properties --

For example, a 2b2b condo like this one in lake forest can rent $2500 per month, and the monthly mortage/HOA/Tax = $2400, but if you add maintenance/vacancy (20% of rental price), your cost is $2900 per month, so -$500 per month.
https://www.redfin.com/CA/Lake-Forest/21991-Rimhurst-Dr-92630/unit-F/home/177990633

A 4b 3.5B SFH can rent $4100, and the monthly mortage/HOA/Tax + maintainace/vacancy = $4000 + $860 = $4860, so - $760 per month
https://www.redfin.com/CA/Lake-Forest/25432-Elderwood-92630/home/4809650

Seem like initially south OC wouldn't have positive cash flow - these are just based on the asking price. And you can invest the same money to buy 2 condos, or 1 SFH, which is better?
Click to expand...

Are you using a 25% down payment and an interest rate that is 3/8% higher than a primary residence rate?  Using a 20% expense for vacancy and repairs seems high in this market.  The optimal rental property to buy is a 3bd condo with a lower HOA and no Mello Roos (preferrably detached) which will get you the maximum rent per SF.  You'll pick up move-up renters and then it'll be a great property for a move-up buyer when it's time to sell.
Click to expand...

Yes, I am using 25% downpay,  4% interest rate
Click to expand...

I have to agree as well - A conservative vacancy would be 4% or one month every two years of rent collected.  Repairs/maintenance are going to be lower for a condo because you are not responsible for maintaining the outside.  If the condo is in good shape to begin with, your biggest expenses will be the occasional appliance that goes out or a re-carpet/re-paint when tenants move.  It also helps if you can do small repairs yourself instead of hiring a handyman.

One advantage to a pricier market like OC is that repairs tend to be smaller as a percentage of the rent collected compared to the Inland Empire.  I had a beach city condo from 2006-2017.  It was my primary residence and converted to a rental in 2010.  I tracked all expenses and market rents over that time and my repair/maintenance expenses were kept at 4.25%.  It helps if you can keep long term tenants; I had only one set of tenants for seven years and never re-painted or carpeted.  When small things would break, like the garbage disposal, I would fix them myself.  And if appliances stopped working, I would buy discounted replacements at Sears Outlet.

For your calculation you might want to figure up to 10% of rents, but make adjustments up or down based on assumptions of whether you would be able to do some things to save money, or if you would need to hire professionals to handle repairs, thereby driving up costs.
Click to expand...

I disagree, collectively, repairs, maintenance and HOA will be higher.  In my experience, many HOA massively over pay for maintenance.  In addition, depending on the rental community, HOAs can be very dollar dumb in the short term.  We have a rental we will be selling once we get the tenants out because the HOA is taking a another run at cancelling earthquake insurance vote.

 
Liar Loan said:
huuur said:
USCTrojanCPA said:
huuur said:
So I begin to learn to analyze some potential rental properties --

For example, a 2b2b condo like this one in lake forest can rent $2500 per month, and the monthly mortage/HOA/Tax = $2400, but if you add maintenance/vacancy (20% of rental price), your cost is $2900 per month, so -$500 per month.
https://www.redfin.com/CA/Lake-Forest/21991-Rimhurst-Dr-92630/unit-F/home/177990633

A 4b 3.5B SFH can rent $4100, and the monthly mortage/HOA/Tax + maintainace/vacancy = $4000 + $860 = $4860, so - $760 per month
https://www.redfin.com/CA/Lake-Forest/25432-Elderwood-92630/home/4809650

Seem like initially south OC wouldn't have positive cash flow - these are just based on the asking price. And you can invest the same money to buy 2 condos, or 1 SFH, which is better?
Click to expand...

Are you using a 25% down payment and an interest rate that is 3/8% higher than a primary residence rate?  Using a 20% expense for vacancy and repairs seems high in this market.  The optimal rental property to buy is a 3bd condo with a lower HOA and no Mello Roos (preferrably detached) which will get you the maximum rent per SF.  You'll pick up move-up renters and then it'll be a great property for a move-up buyer when it's time to sell.
Click to expand...

Yes, I am using 25% downpay,  4% interest rate
Click to expand...

I have to agree as well - A conservative vacancy would be 4% or one month every two years of rent collected.  Repairs/maintenance are going to be lower for a condo because you are not responsible for maintaining the outside.  If the condo is in good shape to begin with, your biggest expenses will be the occasional appliance that goes out or a re-carpet/re-paint when tenants move.  It also helps if you can do small repairs yourself instead of hiring a handyman.

