Why commercial real estate in Bakersfield?

Looking into other areas around California, you can see that prices have been steadily rising and are seeing pretty good returns in income as well, however, what is the price point for buy in? Are you ready to step into a $10M+ property?  Do you have the capital necessary?

Commercial Real Estate in Bakersfield can provide good returns with a minimal investment, comparatively.  For example, we are working on a development project currently that is going to yield around 15,000 Rentable square footage, and will command about $30,000/month in Rental income to tenants who will pay all other expenses as well.  Total project cost was around $120 per square foot.  This gives a gross yield of 22.5%, not to mention that once the project is completely leased we can go ahead and sell the building at a large profit.  At Synergy, we can provide services to make development easy, from financing to design, build, leasing and sales.  Commercial real estate in Bakersfield is our specialty and we are looking forward to helping you with your projects.

What about just purchasing a building for lease?

Our specialty at Synergy is to help our clients identify, lease, and maximize profits from Commercial real estate in Bakersfield.  We have the ability to give you lease comparables, and cost estimates to rehab buildings so that you have a good idea prior to purchase that you can make a tidy profit on the building.  After leasing the property, we can help maximize your returns by bringing in Property Management to make sure that you are getting the most out of your property and it stays in top condition into the future.  We have helped multiple clients increase not only their revenues from their buildings but also build equity in their buildings to be able to use on their next projects.

Sanjeev (Sunny) Advani
Real Estate/ Property Management / Investments


What Rentals Should You Be Looking At?

The hot topic of the rental market right now is the multi family market.  Prices everywhere have increased for multi family units and keep continuing to grow.  For example, in Bakersfield, a ‘C’ neighborhood property used to be available for $50,000 – $60,000/door and now they are selling for close to $100,000/door in some areas.

Part of this is due to investors from low return cities looking to earn a higher return a market that is close to theirs, for example, Los Angeles investors looking in Kern County, but now we are seeing a growth in a different segment of rentals.

The single family rental market has been growing steadily in the recent past and there are some good predictors that shows it could keep growing into the future.  Single family homes represent about 44 million units in the country right now, and of those, a little over 1/3 are used for rentals.  Not only that, but it seems like those numbers will increase into the future because housing prices keep rising, college debts keep rising, and people are waiting longer to have kids.

Although our largest growing sector of productive income earning individuals is the Millenials currently, we are seeing that instead of buying, they are preferring to rent because of the amount of money required for a down payment and the debt payments they have to make because of school, etc.

On top of this, almost half of the investment units owned in the US right now are owned by ‘Mom and Pop’ owners who own just one unit, and with real estate investing increasing in the long term, people are starting to purchase more units to help fund their retirements and have excess cash flow in the future.

The biggest problem with this strategy is possibly the management of these units, because if the units are not taken care of and one out of every three homes starts to lose value, then we can see values start to plummet over time.

Speaking about Bakersfield directly, there are a lot of ‘Mom and Pop’ investors that own less than 3 doors and will also self manage those units.  In that case, most properties seem to be well taken care of, however, there are some management companies that will let the unit deteriorate and the owner will be none the wiser because they are collecting their rent check passively and do not want to be hands on with the property.  This could provide a good opportunity for investors in the future, regardless of the lower pricing of Bakersfield to some other cities in California because people seem to want to rent more than own.

Sanjeev (Sunny) Advani
Realtor/ Property Manager/ Investor


Why Should You Buy Now?

There have been talks about the markets and how they are reaching new highs.  Other experts have said, “We are due for a recession.”  Real estate prices in California are at record highs, and seem to keep climbing.  So why would this be a good time to buy?

According to a survey of Real Estate Professionals across the country, we will continue to see prices increase more widely in the next year.  California is expected to increase in property value between 3-4% next year.  How is this so with market peaks already?

The problem comes down to a supply and demand issue.  If the supply is low, and the demand is high we will see a sellers market, which will mean that buyers are paying more for houses.  Based on 2016 numbers, we saw that a little less than 31% of homes sold at or above the listing price, while in 2017 we have seen that almost   40% of homes sold at or above the listing price.  So why not build more homes?

New construction has been spurred on, and if you look in the Kern County, specifically Bakersfield market, it seems as though there is new construction everywhere.  These houses are selling out quickly, and the builders are able to get premiums for these houses in many cases as well.

The problem is that there are not enough affordable houses being given in areas that are severely over priced with a mass amount of jobs, and in areas that are affordable, there are not enough high paying jobs to keep an influx of people coming in.  On top of this, there is a very lengthy process attached with building in California, and in order to counteract this we are seeing some loosening on regulations for mother-in-law units and additional unit construction on properties in some of the higher value areas.

