Category Archives: San Clemente

Finding a good home inspector

Is Your Home Inspector Legit? Why Buyers Should Inspect Their Inspectors

Of the roughly 30,000 U.S. home inspectors nationally, those in about 15 states don’t need to be licensed, according to the American Society of Home Inspectors. Among the non-licensure states—you guessed it includes California.

How to inspect the home inspectors—and find a winner

Good sources to finding a Home Inspector are professional trade associations. There are two quality associations available in California: the California Real Estate Inspection Association, CREIA and the American Society of Home Inspectors, ASHI. Both organizations require their members to pass an exam showing competence in the home inspection profession along with requiring that each member maintains continuing educational credits each year, CREIA requiring 30 hours per year and ASHI requiring 20 hours per year.

The client should interview all potential Inspectors they are considering and ask the following:

  • Is the inspector a member of CREIA and/or ASHI?
  • What does the inspection cover? Make sure the inspection and the inspection report meet all applicable requirements and comply with the CREIA and/or ASHI Standards of Practice. Both Standards of Practice are recognized by the California Legislature
  • How long has the inspector been practicing and how many inspections have they completed?
  • Does the inspector’s company offer to do repairs or improvements based on the inspection? This is against the CREIA and ASHI Code of Ethics as it is a defined conflict of interest
  • How long will the inspection take? The average for a single inspection is 2 to 3 hours for a typical single-family house; anything less may not be enough time to do a thorough inspection. Some inspection firms send a team of inspectors and the time frame may be shorter
  • Does the inspector prepare a written report? Ask to see samples and determine whether or not you can understand the inspector’s reporting style
  • Does the inspector encourage the client to attend the inspection? This is a valuable educational opportunity, and an inspector’s refusal to allow this should raise a red flag
  • Does the inspector participate in continuing education programs to keep his or her expertise up to date? One can never know it all, and the inspector’s commitment to continuing education is a good measure of his professionalism and service to the consumer

As for what to do if problems crop up that the inspector should have found, the first course of action should be to contact the inspector directly to discuss the issue. No corrective work should be undertaken before the inspector has an opportunity to review the report and be given the chance to revisit the property. Good inspectors will make good on their services if they missed something that should have been discovered during the course of the inspection. Keep in mind that the inspector is operating per an accepted Standards of Practice which states what is required to be inspected and what is not. Also many Inspectors carry professional liability, errors and omission insurance (although it is not required).

 

A rookie’s guide to buying a rental home

Duplex for sale in Dana Point. Click photo for details.

Source: OC Register

As rents hit record highs, here’s a rookie’s guide to buying a rental home

Hugh Siler had a vision when he bought a full block of small houses in Orange this spring. He would restore the homes, built in the early 1900s and long fallen into disrepair, to their original state. After that, he’d rent them out at top dollar.

One house is done, and if it’s any sign, his payoff will come sooner than later. The 450-square-foot, one-bedroom cottage on Palmyra Avenue near Orange Plaza rented for $1,850 a month – immediately.

“Literally, it rented before I even stuck a sign in the ground,” Siler said a couple of weeks ago. His tenants, a young couple, plan to move in by the end of November.

As rents break records, apartment vacancy rates stay low, and millennials delay homeownership, buying houses to rent appeals to investors large and small. But the foreclosures of the Great Recession have been receding for years, and bargains can be hard to come by in Orange County, where the median home price was $640,000 in September.

That’s led many local buyers to set their sights on less pricey property in the Inland Empire and sometimes other states.

“Most investors still invest in their backyard,” said Daren Blomquist, spokesman for Irvine-based Attom Data Solutions. “So for those folks in Orange County, Riverside and San Bernardino are good options.”

Of course, risks abound, including the impact of housing and economic policies to be shaped by a new president, albeit a real estate developer. Also, Federal Reserve Chair Janet Yellen said last week the U.S. central bank is ready to lift interest rates. The hike is expected in December.

