Investment Property - Ventura County
The Basics
The first question in looking for investment property in Ventura County is what do you feel comfortable with as far as a renter is concerned, Lower Income –Middle Income-Upper? Will you be managing it? How long are you planning on owning it for? A couple basic rules of thumb in thinking about this are that typically you’ll receive a better return when purchasing a property in a C and D locations(a-f grades). These properties if managed properly can be low maintenance but you must be very careful. Also in purchasing you must consider the economies of scale theory in that the more units, the better return dollar for dollar, also known a per door return.
Example 1: Duplex in Oxnard for 600,000 (2-1, 1-1) brings in 24000/year and is 300k per door with a 4.0% ROI. ROI=(annual income / list price) THIS IS BEFORE EXPENSES
Example 2: A 10 unit property for 1,500,000 , ( 5 2-1’s, 5 1-1’s) brings in 114000/year and is only 150K per door with a 7.6% ROI
Another consideration is looking for your investment property is that if the property is 5 or more units you’ll be put into the commercial bracket having to put no less that 35%down, making it difficult for most 1rst time investment property buyer’s. If the property is less than 5 units you can put in some cases even zero down.
1. Distressed Investment Property. Here in Ventura County there is a variety of distressed property starting with your beat up duplex in a D location all the way up to large apartment buildings in B to A locations. The thought is to look into the long-term(5-10yeasrs) at this point in our market. Also you should have a fair amount pf assets waiting to deal with recurring maintenance issues, unless you’ll be improving the property to start with. It’s not a good time to flip a property unless you can purchase it at least 25% below market. At this point I think there is most opportunity on the Ventura’s Avenue, but deals can pop-up anywhere.
2. Properties with cash flow. These are the bulk of investment properties on the market here. C-D locations in mostly tenant occupied areas. You would look for upside in the rents and low vacancy. Note be careful for pro-forma rents in the analysis, some rents posted are unrealistic. You must be comfortable with the area.
3. Low maintenance properties. Typically in the B-A locations with a strong rental market. This type of property is very good for a first introduction into property management. You should be looking for clean, fully occupied property. You’ll pay a premium at times but you’ll have to the weight the risk versus return for each individual property.
Why Investment Property in a Soft Market?
Rental property is a natural hedge against a soft market. This is because when a market becomes soft, prices cool off a little, but rents stay the same or go up making the return on the property more and more attractive. In this market rents are actually going up due to core inflation, historically low unemployment, as well as minimum wages going up among many other factors. Also with the last boom in real estate just behind us rents are slowly beginning to move up to catch up to the market. With vacancy rates among the lowest in California, end result, more and more attractive scenarios in the investment property world.
NAR reports there are 191,400 fewer apartments in the country as a result of condo conversions. This is slowly reducing the amount of available rentals, and when combined with housing becoming less and less affordable for the 1rst timer, an increase in rents is inevitable. The NAR predicts renters will pay 5% more than last year due to supply and demand in our current market.
Another factor in looking to the future for rental property is the fact that baby boomers love real estate. We are currently in the midst of the countries largest adjusted transfer of wealth in history. With 30% of homes in this county being bought by investors, 1031 exchanges keep the ball rolling by not wanting to pay tax on the earned equity. All these factors in conjunction with the tax benefits of owning investment property, make buying investment property even in a soft market a good decision in the long-term especially.
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