Skip to main content

Why Real Estate is Such a Good (Great) Investment: Part 5-(Can we) Build it (yes we can!)

This is the next installment of a 7 part series exploring ideas of why real estate is such a good investment. The focus will be on single family and multifamily real estate, but a good idea is a good idea, enjoy. 

Building is a straightforward way to add value. There are really two classifications of it. Either remodeling or constructing.

In terms of remodeling, as mentioned in a prior post, it is important to find a 'quarterback' that knows what and who to ask. Improvements should be thought of in terms of how much value it will bring, it has been said that kitchen and bathrooms are the highest return on investment.

https://www.remodeling.hw.net has a very good annual report (linked here for Los Angeles, see last page), some highlights is that a MINOR kitchen remodel returns 105% of the money put in. Other things include the expected, Grand Entrance (108.1%), Garage Door (123.8%) and perhaps unexpected, Deck Addition, wood (98.8%), Windows, double pane (102.6%)New Roof (92.4%) and Manufactured Stone Veneer (130%!), meaning the siding/stucco.

Please note that remodels can be thought to 'recapture' value in a house to meet market expectations, in itself it is not a money making activity, but something that should be done to meet the market expectations of condition.

In terms of adding square footage, the considerations is how much it would be to construct, versus how much can be sold for. Currently for entry level houses in North Orange County in a good area would be about $500 per s.f. (1,200 to 1,400 s.f.), a move-up house (1,400 to 1,800) would be closer to $420 per s.f.. The least expensive room additions are either to add a family room (and possibly master bedroom) in the back, or to extend out a living room in the front for a single story home. It would be about $200 per s.f., this would include foundation, framing, drywall, texture, prime, paint, flooring, lights, plugs appropriate for a house.

In terms of new construction, this is a separate and deep topic, the main mental framework I would like to leave you to consider is the fact that California is extreme NIMBY (Not-in-my-back-yard), as a consequence, from vacant land to completion can be 2-3 years for even simple projects. Coupled with the fact that a real estate 'cycle' may take 5-10 years to play out, many builders I know have been saying to not buy land unless you can stomach to hold it for 15 years.

The prices for California is very choppy because the excess demand causes prices to increase, then there is overbuilding due to the time it takes for it to 'come online', and this creates a glut down the road. This is contrasted with a state like Texas, which normally can go from purchase to completion in 6 months to 1 year. Since the demand does not outstrip supply for long, 'bubble prices' tend to not form.

It has been joked that 'conservative states' have affordable houses, and 'liberal' states have houses you would want to live in.


Feel free to #askGene about real estate, it is a little bit of a focused topic for him.

 Yorba Linda, CA-TRREG DRE#01843673-RP100 DRE#02059058-P:714-831-1800-E:info@theresultsrealestategroup.com-W:www.theresultsrealestategroup.com-Facebook - Twitter - Instagram - LinkedIn
Labels:
Location: Brea, CA, USA

Comments

Post a Comment

Popular posts from this blog

Real Estate Investments: Invest Up

I want to speak briefly to the masses today. Normally our audience is the Buyer and Seller, and yet it is easy enough for anyone to become both. It could even happen that you are a Buyer, Seller, and Investor at the same time! How can this be? Me, a normal person can be a Investor? Yes. Even more than that, as soon as you start your journey you start doing something greater than yourself, building generational wealth. Let's start at the very beginning, a very good place to start. This beginning looks like a house purchase. That would be because it is a house purchase. Assuming you are buying this house to rent out, you are now a Landlord and Investor. The first house is going to be the scariest, it gets easier from there. Let's assume you have rented out the house for a couple of years and you are looking to upgrade from a Single Family Residence to a Duplex. You would sell your Single Family Residence and 1031 the proceeds of the sale into the purchase of the duplex. Yo...
Post a Comment
Read more

The Fault in our iBuyers(iBrokers)

Today's topic will be about this developing trend of what are called "iBuyers", which are buyers that are more "convenient" to a seller, and who buy houses "as-is" with "all cash". In today's controversial environment of taking a position, this sounds all too familiar.  I would like to bullet point some of the problems of this iBuyer Trend: 1. iBuyers are really iBrokers The "buyers" really are intermediaries for larger venture capital companies, one of these companies, Opendoor, just closed on $300 million more to bring their total funding over $1 billion to buy single family homes for rent and for flip. It is estimated to spend more than $4 billion per year buying homes . Though the terms of the funding are not public, no one hands someone else $1 billion with no strings attached, they have their guidelines and what they can and can not do and are functionally no different than brokers.  2. Therefore, more i...
Post a Comment
Read more

How I Learned to Stop Worrying and Love the Coronavirus

Greetings, Today I wanted to simply jot down some thoughts I had about this novel coronavirus (COVID-19) that the news cycle seems to love to talk about: - Will real estate values be affected? The answer is the same as every real estate question, it depends. I believe luxury will be impacted, I think more modest dwellings will not, and for a very simple reason, there is not more inventory and people have to live somewhere. - Is this our 1987 moment? In 1987 we had Black Monday, the biggest one day stock market drop in history, afterwards, real estate prices went up in a straight line for 18 months. Just like any good investor, when there is a shock to the system, you have to recalibrate, you either go to safety (or even relative safety, like houses versus paper ownership in a company), or you go to what has been undervalued. I suspect there is a good chance this is our 1987 moment for real estate. The 80's are dead, long live the 80's. - The drop in stock price...
Post a Comment
Read more