Selling A Palo Alto Home In Probate or Trust With or Without Tenants

This is a question I get asked all the time. When an owner has passed and has rental property should the heirs sell the Palo Alto probate or trust home with the tenants in place, or wait until the lease is up?

While most years I would say wait until the tenants are gone but with the uncertainty of how interest rates will affect prices and what will happen to a Palo Alto market that has already shown signs of slowing, even with very tight inventory, the answer is not clear cut.

Sell Palo Alto Probate or Trust Home With Tenant: Pros:

1.      Palo Alto school Priority 1 Registration goes from Jan 12 thru Feb 15th. That is the best chance of getting your child in the school closest to you. There is always a space in a Palo Alto school for a resident, but getting the one closest to you is best obtained if you are a resident during this period. Selling with tenants in a  Palo Alto probate rental may allow the buyer to get a leg up on school registration for the next year.
2.      Interest rates are lower now than they will be next summer, or even in March and maybe Feb. A 3 million dollar Palo Alto probate home has a very good chance of having a loan on it so the less a buyer has to pay for the mortgage the more they can afford for the home. For every 1 point increase in interest rates there is a 10 % increase in payment.
3.      The inventory is very low and the Palo Alto housing is market still active. It is unknown what will happen as the year goes on. The market could go down as interest rates go up, or if there is a natural disaster, a world event, or terrorist attack.
4.      Some people who buy Palo Alto homes in Probate or Trust early are happy to rent the house out until the end of the school year because they do not want to move until school is out if they are relocating.

http://www.marcymoyer.com/trustandprobatesaleshttp://www.marcymoyer.com/trustandprobatesales With a Tenant Cons:

1.      Harder to show house
2.      You will not be able to make interior upgrades or stage with a tenant in place so it may depress the price somewhat
3.      The tenant may be messy or say inappropriate things to potential buyers which could depress the price.
4.      If the tenant does not have beautiful furniture the professional pictures will not look as good.

Sell Palo Alto Probate or Trust Home After Tenant Lleaves Pros:

1.      You can have the interior painted, wood floors refinished, new carpet, and any other cosmetic upgrades you want that will help bring in more money.
2.      You can professionally stage the property and the photos will look much better.
3.      Much easier to show the house and have open houses which bring in more people and help bring in a better price.

Sell Palo Alto Home in Probate or Trust After tenant leaves Cons:

1.      Interest rates will be higher which will depress the price. It is unknown by how much because it also depends on how the stock market is doing, most likely for Apple, Google, Facebook, and Linkedin.
2.      If there is a trade war with China tech stocks could be hurt more than other sectors. This would make less money available for down payments for most of the buyers in the area.
3.      If the dollar continues to be strong foreign investors will be much less likely to be buying homes in Palo Alto.
4.      The best time to sell a home in Palo Alto in from Jan thru early June. The second best is the fall. If the tenants are out in June and the home is prepared in July and Aug and on the market in Sept you have missed the best time, but may get the second best time, but only by waiting until Sept to put home on market.

So as you can see the answer is not clear. No one can say for sure what will happen to the real estate market in 2017. If you are in this situation now it is probably a good idea to add your own Pros and Cons to this list to get a feel for what may work best in your situation.

If you have any questions about selling a home in Probate or Trust please feel free to contact me.

Marcy Moyer

Keller Williams Realty

Specializing in Probate and Trust Sales

650-619-9285

marcy@marcymoyer.com

www.marcymoyer.com

Buying a San Jose Condo That Is In Litigation

Developers don’t build condos with the intention of sloppy work that they hope no one will notice. But never the less, they almost always get sued in about year 8-9.

In California, new construction comes with a 10 year warranty on latent defects on the structure. In plain terms home owners and homeowner associations have 10 years to sue a developer if they find problems with the structural components of a building such as the roof, walls, plumbing or electrical systems, garages, decks, etc.

So, around year 8, if no problems have emerged, many HOA communities will hire a company to look at the building and see if there are potential problems that can happen due to faulty construction. If there are known problems they hire someone to try to figure out the fixes to the issues.

