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What is a Good Return on Real Estate Investment?

Brian Babb Xbwhrt87Mq0 Unsplash There Is No Question That Investing In Real Estate Can Be Profitable. However, It Is Important To Be Realistic And That You Keep Your Goals Achievable.

There is no question that investing in real estate can be profitable. However, it is important to be realistic and that you keep your goals achievable.

First of all, you need to keep in mind that you will not make a profit overnight.  Secondly, you need to understand that the location of your property will play a critical role in determining how successful you are, and thirdly, the return on your investment also depends on how much money you have to further invest in fixing up the property or keep up with the maintenance.

When it comes to real estate, the primary focus of real estate investor should be on the return on investment. If it is too low, the investment may not be a good idea, but if the return on investment is high, your real estate property could be profitable for a long time, says House Match Real Estate Sales & Property Management.

One of the main reasons why some people fail to make profits in real estate is because they have little or no idea about the return of investment or set unrealistic expectations. But if you have a property that is in a good location and the maintenance costs or upkeep is at a minimum, there are formulas you can use to calculate the return on your investment.

Here are some ways to measure your return on real estate investment:

1. The one percent rule

Eugene Chystiakov C3Iwi6Amexm Unsplash There Is No Question That Investing In Real Estate Can Be Profitable. However, It Is Important To Be Realistic And That You Keep Your Goals Achievable.

The easiest way to determine how much money you will make is to use the one percent rule. As per this quick rule, your monthly gross rental income should be at least 1% of your investment.

For example, if you bought an investment property for $500,000, the monthly rental should be at least $5,000. Over 12 months, this equals to $60,000 and even after accounting for all usual expenses, you will still have 6-8% leftover. That can be considered a good return on investment.

2. The capitalization rate

Markus Spiske 2Vmcpbur6W8 Unsplash There Is No Question That Investing In Real Estate Can Be Profitable. However, It Is Important To Be Realistic And That You Keep Your Goals Achievable.

Another formula that is widely used to calculate the profitability of real estate investment is the cap rate. This is basically the ratio of the net income of the investment property to the purchase price.

For example you invest in a home that is worth $250,000 and rent it out for $1,500 a month. After deducting the maintenance fees, you are left with a net monthly income of $1,000 or $12K over 12 months.

The cap rate, in this case, will be $12,000/$250,000 or 4.8%. Whether this a good rate of investment depends on the location of your property, tenant stability, and how much maintenance is required. In general, experts indicate that a cap rate of about 5% is desirable and the higher, the better.

3. Cash on Cash (CoC) return

William Iven Damhwsryp9C Unsplash There Is No Question That Investing In Real Estate Can Be Profitable. However, It Is Important To Be Realistic And That You Keep Your Goals Achievable.

Another metric that is also used to calculate profitability from real estate investment is the Cash on Cash (CoC) return. Unlike the capitalization rate, CoC calculates the 12 months returns on your investment based on net income and cash investment.

For example, you obtain a loan of $300,000 with $60,000 down payment. The monthly rent is $1500, and your operating costs are $4,000. The CoC is as follows:

12x $1500-$4000/$60,000 – 23.3%

But on the other hand, let us assume you paid cash for the property: a sum of $300,000 instead of a mortgage.  The CoC, in this case, would be 12 x 1500-4000/$300,000= 4.6%. The reason for this variation is because CoC depends on how you finance the property. Most real estate investment experts suggest that a CoC between 8-12% is good.

4. Return on investment (ROI)

Kelly Sikkema M98Nrbuzbpc Unsplash There Is No Question That Investing In Real Estate Can Be Profitable. However, It Is Important To Be Realistic And That You Keep Your Goals Achievable.

Measuring the ROI allows you to assess the efficiency of the investment. This is the gold standard of assessing profitability when investing in real estate.

For example, you buy a real estate property for $500,000 and pay an additional $20,000 for things like closing fees, lawyer fees, and the initial home insurance. You rent out the property at $3,000 a month. In this case, the ROI will be as follows:

12 x$3000/$500,000 + $20,000 = 6.9%

Most experts suggest that an ROI between 7-15% is good, but others insist that it should be higher than 20%.

The calculation of the profitability of a real estate investment is just one part of the story. The things that matter include the location of the property, size, type of tenants, and the approximate maintenance and repair costs.

If you own a beach resort, you will never be short of tenants, but if you have a property in a crime-infested area, not only will you have difficulty in finding tenants, but these tenants may not look after your property very well.

It is important to do your groundwork well and choose the property with a great deal of thought. If you do your homework, there should not be any reason why you cannot make a profit.

