Market Trends 101: California
New investors entering the real estate market will often here associates refer to common market trends, such as analyzing the current inventory, selling prices, rental rates, and days on market. For someone new to investment real estate and home buying, they may feel at a loss of how these trends affect their personal purchases. Here is a brief breakdown of what market trends are and how they affect the residential housing market in California.
Market Trends. Market trends reflect a pattern or change in the direction of the real estate industry. These patterns or changes occur over the course of time and often cause a statistically noticeable change. Market trends help assess the various markets and identify which markets are providing opportunities for future investors or homeowners.
Inventory. Inventory refers to the the total amount of homes available on the market (how many). A recent analysis done by Zillow reported that in the United States there were over 1.22 million residential properties for sale in March 2018. Only 15 thousand of those homes were listed in Los Angeles, roughly 5.5%; this constitutes for low inventory considering Los Angeles is one of the largest markets in the United States. Currently, California as a whole is seeing low inventory.
Listing Price. The listing price of a property is the price that a property is marketed, also known as the asking price. Currently the median listing price for homes in California is $515,000. The goal for the listing price is to bring in an offer that will permit the selling price to match the listing price. Often times however, a selling price differs from the listing price.
Selling Price. The selling price of a property constitutes as the agreed value that a property is exchanged. In California, selling prices over the last two years have continuously increased month to month. In 2017, selling prices were expected to slow down but never did. Residential properties in California are currently selling at an average of $465,700, according to the March report by Zillow. This is almost double the median of the average selling price for residential homes in the United States. Currently, California is seeing a SELLER’S MARKET – otherwise stated, selling prices are high.
Construction Rates. Constructions rates refer to the amount of new properties being built at a specific time. Construction rates in 2018 have increased 5%; this increase however has not had a major impact on selling prices or rental rates. The next big boom in construction is expected to be in 2020. When construction rates increase, vacancy in rental units increases and inventory increases, ultimately driving listing prices and selling prices down.
Sales. Sales refers to the number of properties that closed within a specific time frame. Sales have maintained a steady stream in California, but are anticipated to slow down as a result of the new tax bill signed by President Donald Trump. Due to the fact that the bill includes changes to real estate related deductions, investors and potential home buyers are expected to assess the impact the bill will have on their personal finances. This forecast however is estimated to be short lived.
Days on Market. DOM. The days on market refers to the number of days a property is listed before it goes under contract. Typically, the shorter the length of days on market, the higher demand is for properties in the market. California units are generally on the market for a short time.
Rental Rates. The rental rate of a property is the rate at which a property is rented on a monthly or annual basis. Average rental rates in California are currently $2,600 per month. This is higher than most states. The rental rates are also anticipated to be affected by the recent tax bill signed by President Donald Trump. The bill includes an increased cost in homeownership in high tax areas, especially in expensive markets such as those found in California. This bill potentially threatens purchases and drives individuals towards the rental market, continuing the high demand for rental properties. High demand equals higher rates.
Vacancy. Vacancy is most commonly referred to when discussing the rental market. It represents the number of unoccupied residential units in a specific area. If vacancy rates decrease, typically rental rates increase (think lower inventory). However, if vacancy rates increase, this can lead to decreased rental rates. Currently, California is experiencing low vacancy. This is caused by California’s rising population in comparison to the low construction rates.
What does this mean? All in all, California is a HOT seller’s market. Low inventory is driving prices up and days on market down. Low vacancy in the rental sector is driving rental rates up. Both of these concepts are creating for a competitive market.
How is this Affecting California Home Buyers?
Currently, there are more individuals seeking rental units over purchasing residential properties. With high rates, many individuals are unable to afford the luxuries of the real estate market of California. More millenials are found living at home, due to their inability to obtain independent housing. This is not due to lack of employment however; this is a result of high rental rates. College graduates migrating to the Northern California tech hub of San Jose are actually earning more than the average American. But with high rates they are still unable to purchase a home.
Baby boomers looking to resize to a smaller unit are challenged with finding inventory at a reasonable rate. Many baby boomer homeowners are sitting on a gold mine with their property, but are seeking lowering their square footage. With the current market trends though, they are finding it challenging to identify a good investment property.
People are also fearful of purchasing a home. On March 20, 2008, the Case-Shiller home price index reported its largest price drop in history. Thousands of investors and homeowners lost money and or their homes were foreclosed. This has created a reluctancy for future homeowners.
How to Take Advantage of the California Market
As mentioned previously, California seems like an intimidating market. However, with appropriate knowledge and strategy, homeowners and investors can take advantage of the sellers market. Not only can they gain a profit, but they can create a trend to inflation proof their finances. Through investing in real estate, ones financial standing fluctuates with the real estate market. If one holds their finances in the bank, their financial standing essentially remains stagnant. With inflation approximating 3% per year, it can be extremely beneficial to transition ones funds into real estate. Furthermore, there is potential for an increased gain over 3%.
The California market can be beneficial for both flipping homes and holding properties as long term investments. Success in flipping homes can be found in both wholesale flipping and rehabbing, while holding properties can find success in the rental rates.
In the last decade, the concept of flipping homes has become more popular – even television shows are being produced dedicated towards educating viewers on “How to Flip a Home.” There are two ways in which an individual can accomplish this – wholesale flipping and rehabbing. We will get further into how to utilize the California market to profit from these strategies. First, let’s take a look at the number one rule to investing in properties – buy low, sell high.
Buy low, sell high. This concept is recognized in all aspects of investing – stocks, businesses, and real estate. The concept is simple – purchase the property or security low and sell it at a higher price, providing opportunity for a profit. This may appear challenging in the California market, but here are a few tips to consider.
