Navigating California's Real Estate

Investment Market

We developed this guide as a quick reference for Real Estate

Investment professionals navigating the California Real Estate

Market. Whether you are a seasoned Real Estate Investor or

someone who is just starting out we hope you �nd this guide

useful and it brings you continued success in all your Real

Estate investment endeavors.

Sincerely,

-Ken Meyer President Trust Deed Capital

Navigating California's Real Estate Investment Market

Table of Contents

3 Diverse California Real Estate Investment Markets ...................................1

How to Successfully Navigate the California Real Estate Market.............4

How To Think Like A Real Estate Investor..........................................................6

How to Finance Investment Property in a Buyers’ Market..........................8

How To Flip a House in Today's Real Estate Market.....................................10

5 Tips for Finding O� Market Real Estate Investment Deals....................12

California and Hard Money Lending: Why it Works.....................................14

3 Diverse California Real Estate Investment Markets (San Francisco, Los Angeles, San Diego)

California is the most populous state in the nation, has the highest gross domestic product

and covers more area than any other in the lower 48 states other than Texas. As such, the state

of California has a vibrant and remarkably diverse real estate market. In fact, the National

Association of Realtors Realtor Magazine just forecast the biggest home price increase (5 to 7

percent) in the state of California. For investment property, the potential pro�ts will be even

greater. Below are the key areas that will drive that increase:

Los Angeles Real Estate Investment MarketLos Angeles County is the largest by population in the United States and, although is one of

the largest cities in area, it is still densely populated. This and the fact that there is no real rail

system has turned Los Angeles into the premier “car town” in America. Whether this is good or

bad is left up to the reader, especially if you have ever experienced a “Sig-Alert” on any of the

LA freeways.

LA County’s real estate investment opportunities are spread throughout a vast area that

covers 4000 square miles and includes 158 cities and 114 neighborhoods within the actual

city of Los Angeles alone. There are �x and �ip opportunities in cities such as Santa Clarita to

the north, Long Beach, San Pedro and Cypress to the South, and Downey and Azusa inland to

name a few. The savvy real estate investor will know a deal that makes sense when he �nds it.

The opportunities are de�nitely plentiful in Los Angeles County.

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San Diego Real Estate Investment MarketWhile downtown San Diego certainly has its charms, the city and the rest of the coast from La

Jolla in the north to Coronado and Imperial Beach in the south is really focused on taking

advantage of the Mediterranean climate that dominates the area. This is most obviously seen

in the beach communities that dot the coast such as Mission and Paci�c Beach. While it may

be di�cult to get �x and �ip properties to pencil in these San Diego beach communities, there

are many other areas in San Diego County that do make sense.

Inland to the north you will �nd areas such as Oceanside, Vista, San Marcos, and Escondido

where there are many rehab investment properties. Moving inland to the east there is Poway,

Santee and El Cajon and to the south there are still great �x and �ip opportunities in La Mesa,

Lemon Grove and Chula Vista. In summary, the San Francisco, Los Angeles and San Diego Real

Estate Market is chock full of areas where the experienced Real Estate Investor can make

money. It just requires you to do your homework and �nd the right deal that makes sense.

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San Francisco Real Estate Investment MarketMuch like other port cities around the world like New York City and Hong Kong, San Francisco

is seriously constricted on almost every side by water. This makes properties in the Bay Area

highly desirable and usually outside the ability of most average workers to a�ord. Still, the Bay

Area has a highly developed mass transit system that allows the vast majority of its suburban

residents to work in and enjoy the downtown lifestyle.

The Bay Area includes a variety of neighborhoods from the wine country areas of Napa and

Sonoma in the north as well as exclusive Marin County. To the south of San Francisco is San

Mateo County and southeast is Santa Clara which can be quite pricey. In the East Bay, there is

Alameda and Contra Costa Counties which is a more a�ordable �x and �ip area. Experienced

Real Estate Investors in the San Francisco area know the speci�c areas they are most

comfortable with and tend to stay within the boundaries that have historically brought them

the most pro�t. In short, the San Francisco area provides a wide range of real estate

investment opportunities if you learn the areas where your working capital will bring the best

return.

How to Successfully Navigate the California Real Estate Market

The California real estate market is one of the most active and lucrative markets in the country. Velocities are high, large numbers of both bank and hard money lenders provide capital, and some markets o�er signi�cant opportunities for appreciation. However, the unique nature of real estate in the Golden State also poses some challenges. Here are some tips to help you close the right deals:

Bring CashGiven the �erce competition for the best investments in California, zero down properties are almost impossible to �nd. Further complicating matters, some California markets are still underserved by the traditional lending community, although hard money loans are usually available. This means that you will need to be prepared to make meaningful down payments on desirable investment properties.

There's More to California Than the BeachOne county in California -- San Bernardino -- is larger than Massachusetts, New Jersey and

Connecticut combined. It's also completely landlocked with no access to the Paci�c Ocean.

Much of California is located inland. Those markets typically carry lower costs and higher

returns than the big coastal markets, although they can also carry bigger risks.