One advantage to a pricier market like OC is that repairs tend to be smaller as a percentage of the rent collected compared to the Inland Empire.  I had a beach city condo from 2006-2017.  It was my primary residence and converted to a rental in 2010.  I tracked all expenses and market rents over that time and my repair/maintenance expenses were kept at 4.25%.  It helps if you can keep long term tenants; I had only one set of tenants for seven years and never re-painted or carpeted.  When small things would break, like the garbage disposal, I would fix them myself.  And if appliances stopped working, I would buy discounted replacements at Sears Outlet.

For your calculation you might want to figure up to 10% of rents, but make adjustments up or down based on assumptions of whether you would be able to do some things to save money, or if you would need to hire professionals to handle repairs, thereby driving up costs.
Click to expand...

Good to know!

Seem like 3br is a good option from both a dollar$ rental per sqft and an appreciation perspective.

Condo is cheaper than SFH,  but HOA bill can be huge and feel like something outside your control. 

Many South OC condos have $400 or up HOAs which is really high..

How do you think about Yorba Linda? It seems to have very good schools, you can find older SFH under $900K with low HOA - home is cheaper than lake forest - is it a good place for rental property?

For examplehttps://www.redfin.com/CA/Yorba-Linda/5510-Westfield-St-92887/home/4274948


 
huuur said:
Liar Loan said:
huuur said:
USCTrojanCPA said:
huuur said:
So I begin to learn to analyze some potential rental properties --

For example, a 2b2b condo like this one in lake forest can rent $2500 per month, and the monthly mortage/HOA/Tax = $2400, but if you add maintenance/vacancy (20% of rental price), your cost is $2900 per month, so -$500 per month.
https://www.redfin.com/CA/Lake-Forest/21991-Rimhurst-Dr-92630/unit-F/home/177990633

A 4b 3.5B SFH can rent $4100, and the monthly mortage/HOA/Tax + maintainace/vacancy = $4000 + $860 = $4860, so - $760 per month
https://www.redfin.com/CA/Lake-Forest/25432-Elderwood-92630/home/4809650

Seem like initially south OC wouldn't have positive cash flow - these are just based on the asking price. And you can invest the same money to buy 2 condos, or 1 SFH, which is better?
Click to expand...

Are you using a 25% down payment and an interest rate that is 3/8% higher than a primary residence rate?  Using a 20% expense for vacancy and repairs seems high in this market.  The optimal rental property to buy is a 3bd condo with a lower HOA and no Mello Roos (preferrably detached) which will get you the maximum rent per SF.  You'll pick up move-up renters and then it'll be a great property for a move-up buyer when it's time to sell.
Click to expand...

Yes, I am using 25% downpay,  4% interest rate
Click to expand...

I have to agree as well - A conservative vacancy would be 4% or one month every two years of rent collected.  Repairs/maintenance are going to be lower for a condo because you are not responsible for maintaining the outside.  If the condo is in good shape to begin with, your biggest expenses will be the occasional appliance that goes out or a re-carpet/re-paint when tenants move.  It also helps if you can do small repairs yourself instead of hiring a handyman.

One advantage to a pricier market like OC is that repairs tend to be smaller as a percentage of the rent collected compared to the Inland Empire.  I had a beach city condo from 2006-2017.  It was my primary residence and converted to a rental in 2010.  I tracked all expenses and market rents over that time and my repair/maintenance expenses were kept at 4.25%.  It helps if you can keep long term tenants; I had only one set of tenants for seven years and never re-painted or carpeted.  When small things would break, like the garbage disposal, I would fix them myself.  And if appliances stopped working, I would buy discounted replacements at Sears Outlet.

For your calculation you might want to figure up to 10% of rents, but make adjustments up or down based on assumptions of whether you would be able to do some things to save money, or if you would need to hire professionals to handle repairs, thereby driving up costs.
Click to expand...

Good to know!

Seem like 3br is a good option from both a dollar$ rental per sqft and an appreciation perspective.

Condo is cheaper than SFH,  but HOA bill can be huge and feel like something outside your control. 

Many South OC condos have $400 or up HOAs which is really high
Click to expand...

Hence try to buy a detached condo if you can, the sales price will be higher but your HOA will be about 1/2 of must.
 
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