Real Estate Investments
The photo to the right is of a San Jose home I sold a few years back. You cannot tell from the image, but there is a front door off to the right of the single car garage door, and back around on the left side, near the double car garage door, there’s another front door. There are 2 units. It is a duplex or a duet home? You cannot necessarily tell by looking!
What is a duplex?
A duplex is a multifamily home, in the same category as a triplex or fourplex, meaning there are multiple living units. Most of the time, they are attached to each other, but not always. But what is truly distinctive is the way they are bought and sold. With multifamily homes, such as a duplex, all of these dwellings are sold together. (The units are not sold separately.)
If you buy a duplex, you get both sides. If you buy a triplex, you get three units. Sometimes an owner will live in one of the homes and renters are in the rest. Many times, though, all of these multifamily homes are entirely leased out. (Duplexes are usually 1 story and many of the duplexes in the San Jose area were built in the 1950s and 1960s, but you cannot tell from looking at it what the zoning and class of housing are with certainty.) These types of properties are considered income producing or investment properties.
With a duplex, the property owner is responsible for all of the outside maintenance. Normally there are no HOA dues, because there is just one owner.
What is a duet home?
If you’re a Silicon Valley homeowner, you will sometimes need to replace elements of your home, such as the roof or water heater, or do repairs or remodeling to keep the home functional, comfortable, and efficient. Kitchens and bathrooms need to be updated from time to time, and sometimes remodeled. These repairs and remodeling projects often (if not always) require permits and finals.
Will you apply and pay for the required permits and finals?
What difference does it make if you do or do not get them?
Will it matter when you sell your home?
If you’re a Silicon Valley homebuyer, the whole idea of buying a home without all the necessary permits is a bit spooky. My buyer clients often hear or read something like “garage conversion done – permits unknown” or “kitchen remodel done by contractor but without permits”. They worry about the consequences of buying homes with non-permitted work, so let’s talk about the issues involved.
(1) Buyers are extremely picky – most want a turnkey, perfect home.
(2) Homes that need work (updating, remodeling) are selling at deep discounts, if they sell at all.
(3) Loans are harder to come by then they used to be. If your credit is not perfect, clean it up! Save for a bigger downpayment, especially in the arena of jumbo loans.
If you must sell the current home to buy the next home, you’ll need to get your house or condo into ideal condition. If you can buy the next home without selling the current one, it’s a great rental market! You may want to investigate the possibility of investing by holding your current home and renting it out. Talk to your tax professional about the ramifications of doing this before you decide. Continue reading
Are you looking to purchase a Silicon Valley investment property? Now is a great time as several segments of the Silicon Valley and San Jose real estate market are extremely favorable to buyers, and interest rates are being aided by recent government action.
Let’s consider what to buy and where you might want to invest in Santa Clara County real estate. Part of the equation will be the type of housing you’d like to own, part will be the location, and of course much of it will be determined by your budget.
Types of Silicon Valley Residential Investment Properties
The most popular type of property for investment buyers is a single family home. This makes sense in Silicon Valley especially because the structure of the house is not what truly holds the value here. Instead, it’s land value for the long term preservation of your assets and the growth potential. There’s also the issue of control. In a condo, owners have a loss of control in regards to noise and other nuisances, suprise special assessments from a poorly managed Homeowners Association, and so on. With a single family home, there’s less risk because there’s more space between neighbors, more control over one’s own property improvements and maintenance, etc.
Which part of the Santa Clara Valley
is seeing all of this foreclosure and pre-foreclosure activity?
Depending on where you live in Santa Clara County, you may be seeing a whole lot of distressed properties on the market – or you may be seeing none at all. This is part of our current “bifurcated market” situation.
Generally, the more expensive areas of Silicon Valley (Palo Alto, Cupertino, Saratoga, Monte Sereno, Los Gatos, Almaden Valley and Silver Creek) are not suffering from a huge number of listings in which the sellers are in financial straits. There are some, though.
It is the less wealthy areas in San Jose (including parts of downtown, the east side, south San Jose, Santa Teresa, Blossom Valley) and the south county cities of Morgan Hill and Gilroy) where there is an inundation with short sales – in the lower price ranges especially.
Generally speaking, most short sales, preforeclosures and bank owned homes are priced below $600,000.
How can you tell if a home is in pre-foreclosure?
Homes listed for sale in your neighborhood of San Jose, Saratoga or Los Gatos that are in pre-foreclosure may look like any others available. They may have granite in the kitchen, beautiful baseboard and crown molding, new dual pane windows, and on and on. The sellers may have borrowed and borrowed to improve the property, be unable to make the payments due to job loss, divorce, or other problems, and now be in default on a loan, heading toward foreclosure.
This status usually doesn’t “show” unless you have access to the county records or have a subscription to a service that lets you know the status (and those services are no where near 100% reliable, by the way). Your real estate agent, who should have a subscription to the MLS with full information, can see a report at no cost that shows the foreclosure history. (Not all pre-foreclosures are short sales.)
What’s a short sale? Being in “pre-foreclosure” means that the seller has missed payments on a loan in which the real estate owned is used as collateral, or security. Let’s say a home is worth $1 million, but the amount in default is a small loan, perhaps of $25,000. If the home is sold, it can pay off the debt in full.
Sometimes, though, a distressed seller bought higher than the home is now worth. When prices fall (and if the owner bought the home with a low down payment especially), selling the home will not be enough to pay off the loan. So again let’s imagine that a house is worth $1 million, but the owners owe $1.1 million on it (and to sell they have to worry about closing costs to boot). By selling the home, foreclosure can be averted – but to do so, the bank will have to agree to not being repaid 100%. This is a “short sale”. (Not all short sales are in preforeclosure, though, as not all home owners of these properties have missed payments on their mortgage.)
We’re seeing a lot of short sales in the entry level markets. In these cases, current owners bought their properties a year or two ago – for 10% or 20% more than those houses are now worth.
In the higher-priced regions of Silicon Valley, it’s less common to see a short sale than it is a straight pre-foreclosure because someone just can’t make the loan payment (due to some new problem like divorce or job loss, or because the adjustable loan went up and the payments are now untenable).
Recently I viewed a piece on Forbes.com that said that San Jose was on it’s “top 10” list of good places to be a landlord. Investors, take note!