Step Two in Investing in Orange County Real Estate

• Click here to read the First Step to Investing in Orange County Real Estate

Evaluate Your Real Estate Investment Priorities

Step Two in the process of investing in Orange County Real Estate is to evaluate the options and decide what YOUR priorities are for making an investment in Real Estate.  Emphasis on YOUR priorities.  These may be the same or different from Donald Trump or Richard Branson.   This Blog is intended to help you feel confident that you don’t have to be The Donald to be successful in meeting your wealth accumulation goals by investing in Orange County Real Estate.  If you are a first time Real Estate investor, it is likely that your prioirites will be different than both of these successful business owners and investors. 

Know Your Choices in Real Estate Investments

Here’s a list of some of your options for investing in Orange County Real Estate.  Consider the following:

• Condominiums or Townhomes
• Single Family Homes
• Duplexes
• Apartment Buildings 
  • Residential Units (4 or less)
  • Small Commercial Housing Units (5 to 11 units)
  • Large Commercial Housing Units requiring an on site property manager (12 or more units)
• Vacation Rental
• Comercial/Retail/Industrial Building(s) 
• Triple Net Leases

Here’s a look at the pros and cons of each of these Real Estate investment options.

Condominiums and Townhomes

These are properties in Orange County that are attached at one wall or more.  They can be attached at the side walls, or at the floor and/or ceiling as in a multiple story or High Rise development.  They may or may not have a garage, and the garage may or may not be attached to the unit.  Condos and Townhomes typically have a Home Owner’s Association that covers the insurance on the building, perhaps some of the utilities, and maybe some of the landscape or yard maintenance.  And as in all residential properties in Orange County, they may or may not have Mello Roos and other additional assessments, on top of the annual property taxes.  Typically, Orange County Condos and Townhomes are 1 to 3 bedroom units.  Two bedroom units are often more popular and command more rent.

Single Family Homes

There are myriad single family homes available in today’s Orange County real estate market.  Compared to Condos and Townhomes, single family homes usually have lower home owner’s association dues – unless the house is in a gated community or a community with extensive amenities.  Rarely will the utilities be covered in the HOA dues.  Usually a single family home will have a garage, and in Orange County these are usually attached to the home with direct access.  Single story single family homes are a particularly compelling investment option, with the maturing baby boomer population in mind.

Duplexes

Two residential units on the same parcel constitutes a duplex.  They may or may not be attached.  They may or may not be the same size and/or number of bedrooms.  They may share a garage, have no garage, or only one unit may have a garage.   You may decide to live in one and rent the other out.  Or rent them both.

Apartment Buildings

• Residential Units

Apartment Buildings in Orange County with 4 or fewer apartments are considered Residential Real Estate for the purposes of mortgages and come other considerations.  The units can be attached or detached, and much like duplexes, may or may not have individual or shared garages.  They may or may not have the same number of bedrooms and bathrooms, maybe all single story or a mix of number of stories.  Residential Apartment Buildings qualify for a residential mortgage, and the qualifications for the mortgage are based on you, the borrower.  You’ll see the difference when you check out Commercial Housing Units.

• Small Commercial Housing Units (5 – 11 apartments)

When considering an apartment building with 5 to 11 units, you must realize that in the terms of money lenders, this is a Commercial Property.  To qualify for a loan on a commercial apartment building, in addition to your personal financial qualifications, the pro-forma, rent rolls, lease agreements, and balance sheets for the building are required – as they are scrutanized and analyzed by the lender.  Typically, a commercial loan requires a larger downpayment (currently at least 30% often more) than a Residential Apartment Building.  And that’s not all.  Often the interest rates are higher than residential rates.  But, given these high barriers to entry, the commercial buildings may produce a higher positive cash flow in a shorter amount of time.

• Large Commercial Housing Units requiring an on site property manager (12 or more apartments)

There is great potential for cash flow in owning large apartment buildings.  And it is a much different ball game than owning a condo that you rent to one young promising professional.  You  have many more sinks and toilets and water heaters and stoves and ovens and maybe even washers and dryers – or even a revenue-generating laundry room provided as a benefit to your tenants.  You are required by law to have an on-sight property manager for apartment buildings with 12 or more units, and usually the property manager’s apartment is part of their compensation package.   The good news regarding an on-sight property manager is that it is like having a den mother, dorm monitor, or a house mother (if you remember your college days) – they can be your eyes and ears and help keep the tenants accountable for decent care of your property.

Vacation Rentals

Here’s the bottom line on buying a property in a great vacation destination for use as a short-term vacation rental – you have to have a desirable property, you MUST have at least a two-year plan to reach your projected occupancy targets, and you have to anicipate losses due to theft, vandalism, stupidity and carelessness (like the party-happy guests falling asleep with all the candles burning on the patio – leaving you a waxy mess… or the My Big Fat Greek Wedding scene-from-a-movie replay that leaves all your wine glasses in a broken mess in the firplace.)  On the flip side, you can do very nicely – just make sure you know the track record for Vacation Rentals in the area you are targeting and be very realistic and inclusive in your business case and in setting aside reserves.  You also need good cleaning people.

Commercial/Industrial/Retail Properties

Residential Real Estate too pedestrian for you?  Or looking to take a step up?  Commercial Real Estate refers to building that house businesses, or warehouses, or manufacturing plants, or retail stores and strip malls.  We’ll get into more on this later – just keep this as a place holder so you know what it is.

Triple Net Leases

Triple Net Leases are the Sugar Daddies of Real Estate.  In a Triple Net Lease agreement, you own the property, and the tenant signs a multiple year lease, AND in addition to thier rent, pays property taxes, insurance, maintenance and utilities on the property.   

So there you have it.  A breif overview of most of the typical vehicles investors choose from when investing in Real Esate, particularly in Orange County.  Up next, pros and cons of these different types of properties availble to buy in today’s Orange County Real Estaet Market.