The communities will approach the builder to fix the discovered issues, and if the builder does not feel there is a problem, or the problem is not their responsibility then a law suit may be filed.

Once the suit is filed most lenders will not make loans on the property. The few who do will charge interest rates 1 to 2 pts higher than a traditional lender.

This can put the brakes on sales in the development, and will temporarily depress the price.

If you are a cash buyer, buying a San Jose Condo in litigation for a rental property can be a good idea if you follow these steps:

1.      Look at the report that explains what the problems are that need to be addressed. If the issues are ones that do not need immediate attention that is better. If the plumbing system has failed, or there is major water intrusion into the building the homeowners may be hit with a special assessment during the multi year lawsuit. Even if the HOA of the San Jose condo in litigation wins the individual homeowners may not be reimbursed.
2.      Find out what the estimated cost to repair the issues are for the San Jose condo in litigation. Take that number and divide by the number of units, or if available the percentage of ownership the condo in question has. So if the estimate is 10 million dollars, and there are 500 units with equal shares then each unit would be responsible for about 20 thousand in repairs if all units pay condo fees equally.
3.      Find the market value of the condo you are interested in by looking at the most recent sale of that model before the San Jose condo litigation.
4.      Subtract the amount of potential assessment.
5.      If the market is slowing down overall subtract more.
6.      Explain that you are taking the risk that the HOA of the San Jose Condo in litigation will not prevail in court, and even if they do the homeowners may be assessed before then. You are taking that risk, and buying when most others are not able. You are betting that you will not be assessed.
7.      Even in a very hot market, this is a good way to get a better price on a San Jose condo in litigation than you would otherwise be able to.
8.      It is safest to do it when the builder is a very large and stable company, rather than a less well capitalized entity that is more likely to go bankrupt.

There is obviously risk involved, but since such a large percentage of builders get sued, it can be a good long term investment. For example, The Brickyard in San Jose was in litigation in 2011-2012. During 2011 one bedroom condos sold for $140,000-$180,000. The litigation was setteled and in 2016 one bedrooms condos sold for $365,000-$395,000. If you bought a condo for at The Brickyard with cash in 2011 for  you would have at least doubled your money in 5 years plus get an additional $800 to $1500 a month profit in rent over the last 5 years. And this was a building with serious problems that have now been fixed with proceeds from the successful law suit.

Most suits are settled, the deficiencies are fixed, and the San Jose condos in litigation go on to appreciate.

If you have any questions about buying a San Jose condo in litigation as a rental property please feel free to contact me.

Marcy Moyer

Keller Williams Realty

Specializing in Probate and Trust Sales

650-619-9285

marcy@marcymoyer.com

www.marcymoyer.com

Why San Jose Condos Make Good Rental Properties

I am frequently asked by San Jose real estate investors, both veteran and new, what is best for San Jose rental investments, multi- family homes, single family homes, or condos.

My first answer has been the same for decades: “Are you most concerned with appreciation or cash flow?”

The answer to this question depends on a variety of individual goals. What has changed over the years is what is best for cash flow.

Historically San Jose rental property appreciation has been best in this order:

1.      Single family home
2.      Condo
3.      Multi family home

Historically San Jose rental property cash flow has been best in this order

1.      Multi family home
2.      Condo
3.      Single family home

This long held wisdom that a multi- family home is the best San Jose rental for cash flow is being disrupted by the latest market forces. Right now, CAP rates are better on newer condos than older multi- family homes, and are much easier to take care of.

The CAP rate on a San Jose rental property is a measure of cash flow. To figure it out you take the income minus expenses (assuming no loan) and see what percentage of the price of the property the expenses are. 4% is on the high end of what you can expect in this market, and many investments are in the 2% range for single family homes and 3% for multi family homes.

Let’s take a sale of a duplex in Japan town as an example of a San Jose multi- family sale in 2016.

