What goes up very quickly, must come down. Sounds familiar? With the decline in prices in the Trivalley and the surrounding areas many home owners have been forced to sell or abandon their homes and begin renting. Further, with the bubble bursting in the outer cities such as Stockton and Tracy, we are seeing a lot of commuters walk away from their homes, reduce their driving time and rent in cities closer to their work. So while prices have decreased anywhere from 10%-50% from the peak, rents in the Trivalley and surrounding cities have had an inverse relationship and jumped up in rates.
Today, the rental markets in Pleasanton is scorching hot! Recently, a three bedroom, two bath house in Pleasanton with only 1555 sf rented out for $2600. A two bedroom condo in Livermore just rented for $1600. With interest rates still historically low and prices at or near “the bottom” investors are taking advantage and jumping into the market with both feet. The deals are so good, that with a 20-25% downpayment, many of these properties actually get pretty close to having a break even cash flow. This is something that has not been seen in years.
In years past, a California investor who wanted to see break even cash flow would need somewhere between 40%-50% downpayment in order to not need to pay into the mortgage on a monthly basis. Investors purchased in California not for the cash flow, but for the appreciation on the property. With today’s market condition, you can see both a good cash flow with as little as 20%-25% down and expect future appreciation.
Let’s take a hypothetical look at how a possible investment property and how the numbers would pencil out. The below chart shows a purchase price for a 3 bedroom, 1600 sf townhouse in East Dublin. These units sold for over $600K at the peak but today can be purchased in the mid to high $400s and can be rented out in the low to mid $2000 range on a monthly basis.
As you can see by the chart, with a 20% cash infusion, there is an actual $11 positive cash flow when factoring in all tax write offs including depreciation. Please keep in mind that these figures are solely for the purpose of discussion and all figures should be validated by a CPA (here is mine!) The big picture is that indeed today’s market is not a seller’s market, but if you are an investor looking to put your money to work for you in one of the most stable investments out there, this is a great market to consider. As Mr. John D. Rockefeller is quoted, “The way to make money is to buy when blood is running in the streets.”
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Chris Kamali is a TriValley Real Estate Agent, helping clients buy and sell homes in Dublin, Pleasanton, San Ramon and Livermore.
