Cashflow Investment Property (Inland Empire)

D

DollarOutta15cents_IHB

New member
I read the blog and forum daily. I have learned quite a bit about the real estate in Irvine, where it was, where it is, and where everyone thinks its going. But my question is regarding the properties in the Inland Empire. I have several questions.



1) Are these good properties to purchase for investment purposes? I have been putting numbers into the calculator as well as comparing rents in the areas. It seems like many properties in Riverside could have potential positive cashflow. What are the potential issues here? Obviously vacancy and instability of rent prices are the two that come to mind. But it seems as though this could still be a good investment opportunity in these areas. As an example I have seen certain properties going for approx. 100-130k. These could rent out for approx 1000-1500 (according to other rentals on CL).



2) Secondly I don't currrently own a home, so having this investment property could be a tax shelter for me. If I don't own a home, nor ever owned one, can I still claim this as my primary residence? What are the differences between a primary residence and an investment property for tax purposes?



3) With prices so cheap, and assuming I have $80k to invest, would I be better off buying a property outright (or close to it), or buying a couple of properties and carry a mortgage on each?



Also I was talking to someone at a dinner party and he mentioned that he had an excel sheet which he used to calculate several factors when looking at investment properties. If any of you use excel sheets in some type of similar way, I would like to see what factors you use in making your evaluations. Perhaps IR has already done some calculations on this and I missed it.
 
<blockquote></blockquote>2) Secondly I don?t currrently own a home, so having this investment property could be a tax shelter for me. If I don?t own a home, nor ever owned one, can I still claim this as my primary residence? What are the differences between a primary residence and an investment property for tax purposes?



<blockquote></blockquote>


No, you would itemize any deductions for it. You would have your accountant do a schedule E where you would include the income from the property, deduct the expenses (mortgage interest, taxes, repairs made after becoming available to rent, advertising costs, insurance, etc...). Essentially it's income less expenses. The depreciation allowance is what often makes a cash flow positive property actually be a loss for tax purposes. There are income limitations to taking a loss. We were not able to deduct our full loss this last year.



If you make any repairs to the property before making it available to rent, then have to depreciate those as well. If they are made after the property is put into service, then you deduct the entire repair. Improvements are depreciated regardless of when they are made. If you pay points, you have to amortize those as well.



A primary residence as well as a second home have deductions for interest, points on a purchase and taxes (and now PMI) that people itemize on their schedule A. Repairs, improvement and insurance are not deductible.



You definitely want to talk to a tax specialist before deciding whether there are any tax advantages for you.
 
[quote author="DollarOutta15cents" date=1242716741]I read the blog and forum daily. I have learned quite a bit about the real estate in Irvine, where it was, where it is, and where everyone thinks its going. But my question is regarding the properties in the Inland Empire. I have several questions.



1) Are these good properties to purchase for investment purposes? I have been putting numbers into the calculator as well as comparing rents in the areas. It seems like many properties in Riverside could have potential positive cashflow. What are the potential issues here? Obviously vacancy and instability of rent prices are the two that come to mind. But it seems as though this could still be a good investment opportunity in these areas. As an example I have seen certain properties going for approx. 100-130k. These could rent out for approx 1000-1500 (according to other rentals on CL).

</blockquote>


There are cashflow positive properties all over Riverside County. There are some very good deals to be had. Of course, they will probably get even better because the foreclosure crisis is not over there.

<blockquote>



2) Secondly I don't currrently own a home, so having this investment property could be a tax shelter for me. If I don't own a home, nor ever owned one, can I still claim this as my primary residence? What are the differences between a primary residence and an investment property for tax purposes?



3) With prices so cheap, and assuming I have $80k to invest, would I be better off buying a property outright (or close to it), or buying a couple of properties and carry a mortgage on each?



Also I was talking to someone at a dinner party and he mentioned that he had an excel sheet which he used to calculate several factors when looking at investment properties. If any of you use excel sheets in some type of similar way, I would like to see what factors you use in making your evaluations. Perhaps IR has already done some calculations on this and I missed it.</blockquote>


We are working on a simple calculator for investment properties to use on the blog. It will be a while before it is ready though. Our current calculator will get you close, you will need to factor in vacancy and collection loss, and a higher maintenance expense, but it will tell you if a property is cashflow positive.
 
[quote author="IrvineRenter" date=1242722513]

There are cashflow positive properties all over Riverside County. There are some very good deals to be had. Of course, they will probably get even better because the foreclosure crisis is not over there.