Sales price was $1,000,000

Expenses including property tax, utilities, garbage, repairs, insurance total $15,200

Income is $43,200

Cash flow:  $43,200-15,200 is $28,000

Cap rate is the what percentage of $1,000,000 is 28000 or 2.8%

At this time duplexes are not covered by rent control, but that may happen in the future,

This duplex, like many of the homes in downtown San Jose, is very old. This one was built in 1930. While charming, they need a lot of repair and in many years repairs will be over $2000 a year which was this years estimate.

Now take that same $1,000,000 and apply it to two studio condos in a beautiful downtown San Jose building called Axis. I have a client who does own 2 studio condos at Axis that are rentals so these are real numbers.

Market value: $500,000 each $1,000,000 for both

Expenses including HOA, HO6 insurance, property tax and repairs is $24,000 for both

Income: $

Cash Flow: 57200- $24,000 = $33,200

Cap rate: 3.3%

In this case this new building needed very few repairs, there will never be rent control per California state law, and the HOA covers most of the insurance, water and garbage, and the repairs of the common area.

Here is another example of a clients cash flow at The Brickyard, a less expensive building than Axis San Jose, but a great downtown San Jose rental with the best HOA management company I have ever experieinced.

2 condos worth $370,000 each or $740,000

Expenses including property tax, HOA, HO6 insurance, repairs $19,400

Income: $48000

Cash flow: 3.9 % 

Things to watch out for as the building ages is making sure there is enough in the building reserve fund to cover expenses as the building ages.

When the reserves are healthy the future looks brighter for the condos because:

1.      There is no fear of rent control
2.      There will be no needed foundation repairs, earthquake upgrades, termite issues etc for the individual San Jose rental investor to deal with in the future as the building is new and the HOA covers these issues.

Of course every case of San Jose rental properties is different, but if you are thinking about buying a San Jose rental property a condo can be a great investment for cash flow, not just appreciation.

If you have any questions about buying a rental property in San Jose please feel free to contact me.

Marcy Moyer

Keller Williams Realty

Specializing in Probate and Trust Sales

650-619-9285

marcy@marcymoyer.com

www.marcymoyer.com

How Does East Palo Alto Just Cause Eviction Affect A Probate Sale?

If you are the Administrator of an East Palo Alto Probate Estate that has rental property to sell you need to be aware of the portion of the East Palo Alto Rent Control law that pertains to Just Cause Eviction. You need to know the rules in order to make sure the property is sold without breaking any laws.

East Palo Alto has both RENT CONTROL and JUST CAUSE EVICTION

Just Cause Eviction means that tenants cannot be asked to vacate just because the lease is up or they are on a month to month rental and you give 30 or 60 days notice (if they have been there a year or more). THEY CAN NOT BE EVICTED EVEN IF THE HOME IS BEING SOLD.

Tenants can only be told to leave an East Palo Alto Rental Property under the following circumstances:

1.)    Failure to Pay Rent
2.)    Continuous Violations of the Rental Agreement
3.)    Willful or Substantial Damage to the Unit or Premises
4.)    Refusal to Sign a Substantially Identical New Rental Agreement (Upon Expiration of Prior Rental Agreement)
5.)    Continued Disorderly Conduct
6.)    Refused the Landlord Access to the Unit
7.)    The landlords right to undertake substantial, necessary repairs as permitted by the City or East Palo Alto
8.)    Removal of the Rental Unit from the market by demolition as permitted by the City of East Palo Alto
9.)    Landlord or immediate family member wishes to occupy the unit as their primary/principal residence
10.)  Failure to vacate the unit under a temporary rental agreement

While single family homes and condos are exempt from rent control they are not exempt from Just Cause Eviction. If you are an Administrator of an East Palo Alto Probate Estate  JUST CAUSE EVICTION rules will apply to the estate.

Some things you should not do before selling the building are:

1. Try to evict the tenants because they make the building look messy.
2.  Try to evict the tenants because the property is dated and you want to upgrade it before putting it on the market.
3.  Raise the rents above the allowable rent increase so the CAP rate looks better and makes the property more valuable.

Some things you can do when you are selling an East Palo Alto home in Probate.

