Monday, December 14, 2009

Snapping up investment properties in the Bay Area

The SJ Mercury News printed a story this morning about a significant increase in purchases of investment properties in 2008 versus 2009. The original article is here:

Investors have been active in other areas as well including Menlo Park (east of 101), East Palo Alto, Sunnyvale, and San Jose for the same reasons stated in the article; prices are low enough that costs can be covered by rents.

There was another article in the SJ Mercury earlier this year saying that a group of investors in the East Bay had pooled $6 million to buy homes priced at $100K or less to do the same thing. Their expectations were that values would double in 5 years or less. I don't see that happening, but I do see low end values going up.

Investors should also be looking at Los Altos but with a longer term picture in mind. There have been several homes priced in the $1-1.3 million range where rents would probably be in the $3500-4000 range. That rent won't cover the cost of PITI but it will cover most of it. Down the line, Los Altos has shown a history of solid growth in equity.

The homes today selling for $1.2 million would have sold 2-3 years ago for $1.3-1.5 million. Assuming the recovery continues and we see the value of entry-level homes increase in Los Altos, an investor in Los Altos could easily see gains of $100-300K in these homes in the next 2-3 years.

It's my opinion that the entry-level homes in Los Altos will move up the usual 7% per year we've seen in the past while the mid-range and high-end will grow at much slower paces.

No comments: