Real estate markets in Southern California are on fire right now. Anxious people are rushing to buy houses without thinking it through. More alarming is the fact that people are willing to pay much more than list price to get the house. Many realtors note that houses are currently selling for 10-15% over list, and if the offer is not unconditional then it doesn’t stand a chance.
Below are recommendations on how to invest in hot markets, since there can still be great deals available.
1. Target Neighborhoods
Drive around them, walk the streets. Talk to anyone you meet. If they live there, let them know you want to buy in the area. Ask if they know anyone thinking of selling. It’s amazing what neighbors know, and are willing to talk about.
2. Use the Five Door Rule
When you buy a house, knock on the five doors on either side of it. Cross the street and do the same. Let the neighbors know that you bought the house and would be interesting in buying theirs if it fits your system.
3. Explore Expired DOM (Days on Market)
Listings in hot markets expire, as do any listings. In a hot market, they usually expire because the realtor listed it incorrectly. Pull all expired listings and knock on those doors.
4. Coffee Talk
Start conversations about buying local real estate when you meet people in coffee shops and other public places in desired areas. We’ve bought two properties this way.
REAL ESTATE INVESTING IS ABOUT MATH, NOT FEELINGS
Remember that buying in a hot market still requires a plan plus a level-headed approach, as does any real estate venture. I started buying real estate in 2004. Since then the market has fluctuated up and down. Knowing the type of market you currently find yourself in will dictate your approach to investing. Some years I bought more properties as I realized the market was starting to move up. There have been years when I waited patiently by the side lines for a good deal to materialize.
ALWAYS REMEMBER TO BUY RENTAL PROPERTIES BASED ON THREE CRITERIA:
1.The Math
We like to invest in properties where total cash flow is at least $300 a month. Base your rental amount on the lowest rents of the past 5-7 years, not on current rents.
2.Mortgage Buy-down
Every monthly mortgage payment reduces your principle. That means if all you do is break-even every month, and consistently make your payments, that house will be debt free in 25-30 years.
3.Appreciation
This is something we have no control over. If the house price goes up, that’s a bonus, but I never recommend anyone to bet on it.
Save your money. Buy with logic and ensure the numbers are on your side. These basic principles will set you on the path to building a successful real estate portfolio.
Hot markets need cool advice.
Contact me, I can help!
Thomas Lorini