1.           Paint the exterior
2.           Make sure the tenants do not leave personal property outside the home.
3.           Upgrade the landscaping
4.           Give the tenants an incentive to keep their clean and allow showings.
5.           Offer the tenants money in exchange for voluntarily leaving the home. My clients have offered to pay the tenants enough to move. They have paid for moving vans, deposits on new rentals, first months rents, and additional financial incentives.

If the tenants do not want to move you will need to sell the property with the tenants in place and the new buyer can either continue their rental or get the tenants out because the new buyer or a family member is moving in.

Just remember the East Palo Alto real estate market is strong, and even with rent control and Just Cause Eviction there will be buyers for your East Palo Alto home in Probate so relax, hire a great real estate agent who knows Probate (like myself) and let the process work itself out.

If you have any questions about selling or buying Probate property in Santa Clara or San Mateo County please feel free to contact me.

Marcy Moyer

Keller Williams Realty

Specializing in Probate and Trust Sales

650-619-9285

marcy@marcymoyer.com

www.marcymoyer.com

How Does Mountain View Just Cause Eviction Affect A Probate Sale?

On Nov. 8th Mountain Voters approved Measure V, commonly known as the Rent Control Measure. If you are the Administrator of a Mountain View Probate Estate that has rental property to sell this is a huge deal. You need to know the rules in order to make sure the property is sold without breaking any new laws.

What does restricting rental price increases have to do with selling a Mountain View rental in Probate you may ask? Well, I’ll tell you.

The reason is MOUNTAIN VIEW JUST CAUSE EVICTION.

Measure V relates to not only rent control, but also JUST CAUSE EVICTION.

Just Cause Eviction means that tenants cannot be asked to vacate just because the lease is up or they are on a month to month rental and you give 30 or 60 days notice (if they have been there a year or more).

Tenants can only be told to leave a Mountain View Rental Property under the following circumstances:

1.      Failure to pay rent or other breach of lease
2.      Continuing failure to give landlord access
3.      Repairs that will last over 30 days that are needed for code upgrades or health and safety reasons. NOTE: COSMETIC REPAIRS ARE NOT INCLUDED IN THIS EXEMPTION. This would include a kitchen or bath re-model to make the property more valuable.
4.      Owner or family member going to occupy the entire property
5.      Withdrawal from rental market with 120 day notice to tenant, unless over 62, disabled, or a tenant for 5 years or more. In these circumstances you need 1 year notice.

The good thing is that single family homes, condos, and duplexes are exempt from both rent control and Mountain View Just Cause Eviction. If you are an Administrator of a Mountain View Probate Estate that has a four- plex or more units to sell Mountain View JUST CAUSE EVICTION rules will apply to the estate.

Some things you should NOT do before selling the building are:

1.      Try to evict the tenants because they make the building look messy.
2.      Try to evict the tenants because the property is dated and you want to upgrade it before putting it on the market.
3.      Raise the rents above the allowable rent increase so the CAP rate looks better and makes the property more valuable.

Some things you can do when you are selling a Mountain View Four-Plex  or larger building in Probate.

1.      Paint the exterior
2.      Make sure the tenants do not leave personal property outside the building
3.      Upgrade the landscaping
4.      Give the tenants an incentive to keep their apartments clean and allow showings.

This law is new, and takes effect Dec 23rd. There is an emergency ordinance that was passed Nov 16th to keep landlords from evicting tenants in order to raise rents on vacant apartments before that date, so if you are reading this before Dec 23rd you are out of luck anyway.

Just remember the Mountain View rental market is strong, and even with rent control and Just Cause Eviction there will be buyers for your Mountain View Apartment in Probate so relax, hire a great real estate agent who knows Probate (like myself) and let the process work itself out.

If you have any questions about selling or buying Probate property in Santa Clara or San Mateo County please feel free to contact me.

Marcy Moyer

Keller Williams Realty

Specializing in Probate and Trust Sales

650-619-9285

marcy@marcymoyer.com

www.marcymoyer.com

Is It A Good Idea To Buy a Daly City Investment Property With a Loan?

As I said before, I think this is a good time to buy rental property in the Bay Area. To read my thoughts click here.