<snip>

We are working on a simple calculator for investment properties to use on the blog. It will be a while before it is ready though. Our current calculator will get you close, you will need to factor in vacancy and collection loss, and a higher maintenance expense, but it will tell you if a property is cashflow positive.</blockquote>


One word, vacancy.



All the calculations I've seen don't account for the reality of the vacancy situation in the IE.
 
Two words: Deadbeat tenants.





they destroy your place, set up meth labs, run out on the rent, you have to evict them, and their checks bounce. they get laid off, fired, or don't sell enough dope that month.





this is of course the corollary of vacancy..if vacancy is low, you can be more selective about the tenants, but if the place is sitting empty for a few months, you tend to become more accepting of people with 'dings'
 
[quote author="freedomCM" date=1242729077]Two words: Deadbeat tenants.





they destroy your place, set up meth labs, run out on the rent, you have to evict them, and their checks bounce. they get laid off, fired, or don't sell enough dope that month.





this is of course the corollary of vacancy..if vacancy is low, you can be more selective about the tenants, but if the place is sitting empty for a few months, you tend to become more accepting of people with 'dings'</blockquote>


That's always been my instinct about the IE. If you have a place in a desirable area you get a choice of good quality prospective tenants. I'm sure there are parts of the IE that are desirable, but if you don't know those areas specifically, then it seems to be a heck of a lot more headache than the prospetive several hundred bucks of income you net out after everything.
 
I wish I took a camera on my IE field trip today. I haven't been out there in 24 months or so. It literally was like watching Escape from New York.



You gotta ask yourself - who rents in a neighborhood blighted with abandoned foreclosures?



This is getting worse not better.
 
Punch "University (Riverside, CA)" into Redfin. This is a small area with only a limited number of houses for sale at any one time. Find a four bedroom for under $200k perferably, max $250k or so, IMHO. Obviously, you are looking for UCR students here as tenants.



<a href="http://www.redfin.com/search#excl_ss=true&lat=33.97792204685257&long;=-117.32760746631298&market=socal&region_id=2800&region_type=1&schools=true&status=1&uipt=1&v=4&zoomLevel=14">If this link works correctly it should show all the houses in the area</a>



<a href="http://inlandempire.craigslist.org/search/apa?query=ucr&minAsk=min&maxAsk=max&bedrooms=4">Here's a Craigslist search for 4 bedroom+ houses with "UCR" in the description</a>



May 18 - $1525 / 4br - Beautiful House in Riverside - (Riverside) pic



May 18 - $2300 / 5br - 5 br 3 ba 2550 sq ft, Pool, 2-car garage, UCR - (Riverside) pic



May 18 - $1995 / 4br - UCR-Walking distance,Nice area - (Riverside, UCR)



May 18 - $2450 / 4br - UCR 4 Bedroom/2 Baths for rent!! VERY CLOSE TO CAMPUS - (370 W. Blaine St.)



May 17 - $2075 / 5br - Beautiful spacious home located in a safe new neighborhood - (Moreno Valley, near UCR) pic



May 17 - $1855 / 4br - Walk 2 class! Near UCR two-blocks away! - (Riverside (UCR)) pic img



May 17 - $1995 / 5br - Incredible view! By UC Riverside: Two-stories - (Riverside (UCR)) pic img



May 17 - $1725 / 4br - 2.5 bath House - Walk to UCR - (UCR, Blaine and Watkins) pic



May 17 - $1900 / 4br - 5 minutes walk to UC Riverside - (Nisbet/Watkins) pic



May 17 - $2000 / 4br - House on Hill in Canyon Crest area (near UCR) - (20320 Stanford Ave. Riverside, Ca. 92507) pic



Do the math, and I smell profit, even factoring in frequent turnover and vacancies.
 
[quote author="Geotpf" date=1242732565]Punch "University (Riverside, CA)" into Redfin. This is a small area with only a limited number of houses for sale at any one time. Find a four bedroom for under $200k perferably, max $250k or so, IMHO. Obviously, you are looking for UCR students here as tenants.



