Thursday, January 4, 2018

Keeping Tenants In Place When Buying A Santa Cruz Rental Property

BY MARCY MOYER

Real Estate Agent with eXp Realty of California Silicon Valley Probate, Trust, and Investment Sales B.R.E. 01191194

November 05, 2017 01:33 PM

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Keeping Tenants In Place When Buying a Santa Cruz Rental Property

BY MARCY MOYER

Real Estate Agent with eXp Realty of California Silicon Valley Probate, Trust, and Investment Sales B.R.E. 01191194

November 05, 2017 01:33 PM

REPORT

If you are one of smart Silicon Valley investors who is buying a rental property in Santa Cruz you may be buying one that has tenants in place. If that is the case it is very possible that the current tenants are not paying Santa Cruz market rental rates.

Current Santa Cruz rental market rates are at a very high level. It is common to get at least $1200 a bedroom and not unheard of to get $1600 a bedroom.

So what is the best thing to do if you are a Silicon Valley inverstor and have Santa Cruz tenants paying $1000 a bedroom, or less?

In my opinion, as a long term Silicon Valley/Santa Cruz real estate agent and Santa Cruz rental property investor myself it is sometimes better to keep the tenants in place with gradual rent increases than to give them a huge rental increase and risk having them move out.

The reason for this opinion is based on numbers, not just my hesitancy to put a good Santa Cruz tenant out onto the street.

When a Santa Cruz tenant moves out, especially if they have been there for 3 years or longer you will have to at a minimum paint and replace carpet. You may have to replace window coverings. You will have at best 2 weeks, and possibly a month of vacancy.

So let's take a scenario of a 2 bedroom rental property renting for $2000 a month that you think you can get $2800 a month for with Santa Cruz market rents.

If the current Santa Cruz tenants can't or don't want to pay $2800 a month here is what can happen:

1. 4 week vacancy: Lose $2000

2. New carpet: Spend $1500

3. New paint: Spend $3000

4. Replace old appliances: $3000

5. New window coverings: $1000

Money lost: $10,500

Increase rent by $800 a month for 1 year

Money gained: $9,600

So the first year you lose $900 if you did not raise the Santa Cruz rent at all. If the Santa Cruz tenant leaves after 1 year and no repairs are needed you can probably look at a 2 week vacancy. So you only lose $1900. You are in the hole. If the tenant stays the second year you will make an additional $9600 in rent so total gain is $8600 over 2 years and $18,200 over 3 years.

If you raise the Santa Cruz rent $100 a month every year for 3 years and you do not have to paint, carpet, or replace old appliance over 3 years you make an additional $7200 over 3 years plus the $10,500 you did not spend so $17,700 over 3 years. So, if this is a long term Santa Cruz tenant you are only $500 ahead in 3 years by removing the original tenant and replacing them at market rate.

In my opinion it is probably not worth it.

What if you are only $300 a month under Santa Cruz market rate? then it is really not worth it.

So my fellow Silicon Valley investors who are buying in Santa Cruz, be sure and run the numbers before you replace a below market rent paying Santa Cruz tenant for a new one

Marcy Moyer

eXp Realty of California

650-619-9285

marcy@marcymoyer.com

www.marcymoyer.com

Specializing in Probate, Trust, and Investment Properties

Even More Reasons To Become A Real Estate Investor

BY MARCY MOYER

Real Estate Agent with eXp Realty of California Silicon Valley Probate, Trust, and Investment Sales B.R.E. 01191194

December 26, 2017 08:11 AM

First I want to make it clear that I am not an accountant and I do not play one on TV. Anything I say should be verified with you tax and financial planners.

That being said, after the passage of the latest tax bill, owning Silicon Valley rental property has become an even better investment for Silicon Valley real estate investors.

Here is why I say this:

1. The tax bill restricts property tax deductions to a combination of 10K for both primary and second home property tax and state tax. For many Silicon Valley Real Estate investors this 10K limit is taken up completely just by state income tax.

2. This 10K limit does not apply to Silicon Valley rental properties owned by Silicon Valley Real Estate investors. Property tax is an expense that is subtracted from rental income before you owe any tax.