I also believe that investments are a great idea in the north Peninsula because I believe that the bio tech industry will do well in the coming years. The combination of the anticipated loosening of regulations, advances in immunotherapies, the Cancer Moonshot project, the proximity to bio tech centers in the Mission Bay area of San Francisco and Genentech in South San Francisco, and the relative affordability of Daly City, South San Francisco, and San Bruno make these cities a great option for investors.

But the question at hand is, is it a good idea to purchase a Daly City rental property with a loan?

There are two basic ways to make money from a Daly City rental property, cash flow and appreciation.

An investor who buys a Daly City rental property with cash has the advantage of being able to take advantage of both cash flow and hopefully appreciation.

If you, as the investor of a Daly City rental property obtain a loan to purchase the property you will need to decide how where on the scale of cash flow from major negative to somewhat positive you want to be.

In general the expenses on a bay area rental property should run you about 35% of the income.

So, for example if were to buy a one bedroom condo in Crown Colony in Daly City right now it will cost about $400,000.

Expenses would include:

HOA: $352 a month

HO6 insurance: $50 a month

Property Tax: $400 a month

Misc. $100 a month

Total Monthly Expenses = 902

Market Rent: $2200

Net profit before mortgage: $1300

So, in order to be cash flow neutral the mortgage cost must be $1300 a month.

If you get a non -owner occupied loan for 4.5% then the mortgage needs to be $160,000 or less.

A 40% loan to value is not necessarily what you want to do, but if you believe that you can handle a negative cash flow and that prices will go up, then getting a mortgage to buy a Daly City  investment property in a good idea.

If you were to pay for this condo in cash and have a $1300 a month profit which would be a $15,600 profit a year.

At a $400,000 purchase price that is 3.9% cap rate which is quite good for a rental property in Daly City.

If you were to purchase a studio in Crown Colony in Daly City the numbers would be

Purchase price: $315,000

Income: $1800 a month: or $21,600 a year

Expenses:

HOA:  $330

HO6 Insurance: $45 a month

Property Tax: $315 a month

Misc. $100 a month

Total Expenses:  790 a month 

Net profit before mortgage: $1000 a month

Amount of loan that will make you cash flow neutral:  $125,000 or a 39% loan to value

If you were to buy with cash you would have a 3.8% cap rate, again very good for a Daly City rental property.

So the bottom line here is that buying a Daly City rental property with a loan is fine if you think the negative cash flow is doable, and you will get it back with tax advantages like depreciation and value appreciation. I would suggest that you buy one ASAP before the interest rates go up even more than potential decrease in price. For my explanation of this click here.

If you cannot handle the negative and you do not have enough down payment to make the cash flow neutral then this is not the right investment for you at this time.

If you want to search for rental properties to buy click here.

Marcy Moyer

Keller Williams Realty

Specializing in Probate and Trust Sales

650-619-9285

marcy@marcymoyer.com

www.marcymoyer.com

Buying Pescadero Probate Property Where Animals Graze Without A Lease

Anyone who has looked for acreage in places like Pescadero, Gilroy, or Morgan Hill has probably come across a situation where a neighbor or friend has horses or goats or cows who graze the property. You ask to see the lease and the response you get is often, “There is no lease, they have an informal agreement that Ms X gets to keep her livestock on the property in exchange for the livestock grazing Mr Y’s land.

Mr Y does not have to pay the high cost of keeping the grasses and weeds cut and Ms X does not have to pay the high cost of boarding and feeding her livestock. It is a win win, and for decades no one has formalized the agreement.

Then, unfortunately Mr Y dies and his heirs need to sell the Probate acreage in Pescadero, or Gilroy, or Morgan Hill. There is no documentation of the agreement and no one is sure what Ms X’x rights are, or what the estate has to do to terminate the relationship. Or maybe the buyer of the Pescadero Probate acreage’s , Mr and Mrs Z’s don’t understand what their  responsibilities are if they want Ms X to continue grazing, but don’t want her to have full tenant’s rights. In other words, Mr and Ms Z still want to use the land, so they do not want to lease out a portion of the Pescadero or Gilroy, or Morgan Hill land. They just don’t want to have to pay someone to mow it.