<a href="http://www.redfin.com/search#excl_ss=true&lat=33.97792204685257&long;=-117.32760746631298&market=socal&region_id=2800&region_type=1&schools=true&status=1&uipt=1&v=4&zoomLevel=14">If this link works correctly it should show all the houses in the area</a>



<a href="http://inlandempire.craigslist.org/search/apa?query=ucr&minAsk=min&maxAsk=max&bedrooms=4">Here's a Craigslist search for 4 bedroom+ houses with "UCR" in the description</a>



May 18 - $1525 / 4br - Beautiful House in Riverside - (Riverside) pic



May 18 - $2300 / 5br - 5 br 3 ba 2550 sq ft, Pool, 2-car garage, UCR - (Riverside) pic



May 18 - $1995 / 4br - UCR-Walking distance,Nice area - (Riverside, UCR)



May 18 - $2450 / 4br - UCR 4 Bedroom/2 Baths for rent!! VERY CLOSE TO CAMPUS - (370 W. Blaine St.)



May 17 - $2075 / 5br - Beautiful spacious home located in a safe new neighborhood - (Moreno Valley, near UCR) pic



May 17 - $1855 / 4br - Walk 2 class! Near UCR two-blocks away! - (Riverside (UCR)) pic img



May 17 - $1995 / 5br - Incredible view! By UC Riverside: Two-stories - (Riverside (UCR)) pic img



May 17 - $1725 / 4br - 2.5 bath House - Walk to UCR - (UCR, Blaine and Watkins) pic



May 17 - $1900 / 4br - 5 minutes walk to UC Riverside - (Nisbet/Watkins) pic



May 17 - $2000 / 4br - House on Hill in Canyon Crest area (near UCR) - (20320 Stanford Ave. Riverside, Ca. 92507) pic



Do the math, and I smell profit, even factoring in frequent turnover and vacancies.</blockquote>
Has the enrollment at UCR been increasing? Is student housing limited on or around campus?
 
[quote author="usctrojanman29" date=1242734383][quote author="Geotpf" date=1242732565]Punch "University (Riverside, CA)" into Redfin. This is a small area with only a limited number of houses for sale at any one time. Find a four bedroom for under $200k perferably, max $250k or so, IMHO. Obviously, you are looking for UCR students here as tenants.



<a href="http://www.redfin.com/search#excl_ss=true&lat=33.97792204685257&long;=-117.32760746631298&market=socal&region_id=2800&region_type=1&schools=true&status=1&uipt=1&v=4&zoomLevel=14">If this link works correctly it should show all the houses in the area</a>



<a href="http://inlandempire.craigslist.org/search/apa?query=ucr&minAsk=min&maxAsk=max&bedrooms=4">Here's a Craigslist search for 4 bedroom+ houses with "UCR" in the description</a>



May 18 - $1525 / 4br - Beautiful House in Riverside - (Riverside) pic



May 18 - $2300 / 5br - 5 br 3 ba 2550 sq ft, Pool, 2-car garage, UCR - (Riverside) pic



May 18 - $1995 / 4br - UCR-Walking distance,Nice area - (Riverside, UCR)



May 18 - $2450 / 4br - UCR 4 Bedroom/2 Baths for rent!! VERY CLOSE TO CAMPUS - (370 W. Blaine St.)



May 17 - $2075 / 5br - Beautiful spacious home located in a safe new neighborhood - (Moreno Valley, near UCR) pic



May 17 - $1855 / 4br - Walk 2 class! Near UCR two-blocks away! - (Riverside (UCR)) pic img



May 17 - $1995 / 5br - Incredible view! By UC Riverside: Two-stories - (Riverside (UCR)) pic img



May 17 - $1725 / 4br - 2.5 bath House - Walk to UCR - (UCR, Blaine and Watkins) pic



May 17 - $1900 / 4br - 5 minutes walk to UC Riverside - (Nisbet/Watkins) pic



May 17 - $2000 / 4br - House on Hill in Canyon Crest area (near UCR) - (20320 Stanford Ave. Riverside, Ca. 92507) pic



Do the math, and I smell profit, even factoring in frequent turnover and vacancies.</blockquote>
Has the enrollment at UCR been increasing? Is student housing limited on or around campus?</blockquote>


Enrollment is up, and is projected to continue to increase-but construction (of housing or anything else) is limited due to the budget cuts. (There are even some (non-residential) buildings 90%+ complete that have sitting around vacant for months due to the state budget being so screwed up.)



Plus, if you split the rent four ways, it's still probably cheaper than a dorm room, or at least close. Wouldn't you perfer your own bedroom, a full kitchen, etc., to a tiny dorm room, shared with somebody else?
 