Plan for Prop 13When you do your proformas to look at how you expect a property to perform, it's important

to be aware of how property taxes work in California. Property tax increases are capped at

roughly 2 percent per year while an owner controls a property. However, the tax assessment

can be increased to a property's sales price when a property changes hands. This means that if

you buy a property that was held by the same person for 30 years, your property taxes could

easily be three times what the previous owner paid.

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Leverage Makes More Sense Than UsualMany investors in California �nd that their returns are driven by equity growth and

appreciation, rather than cash �ow. Given the impact of leverage on multiplying growth

potential, using it in California can be especially advantageous. If you're able to buy a property

using a hard money loan at 50 percent down, which is usually doable in most California

markets, and it goes up in value by 10 percent, your equity growth is twice that since you get

all of the growth in the property's value while the lender just gets their money back.

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How to Think Like a Real Estate Investor

“Buy low, sell high” is one of those maxims that conceal a whole host of problems for an

investor. While the actual words seem simple enough to understand and implement, the

practicality of the advice is far from evident especially if one is interested in real estate as an

investment. In short, real estate investing can be a di�cult business for the uninitiated.

On the other hand, for those who can “think like a real estate investor,” the possibilities and

the pro�ts are almost endless. So, instead of applying a simple, throwaway phrase like the one

above, take some time to really understand the real estate investment process. Here are a few

suggestions to help get you started:

Understand the Deal and Your RoleDo not take any shortcuts on understanding the deal and your responsibilities within it. A

thorough familiarity of the �gures will allow you to ask relevant questions and ensure that

your concerns are met. Ask for any current photos, plans or sketches of the property that will

allow you to understand the project to your satisfaction. The borrower should not be

blindsided by these questions. If so, �nd another deal.

Realize that Both Parties Have NeedsIt is all well and good to hold out for the best deal possible but taking a non-compromising

attitude on every detail will quickly derail any negotiation. You must learn to think like the

borrower and understand that they need the loan to meet certain requirements or it is of no

use to them. Acting as if you are the only one whose needs must be met simply wastes

everyone’s time and energy.

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Obtain the Right SecurityOne of the primary bene�ts of a real estate deal is that the loan is secured by real property.

Once you understand this fact, you can negotiate away much of the fear by adjusting the

loan-to-value (LTV) ratio and thus bringing the deal in to your “comfort zone.”

A Great Starting PointWhile understanding these points is the �rst step in thinking like a real estate investor, having

a knowledgeable advisor does not hurt. Private money lenders are experts at bringing

quali�ed investors and dependable borrowers together and can explain everything from the

basics to complex details to everyone. Intimately involved with the industry, they really do

understand how to think like a real estate investor.

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How to Finance Investment Property in a Buyers’ Market

In general, for the small investor, it is somewhat problematic to �nd capital for a

high-risk/high-return property even in a so-called “buyer's market.” In general, savvier

investors will do their homework ahead of time - on the property itself, on the neighborhood

and on the prevailing sentiment in the investing community.

Then, with these pertinent facts in hand, they can lay out a compelling argument as to the

lucrative opportunity that awaits their potential investors. Still, regardless of how attractive a

deal looks on paper, �nancing investment properties is just not that easy.

In actual fact, entrepreneurial buyers often run into a host of problems when it comes to

�nancing their projects. Here are just a few of their more common problems:

Unusual Property Anything from a standard 3-plex to a resort villa will fall outside the guidelines of a traditional

lending institution. For more unique properties, a real estate entrepreneur must look to other

funding sources like private money lenders.

Unusual Terms While traditional lenders are willing to customize the lending terms of a mortgage, they

usually charge exorbitant fees and interest for the privilege. Other lenders are far more

reasonable in their costs when they take these factors into account.

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Unusual BorrowerWhether you are �ush with cash and no credit or vice-versa, traditional lenders like banks and

S&Ls are unlikely to consider you for a loan because you fall outside the guidelines for

government guarantees. Private money lenders will look at your overall track record and your

most recent accomplishments to overcome this fact.

Unusual Anything

Traditional lenders are now looking to turn down as many real estate loans as possible. With

the current governmental regulatory climate, it is simply not in their interest to approve any

loans that deviate from the norm by even a little bit.

Bottom LineThe best place for entrepreneurial real estate buyers to �nd investment capital is with private

money lenders. These organizations have the experience, the expertise and the resources to

provide it at an a�ordable cost and with reasonable facility.

For more information on �nancing investment properties in creative ways, contact your local

real estate professional or a private money lender. They will have the right answers for any

situation.

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How To Flip a House in Today's Real Estate Market

Figuring out how to �ip a house today is a much easier process than in the past. After all,

buyers are back in many markets and prices are either stable or, in many places, increasing.

However, with prices going up and debt still hard to source, the market is not without

challenges. Here is a process that can help you �gure out not only how to �ip a house but also

choose which one to �ip.

1. Identify markets that are attractive to �rst time homebuyers but are occupied by older

homeowners. These neighborhoods frequently have low prices and properties that are

fundamentally sound but in need of cosmetic upgrades.