The answer to this dilemma is for Mr and Mrs Z to grant Ms X a license for Ms X’s horses to graze on a portion of the Pescadero Probate property they are buying. The license can be terminated at any time by the owners of the property. There are no tenant’s rights for exclusive use and Mr and Mrs Z do not need to give any notice or have any cause to terminate the agreement. The right to graze horses is a personal privilege and is not tied to the property in question. The horses do not have any exclusive use and Mr and Mrs Z can use the grazed property any time they want.

If Ms X had a lease then she and her horses would have exclusive right to use the property and Mr and Mrs Z would have to give notice to enter that portion of the property and could not tell Ms X to leave whenever they want.

It is a distinction that is important to preserve the rights of Mr and Mrs Z to use their new Probate property in Pescadero, or Gilory, or Morgan Hill.

I suggest if you are going to do this you consult a lawyer before closing escrow on that gorgeous view property in Pescadero, or Gilroy, or Morgan Hill, or anywhere else you may find it.

If you have any questions about buying or selling property, especially in Probate in San Mateo, Santa Clara, or Alameda County please feel free to contact me.

Marcy Moyer

Keller Williams Realty

Specializing in Probate and Trust Sales

650-619-9285

marcy@marcymoyer.com

www.marcymoyer.com

Is It A Good Time To Purchase Investment Property in Silicon Valley?

Is This Is A Good Time To Purchase Investment Real Estate in The Silicon Valley?

YES!!!!!!

Next question? But seriously.

I previously talked about the effect of increased interest rates on Silicon Valley Real Estate.  For my analysis of that situation please click here.

The upshot is that higher the interest rates will decrease prices, but maybe not in proportion to the cost of ownership, especially in higher priced/more popular areas of Silicon Valley.

This will keep the affordability of home ownership out of reach of many Silicon Valley residents. That means there will be a greater number of potential renters in the area which is good news for real estate investors.

Currently, the CAP rate on rental real estate has not been great, especially in high end properties. It is not uncommon to see 2% cap rates in multi- family homes in Palo Alto or Mountain View. The value was in appreciation.

No one is predicting much appreciation in this market in the next year or two, and rents are already ridiculously high. I am not convinced they are going to increase much in the next 2 years either.

Where I see opportunity in the Silicon Valley real estate investment market is in areas near the tech expansion in San Jose, or in those easy commuting distance but still affordable like Newark and Union City.

I believe that investing in rental property in these areas of the Silicon Valley have the potential for increased rental values as well as appreciation. They are more affordable than buying in higher priced cities like Mountain View, Palo Alto, Menlo Park, Saratoga, or Los Gatos, and they offer relatively easy commutes to the major employers, so they are good for attracting the demographics most likely to rent.

Of course you need to keep in mind rent restrictions in San Jose, so multi -family homes may not be your best option.  Additionally the multifamilyhomes in San Jose tend to be extremely old and need a lot of repairs and upkeep.

I like the newer buildings in downtown San Jose as rental units. They are relatively affordable, don’t need a lot of upkeep, popular with the tech force so easy to rent out, and can give a pretty good return.

There are also many condos/townhomes in Newark and Union City as well as a lot of new construction there that is in the works. If the interest rates get too high and the newer construction becomes more difficult to sell, the builders MAY ease up on the rental restrictions and that would be a good opportunity.

If you are going to purchase a Silicon Valley investment property with a loan, then it is best to do so as soon as possible, because the increasing rates will not be working in your favor.

If you are purchasing a Silicon Valley investment property with cash then I think the first half of 2017 will be a great time to do that, as the pool of renters increases and the pool of buyers decrease.

If you have any questions about buying or selling investment property in Silicon Valley please feel free to contact me.

Marcy Moyer

Keller Williams Realty

Specializing in Probate and Trust Sales

650-619-9285

marcy@marcymoyer.com

www.marcymoyer.com

https://www.facebook.com/marcy.r.moyer

@marcyagent