[quote author="Geotpf" date=1242734673][quote author="usctrojanman29" date=1242734383][quote author="Geotpf" date=1242732565]Punch "University (Riverside, CA)" into Redfin. This is a small area with only a limited number of houses for sale at any one time. Find a four bedroom for under $200k perferably, max $250k or so, IMHO. Obviously, you are looking for UCR students here as tenants.



<a href="http://www.redfin.com/search#excl_ss=true&lat=33.97792204685257&long;=-117.32760746631298&market=socal&region_id=2800&region_type=1&schools=true&status=1&uipt=1&v=4&zoomLevel=14">If this link works correctly it should show all the houses in the area</a>



<a href="http://inlandempire.craigslist.org/search/apa?query=ucr&minAsk=min&maxAsk=max&bedrooms=4">Here's a Craigslist search for 4 bedroom+ houses with "UCR" in the description</a>



May 18 - $1525 / 4br - Beautiful House in Riverside - (Riverside) pic



May 18 - $2300 / 5br - 5 br 3 ba 2550 sq ft, Pool, 2-car garage, UCR - (Riverside) pic



May 18 - $1995 / 4br - UCR-Walking distance,Nice area - (Riverside, UCR)



May 18 - $2450 / 4br - UCR 4 Bedroom/2 Baths for rent!! VERY CLOSE TO CAMPUS - (370 W. Blaine St.)



May 17 - $2075 / 5br - Beautiful spacious home located in a safe new neighborhood - (Moreno Valley, near UCR) pic



May 17 - $1855 / 4br - Walk 2 class! Near UCR two-blocks away! - (Riverside (UCR)) pic img



May 17 - $1995 / 5br - Incredible view! By UC Riverside: Two-stories - (Riverside (UCR)) pic img



May 17 - $1725 / 4br - 2.5 bath House - Walk to UCR - (UCR, Blaine and Watkins) pic



May 17 - $1900 / 4br - 5 minutes walk to UC Riverside - (Nisbet/Watkins) pic



May 17 - $2000 / 4br - House on Hill in Canyon Crest area (near UCR) - (20320 Stanford Ave. Riverside, Ca. 92507) pic



Do the math, and I smell profit, even factoring in frequent turnover and vacancies.</blockquote>
Has the enrollment at UCR been increasing? Is student housing limited on or around campus?</blockquote>


Enrollment is up, and is projected to continue to increase-but construction (of housing or anything else) is limited due to the budget cuts. (There are even some (non-residential) buildings 90%+ complete that have sitting around vacant for months due to the state budget being so screwed up.)



Plus, if you split the rent four ways, it's still probably cheaper than a dorm room, or at least close. Wouldn't you perfer your own bedroom, a full kitchen, etc., to a tiny dorm room, shared with somebody else?</blockquote>
Very true, the only issue I would see is high repair costs (although I'd drop pergo floors in the bedrooms and tile throughout the place) plus there might be some vacancy issues during the summertime. That being said, that explains why the prices are still over $100/sf for properties around the college. See, know you are gonna give me ideas of picking up a property out there with one of those 3.5% downpayment FHA loans. haha
 
Thanks for all the replies so far. It seems like the main issue is vacancy which is an issue with any rental, but obviously more so in the IE. Assuming you take a 3 month vacancy per year, you could still have positive cash flow. However, hopefully someone can answer my two other questions regarding taxes and how to allocate the downpayment.



They were:



2) Secondly I don?t currrently own a home, so having this investment property could be a tax shelter for me. If I don?t own a home, nor ever owned one, can I still claim this as my primary residence? What are the differences between a primary residence and an investment property for tax purposes? How is each one more beneficial than the other. With my income, no kids, no house, etc., I am taking the standard deduction and getting raped.



3) With prices so cheap, and assuming I have $80k to invest, would I be better off buying a property at 40% down or buying a couple of properties and putting 20% down on each? This is assuming we use Geotpf's 200k price range with a 20% down on 2 different properties.
 
[quote author="DollarOutta15cents" date=1242743718]Thanks for all the replies so far. It seems like the main issue is vacancy which is an issue with any rental, but obviously more so in the IE. Assuming you take a 3 month vacancy per year, you could still have positive cash flow. However, hopefully someone can answer my two other questions regarding taxes and how to allocate the downpayment.



They were:



2) Secondly I don?t currrently own a home, so having this investment property could be a tax shelter for me. If I don?t own a home, nor ever owned one, can I still claim this as my primary residence? What are the differences between a primary residence and an investment property for tax purposes? How is each one more beneficial than the other. With my income, no kids, no house, etc., I am taking the standard deduction and getting raped.