All of this seems to point to home prices rising, which means that if they continue to rise and buyers wait to purchase then they will be paying more for their homes.  This is the reason why you should buy now.

Get into a home that will earn some appreciation over the next year, and try to get a home that yourself and your family will be happy with for the next 10 years so you can weather out any market corrections that happen in the meantime.

Until next time,
Sanjeev (Sunny) Advani
– Realtor/ Property Manager/ Investor


What is your ideal down payment?

Being in real estate, and helping buyers with their purchases I have been able to see a lot of peoples financial situations over the years.   We know that housing is very important, but in the recent past I have started to see a shift in the type of houses people have wanted to buy.  For example, no too long ago it seemed as though having the nicest house, in the best neighborhood, with the most square footage was the most important.  Now, it seems as if there is a shift.  Instead of going after the most square footage, it seems that families are looking fo the highest quality home they can get with the minimum space needs for their family.  Where putting the least amount of money down was important in the past (3.5% FHA), we are now seeing that people are willing to put more down on their primary residence so they can bring their home payment down.

In a recent study by American Financing, if given the choice between putting 10% – 30% down, the most popular down payment is 10%.   Looking at borrowers under the age of 35, it still seems the most common down payment would be less than 8% on average.  This tells us that people are looking to put down the minimum possible to get into their house, but they may also be willing to a little more down than in the recent past.

The American Financing survey also showed that renting is still less desirable than home ownership, and if people had their rent raised, by as little as $100/month, it would be a trigger to have them start looking at buying.  Also, the survey showed that married couples are more likely to start looking to buy within 2 years, versus single people who would be more likely to wait almost 5 years before purchasing.

What are your thoughts about down payment?  Do you understand how interest rates effect your payments?  Do you understand how Private Mortgage Insurance can effect your payments?

Feel free to ask your questions!

Until next time,

Sanjeev (Sunny) Advani
– Realtor/Property Manager/ Investor


Start Building Wealth By Mistake

Working in Real Estate, specializing in working with investors, I help people create and grow their wealth. Just today, I was speaking to a new investor that had just purchased his first single family income property, and was very excited, admittedly probably too excited.

When we first started digging into the numbers, it seemed apparent that he would end up making about $150-$200/month after paying the mortgage (Step 1), but I had to bring him back down to earth when talking about the other expenses that would be involved (i.e. repairs, maintenance, property management fees, etc.). Not to mention, if the tenant wasn’t up to par! What if they came in and tore up the place, only to leave you high and dry with a rental that needed to be fixed up just to rent out again?

Once adding in these expenses, he quickly realized that this may not have been the best investment to start with, and his Realtor was not as well versed in this topic as another Realtor might be. The magic came when he realized that he was able to find someone who did have the experience and could guide him to finding the right investment for him (Not saying I’m right all the time!).

His current investment might not be a gold mine, but with a little elbow grease and luck, he would be able to get a tenant in the property that would help him pay down the mortgage, thus creating equity, and would only be set back on the path to his real estate empire about 6 months! Once pressed even further to determine what his true real estate goals were, he was able to settle on the fact that he would like to own multi-family residential real estate (i.e. 2-4 unit apartment buildings). We then formulated a plan on how to achieve that goal within the next 6 months, and went on our way.

My goal in writing this is not to say that you should come work with me because I am a great Realtor. My goal in writing this was to show people who are hesitant to take the first step into investing, that you can achieve your goals even if there is a small set back (and there almost always is). I have never met an investor who doesn’t have a dozen horror stories to tell, but it always amazes me that their story always ends up the same.

Persistence – If you make a mistake, try and try again.

Patience – Just because you want it now, doesn’t mean it will happen now.

Education – Learn from your mistakes (AND those around you).

And finally, I would add, build a team.

I think this article is a great example of how having the right team behind you can make a big difference in your success, and timeline to success. If I had met this investor a few weeks earlier, he may have decided not to go with this property, and we may have been able to find him something that was more in line with his investment objectives, with a better return.

But at least he got started, and often times that is half the battle right there!

Until next time,

SanjeevAdvani — Real Estate Agent, Investor, and Property Manager

 


Freddie Mac V. Hedge Funds

Freddie Mac predictions for the CA real estate market show that we should have a healthy market continuing into 2018.  New home sales are supposed to be the “primary driver” of sales in 2018 and we should see about a 2% increase in sales, across the board.  They are also saying that we should see an increase of 4%+ in value, as compared to 2017 which we saw a 6%+ increase in value, due to the historically low interest rates mostly.  “The economic environment remains favorable for housing and mortgage markets,” says Freddie Mac chief economist Sean Becketti.