Earlier this year, real estate adviser RCLCO predicted, “If household income growth for lower and middle-class Americans remains slow relative to historic gains, and home mortgage standards do not loosen for subprime borrowers, it is likely that the recent boom in single-family rentals is here to stay.”

Here are five additional things investors and would-be landlords should take into account.

POPULAR PLACES

Attom released a report in October showing potential profits on rental homes throughout California. The analysis included capitalization rates – or rates of return on a real estate investment property based on the income the property is expected to generate.

With a potential annual gross rental yield of just 4.3 percent, Orange County came in at No. 461 out of 473. By comparison, San Bernardino County has a 7.6 percent potential capitalization rate, ranking No. 311. Riverside County has a 6.1 percent potential cap rate, ranking No. 399.

So where else are Orange County investors looking?

The company did an analysis for the Register last week and found the top 10 counties where Orange County residents own investment homes are led by Riverside, Los Angeles and San Bernardino counties.

Those places were followed by Clark County, Nev.; Maricopa County, Ariz.; San Diego County; Mohave County, Ariz.; Kern County; Wayne County, Mich.; and Harris County, Texas.

FINDING A NICHE

Many investors specialize in one type of residential property, whether it’s single-family houses, mobile homes or apartments.

Siler has found a niche within a niche: restoring and renting out historic homes.

It can be a difficult proposition. For one thing, he said, a bidding war ensued over the five homes – one a duplex – that he purchased in April. He said he spent a total of $1.62 million to come out the winner.

Then, there’s the exacting work of creating authentic restorations. “Most people would say I’m fairly nuts to take this on,” he said. Compared with remodeling homes from the 1970s or ’80s, “When you do a vintage home, the template goes out the window.”

He’s had some experience, restoring the historic Shaffer Cottages, a set of four tiny, attached apartments he bought elsewhere in Old Towne Orange for $585,000 in 2011. That project saw him spend about $175,000 and some 4,000 hours on refurbishing and restoration.

At least he could count on some future cost-cutting. The original, refinished floors eliminate the need to buy carpeting for every new tenant, and it takes only a gallon or two of paint to refresh a small interior.

RENTS UP

One of the most dramatic shifts in the U.S. housing market in the past decade was the “unprecedented” increase in single-family home rentals, RCLCO said in a report this year.

But, the firm added, “While there has been widespread discussion of the economic and demographic shifts affecting the U.S. multifamily rental market, a major component of the overall rental market – single-family rentals – has been largely overlooked.”

Reis Inc., which tracks apartment rents, said rates went up in all 79 major U.S. metro areas it studies. The average rent for all metros was $1,271 a month, up 19 percent over the past 4 1/2 years.

In Southern California, rents hit all-time highs. Orange County rents were the ninth highest among the top 79 U.S. cities.

The average asking rent for an Orange County apartment climbed to $1,781 a month, following 61/2 years of steady hikes, according to Reis. In the past 4 1/2 years, rents shot up 14.3 percent, or $223 a month.

In Los Angeles County, the average asking rent reached $1,676 a month, rising nearly 18 percent over the past 41/2 years, Reis reported. In the Inland Empire, the rents were up 17 percent to $1,239.

Meanwhile, homeownership has been dropping, and millennials are expected to rent for longer than their parents did.

John Burns, an Irvine-based real estate consultant, predicts an overall 60.8 percent homeownership rate among all age groups by 2025, the lowest since the mid-1950s.

THE RISKS

Still, investors can face plenty of uncertainty, starting with their newly purchased property.

For one thing, often, a home inspector won’t find everything, Siler said.

“So make sure to set aside an additional fund of money – about 15 percent of your overall renovation budget,” he said, “and call it your ‘just in case’ fund.”

Investors also say it’s best to have at least six months of reserves in the event a renter doesn’t turn up right away.

