Comments on: OMG, How Much Lower Can They Fall?

By: Janis Mara

Janis Mara — Thu, 15 May 2008 21:32:15 +0000

Sure seems worth a look!

By: David

David — Thu, 15 May 2008 05:16:50 +0000

Well, there are bad ‘hoods and then there are bad ‘hoods.

If there are dealers and prostitutes on the streetcorners, then yeah, your “product” is going to be substandard. I don’t know the areas where these listings are, but at these prices if I were in the investment market, I’d be checking the ‘hoods out.

By: Janis Mara

Janis Mara — Wed, 14 May 2008 22:42:51 +0000

Wow, this is exciting! Sounds like the thing to do is become more familiar with the area and keep pursuing this option. Nice to think that there are some decent opportunities.

By: Janis Mara

Janis Mara — Wed, 14 May 2008 22:25:25 +0000

That never occurred to me, David, thanks! What about the neighborhood, though? I’m thinking that a less-than-desirable neighborhood with few amenities and a fair share of crime would also affect the product, eh? —> One thing that seems to work for a friend of mine is always running a credit report on prospective tenants. But probably everybody reading this already thought of that.

Jill, I’ll keep poking around and will report in tomorrow with anything I find out. Are you considering Antioch as a possible location for your investment?

By: David

David — Wed, 14 May 2008 21:21:43 +0000

I don’t how to best avoid undesirable tenants. One thing I would do, and recommend for any wannabe landlord is to realize that while they’re making an investment, they’re also in a product business. If you provide a good product (livable, well-maintained unit/house), you can charge a premium, and attract a more responsible tenant. Provide a substandard product (slumlord) and you’re likely to be matched with those kind of tenants.

By: Jill

Jill — Wed, 14 May 2008 20:43:42 +0000

Yes…we never thought we would see the potential for cash-flow positive investment properties in the bay area. We are just trying to get smarter about the area, and we can check Craigslist to understand rental market, greatschools.com to understand schools, etc., but it would be easier to just have a good realtor.

A friend suggested getting the local Sunday paper and seeing which REaltors seem to have a lot of listings…but I am also hoping that there is a website or something which ranks realtors. Realtors are always boasting about how they are #1 Sales in their area, etc. So I would imagine that there is a source for tracking this. If you find out anything would love to hear it. Thanks!

By: Janis Mara

Janis Mara — Wed, 14 May 2008 20:34:40 +0000

*Awesome* question, Jill! I just spoke with Kevin Sweatt, a commercial real estate broker with NAI BT Commerical. He didn’t have a Web site to suggest, but confirmed exactly what you said:

“You have to talk to a residential broker, someone who knows the market who has sold property or maybe even purchased property in the area. You have to factor in the schools and the infrastructure, as well as the crime rate.”

Of course, you already know this, Jill, and I’m going to poke around and see what I can find. One thought is: Sounds like you have a trusted Realtor or two or three – they just aren’t in that area. Why not ask them if they know trustworthy professionals who are? Anyway, I’m glad you posted. Sounds like you are thinking about purchasing some investment property, eh?

By: Jill

Jill — Wed, 14 May 2008 18:49:12 +0000

Very interesting post/thread. Any suggestions on how to find a “trusted professional” who knows the area to help assess the neighborhoods, etc.? I know how to find a good realtor in our area, ask friends, but what if you don’t know anyone who lives out there? Are there any websites that rank top realtors for a specific area?

By: Janis Mara

Janis Mara — Wed, 14 May 2008 18:36:09 +0000

Awesome, that’s great, David! I happen to know that at least one person reading this comment thread is looking to buy investment property, so you’ve done that person a service, not to mention contributing to general knowledge. Just one other question, you don’t think it’s an inordinate risk to rent in a somewhat depressed area – an inordinate risk of getting less than reliable tenants, I mean?

By: David

David — Wed, 14 May 2008 16:47:59 +0000

I think price/rent is a more accurate measure than price to income in this area. Due to desirability factors, as much as I hate to admit it, deluded people still want to live here, there will be a higher %% of the average person’s income devoted to housing–either buying or renting.

Therefore, I use price/rent here (in Milwaukee, I would use price/income, by comparison).

I don’t know what happened to Antioch’s rents the last time around, but I know that inner East Bay rents dropped 8%, and SF/Peninsula rates dropped 15%. Again, this area was the epicenter of the last bust, with hundreds of thousands of people fleeing. While the outer East Bay was a pretty big housing bubble site, it has NOTHING on San Diego or especially Florida.

If you could rent that house for $1500/month, assuming 30% down for investment property, you’re getting good cash flow. Even with rents down to $1200/month, you should be making money. I’m not as familiar with that market, but I’d say if I were an investor more familiar with it, it’s time to go shopping.

Remember, average SFR rental yields across the entire country from 1965-1995 averaged 5%. So if you buy a house for $100K to rent out and you get more than $5K/year, you’re beating a solid 30 year average. Rents may drop, but you’re assuredly going to get more than $500/month to rent that house. And then you get the appreciation, pay down of the loan etc.

So, yes, I think these are clearance prices, even though the area is depressed and will stay so for another 3-5 years.