3. The tax bill restricts interest deductions on new mortgages, those initiated after Dec 15th, 2017, or before Dec 15th 2017 but not closed before April of 2018 to $750,000.

4. This restriction does not apply to Silicon Valley rental properties. If you are buying a Silicon Valley rental property over a million dollars, which many of them are, and want to get a loan, the interest on that mortgage is still considered an expense, no matter what the amount. The interest payment is subtracted from the rental income and excluded from Federal taxes.

So, maybe it is time to think about investing in a Silicon Valley rental property as part of your financial plan.

The trick is to find a Silicon Valley rental property that makes sense as far as your cash flow needs go. That is a discussion we can have on another day.

Marcy Moyer

eXp Realty of California

650-619-9285

marcy@marcymoyer.com

www.marcymoyer.com

Specializing in Probate, Trust, and Investment Properties

Santa Cruz, CA, Is A Great Place For Real Estate Investors

BY MARCY MOYER

Real Estate Agent with eXp Realty of California Silicon Valley Probate, Trust, and Investment Sales B.R.E. 01191194

September 28, 2017 09:25 AM

Santa Cruz, known for the beach, the boardwalk, Pacific Ave, hippies, and organic food, along with University of California Santa Cruz is also probably the best place for investors looking for rental properties right now. Here are some reasons why.

62% of Santa Cruz residents live in rentals, compared to a ntional average of 43%
Average sale price of Santa Cruz homes has doubled in the last 5 years
Cap rates for Santa Cruz rental properties are between 3.5-4% very easy to obtain, as opposed to 2.5-3% in The Silicon Valley
No rent control but there is a one year moratorium on Santa Cruz short term rental permits so Air B&B investments not the way to go now.
While the market is apprectiating the competition for investment homes in Santa Cruz is not as great as in Silicon Valley
There are still Santa Cruz home sales contingent on the sale of another property, making 1031 exchanges much easier.
Accepted offers almost always have contingnecies so you have time to figure out if the property makes sense for your portfolio.
Would you rather visit your rental property in Santa Cruz or Milpitas? I would pick Santa Cruz any day.
UCSC only guarentees housing for students for 2 years. They have over 18,000 students. The housing shortage is so acute that students are living 3 to a room or in their cars, not because they don't have the money for housing, but because there is such a shortage.

Smart Silicon Valley investors should look at Santa Cruz as a place where your money goes further and the cash flow is so much better.

I have put my money where my mouth is and own 3 Santa Cruz rental properties myself.

I encourage you to contact me if you have any questions about how and why to buy a rental property in Santa Cruz.

Marcy Moyer

eXp Realty of California

650-619-9285

marcy@marcymoyer.com

www.marcymoyer.com

Specializing in Probate, Trust, and Investment Properties

Thursday, September 28, 2017

Friday, January 6, 2017

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:

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.
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.
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.
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:

Harder to show house
You will not be able to make interior upgrades or stage with a tenant in place so it may depress the price somewhat
The tenant may be messy or say inappropriate things to potential buyers which could depress the price.
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:

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.
You can professionally stage the property and the photos will look much better.
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:

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.
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.
If the dollar continues to be strong foreign investors will be much less likely to be buying homes in Palo Alto.
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:

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.
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.
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.
Subtract the amount of potential assessment.
If the market is slowing down overall subtract more.
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.
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.
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:

Single family home
Condo
Multi family home

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

Multi family home
Condo
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:

There is no fear of rent control
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:

Try to evict the tenants because they make the building look messy.
Try to evict the tenants because the property is dated and you want to upgrade it before putting it on the market.
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.

Paint the exterior
Make sure the tenants do not leave personal property outside the home.
Upgrade the landscaping
Give the tenants an incentive to keep their clean and allow showings.
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.

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

Failure to pay rent or other breach of lease
Continuing failure to give landlord access
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.
Owner or family member going to occupy the entire property
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:

Try to evict the tenants because they make the building look messy.
Try to evict the tenants because the property is dated and you want to upgrade it before putting it on the market.
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.

Paint the exterior
Make sure the tenants do not leave personal property outside the building
Upgrade the landscaping
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

Silicon Valley Real Estate

Thursday, January 4, 2018