Institutional investors – those with 10 properties or more – have purchased more single-family rental properties this year, even though average returns dropped to a nine-year low, Attom said in an Oct. 27 news release. But, the data firm said, “After a drop-off in single-family purchases by both individual and institutional investors over the past two years, we’re starting to see investor acquisition activity pick up again.”

Blomquist said it’s a good idea for smaller investors to pay attention to what the larger, better-capitalized investors are doing.

“In some cases it may be so the smaller investor can simply follow the lead of larger investors who have found a market or strategy that delivers strong returns,” he said. “But in some cases, it may be to avoid the strategies and markets employed by larger investors, so the smaller investor doesn’t have to compete.”

NOT A LANDLORD?

A lot of mom-and-pop investors like the idea of collecting monthly checks, but balk at the hassle of finding renters or fixing dishwashers. Or they worry about being too far away to handle the upkeep.

An Irvine company is one of one of several online investment management firms helping buyers more easily pick up single-family rental homes in lower-cost markets where returns are higher.

HomeUnion acquires the property on behalf of the investor, completes the documentation online, lines up property management, and later helps the investor figure out when to sell. Transaction fees are 3.5 percent of the purchase price; management fees are 10 percent to 10.5 percent of the rent.

The company, operating in 18 U.S. markets, has penned the motto, “You invest, we do the rest.”

It appears to be working.

The firm recently announced plans for an initial public stock offering.

Mortgage rate projections for 2017

According to the Orange County Register,  median home prices eclipsed $935,000 at the end of 2016, which begs the question, “Is now a good time to buy?”

Home for sale in Dana Point. Click photo for details.

Of course, there are so many factors that will ultimately have an impact on the decision to buy now or hold out for better market conditions.  I would suggest that mortgage interest rates play an important factor in that decision.

In late 2016, mortgage interest rates on a 30-year fixed loan bottomed out at 3.46% according to Bankrate.com.  A home with a purchase price of $500,000 @ 3.46% would equate to a $1,787.26 monthly mortgage payment.  Today, that same $500,000 house equates to a $1,991.25 monthly payment at 4.35%, which represents a 12% increase in your monthly mortgage expenses.

The Mortgage Bankers Association predicts that the 30-year fixed-rate mortgage will rise gradually over 2017, averaging 4.7% in the fourth quarter. The National Association of Realtors expects the 30-year fixed to be around 4.6 percent at the end of this year. This means that the same $500,000 home purchased at the end of this year may cost around $2,074.55 a month.

Look at it a different way: A buyer that pulled the trigger on a home purchase in late 2016 could have afforded a home valued at $580,000 ($2,073.22/mo @ 3.46%) versus only a $500,000 home if that buyer had waited until the end of 2017 ($2,074.55/mo @ 4.7%).  That $80,000 of buying power lost could represent an extra bedroom, that 3-car garage you always wanted, or a variety of other things.

If Orange County real estate prices rise 1% in 2017, a home you’re interested in now that has a sell price of $500,000 might be $505,000 at the end of the year.  That change in value is negligible compared to the forecasted rise in interest rates, at least as far as your monthly payment is concerned. As mentioned above, there are so many things to consider when purchasing a home and I would never tell anyone to run out and buy a house just because mortgage rates are still pretty low. However, it might be something to consider!

Preparing for an earthquake

Are you prepared for an Earthquake?  If you’re not sure, there’s a TON of good information online and I’ve selected my favorites below.

To start, this is the most comprehensive earthquake guide that I could find.  It contains lots of interesting info on Southern California’s history of earthquakes, what kinds of damage future earthquakes might do, and how you might be able to minimize the impact for your family.

Before an Earthquake

  1. Assemble an emergency preparedness kit .
  2. Create a household evacuation plan that includes your pets.
  3. Stay informed about your community’s risk and response plans.

Here is a concise, 1-page checklist for what to do before, during, and after an earthquake.

Here is a more thorough guide.

Protecting your home
Here is a great document on the various ways you can inspect your home and identify and fix potential problems before they happen.

