Arn Cenedella

Archive for the 'Investment Real Estate' Category

Foreclosure Opportunities #2

There are 42 homes currently priced under $300,000 in East Palo Alto and east Menlo Park.

Here is list of homes and asking prices.

Most of these homes are REO or short sale foreclosures.

Lenders are anxious to get these homes sold and “off their books”.

Investor Alert – SF Bay Area homes break even with 20% down

For many years, I have had numerous clients contact me looking to buy rental real estate on the San Francisco Peninsula that would “break even” with 20 % down. Until now,  I would say “that is not possible – you need 40% down to “break even” on a single family home.

Banks and have other lenders price their foreclosed homes very aggressively.

Multiple offers are not uncommon.

Let’s look at sample purchase for $250,000.

$250,000 less $50,000 down (20%) leaves $200,000 loan.

$200,000 at 6.5% has a monthly payment of $1,264.

Property taxes will be $250 per month.

 Insurance will be $75 per month.

Total monthly ownership cost $1,589.

Your typical 3 bedroom home in these areas will rent for $1800.

In a Section 8 program, the County will pay 80% to 90% of the contract rent leaving only a small amount to collect from the occupant tenant.

Buy San Francisco Peninsula real estate and break even with 20% down.

You used to have to go to Texes to get cash flow – now you can get it right here.

Contact me and let’s get started.

Just reduced 8 unit apartment in Palo Alto CA $2,495,000

I have just reduced the list price on 530 Kendall Ave. in Palo Alto, CA to $2,495,000.

8 units - four 1 bedrooms and four 2 bedrooms.

Only minutes to Stanford and downtown Palo Alto.

530 Kendall detailed info

Possible second homes or good investments in Sonoma County

I  received a comment to my recent post about entry level homes on the San Francisco Peninsula from Pam Buda, a Coldwell Banker agent in Sonoma County.

Pam informs me that she has recently been working with several buyers from San Francisco and the Peninsula looking for possible second homes and investments in her beautiful area. Pam tells me good solid homes in convenient locations can be purchased in the $300,000 range – sounds like a good buy to me !

Check Pam’s site out and see what your money buys north of the Golden Gate Bridge.

I currently own investment property on the Big Island of Hawaii and a second home up in Lake Tahoe. For information about those areas, please do not hestiate to contact me.

Middle income people are being squeezed!

David Shafer of Uncommon Financial Wisdon  wrote an excellent guest post on Jeff Brown aka the BawldGuy’s Blog  about how the current squeeze on middle income families occuring in our country should effect one’s investment decisions. Jeff is a San Diego real estate broker who specializes in finding good investment properties outside California.

I can certainly say we see this trend in the San Francisco Bay Area market. The upper income desirable communities in San Francisco and the Peninsula are doing just fine during our current economic slowdown where the less costly more affordable lower income areas are facing numerous foreclosures and dropping property values.

I generally advise my clients to purchase in the best area they can.

One can always change the house but one can not change the location.

After 30 years selling real estate on the San Francisco Peninsula, I know the neighborhoods inside and out; I can help point you in the right direction and help you evaluate what neighborhood will be best for you.

San Mateo and San Francisco Counties are doing just fine !

USA Today published a fascinating study of local economies throught the nation.

Most states are doing just fine !

Here’s the map:

Most of California is at risk or already in recession.

Only Bakersfield, Santa Cruz-Watsonville, and San Francisco-San Mateo-Redwood City are in expansion.

Very interesting !

Is it only a matter of time before San Francisco-San Mateo-Redwood City join the rest of California? Or is this precious sliver of land between the Pacific Ocean and the San Francisco Bay immune?

Only time will tell but my sense is that we will continue to do just fine.

Leverage and Return on Real Estate Investments

Chris Smith, Real Estate Investing in the Real World in a recent post indicates that when a real estate investment starts to produce a good cash flow, it may be a good time to sell/exchange that property in order to increase the leverage on your invested dollars to maximize return.

Here is how the concept of leverage works in real estate investments including a primary residence.

 If you buy a home about put 20% cash down into the property and the property appreciates 5% in a year; your actual return on the cash down payment is 25%.

For example, let’s say a $100,000 property purchased with 20% or $20,000 down.

If property appreciates 5% or $5,000 in a year; your equity increases from $20,000 to $25,000 – that’s a $5,000 return on $20,000 or 25% per annum.

If you bought the same property and put 40% or $40,000 down – you would get a $5,000 return on a $40,000 investment or 12.5%.

Of course, one needs to look at cash flow. I will run the numbers and try to account for the effect of cash flow on the investment returns and report back.

