Real estate investing is starting to get in vogue again as the economic recovery continues. Recently I have interacted with a number of people in Orange County who are either looking to take the first dip into being a landlord or to expand their portfolios.
With Orange County Real Estate beyond many people’s grasp because of the high prices many go outside the state to accumulate their real estate portfolio. Many areas offer great opportunities for investors but being thousands of miles away from your investment property also carries additional costs and concerns. Ideally you would be within a short drive of your property, but if that is not possible then you need to get every bit of information about the area, neighborhood, crime rates, schools, appreciation history, on going construction, weather related issues, and every last bit of data you can accumulate on an area before you decide to buy there.
Regardless of if you buy Orange County real estate or become an out of area investor here are some investment property ownership costs to keep in mind before you make your purchase.
1) Taxes – property taxes can vary greatly by area and some areas even charge non owner occupied properties a higher tax rate than owner occupied properties so you are going to have to make sure that your real estate professional gets you the actual tax calculations made on your property as an investment property.
2) Mortgage and Insurance – both see non-owner occupied properties as a higher risk so expect to pay a higher price. Also both can vary greatly region to region. For mortgages expect to pay a higher interest rate along with a higher down payment requirement. For you insurance make sure you get a local quote for non-owner occupied insurance.
3) Maintenance and Management – remember your tenants are often going to be a lot less tolerant of any house related issues that come up than you might be. They will call and pester you for things you would think most reasonable people would just ignore. Who handles tenant matters comes down to management. Are you going to manage the property yourself? That of course comes with it’s own issues but really is only feasible if you are investing in Orange County real estate. If you are buying out of the area figuring 10% of the monthly rent for property management plus another $1,000 put aside for any repairs should give you a good starting point.
4) The Tenant Hunt – it costs money to get a tenant into your property. You will need to advertise, run credit, check references and of course spend time meeting them and guessing the best you can if their checks will show up on time. If you’re using a property management firm they will usually handle this for you typically at an additional charge.
5) Vacancy – this is the real threat landlords should worry about. The reality is you are going to have times when your investment is costing you money while not making you any money. A good estimate is to set aside 2 months of expenses to cover vacancy, if your property isn’t rented in two months your charging too much or being too picky with tenants.
6) Tenant Damages – sometimes tenants do things that the security deposit just won’t cover. But for you to get the highest return on your investment you have to make sure repairs are made and the property is maintained. Depending on how a tenant leaves can vary the degree of damages significantly. If they just don’t renew their lease and move like a normal human being you may get your property back better than when you rented it to them. If however you have to evict them you might walk into something that resembles a crimes scene.
Whether you decide to invest in Orange County real estate or invest out of state being a landlord has a lot of benefits as well as a lot of thing you need to watch for. We have had both extremes when it comes to tenants, we have had tenants who spend their own money to improve our property and pay their rent on time and always renew their leases, as well as tenants who have done damage well in excess of the security deposit and left us with no way to recoup those additional costs. In reality it is crapshoot whether a tenant works out or not. The first thing someone considering taking on investment property has to consider is do they really want to be a landlord in the first place and can they position themselves properly to be able to cover anything that may come up. If so, then do you invest in Orange County real estate or go to cheaper pastures? We have done both and know each has its own pluses and minuses, so if you have any questions fell free to contact me I am here to help.
949 599 6860