There was a time, not so long ago, when the phrase “real estate investment” referred to the activities of wealthy individuals. The average homeowner, having struggled to get into his three-bedroom bungalow, breathed a sigh of relief and vowed he would never go through that again.
Times have changed. Thanks to the double-edged sword of ever-spiraling home prices, more and more people are, paradoxically, either investing to cash in on the housing boom or just to get into housing at all).
Cameron Platt, an Oakland-based real estate attorney and real estate agent, sees the trend daily. “You find a few people to buy a duplex with, you write up a tenants-in-common contract, and turn it into condominiums,” Platt says, noting the process is more complex than that, but well worth it.
Platt credits stratospheric home prices for the boom in investments, as many households realize that buying into a three or four unit building is the only way they are going to become homeowners. “The mindset of people is, ‘Maybe we should just wait a year and save some more.’ The problem is that home appreciation is going to outpace your savings,” he says, referring to the 20 percent increases seen in the last five years.
In other words, let’s say a couple decides to wait one year, and in so doing, saves $20,000. But with a 20 per cent increase in home prices, the $400,000 fixer-upper they were looking at is now $500,000. So while they saved $20,000, the 20 per cent increase means they will pay $100,000 more for the same house. Waiting for one year and saving money actually cost them $80,000.
Platt says, “The condo conversion is the key.” For example, he cites a two-bedroom, one bath, half of a duplex in Oakland which typically goes for around $325,000. “As a condominium, that same home will now go for $30,000, $40,000, or even $50,000 more,” he says.
While such activity is nearly impossible, and heavily regulated, in nearby San Francisco, Platt says the East Bay still offers such opportunities. “I’m currently working with investors to reside in nine units of a building, and then resell it after several years,” when the condominium conversion is complete, Platt notes.
Platt refers to such individuals as “the accidental investor, because they’re looking to buy a home, and they end up becoming investors in order to do that.” When homeowners are ready to buy a nicer home, investment can also be key, he adds, noting, “It often boosts people up to the next level. It frees people up to live in a home closer to their dream home.”
For those who are homeowners already, investing in other homes seems to make sense. That is what made Joanne Conca of Beyond Homes, and her husband and business partner, David, to establish their web site, mlsinvestments.com.
“We were looking at out of state investments for our clients and ourselves,” she explains, “when we realized there’s no central web site for investment property.”
While the Concas tried using the MLS (multiple listing service) in each local area, poring over each separate MLS was cumbersome. “Plus, some MLS services are on the web, and some aren’t,” Conca adds.
Although the mlsinvestments.com web site carries Bay Area properties, it carries investment properties from other areas as well, allowing East Bay investors to make financial comparisons. “There can be huge price and rental discrepancies,” Conca explains. “For instance, a home in Plano, Texas, might cost about $80,000, and the monthly rental is about $1,500. So, you can compare that with a home in Silicon Valley that costs about $650,000, yet offers similar rent,” she says.
Another market Conca is keenly interested in is Denver. “You can buy a duplex in San Jose that will offer between $2,000 and $2,500 per month in rent,” she explains. “But in Denver, for the same price, you can buy an eight-plex or 10-plex [an eight or ten unit building] for the same price, with the rental income being $8,000 to $10,000 per month. And that’s in an area that still has potential for appreciation,” she adds.
As investors are able to compare across state lines, Conca believes the real estate markets might even out a bit. “I think we’ll eventually see that there aren’t as many discrepancies. Although, in this example, there are other reasons why the prices are different,” she explains, pointing to the appreciation of the Bay Area home and the ease of finding renters.
Conca also attributes the rise in property investors to the lackluster performance of other investments. “We have definitely seen an increase in investors,” she notes, “ever since we had the stock market crash in 2000 and 2001. So it’s been growing over the last four or five years.”
Although Conca believes mlsinvestments.com was an important step for the growing crowd of real estate investors, she doesn’t see it as a substitute for a real estate agent. “I think people will use this Internet site to find an area of the US they like, then find a realtor in that area to help them,” she says, “kind of like people do now when they move from one area to another.”
What is clear is that an increasing number of people are buying real estate – and are increasingly likely to make their own home purchase their first of many.