Featured Rental Property

Here are a few steps that anyone can follow to evaluate a rental property purchase. The most important ratio you need to evaluate is the house price-earnings ratio. House Price/Earnings Ratio = House Price / Rent - Expenses This ratio determines what your property will EARN you ANNUALLY compared to what it will take to MAINTAIN.

Maintenance costs include property management fees, potential HOA fees, taxes, etc... The more active a role you take with your rental, the lower the expenses. If you want an outside company to manage your rental expect a 10% rent surcharge per month for their services. Let's look at an example neighborhood in Northern San Diego County. This neighborhood is gated, close to schools, and is highly marketable to military families stationed at Camp Pendleton. If you want more information or to see the properties submit a request for more information on our contact page.

Neighborhood: Calle Elegante, Vista, CA 92083 HOA: $118-130/month depending on unit size Owner Occupancy: 11/30 roughly 37% HOA Responsibilities: trash, grounds keeping, limited insurance, gated entry, on-premises playground It is important to note that an owner occupancy percentage (the ratio of homes occupied by renters vs. owners) less than 51% allows only cash and conventional buyers to purchase the property (due to bank lending rules). These lending rules also dictate that we place a minimum 20% down payment of the purchase price. Consider that after the units under mortgage duress are sold to new owners, the owner occupancy rate can potentially extend above 50%; this will cause properties to appreciate by accommodating all types of loans. Owner occupancy is determined by dividing the number of total units by the number of units occupied by owners.

16/30 properties are currently for sale, either short sale or bank owned. The high inventory in this particular community and inability for FHA/VA buyer's to purchase makes this a lucrative investment. The units were built in 2006 and first sold in 2007 so they are in near mint condition (condition varies by unit).

Low Price Unit: $175,000 Price per/sqft = $101.92 for 1717sqft 4BR/2.5BA Unit (LOW), $115.74 for 1512sqft 4BR/2.5BA Unit (LOW)

Down Payment: 35,000 Closing: 30 days

Closing Costs: 2.5% credit requested by buyer = $0 (*hint*, ask your Realtor about the different types of closing cost credits. Simply asking for a percentage is not enough; if your agent does not include a key legal statement you are GIVING AWAY MONEY.) Assumed property characteristics: Property tax rate: 1.3% (via tax records) Re-assess property after purchase for value: $175,000 (free assessment in SD County) New annual property taxes 2010: .013 * 175,000 = $2,275/year

Projected Rent: $1700-2000/month = Est. $1850*12 = $22,200.00/year

Projected Expenses: $118 HOA Fee/month + $189.58 taxes/month + $751.55 mortgage (30 year at 5%)/month + $150/month (reserve fund for repairs/upgrades) = 1209.13 *12 = $14,509.60

Rent - Expenses: 22,200 - 14,509.60 = 7,690.40 (CASH FLOW) House P/E Ratio = House Price / Rent - Expenses P/E Ratio = 170,000 / 7,690.40 = 22.1 The P/E ratio is roughly 22. In general, a healthy company has a P/E ratio of 15-25.

Considering that real estate is a SLOW GROWTH investment a P/E ratio in the 20's is a sound investment. Also consider that lending is tight, cash reserves are low, and unemployment is high. All of these factors contribute to a depressed economy that provides an opportune time to invest. An investment in this property will take 4.5 years to pay back your principle cash investment. All figures and gains account for no appreciation or depreciation of the property. Consult us about what position the market is in and what additional terms you can negotiate. Once again, 16/30 units in this complex are for sale or in the process of foreclosure. The current owners paid an original sale price ranging from $430,000 - 450,000 in 2007.