Now, on to the real news!

Does anyone see that large hedge funds are buying up real estate in droves?  And, who is able to come up with the downpayment on a $500K plus house (median house price in CA)?!

As a Realtor, I see that the market is on fire within FHA limits right now (<$275,665 for Kern County), but what about the houses above that limit?  There seems to be a lot of foreign money floating around the market right now, which is helping hold prices up.

The question becomes, is this sustainable, and if it is sustainable for now, who is going to own the houses in the future?

The problem isn’t that we are seeing an average increase of house prices around 5%/yr (average), but it is more a question of who is buying those homes?  If hedge funds (Blackstone *cough cough*) keep buying up houses at the rates they have been, they will control the inventory.  He who controls the supply, has all the control.  If they decide to buy these houses assuming that markets will increase, they will be able to rent out those houses to those people who already cannot afford mortgages (isn’t that what we all are on BP trying to do?!) but they will also be able to increase rents which, if done correctly can severely hurt renters ability to purchase homes.  In effect, it will create the renter society which we have been hearing all about.

Now, I understand that Blackstone, and all the hedge funds out there can’t own ALL of the real estate, and therefore the supply will not be totally dependent on them, but if they start raising rents in your area, and you are a landlord who is keen to the market, then why wouldn’t you start increasing rents as well?

For all of us investors, this sounds like a blissful market, and should set us on the track to achieve the goal to own as many doors as possible so we can join the goliath hedge funds of the market, and make the world rent from us!

The biggest problem here becomes: Aren’t we a country that was built on home ownership?

What happens when that key tenet is taken away from our people (mostly the middle class and below)?

Does it matter?

Share your thoughts!

Until next time,
Sanjeev (Sunny) Advani
– Realtor/Property Manager/Investor


With strong numbers on the multifamily investment side, what are your thoughts on the upcoming multifamily market for 2017?

One of the most highly invested categories of real estate is the multifamily sector.  These could start as low as 2 units and go up to properties with hundreds or thousands of units.  Popularity is also being driven by the new wave of investors getting into real estate, with a tech enabled approach and the onset of the new Real Estate sector on the stock market.

Looking across the nation, we see that there is an average vacancy of around 3.5%, and rents are looking up 33% since 2006.  These are great numbers, considering that most people have been taking shots at the economy and job growth/creation.  Even the cycle pattern that we are on now shows more modest growth over a sustained period compared to the growth cycles we have seen in the past.  As a matter of fact, this growth cycle is the 4th longest we have seen in the recent past.

With small wage growth continuing on an upward pattern, it allows more people to have expendable income which could be used to move up in value or create more excess spending which will spur along the multifamily and commercial markets.  This, coupled with the increase in regional and national bank lending in the multifamily space leads us to see a prosperous future for this sector, especially new construction multifamily units.

This new multifamily construction boom is based on the needs of the 20-34 year old population.  As Millenials are starting to move out of their homes, they are looking to rent until they can start to save enough for their future home.  The last time we saw a boom like this in multifamily was when the baby boomer generation started moving out of their family homes.  We are also seeing this boom hit the primary markets around the States.  This is interesting because previously, these primary markets would be the hardest markets to get into.

Because of these new construction numbers, we start to look at vacancy rates.  With more new product coming onto the market it is fair to see a small drop in vacancy rates because of the higher rate of competition, and this is no different.  Class A properties are already starting to see an uptick in vacancy rates, while Class B & C properties are trending down in terms of vacancy.  What this shows, is people in ‘lower end’ properties are starting to take over the lion’s share of the market.  Even looking at secondary markets, we see that the secondary and tertiary markets are starting to enjoy stronger financials than some primary markets.

Secondary markets are seeing the lowest vacancy rates of all three markets, and they also have the highest rent growth year over year, at 4%.  Tertiary markets are slightly behind the Secondary markets, and both are well ahead of the Primary Markets.  Sacramento saw the highest increase in rents year over year, with over 11% growth, and it is a Secondary market as well.

Because of the lack of return in the Primary market we have started to see some buyers come into the Secondary and Tertiary markets which has made the need for a solid offer much more important.  Many people are starting to see competitive offers at a 30 day look, 30 day close, no financing contingency, and high earnest money deposits.  This can be difficult for the smaller investors to get into competition with, and could cause individual investors to look more into the Tertiary market which will also be more affordable, in most cases.

Written By –
Sanjeev (Sunny) Advani