Communicating with loved ones
Communication may be tough after an earthquake. Internet and cellular services may be unavailable, so it’s always a good idea to diversify and have a backup plan.  In the event that cell phones work, there are some really good apps for emergency preparedness.

I also thought this Google PersonFinder app was a really useful tool to use and get familiar with if you’re ever in a situation where you’re searching for a friend or family member.

 

123 Via Murcia

This week’s property is in the new Sea Summit development. I’ve featured homes in this development before. In 10 years, I think the buyers of these homes will look back and think about how lucky they were to get such a great location and view for under $1M.

123 Via Murcia
3 bed, 3 bath
2,278 square feet total
$977,155


Here’s why I think this is a great buy:

  • You get the peace of mind of new construction
  • Quiet, family-oriented community with parks and walking trails
  • Great access to the freeway
  • The HOA dues are reasonable ($250/month)

Want to check it out? Contact me today.

A property with a catch: Why zoning laws matter

Property: 607 Calle Canasta, San Clemente 92673
Status: Off market; listed in June 2016 for $1,298,000

This property COULD be a tremendous opportunity for the savvy investor, but it comes with a catch so I thought it would be good to take a look.

On its face, it seems like this 5-unit complex is priced competitively enough so that there’s a little meat on the bone for an investor to earn some income right out of the gate:

$1,298,000 with 20% down brings your mortgage payment to just around $5,000/mo. If pro forma rents hold up and you can in fact earn over $5,600/mo, you might think it’s worth looking into further.  However, also included in the notes of this listing:

“Since 5th unit is non-conforming, lenders will require loan to be commercial paper. Building is zoned a four-plex, however large front unit was converted to (2) un-permitted units.”

A non-conforming use issue can quickly turn a great deal into a nightmare for the uneducated investor. Most jurisdictions in the United States have some form of zoning regulations in place. Certain zones may only permit single-family dwellings and thus forbid apartments and commercial uses.

In the aforementioned example, a 4-unit complex was converted to a 5-unit complex without properly permitting, probably because the property is located in a zone that prohibits such use. Therefore, this property is “nonconforming” to modern day building and zoning codes. In some cases, a property can be designated as “legal” nonconforming if its configuration and use was legal at one time and pre-dated the zoning laws.

There are plenty of non-conforming properties out there and the practice of changing the configuration and use of a property is not uncommon, but it’s important to know the potential hazards of investing.  For example, if a neighbor files a complaint with the City about an illegally functioning 5-unit complex across the street, the City may force you to convert the property back to how it was originally permitted. You may have issues with insuring a nonconforming property.  You may run into liability issues with future tenants.

It’s also worth noting that the seller’s agent believes any buyer requiring financing will have to resort to “commercial paper,” which typically means harsher terms, higher interest rates and much shorter timeframes to pay back a loan.  All things to consider when considering a non-conforming property.

Questions to ask:

Is this “legal” non-conforming or “illegal” non-conforming?

How many utility meters are there?

How many units is the City building department monitoring for the property?

Have all 5 units been occupied continuously for the past year?

If you have questions about a property you’re interested in buying or selling, contact me.

214 Via Robina #12: For Lease!

This week’s listing is a great rental in San Clemente.

214 Via Robina #12
2 bed, 2 bath
1,016 square feet
$2,400/month

home-1 home-2 home-3 home-4

Here’s why I think this is a great place to rent:

  • Ocean views
  • Walking distance to downtown San Clemente shops and restaurants
  • Walking distance to the San Clemente Pier and some of the most famous beaches in California
  • Nicely remodeled with new hardwood flooring and carpeting, an updated kitchen, and remodeled bathrooms
  • Dedicated carport and a large one-car detached garage (great for this area, where parking is often challenging)
  • In-unit washer and dryer
  • Trash, water, and sewer are included
  • Dogs up to 20 lbs are permitted
    Want to check it out? Contact me today.