There is still not enough Orange County housing for sale in the lowest price ranges. It’s not because those property owners aren’t selling at a rate disproportionate with owners in higher price ranges. It’s because local housing prices have gone up so consistently over the last 5 years, that homes priced below $500,000 are simply disappearing. Stop waiting for more low priced homes to hit the market. They won’t. Get out there and buy them NOW.
Rental homes serving the same entry level audience are also scarce, yet remain in high demand. Smart investors will purchase rental homes (yes I mean multiple) in the lower price ranges, in areas with low property tax rates accessible to commute corridors. Not so smart investors will continue to try to find property to “flip” or will buy sexy, big ticket luxury homes with the expectation of growing wealth through equity appreciation. Don’t get me wrong. Those are both possible – just not highly probable any more.
He who owns the most lower end properties will win BOTH the monthly cashflow and the equity appreciation game. Here’s why.
I recently reviewed 6 “white collar” cities and 6 “blue collar” cities, comparing homes sold and rented from the last 12 months, Q4 2016 – Q3 2017 and also from Q4 2015 – Q3 2016. I checked lease rates and sales prices, measuring appreciation for both. The results were irrefutable. Let’s pause there for a minute.
According to Wikipedia, the population for my targeted wealthy areas was 545,982 versus 1,070,722 for the more modest areas. We should then assume there would be more smaller, lower cost homes in the less affluent areas.
Yet in the last 12 months there were 253 two bedroom homes sold within the collective wealthier area versus 50 in the lower priced areas, where the demand for modest housing is the greatest. Also interesting is that for this same period, there have been virtually identical numbers of homes for sale priced below $500,000 as there were homes priced above $1.5 million. Yet there is significantly more demand in the lowest price ranges.
The average home in the wealthier areas sold for $1,910,912 in the most recent 12 months, appreciating $124,661 on average, when compared to the prior rolling 12 month period. While in in the working class group of cities, the average home sold for $544,492 appreciating by an average of $36,191.
One could easily buy 3 of the lower priced homes for the same price as 1 of the higher priced homes and earn effectively the same net income. Because the costs to finance, own (HOA dues, supplemental property taxes, etc.) and maintain the lesser homes will be lower, further improving net cashflow.
If you have a vacancy in one of the lower priced homes, you’ll still have income from the other two. Not so with the one big investment. Additionally, there is HUGE pent up demand for lower priced rentals. This is clearly demonstrated by the 256 unit Anton Portola affordable housing apartment community which opened in the Portola Hills area of Irvine this March. By the end of the month they had a wait list!
Unless we get our local economy straightened out, we’re likely to see erosion of home prices again, starting at the top where there is always less demand.
According to the OC Register, Marshall Toplansky and Joel Kotkin, of the Chapman Center for Demographics and Policy, said “companies are flocking instead to Silicon Valley, New York City, Boston, Seattle, Austin, Dallas, Phoenix and North Carolina’s Research Triangle – areas with savvier recruiting tactics, superior incentives, technology-friendly ecosystems and, in many cases, cheaper homes.
We have high housing costs,” “But we are not generating the jobs to support those costs. As long as we have this real estate-driven economy, we are going to be in trouble. Orange County was once the belle of the ball. That era is over.”
So for all of you planning a year end purchase or sale, consider this. Anaheim and Santa Ana may not be “sexy”, but steady income and a wait list for prospective future tenants really is. If you’re considering downsizing from a luxury home, this is the time to start planning that. And if you own one luxury rental, I urge you to consider exchanging it for a few more modestly priced homes as soon as possible.
Of course, I’m happy to help you develop your own real estate investment plan. It’s what I do best.