3) With prices so cheap, and assuming I have $80k to invest, would I be better off buying a property at 40% down or buying a couple of properties and putting 20% down on each? This is assuming we use Geotpf's 200k price range with a 20% down on 2 different properties.</blockquote>


For #2, the answer is no, you can't claim it's your primary residence unless it's your primary residence. You must live there a majority of the time. (I ain't no tax professional-talk to your accountant.)
 
I answered number 2 in my explanation of rental property going on schedule e and primary or second homes going on schedule a. again, you need to talk to a tax professional before making any decisions based on how it will affect your taxes. The big thing is whether your income is too high to claim a rental loss.
 
[quote author="Geotpf" date=1242734673]

Enrollment is up, and is projected to continue to increase-but construction (of housing or anything else) is limited due to the budget cuts. (There are even some (non-residential) buildings 90%+ complete that have sitting around vacant for months due to the state budget being so screwed up.)



Plus, if you split the rent four ways, it's still probably cheaper than a dorm room, or at least close. Wouldn't you perfer your own bedroom, a full kitchen, etc., to a tiny dorm room, shared with somebody else?</blockquote>




1. Enrollment is going down at the UCs for the next few years.



2. More students will be living at home and commuting for the next few years.



3. More students will be scraping to save/willing to drive a bit farther for $100/mo less rent, so look at surrounding areas rents too.
 
[quote author="freedomCM" date=1242787764][quote author="Geotpf" date=1242734673]

Enrollment is up, and is projected to continue to increase-but construction (of housing or anything else) is limited due to the budget cuts. (There are even some (non-residential) buildings 90%+ complete that have sitting around vacant for months due to the state budget being so screwed up.)



Plus, if you split the rent four ways, it's still probably cheaper than a dorm room, or at least close. Wouldn't you perfer your own bedroom, a full kitchen, etc., to a tiny dorm room, shared with somebody else?</blockquote>




1. Enrollment is going down at the UCs for the next few years.



2. More students will be living at home and commuting for the next few years.



3. More students will be scraping to save/willing to drive a bit farther for $100/mo less rent, so look at surrounding areas rents too.</blockquote>


why is enrollment going down? doesn't it usually go up in economic downturns?
 
Last year's enrollment was a record...



<a href="http://newsroom.ucr.edu/news_item.html?action=page&id=1927">UCR press release</a>



UCR Enrollment Tops 18,000 students

Record-breaking enrollment includes undergraduates, graduates and credential program



(October 23, 2008)



RIVERSIDE, Calif. (www.ucr.edu) -- UC Riverside officials announced the official count this week, and enrollment has set a new record: 18,079 students.



At the end of the third week of classes, the offical count stood at 15,752 undergraduates; and 2,327 graduate students. There are 4,423 new freshmen.



Previous to this year, the largest campus enrollment was 17,295, recorded in the Fall of 2003.
 
<strong>hey, everyone voted today for no more taxes. there are consequences....</strong>



from an email I got friday:





<blockquote>The campus absorbed significant budget cuts in 2008-09, with reductions ranging from 3.7% in instructional and research areas to 5.7% in administrative support units. The cuts required suspension of hiring activity in many areas, curtailment of service hours in some units, delays in response time, larger class sizes, reductions in class section offerings, reduction in travel and training activities and many other actions that have noticeable campus impacts.



2. New freshman enrollment plans have been adjusted to reduce freshman admissions and bring them closer to budgeted enrollment levels. <strong>Our target is to admit 550 fewer freshmen in Fall 2009 than Fall 2008</strong>.</blockquote>


<blockquote>We do know that in 2009-10 the UC system will receive a $115 million reduction in state funds; these cuts are not targeted to specific programs. In addition, there are unfunded costs not addressed in the UC budget plan, such as fully funding over-enrollment and mandatory cost increases related to utilities. Adding these cuts and mandatory obligations together, the Office of the President has calculated the total shortfall to UC at $450 million. As a result, we expect that UCI's budget reductions for 2009-10 will be similar to or <strong>somewhat greater than our 2008-09 reductions</strong>. Please visit<http://www.universityofcalifornia.edu/news/article/21173>http://www.universityofcalifornia.edu/news/article/21173to see the May 14 UC Office of the President's press release about President Yudof's statement on the revised state budget scenarios.</blockquote>
 
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