Investing in Orange County Real Estate is NOT for Everyone

Real Estate Agent with Seven Gables Real Estate

Lately I have had several people mention they are considering investing in real estate here in Orange County, CA.  People want to live in Orange County, that is an undeniable fact, however investing in our Wild Wild West housing market is not for the feint of heart. 

Getting a "deal" has increasingly become a challenge due to huge demand for homes/condos priced under $600,000.  Cash is king, so if you can swing an all cash offer, you are golden.  Banks will often take a low cash offer that can close quickly for their REO over a financed market value offer.  There are a lot of people in OC purchasing all cash, so your offer may still be one of many.  Condos in good areas can be had in the low to mid 100K's  and single family homes start in the mid 300K's. 

If you will be financing your investment purchase there are three different types of homes you can purchase.  

  • Bank-Owned homes: The trouble with these listings is that from my experience there can be 5-50 offers on them, so you have to put together a complete and "attractive" offer package. What I mean by "attractive" is that your offer price needs to be market value and the offer must include FICO summary, proof of down payment funds, a pre-approval from a direct lender, and any other addendum's the bank requires. If it is not all together in one package they won't even consider your offer.
  • Short-Sales:  Since you are not looking for a primary residence you have the time to wait out short-sale approval from the bank. From my experience this process may take 2-9 months. You never know if the banks who hold the mortgages will approve taking less than what is owed so don't hold your breath for "the one" to come through and keep looking for other options.
  • Normal sale, or equity sale: These are the best, and hardest, homes to find. A normal sale should have less mystery components since they have to disclose everything they know about the home and have likely cared for the home more than a distressed property.

Bryan Shoup, Mortgage Consultant from Home Security Financial, says an investor needs to have a debt to income level of 45% or less, at LEAST 25% down payment (unless you are purchasing with a family member who will live in the home, then as little as 3.5% will work).  No stated income loans and an individual can own up to ten properties (previously it was only 4).

If you intend to rent out your investment have your REALTOR run a search on closed leases for the size and type of home your intend to buy.  This will be a good indicator of how much you could ask for.  Rental prices have remained quite high even in this economic downturn so it is possible to be cash flow positive if you are financing 60% or less. 

Do your homework, select a reliable REALTOR who will be a strong partner for your business success, and be patient with all the wackiness you will see in the market.  Hold on for a bumpy ride in the Wild Wild West of OC Real Estate!

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Comments (3)

Alix Pinzon
Open Mortgage, LLC NMLS # 2975 - Downey, CA

Hi Carolynn, Isn't that the truth?  I heard today that the banks are setting on 7 million foreclosed homes.  No wonder why there are no properties available.  The banks doing everything in their power to put the little people out of business.  Everyone who banks with the big banks, or borrows their money is only feeding the fire.  Good luck to you in your real estate adventures.

Sep 25, 2009 11:12 AM
Carolynn Santaniello
Seven Gables Real Estate - Orange, CA

Thanks, Gregg!  I am praying for some inventory so my clients can get into escrow.

Oct 01, 2009 11:27 AM
Harrison K. Long
HomeSmart, Evergreen Realty - Irvine, CA
REALTOR , GRI, Broker associate, Attorney

Carolynn ... Thanks for your good local article about investing at Orange County homes is not for everyone.  It's also good that an investor needs to have a debt to income level of 45% or less, at least 25% down payment, no stated income. 

Oct 05, 2009 09:51 AM