REAL ESTATE INVESTING
Allow us to share our experience, and knowledge of the local Real Estate market to identify properties that are favorably priced, that may offer present cash flow and/ or be properties that could offer future appreciation. We will provide you the market data and analysis to bring forth properties for your consideration.
Real Estate investment property alternatives – we provide assistance on all.
- Single property purchases
- Multiple - Individual Property Purchases
- Bulk property – bank portfolio or pool investment
Markets and considerations
Turbulent Markets – In the last few years, we have experienced greater turbulence in both the stock market and the real estate market. What the media refers to as a “crash” are a series of market corrections and adjustments of supply and demand that make a significant impact on prices and values. Albeit disconcerting, these cycles are the natural ways in which all markets regulate themselves and this process has been occurring as long as real estate has been bought and sold.
Half Full vs. Half Empty - For some these are very unfortunate times, and the media has focused in on these adverse circumstances. Losing one’s homes is a devastating situation and many families have been affected. We would not be a socially responsible company if we were not to recognize this fact. The positive side of the equation is that declining home prices have opened the door to new buyers whom might have been barred from entry prior. In time future appreciation will create equity for their family.
Tangibility and Scarcity - Unlike investing in stock, real estate is tangible, insurable, and regardless of the turbulence of the market it will not go to zero. It is an asset that provides function, utility and opportunity to create revenue. One great advantage is that California coastal real estate possesses is scarcity. There is only so much buildable or developable land on San Diego's beaches and Bays, and most of it has been developed. Coastal property is appealing, and to sell a piece of property one seller needs only one buyer.
Investing vs. Speculating – Those that caught the ride on the rocket-ship of appreciation from the late 1990’s to mid-2000, consider themselves very fortunate, and maybe a bit lucky as well. Those that tried to follow suit and jumped on the bandwagon in 2005 and 2006 felt the inverse reaction. Like any investing opportunities, one must understand that markets and investing opportunities run in cycles, and it is a long-term horizon approach that has proven to benefit investors in the long run.
Returns in real estate are greatly achieved through positive cash flow over a long-term basis. The prospect of capital appreciation was often a smaller consideration. The market fueled by high appreciation, led investors to set aside cash flow, and focus solely on the prospect of significant asset appreciation. In many cases investors subsidized investments, and this was sheer speculation properties would consistently appreciate year after year. It was these investors that were setting themselves up for higher levels of risk. In this market it is advisable to circle the wagon back and focus on basic principles.
A Successful Investor Story- A family friend, now 87 years old, was referred to as ‘crazy’, when considering purchasing his second and third coastal property in La Jolla, for $5,000 each, some years ago. At the time this investment could have been considered speculative. He completed the purchases, and then bought his fourth property which was comparable to the others at $25,000 or 5X the price. This to others was considered high risk. A. year later a purchase of $45,000 ensued. These particular properties have appreciated between 20 and 200x their initial investment. Today, he is still buying property, of which his most recent purchase was a small cottage for well over 1 million dollars, which he still considers to be “a steal”.
Throughout the fifty year period the values fluctuated, but the buy and hold strategy has served him well. The key was that he put enough down on each investment to generate cash flow, so the values are only a small part of the equation. These investments alone have afforded him a life of leisure and very early retirement. The key to this success was cash flow, and a long -term time horizon.
Micro-Markets and investing:
Micro-Markets – Lux-RE-Homes is founded on the principles of understanding neighborhoods, and we are micro-market focused. Especially for a non-local investor, possessing an understanding of the individual markets is paramount.
The median home price within San Diego of approximately $ 395,000, and average sales price of San Diego Coastal Properties is approx $ 500,000, consider the following.
Scenario 1: An out of state investor contacted us to seek out properties that were 'under-market' and 'well priced'. We asked them what their price range was and they said that we should know the pricing as we were the experts.
He was correct: Given his approximate parameters
- Two near-identical San Diego homes:
- 1,400 square foot, 3 bed, 2 bath home
- similar condition and vintage
- Similar lot size.
We found him 2 properties that represented strong values:
Property A for $169,000 and property B for $1,690,000
Property A is rural, a foreclosure property with an area of high inventory and lower demand, common among its market, inland climate.
Property B is in a premium coastal neighborhood, newer construction, very high demand, scarce.
Two near identical 1,500 square foot homes, similar lot sizes located 500 yards away from one another, absent of any material advantage or disadvantage, one home sells for a $400k premium. Why?
Answer: Micro markets.
Explanation: The home selling for a 400k premium is in a premium zip code, and even though it falls into the same top school district as the lower priced property, its surrounding properties are of larger lots, impeccably kept, and a high demand neighborhood. In this case even knowing the market, you can miss the effect of the micro market.
To break it down Further:
(hypothetical example below)
California >San Diego > La Jolla > Bird Rock > Calumet Ave> Ocean Front
Broad Market Area Market Local Market Micro-Market Micro-Market Micro-Market
-9 % +10% + 2 % - 12% + 8% + 3%
The percentages represent the change in market price over a (1) one year period and as you can they vary greatly based upon the effects of the micro market.
California >San Diego > Downtown > Electra > Top 5 floors >Penthouse
Top 5 floors >Penthouse
-9 % + 10 % + 5 % - 13% + 8% - 11%
Micro markets can be broken down to finite levels, the better you understand the micro-market you are considering the better investment decision you will be empowered to make.
All investors should consider:
We are not licensed investment advisors and strongly recommend that you conduct independent research to determine what investment options are best for you. We additionally suggest that you consider the advice of your financial and legal professionals as all investment considerations involve risk.