Homeownership and Tax Breaks

Homeownership And Tax Breaks

Besides the wealth accumulation that property appreciation affords, tax breaks are another way homeowners benefit from their real estate investments.  Here are some facts that set the record straight on the tax advantages of homeownership:

  1. Mortgage Interest:  Homeowners with a mortgage that went into effect before December 15, 2017, can deduct interest on loans up to $1 million.  For mortgages that went into effect after that date, only the interest on the first $750,000 is a legitimate deduction. To be able to take this deduction, you must itemize.  Most Californians will benefit from this deduction because the majority of itemize deductions will most likely exceed the standard deduction of $24,400 for a married couple, or $12,200 for an individual.
  2. Property Taxes:  This deduction is capped at $10,000 for those married filing jointly no matter how high the taxes are.  Remember that your taxes may be part of the total payment you pay to your lender.
  3. Private Mortgage Insurance:  If you put less than 20% down on your home, you are probably paying private mortgage insurance (PMI).  This can cost from 0.3% to 1.15% of your home loan. Good news: you can deduct this interest payment thanks to the Mortgage Insurance Tax Deduction Act of 2019.  This credit is retroactive for 2018, so it is a good idea to speak to your accountant to see if it makes sense to amend your 2018 tax return.

There are many reasons owning a home makes sense, but the tax benefits have always been a major motivator.  The renter’s deduction is a pittance compared to the tax write-off you can claim as a homeowner when you consider both mortgage interest and property taxes.

Hope you’ve found this useful.

Los Angeles 4th Quarter Real Estate Market Report

Los Angeles 4Th Quarter Real Estate Market Report

Recently Compass California Real Estate issued a 4th quarter report on the sales activity in the larger Los Angeles area.  The report heralds a favorable start to 2020 with overall sales increasing more than 7%, although the average home sales prices varied from market to market. Here is a brief summary of a few areas:

  • South Bay:  Healthy increase in demand and activity over last year.
  • San Fernando Valley:  varied widely from one area to the next, with both increases and sharp declines.
  • Westside communities: Small increase of 2%.  Single family residences in Westwood and Century City had price increases of 15% and condominiums increased 17%. Culver City, a popular area for Millennials, enjoyed a 20% price increase from last year for condos and single-family homes rose 19%
  • Coastal communities:  Activity was mixed with only 2% increase in sales compared to last year.  Sales prices rose 12%, however.
  • San Fernando Valley:  The West saw an 8% increase in activity driven by strong condo sales.  The overall sales price slowed to a 5% increase over last year. The East market for single family homes was strong, but further east (e.g. Glendale, Burbank) sales activity fell because of inventory shortages.
  • South Bay:  Home sales activity was energetic, up 17% from last year.  Among the standouts was Playa Del Rey (233%) and Playa Vista (75%) thanks to more companies opening shop in “Silicon Beach”.

What can we take from this recap of the last quarter?  It appears that hopeful buyers have returned to the market especially where prices have softened.  Homebuyers should take note that current housing conditions remain favorable as we launch into 2020.

Get out there and sell your property if you’ve considered doing this; Get out there and by your new home or investment property – don’t wait, the time is now.

Is It The Right Time To Sell Or Buy In California?

Is It The Right Time To Sell Or Buy In California

People generally believe that the winter months are not the best time to list their home for sale; however, a recent report in Showingtime, a real estate industry magazine, reveals how this year is different all over the country: Buyer activity is way up compared to the same time last year.

The West, specifically, saw the greatest growth in activity with a 23.1% increase – believed to be the best in the history of record keeping.

In the past, most people thought April was the beginning of the surge in buyer activity – not anymore!  There is a lot of speculation about why the search for a home is shifting to an earlier start.

The one thing we do know is if you’re thinking about buying or selling a home this year, the earlier you get started, the better.  With the reality of fewer homes on the market in the winter, waiting for more competition in the spring might be a mistake. It makes sense to sell when there is a greater demand and less inventory, and according to the experts, that time is now!

No need to fear beginning to search for your new dream home before selling your present house. If you should be fortunate enough to find the home of your dreams, but don’t yet have the funds from the sale of your old home, Sun Pacific Mortgage can help you with their bridge loan program, even if you have less than stellar credit.

We have been able to span the gap between old and new for our clients over the past 32 years of alternative financing.

If you would like more information regarding our real estate financing programs, give us a call at 707-523-2099 and we would be happy to help you determine your eligibility.

