Posted by Frugal on May 23rd, 2013
Housing market in most area of the California has experienced 15% to 30% price increase in just the last year. I have bought about 1.3 million worth of real estate in the last year (through mortgage leverage), and caught onto the ride. I am managing all of five rental properties myself. To get everything fixed up and rented is quite a lot of work. My real estate investment portfolio brings in about $60K income (before mortgage interest and depreciation deduction). The actual rental income however is less, due to all the mortgage interests that I need to pay.
After the big rise in the housing market, it’s close to impossible to find any investment property that will give you an ROI of 6%. Even for what I bought, the average return was not more than 6%. However, if I didn’t lower my ROI target a little bit, I wouldn’t be sitting on several hundreds of thousands from capital gain right now. I didn’t expect the price to rise so quickly. I’m still shopping for deals but it’s about 1 in 100 homes that you may find a deal, and possibly 1 out of 50 deals you may get. So the chance is about 0.2% or less for you to actually get some deal. I go through about 100 listings online myself on a daily basis. That obviously take effort and time. The fact is that if there is a deal, your real estate agent would buy it before you do. So either you find them yourself, or you don’t. Nobody is going to give away something to you.
Even if you don’t have a lot of money, you can still invest in real estate. My smallest acquisition was just $60K, and the ROI is 10.1%. Obviously far better than 1% for the idle cash in the bank.
What makes real estate investment better than other investment besides its stability and leverage? What I’ve learned from sifting through tens of thousands of homes is that real estate market is not an efficient market, and there are always deals that are priced below-market. If you try often and hard enough, those are some potential gains that you can get. Your competitions are going to be as crazy as you are. 99.5% of the good deals that I found get sold in the first two days, if not the first day. This is not a game for the guys who sit back and relax. If you don’t make a move, somebody else will.