My Idea: $150-250k Investment Property... Possible in Irvine?

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buylowsellhigh_IHB

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I'm interested in a property around $150-250k price point, something relatively new so theres no fee to jump in to, have lower maintenance, and a trendy "curb appeal." Down pay would be $50k or less. Was wondering if anyone can offer some ideas.



A buddy of mine did a 0 down payment mortgage on a condo in the Preserve (chino) and is probably at 300-500 of negative cash flow (after rent income). I think a down pay can do a little bit to right that ship.



I was talking to my business banker the other day, and she mentioned that the $50k down pay equity can be used as collateral in a business loan product they offer. This as opposed to putting $50k into a CD account (as collateral) sounds much more appealing and allows for some leveraging.



I don't know how popular this concept is, but I'm thinking this will be a small condo. I'm in the import/export/outsourcing industry and have connections to high end furniture manufacturers/importers/retailers. So I can fully furnish a 2BR 1BA condo with high end off the shelf furniture for less than $5k, or for a little more, have a layout sent overseas for custom furniture and fixtures to be made and shipped here (overboard for investment i think).



Any suggestions? :)
 
Well let me first ask... what is your goal? Monthy profit? Long term profit? Marketed to a unique customer?



Otherwise corporate or specific customer work, might be the ticket. What are your comps for rents in the area you are looking at?



good luck

-bix
 
[quote author="buylowsellhigh" date=1231178679]I'm interested in a property around $150-250k price point, something relatively new so theres no fee to jump in to, have lower maintenance, and a trendy "curb appeal." Down pay would be $50k or less. Was wondering if anyone can offer some ideas.



A buddy of mine did a 0 down payment mortgage on a condo in the Preserve (chino) and is probably at 300-500 of negative cash flow (after rent income). I think a down pay can do a little bit to right that ship.



I was talking to my business banker the other day, and she mentioned that the $50k down pay equity can be used as collateral in a business loan product they offer. This as opposed to putting $50k into a CD account (as collateral) sounds much more appealing and allows for some leveraging.



I don't know how popular this concept is, but I'm thinking this will be a small condo. I'm in the import/export/outsourcing industry and have connections to high end furniture manufacturers/importers/retailers. So I can fully furnish a 2BR 1BA condo with high end off the shelf furniture for less than $5k, or for a little more, have a layout sent overseas for custom furniture and fixtures to be made and shipped here (overboard for investment i think).



Any suggestions? :)</blockquote>


Most of Irvine has a really bad rent to value ratio; the opposite of the gross rent multiplier. You are lucky if you can rent .4% of the house value. That is why in certain markets, like Irvine, it makes sense to rent versus buying during certain cycles (like now). Now your friend has the right idea buying an investment property in Chino, you can get something like, .5% or even .6%, with 20% down of course, you can be cash positive. Some places in the I.E. you can get .7% or above and be cash positive.
 
[quote author="freedomCM" date=1231217564]what is your renter market?

who will manage this investment (unlike a CD)?

Vacancy?</blockquote>


- Market depends on the area and cost I think.

- Management will probably be myself (collecting and depositing rent checks). I help parents manage a property in Riverside and its alright, doesnt require too much time.



[quote author="biscuitninja" date=1231217973]Well let me first ask... what is your goal? Monthy profit? Long term profit? Marketed to a unique customer?

Otherwise corporate or specific customer work, might be the ticket. What are your comps for rents in the area you are looking at?

good luck

-bix</blockquote>


Goals:



- Put enough down pay to qualify ($50k) and have rent collection and interest tax be as close to break even point as possible on cash flow. (doesnt everyone look for this? lol)



- Use the down pay equity as collateral on business loan for my established ~5 yr business. $50k *should* be able to borrow out $200k. $200k should be able to return ~20% conservatively (see examples below). Deduct 5% loan interest, equal to 15%.



- CD secured loan vs. property secured loan: I can earn 2-3% a year on CD, but if I keep the property 5 years, I can probably earn a little more than 2-3%. But, the return on selling real estate is an afterthought, meaning, if I dont make any money, its alright.



Detail on Business Investment



This is more of investment toward internal cost saving measures than with external choices such as new product. Below probably will not require a $200k loan but its a few examples.



- Importing a year's worth of business supplies from overseas at a 30-50% cost savings over buying them locally @ Just In Time pricing.



- Negotiating with vendors paid by credit card (then paid in full at end of month) to give a discount equivalent to their merchant fees: 2%/month x 12 = 24% yearly return).



Conclusion:



According to above calculation, this $50k can generate approx. $30k a year of pre-tax income. Sounds kind of crazy but if my banker backs this idea then I'm set :)



Anyways, I'm brainstorming some possible target areas, and at the same time talking to banker some more. Thoughts? Ideas? Suggestions? Thanx!
 
Awgee:



$50k (or whatever down pay) comes from liquid assets (cash, bank accounts, etc)



Business Banker is basically the relationship manager that handles my accounts. It isn't a BofA or Wells Fargo where you go in and sit behind a different "banker's" desk. I consider myself a client of the banker, so if they switch employer, I switch banks. Almost like a financial advisor I guess but for the company.



They also mentioned that in a SBA loan, the govt will guarantee a certain percentage of the loan. So if I put up collateral for the part that is not backed, its almost a 100% approval rate.
 
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