Would you recommend I buy investment property here in Sunnyvale, elsewhere in Santa Clara County, or out of the area?
We STRONGLY recommend purchasing investment property; we cannot think of a better or safer way to gain wealth, in the long run, than to own more real estate! Where you should buy is the better question.
OK, so where should I buy and how do I go about it?
The first thing to decide is whether you are more interested in positive cash flow or overall appreciation. This will help in determining where you should look to make your purchase.
Buying real estate in the Sunnyvale area, or really anywhere in Santa Clara County, would be a purchase based on overall appreciation. This is because a home’s value here in Sunnyvale is very high in relation to it’s rental value; but, it can provide excellent appreciation in the long run.
For example, let’s say you buy a four-plex in Sunnyvale for a purchase price of $1,000,000. With 25% down ($250,000), your monthly payment for principal, interest, taxes, and insurance will be in the range of $5900 per month. You’d also have to add another $400 per month for expenses like water, garbage, and landscape maintenance, bringing your total cost to $6,300 per month. Since it’s local, you could likely manage it yourself, saving the property management fee.
Current rents for the four units would probably total in the range of $5,300 per month, so you’d have a NEGATIVE cash flow of about $1000 per month. To make this purchase profitable in the long run, you’d need the property to appreciate enough to overcome this negative cash flow AND provide a decent return on your investment (the down payment).
For example, if your desired return is the equivalent of 8% on your money, you’d need the property to appreciate an average of $2666 per month; the $1,000 negative cash flow PLUS $1666 per month (the return on $250,000 at 8%).
Now, contrast that with a positive cash flow investment (not really possible in Sunnyvale), for which you’d have to look out of the area.
As an example, in Cincinnati, Ohio, today you can purchase an apartment complex of 34 one-bedroom units for a purchase price of $750,000. With a 25% down payment, the total cost for the loan, utilities, taxes, property management, etc. would be in the range of $11,000 per month.
Current rents for the units would be in the range of $13,000 per month, so you’d have a POSITIVE cash flow of about $2000 per month. While the investment is not likely to increase much in value (appreciation), the return is realized on a monthly basis, through the cash flow. A return of $2000 per month on an investment of $187,500 equals a 12.8% annual return on your down payment, even if the property doesn’t appreciate. You’d of course have to factor in a vacancy rate, so the return would likely be a little less.
We welcome you to post your comments and/or questions regarding these or any other real estate investments. If you’d like to discuss them in person, or get more information about anything real estate related, please give us a call at 861-4813! We have specialized in selling residential real estate in Santa Clara County, and specifically in Sunnyvale, since 1984. We’ve successfully sold over 1200 homes in Santa Clara County; you won’t find anyone more knowledgeable about the market here!