First, expect the media to run head - lines in the first quarter of 2021 about a foreclosure explosion. Remember the moratoriums on evictions and foreclosures through the end of 2020 mean these will be pre-Covid num - bers that stalled. Foreclosure activity in California remains at a historic low. A post- Covid foreclosure wave may appear by summer 2021, but not in the quan- tity that investors would hope for or expect. Unlike the last cycle, buyers had to qualify for loans under abili- ty-to-repay rules. Homeowners are also sitting on equity they’ve been far more conservative with over the last decade. Simply put, some of the fuel for the fire that triggered the finan - cial meltdown does not exist this time around. Additionally, Congress and the Feds have made it clear more Covid-related support is on the way in some form. With that, consider two categories that investors should consider when approaching Califor - nia real estate.
umor has it that real estate investors are throwing in the
NO. 1 THE PRICE TAG
towel on California. Even before Covid, investors were increasingly uncomfortable with California politi - cians and regulators, seemingly set on making an entrepreneur’s life diffi - cult. Local-level rent control, outlaw - ing vacation rentals, and changes to the foreclosure process meant inves - tors of all sorts had no place to hide. Other investors are contemplating an exit strictly as a retirement and diversification play. During the Great Recession, real estate investors cre - ated rental portfolios purchased well below replacement costs. It’s natu - ral to step back at a portfolio that’s tripled in value and wonder if there’s something better your capital could be doing. For some, real estate is a means to an end. For others, real estate is a game they will never stop playing. Regardless of where you land on the spectrum, there are opportunities and threats investors should consider while pondering a California exit.
STAY. Real estate investors are lock - ing in long-term financing for rentals in the mid-three percent range. The deal is not in acquisition; it’s financ - ing. California’s median price has gone from $274,960 in 2009 to over $700,000 headed into 2021. With 25 percent down and a 3.5 percent rate, the payment is $2,350. Rents in some markets will support this play but at cap rates that aren’t exciting. Inves - tors must also consider that the Covid trends of 2020 in localized markets will likely cool. Playing the long game in California, which typically trends up, seems like a safer bet. RUN. If you’re an investor who pur - chased between 2009-2014, you have options and are probably laughing at investors trying to jump in now. You can refinance at all-time low-in - terest rates to buy more property or take the money out of state to areas that make more cashflow. You could exit entirely via 1031 exchange and upgrade and diversify into multiple markets in addition to taking advan - tage of these amazing interest rates. Or, you could stay put, sit back, and relax because you have the exact portfolio you want. Consider this, real estate is not just a numbers game. Some investors do not like being more than an hour’s drive away from their assets. Others demand absolute control of manage - ment. If California’s prices haven’t scared you away, category #2 is a key reason many are packing their bag for other states. NO. 2 REGULATORY ENVIRONMENT STAY. In the supermajority, Demo-
Explosion in Foreclosures?
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