Consider rehabbing. Properties have a high number of aspects that impact their listing price, including how the property looks, its locations, amenities, schools, safety, etc. The key to finding a property in California is to find the property in the market area you desire, but remove the requirement for an updated home. Find a home that needs work – one that needs to be rehabbed. The important aspect of the home is the structure and this should be the primary consideration in identifying an asset. A residential property that requires work will have a lower listing price than one that is newly renovated. Whether you are looking to flip the home for a profit, or purchase the home for your family, it is best to find one that is selling below the average market price.
If you are an investor, consider wholesale flipping a property. Wholesale flipping is where you (the investor) places a house under contract, ideally at 70% of the market value, and then assigns the contract or closes and resells the house to another investor at 70% plus the wholesale fee (considered the assignment fee if the contract is assigned, or the new listing price if the property closes and resells). How do you do this in California market?
- If you have the capital to purchase all cash, sellers are more inclined to identify you as the buyer. It removes all loan contingencies from the transaction. This provides leverage in negotiation on the listing price. Once you purchase all cash, you can assign or resell at a higher value, with a loan contingency if it provides you a higher profit margin.
- Take advantage of low inventory and low construction rates. With California being a seller’s market, essentially any property can provide potential for financial gain. Purchasing a house provides an individual access to the rare inventory of California. Even if you purchase the property at listing price, chances are you can still resell or assign for a wholesale fee.
Lastly, whether you are a homeowner or investor, purchasing a property in California can allow you to benefit from the high rental rates and low inventory. A mortgage rate is the investment rate charge by the lender. Currently mortgage rates are hovering around 4%, which is relatively low for a mortgage rate. As a homeowner, this formula provides the opportunity to spend less on a monthly basis because often times, your monthly mortgage payment (principal plus interest) is lower than your anticipated rental rate.
The downside to owning is that the lender will require a down payment and you as the owner will be responsible for all damages to the home. The upside however greatly outweighs the downsides (if you have the capital). As a homeowner you have tax benefits, as well as you are on your way to owning a property free and clear (you will one day have no rent or mortgage).
The additional advantage to purchasing a home for a long term investment is that it provides you the opportunity to rent the residential unit out. As mentioned above, often times mortgage rates are lower than rental rates – if you rent the unit at a price higher than your monthly mortgage, you would be gaining a profit. Furthermore, with rental units in high demand, property vacancies are generally low.
For an investor or future homeowner, it is a great time to get involved in the real estate market. Unfortunately, there is such a magnitude of information, that the process of getting started can be overwhelming and intimidating. Fortunately, Nick Vertucci has created an outstanding platform that can lead you to financial success.
Who is Nick Vertucci and How he can Help you Take Advantage of the Market
Nick Vertucci is a real estate investor, educator, and entrepreneur who has been working in the real estate business for over fifteen years. In the last eight years, Vertucci has developed a program that will allow anyone knew or seasoned in real estate to profit from the the California market. Nick Vertucci has established an academy, the Nick Vertucci Real Estate Academy (NVREA), he hosts seminars, and he has written a book titled Seven Figure Decisions: Having the Balls to Succeed – all these avenues of education provide interested participants with information and techniques to profit from the California market.
Vertucci started his career in real estate in 2000. He had previously owned a successful computer reselling company. The company drove Vertucci to his first million dollars, until the dot com crash of 2000 left him with nothing.
Following the dot com crash he found work challenging and struggled for 18 months. He was invited to a seminar about real estate and that is when he commenced his path in investing. He spent years studying market trends, learning key aspects to real estate investment, and practicing – all which paid off. Vertucci again become a millionaire through real estate investing.
In 2013, Vertucci created his academy, the Nick Vertucci Real Estate Academy (NVREA), which provides future investors the platform to creating wealth. “The Nick Vertucci Real Estate Academy brings solutions to the challenges that come with a career in real estate investing. Nick created a system and opportunity that allows people just like you to succeed using the same proven system he used to make millions in real estate…With NV Real Estate Academy, you will be taught everything you need to know to tackle the day to day challenges you are faced with. The team of industry leaders will teach you how to overcome and succeed. From finding the deal and repairing the property to selling a finished product, NVREA had you covered. Nick and his team are dedicated to helping you crease unparalleled success.” Education topics at NVREA include,
- Real Estate 101 – Knowing Your Market
- How to: Get in. Get out. Get paid
- How to start making money flipping properties
- Wholesale flipping and rehabbing
- “Inflation proofing” your cash flow investment
- How to use your 401K to build your business
- And how to get started with No Experience, No Knowledge, and No Money.
Through his academy, Vertucci also hosts seminars in various cities across the United States, currently in Denver, Baltimore, Seattle, Tampa, San Francisco, and Washington DC.
More recently, in March 2018, Vertucci released his first book, Seven Figure Decisions: Having the Balls to Succeed. His book details his history and strategy on how to go from middle class to a millionaire.
“You don’t strike it rich by playing it safe. It’s the seven figure decisions that lift you out of the middle class and into the millionaire’s circle.
Nick Vertucci achieved tremendous success by taking bold, calculated risks to reinvent himself after losing everything. In this essential guide and memoir, Nick outlines the six fundamental building blocks that form the foundation of his life-changing philosophy. His inspiring personal history contains valuable lessons in how to push past your fears, radically alter your mindset, and passionately pursue your goals. And he details the four key steps to devise and actualize your own winning plan: See it. Believe it. Map it. Execute it.
The higher you raise your sights, the more spectacularly you can succeed, no matter what professional path you choose to follow. Forget the small change! It’s time to go big in business and in life by making seven figure decisions.”
- Nick Vertucci, Seven Figure Decision: Having the Balls to Succeed
If you are interested in learning more about the California real estate market and how to find your success, contact NVREA or pick up a copy of Nick Vertucci’s Seven Figure Decision: Having the Balls to Succeed.