Q4 2019 Sonoma and Napa Counties Real Estate Reports

Q4 2019 Sonoma And Napa Counties Real Estate Reports

Recent Sonoma and Napa Counties real estate statistics reveal a flattening of the market experienced last quarter:

Napa County

  • # of closed sales = 276 (1% decrease over prior year)
  • Average sales price:  $1.0 Million (9% decrease over prior year)

Sonoma County

  • # of closed sales = 1,022 (2% decrease over prior year)
  • Average sales price:  $788,000 (1% increase over prior year)

As of February 2020 Sonoma County Real Estate Market Results:

  • Median Price:  $660,000 (+4.8%)
  • Average Price:  $796,992 (4.6%)
  • No. Sold: 208 (-24.6%)
  • Pending Properties: 357 (+25.3%)
  • Active:  586 (-8.3%)
  • Sale/List Price Ratio:  98% (-0.3%)
  • Days on Market:  94 (+23.4%)
  • Days of Inventory:  84 (+2)

At present the market remains divided between listings that buyers find appealing and well-priced (which sell quickly) and listings that sit on the market for longer periods and require price reductions to sell.  The difference, most probably, is a lack of preparation on the part of the seller to show the property at its best or pricing buyers find unreasonable.

What can we expect going into 2020? According to economist Broker Rosen at UC Berkeley we are looking at the Bay Area median price to remain basically flat, that is, within a 2% range either way.  This means it would look very much like 2019. Nobody can accurately predict the future, but this report sounds much less sensational and more reasonable than others.

If you are looking for a fast loan or cannot qualify for a conventional loan, give Sun Pacific Mortgage a call at 707-523-2099.  We have helped thousands like you to achieve their dream of homeownership or to purchase investment properties as a path to wealth.

Real Estate Predictions for 2020

Real Estate Predictions For 2020

At the end of the year all eyes are on the new year.  Too bad we don’t have a crystal ball to predict the real estate market of the future.  We only have the current situation and historical trends to guide us.  

Real estate market trends are driven by several factors:  inventories, home prices, interest rates, days on the market, regional differences, population shifts, and global stability to name a few.  No wonder it is virtually impossible to predict the future.

Let’s look at a few the driving forces which have influenced real estate in the past:

INVENTORIES:  Housing inventories have fallen for the past 43 straight months, going back to 2016 according to the noted housing expert, Eman Hamed Mashvisor.  This shortage has driven up prices and increased competition, especially in the entry-level home market.

HOME PRICES: The rise of home prices has outpaced income by 31% since 2013.  2019 saw some moderation in pricing, but still leaves the appreciation rate for 2020 at 3.7%.

MORTGAGE INTEREST RATES: Rates continue to drop for the conventional lending community.  Those who fail to qualify for these loans can look for relief from alternative financing Hard Money lenders, such as Sun Pacific Mortgage, to help get them into a home or invest in rental properties.

MILLENNIALS:  Don’t discount the impact of the immense millennial market in 2020.  Their demand for entry-and-mid-level homes in urban areas could help keep us in a seller’s market given the lack of inventories.


What have we learned from history and from this examination of the present market?  Real estate is a complex entity. The only prediction that is guaranteed for 2020 is the world of real estate will remain interesting.  Get ready to enjoy the ride! 

What a Difference a Decade Makes!

What A Difference A Decade Makes

Just ten years ago, many homeowners were desperately trying to hang on to their homes.  Trying to sell a home was considered a nightmare. Buyers were having a struggle to find a financial institution that would lend them the money to purchase or refinance a home.  Thank heavens that is all behind us!

The fundamental landscape of American real estate has changed in many ways.  This phenomenon is especially evident in California where more people are moving out of cities, and Millennials are replacing the Baby Boomers and Gen Xers as the dominant buying forces. One constant has been the lack of homes for sale making it difficult for buyers since 2015.  Even if home construction increases slightly, it still won’t be enough.  

Buyers are done with “overpaying”.  This has happened already in major cities like San Francisco where housing prices have skyrocketed and driven many to more affordable locations, even if it means increasing commute times.  

By the middle of 2020 the oldest Millennials will be turning 39, and it is predicted that they will account for more than 50% of the mortgages taken out in the country.   Millennials are going to be a big factor in the homebuying industry because it is at this age, that they begin to think of having a family and are more motivated to become first time home buyers.

Sellers of entry-level homes should be very happy in 2020, because these homes will continue to be the most in-demand properties.  Higher end sellers should be mindful of the competition and price their home competitively if they don’t want their properties to sit on the market for extended periods.

While we are all enjoying a healthier real estate market, compared to the one we suffered through a decade ago, we still have our issues:  lack of inventory, construction restrictions, and over-priced homes. But, as with all good (and bad) things, it too will pass.  

The real estate market has always been cyclical and the 2020 prediction is that real estate values will continue to increase, overall making it a good time to sell or buy!

Tips To Sell Your House in 2020?