Real Estate Investments (part 3)

An exciting new small residential income property in downtown Menlo Park has been listed by Catherine Vallee 415 990-5913.

The property address is 855 Fremont Street and the list price is $1,195,000.

The building contains 4 one bedroom units rented for between $1,250 and $1,350 per month. Market rent may be closer to $1,450.

This property offers a fabulous downtown Menlo Park location within walking distance of Draeger’s Market and Nealon Park.

The property produces $5,200 per month in gross rental income or $62,400 on an annual basis. Monthly rental rates for a desirable location like this are increasing rapidly.

With single family home prices leveling out, it might be a good time to purchase a small investment property and take advantage of the increasing rental rates.

Real Estate Investments (part 2)

In my previous post, I did a “quick” analysis of a 3 unit property listed in Menlo Park. On this property, 1161 Noel Drive, Menlo Park, a buyer would need to put about 50% cash down payment to obtain at least a break even cash flow.

Let’s look at another possible investment in the Dallas/Ft. Worth area of Texas.

Woodland Estates is being built by Value Builders.

There are duplex units with 3 bedrooms 2 baths each available at $230,000.

If a buyer was to purchase one of these duplex properties and put 20% cash down, a small positive cash flow of approximately $5,000 per year would result.

The numbers would look like this:

Each unit in the duplex would rent for $1,200 per month for a total gross income of $28,800 per year. Estimating expenses at 35% of gross income = $10,080 in annual expenses – which results in a net income prior to debt service of $18,720 per year. The 80% loan in the amount of $184,000 at 7% would require annual interest payments of $12,880. This results in a net cash flow of almost $5,000 per year.

So let’s compare, one could buy a 3 unit building in Menlo Park for $1,250,000 and put $600,000 cash down payment into the property and obtain a break even cash flow or one could buy a new duplex in Dallas/Ft. Worth for $230,000 and put $46,000 cash down payment into the property and obtain a $5,000 annual cash flow. If one was to use the same $600,000 cash needed to purchase the Menlo Park property and buy say 8 of the Dallas duplexes, one would obtain about a $40,000 a year cash flow with the same cash investment.

Does that mean the Dallas property is a better buy? Maybe Yes maybe No.

The above cash flow analysis does not include the return on any future appreciation in the property.

The additional $40,000 per year cash flow from the Dallas/Ft. Worth duplexes could be offset if the Menlo Park property appreciates at a rate 3.2% ($40,000/$1,250,000) greater than the Dallas/Ft. Worth properties appreciate.

More to follow – I welcome any questions or thoughts you may have on the above.

Real Estate Investments

Clients often want to invest in real estate but aren’t sure where to start.

Often clients would like to buy a small apartment building in Menlo Park or Palo Alto. They ask me to find a property they can buy with a 25% cash down payment and have at least a break even cash flow. This generally is not possible in most areas of the Peninsula. More typically a 50% cash down payment is required to obtain at least a break even cash flow.

Let’s look at a typical small apartment building in Menlo Park.

1161 Noel Drive has just been listed by Anne Wilber of Coldwell Banker Commerical-Wilbur Properties. List price is $1,250,000. This is a 3 unit building contained two 1 bedroom units and one 2 bedroom unit. The property is well-maintained and has a good Menlo Park location not far from the Civic Center, CalTrain, and Burgess Park.

So how does this property look from a cash flow/income point of view?

Current rents are $2,000, $1,700, and $1,200 per month which produces a gross income of $4,900 per month or $58,800 per year. This property is priced at $1,250,000/$58,800 = 21.26 times current gross income. It can be said the property is listed at a 21 gross rent multiplier.

Typical expenses are property taxes, utilities, maintenance, and insurance. These typically run at approximately 35% of the gross income. So in this case, let’s estimate expenses at 35% of $58,800 = $20,580.

So the net income of the property (at current rents) will be approximately $58,800 less $20,580 = $38,220 per year.

$38,220 per year net income will service a loan of approximately $550,000 at 7%.

So at a $1,250,000 purchase price, one would need to put $1,250,000 less $550,000 = $700,000 cash down.

The above is just a “quick” analysis of the property – each property is different: are the current rents at market? can the rents be easily increased? who pays the utilities? – but I have presented the above to give you some idea of the issues involved in the analysis.

If the rents are currently 10% below market, gross income would be approximately $64,680 – net income would rise to approximately$42,000 – which would service $600,000 in loan payment – requiring $$650,000 cash down payment at $1,250,000 purchase price.

My next post will complete a similar analysis of new duplex properties being built in the Dallas/Ft. Worth area.