2. Calculate the cost to buy an existing home in need of upgrades. Add in the cost of making

the upgrades and of sourcing private mortgage �nancing. Since banks are still not active in

most investment property markets, private money may be your only choice. Given that private

lenders will sometimes lend on an as-improved value and can also execute very quickly, they

are frequently also the best deal out there even if you can �nd bank �nancing.

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3. Project what your net proceeds after �ipping the property to a homebuyer. To be safe,

subtract 5 to 10 percent from your expected net proceeds, just in case something goes

wrong.

4. Subtract all of your costs from your adjusted projected net proceeds to see if the project

can be pro�table.

5. Move forward with the transaction if you can meet your pro�t expectations. When you

calculate your pro�t, don't look at the total purchase price and the total sales price. Look at

the cash that you will put into the deal and the cash that you will take out after a successful

�ip.

Given the new found stability in the market, doubling or tripling your down payment is

probably unlikely today. However, returns in the neighborhood of 30 to 60 percent are

possible. A healthy return like this can help you build your equity account so that you can

return to the market with a di�erent problem -- �guring out how to �ip a house in two or

three di�erent neighborhoods at once.

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5 Tips for Finding O� Market Real Estate Investment Deals

Whether you're looking for real estate for sale by owner or bank-owned properties, o� market

deals are frequently the best ones. Here are some strategies that can help you �nd them:

O� Market Real Estate Tip #1: Property for Sale By OwnerWhile FSBO pricing has improved with the availability of Internet data sources, it still isn't

always as spot-on-the-market as the list price that a quali�ed real estate agent will come up

with. As such, you might �nd some FSBO deals that are underpriced relative to other

properties in the market. Dealing directly with the owner may also give you additional

negotiating leverage that you can use to turn even an overpriced property into a great deal.

O� Market Real Estate Tip #2: Expired ListingsWhen real estate that was listed expires, sometimes, the owner still wants to sell it.

Furthermore, once real estate goes o� the market, you can go directly to the owner and make

an o�er that is less than what he needed to get when he had to pay an agent. These

properties can turn into very good deals just on the basis of that discount alone.

O� Market Real Estate Tip #3: Know Area LendersWhile most conventionally-mortgaged homes end up going through Fannie, Freddie or

Ginnie Mae's sale process, properties that have loans held by local banks or private lenders

have a much less predictable sale process. Sometimes, you can contact the lender directly

while the property is in foreclosure and carve out a position for yourself before the real estate

goes on the market. Getting to know the realtors that work with private lenders can also give

you a leg up.

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O� Market Real Estate Tip #4: Contact Owners DirectlyAnother way to �nd property for sale by owner is to contact owners directly. When you

do this by calling or writing and delivering the straightforward message that you are

willing to buy the property, you can not only potentially avoid brokerage fees, but you

can also avoid competition and maybe save money.

O� Market Real Estate Tip #5: Tread CarefullyJust because a deal is o� market, doesn't mean it's a good one. For instance, real estate

for sale by owner isn't listed because real estate agents wouldn't list the property at the

owner's price. Deals also sometimes expire because they're overpriced. As such, it's

always a good idea to do your own due diligence before rushing out and making an

o�er to make sure that the property is as good a deal as you think it is.

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For years, the continually rising real estate market in the state of California was the envy

of the rest of the United States, if not the entire world. While a dose of reality was

introduced in the mid-2000s and brought the market back down to earth, it still left

plenty of opportunity for the practical investor using hard money.

Here are just a few reasons why hard money lending is especially valuable in the

California real estate market:

Breadth of MarketObviously, di�erent investors have di�erent needs. The various real estate markets in

California can provide properties in every niche from raw land through single and

multi-family residential homes to commercial and industrial sites.

Knowledgeable Investor BaseSimilarly, the wide variety of California properties for sale has created a very

knowledgeable base of investors and other real estate professionals – appraisers,

inspectors and lenders to name just a few – across the entire spectrum of the industry.

This fact is most pertinent in the business knowledge and ‘sense' that the investors

bring to a deal. In many cases, they can even give the investor a new perspective on the

proposed deal.

California and Hard Money Lending: Why it Works

Availability of CapitalIt should be obvious but, in case it isn't, there are a lot of wealthy individuals in

California who are looking to make the best of their accumulated capital. Whether

retired executives, software developers or just “old money,” count on them to be willing

to invest in deals that a traditional bank or other lending institution would not dare

touch.

Limited MiddlemenWhile hard money lenders will usually demand a higher rate of return for their funds,

they will not hit you with a variety of hidden fees along the way. In other words, unlike

the traditional middle men of real estate transactions – read that as “banks” - what you

get is what you see. In addition, private hard money lenders are far more versatile and

responsive. Simply put, they do not have to answer to anyone but themselves and can

make a decision in a much more shortened time frame.

Hard Money LendersWhile all of these factors make California an excellent place to start a real estate

investing career, it does not mean that all of the pieces are readily available to the

inexperienced investor. For that reason, the new investor should avail themselves of the

services of hard money lenders. These real estate pros o�er a wide variety of services

and bring all the pieces of the puzzle of a real estate transaction together into one

place. In short, they provide a convenient and trustworthy platform where buyers and

sellers can meet and ful�ll their mutual needs.

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