Investment Guide

Top Ten Reasons to Invest Now

• Prime Southern California Real Estate Is Scarce: They aren’t making any more raw land, anywhere, particularly not here. The western part of Southern California is pretty much “built out” — what little undeveloped land that is left is often not economically or environmentally buildable. Thus, unlike some cheaper parts of the country (or the Inland Empire), no one is likely to vastly increase the housing supply, thereby driving down the value of your holdings. The proximity to a multitude of high-wage, stable employment keeps rents high, even as property values have come back down to earth and now make sense as investments for the first time in years. • Small Local Properties Save Management Fees: Small, local properties are ideal for owner-managers. With fewer tenants you have fewer tenant headaches — possibly none, if you elect to retain a professional property manager to watch the property for you. Plus, many investors are not comfortable sending their cash to a far away place that they may not fully understand, or have the opportunity to check up upon.

• Fixed Rate 30 year Financing Still Available: When comparing investments, what is your comfort level for interest rate risk?  Many commercial investors have been tripped up when their adjustable rate financing reset at a time that they were unable to cover the increases through increased rents. Lock in a standard Fannie Mae/Freddie Mac conforming 30 year fixed loan and forget about it for the next thirty years, while your rents increase along with inflation.

• Real Property is the Ultimate Inflation Hedge: Are you concerned about the long term effects of the Bush/Obama adminstrations’ history-making expansion of the money supply?  Take a look at this “hockey stick” chart — it denotes the increase of the money supply since the begining of the financial crisis.  Our largest creditors, the Chinese, are worried sick about U.S. inflation — perhaps you should be concerned, too.  Inflation eats away at the value of all paper assets.   But,  with long term fixed rate financing available at historically low rates, now is the time to buy and lock in loans on favorable terms. The time to buy insurance is before you need it!

• Real Estate is the Ultimate Tax-Favored Investment: Few other forms of investment have the tax advantages of real estate. Even for those who earn too much to deduct passive losses and are unable to qualify as real estate “professionals” according to the IRS, other tax breaks still exist, such as 1031 exchanges which allow you to “cash out” of your investment property by rolling the gains into a new property while deferring taxes. Ultimately, if you die with the properties in your estate, your heirs will acquire them with a stepped up basis, minimizing taxes.

• Relatively Low Down Payments Still Available: Because many loans on small investment properties are still being written with 20% (or less, in a few cases) down, you have the possibility of using significant leverage to increase possible gains. Of course, as many stock market investors have recently learned, leverage is a two-edged sword — it will also increase your losses in a down market, if you can’t hold onto the property. That is why we never recomend buying more investment property than you can afford, while keeping a comfortable reserve for vacancies and repairs.   Moreover, if you borrow money from your stockbroker to borrow stock, just try getting an 80% loan to value ratio — it doesn’t exist, and for good reason.

• Safety: While real estate, like any investment, involves risk, people always need a place to live. Therefore, there will always be some demand for your units. Even when the rest of the economy is in tatters, people still want to live in clean, nice rental properties in safe neighborhoods, with access to employment, schools and shopping. The areas we recommend have all of these. Compared to stock market invesments, your property will never go down to zero, nor will it “crash” and depreciate by huge amounts in a few days.

• Local Investment Properties Are Finally Affordable: Many local investors (wisely) sat out the bubble market of the last few years, knowing full well that it would not end well. It did not. The silver lining is that rental properties (even single family residential houses in some areas) have dropped to prices where they can be rented out as a business, not as a vain hope that someday rents might increase to cover their carrying costs. Now many investors who have invested out of state are turning their eyes back to the local market, secure in the knowlege that the unique characteristics of Southern California are a unique long term driver of growth and value for real estate, notwithstanding the current state of the market.

• Foreign Investors Are Welcome Here: People from all of the world recognize the unique value of Southern California real estate — now that property values have come down, many savvy Asian, Latin American and European investors are looking for a place to invest their hard-earned cash, partially as a way of hedging their bets. (Se Habla Espanol & On Parle Français. Russian and German translators are standing by! Other languages available by request.)

• Real Estate Risk Can Be Managed — and So Can Tenants: Whether you are the “hands-on” type who wants to manage your investments yourself, or you’d prefer to leave it in the hands of a professional property manager, real estate risk is quite manageable.  We advise first time investors to seriously consider the use of a professional property manager — while their fees will detract from your cash flow, you may want to consider it a cheap education.  You can learn an enormous amount about the do’s and don’ts of property management by working with an established professional — and we would be happy to provide a referral.  If you decide to go it alone, we strongly urge you to join the Apartment Owner’s Association of Greater Los Angeles.  While it is mainly aimed at multifamily properties, even owners of single family rentals will benefit from the educational benefits of the association.  (And even if you don’t join, you can read their publications online.)  Finally, you can and should purchase insurance for the value of your rental property, and, if possible, for the potential loss of rents caused by a calamity.  With an umbrella policy sitting on top of your underlying coverage, you can be protected for a reasonably small amount of money.

• Sick of the Stock Market (yet?): Are you simply fed up of being mislead by the financial markets? Want an investment you can understand and you can control yourself? Tired of waking up at 2:00 wondering whether your stocks will crater the next day?  You’ve come to the right place.