Tips To Sell Your House In 2020

When you finally decide to sell your home, what mistakes should you consciously avoid in order to have the best outcome? Although you are excited to make new memories in new spaces, you still carry deep sentimental attachments to the house you are leaving behind.  This emotional dichotomy can result in some costly mistakes. So, how should you manage this tug-of-war and prepare for the process? Here are a few suggestions: 

  • Keep in mind that the bank will not lend more than the house’s appraisal, so be careful when pricing your home.  A real estate professional can give you the comparable pricing for homes in your neighborhood. This information will help you decide on a price that will hasten the sale of your home.  Too high a price can lead to many weeks on the market. In contrast, the recent market trend has shown that a lower price often results in a bidding war, which can lead to a much higher profit than you anticipated.  
  • Being too emotionally attached to your home can make it difficult to be objective when presented with an offer.  This can present problems when trying t to negotiate. Listen to your real estate professional. They have the market knowledge that you are paying them for.
  • Staging can make or break a deal.  While you might be proud of your décor, a buyer wants to see themselves living in your home, not you.  To help the prospective owner of your house see themselves living there, it is imperative to stage it. Declutter and take down personal images as much as possible. 
  • If you cannot afford a professional stager, your real estate agent will be a valued asset in helping to make your homen buyer ready.

Remember to breath.  This is just a process to take you to the next chapter of your life.  You have many professionals who are available to help you make this step easier and even enjoyable.  Good luck! 

Should You Sell or Stay When You Retire?

Should You Sell Or Stay When You Retire

One of the major decisions facing the newly retired is what to do with their home.  Some retirees want to downsize so they have fewer maintenance chores, while others can’t imagine living anywhere else.  Still others consider using the equity in their home to buy another smaller home and use their former primary home as a rental.  

Let’s examine some of the reasons for selling…and staying put: 

Influx of Funds:  Given the lack of savings many go into retirement with, selling can offer the funds to offset a lack of retirement savings.

Tax Break:  If you have lived in your home for the last two out of five years, you can exclude $250,000 of the capital gains from the sale of the house if you are single, and $500,00 if you are married.

Eliminating Maintenance Costs:  Do you really need all those rooms and square footage?  Are there stairs that could present a problem as you age?  Remodeling can be expensive.

Buy Your Ideal Home:  Location preferences change once your children are gone.  You may need to be nearer to doctors or want to be closer to your grandchildren.

Staying Put:  Staying in your home may be cheaper in the long run than renting.  Much depends on the amount of equity you have acquired. If the equity is low, you might be better off selling and renting, depending on the rental rates in your area.  On the other hand, if a home is appreciating in value, and you can afford the present mortgage, it might be worth holding on to it.  

Finally, there is the emotional attachment to a home where you raised your children and celebrated family milestones.  These non-financial reasons may be the strongest motivator for staying put.

When it comes to a home, retirement planning depends on your individual and unique financial picture.  The positive aspect of this time in your life is that you often have options you might not have had in your working life.  

Enjoy the freedom, whatever you decide.

Can’t Afford a Professional Stager for Your Home Sale?

Can’t Afford A Professional Stager For Your Home Sale

While we have all witnessed the dramatic transformations on HGTV when a home is put on the market, we are pretty sure the price is more than most of us can afford.  So, what can we do to make our listings as attractive as possible without breaking the bank? Here are a couple of tips that might help and save you money, too: 

  • Fluffy white towels:  Bathrooms are the second most important room and selling feature of your home (right after kitchens).  You can freshen up a tired bathroom with a six-pack of premium soft white hand towels for under $15.00 from Walmart (a good place to find staging props).  Roll them up and place them in an attractive basket or simply pile them up on the counter. In the master bath you might want to fold them by the tub to give a spa like feel.
  • Round Accent Mirror:  Mirrors always make a room look larger and they go with any style or age of the home.  Use them above an entryway or hallway table. They make a good filler for an empty wall.
  • Fake plants:  A simple plant, such as a fern, especially one that looks strikingly realistic, can draw a buyer’s attention to a certain area or piece that would otherwise go unnoticed.  Faux plants have come a long way these days. 
  • Flameless candles:  LED flameless pillar candles add a warm glow for less than $20 at Walmart.  Place them on a tray and use them on a coffee table or dining table.
  • Print arts:  A large art print creates a focal point.  Consider packing away all your personal photos a replacing them with a reasonably priced art print (again from Walmart or Pier 1).  If it is the right size for the space, it can add a sleek, modern feel to the room.
  • Colorful pillows:  Every room needs a splash of color and there is no more economical way to provide that touch than a pillow.  These can add a pop of color for under $15.

You can make your listing look like a professional staging job with just a little effort and minimal expense.  Take some tips from the many home shows on HGTV, become your own DIY decorator and very likely capture a higher sales price for your house!


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