David Bramante
Marcus & Millichap
Real Estate Investment
213-943-1832 Office
213-943-1810 Fax
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Have quesions? FAQs:

Should you buy a home or an investment property? (part 1/2)

If money is an object, hold off on buying a house. (part 2/2)

What are Short Sales?

What are Foreclosures and How Do I Buy One?

What is an REO or Bank Owned?

What is a Syndication?

What it takes to buy an apartment building in this economy.

Should I Buy a Home or an Investment Property?

Many young professionals get to the point in their life where they're ready to take the big step from renting to buying a home. This is a huge accomplishment, the largest investment people make, and so it's a very exciting and emotional process. For many, it's a passage into adulthood, success and of living the American Dream... Don't do it just yet!

What you need to do is post-pone this process if you want to create real financial wealth for yourself and your family. While most young families jump into buying a home and then work non-stop to cover all the bills, smart investors post-pone this for a few years and instead invest in an investment property of up to 4-units. Why?

First time home buyers who buy 4-units are way ahead of the pack.

Financing for a 2- to 4-unit property that you will make your primary residence is the great financing you get if you were to buy a single family residence. Also, you're able to get help paying your mortgage by having tenants paying you rent. After a few years of this, you will have had a steady income in addition to your salaries, have potentially increased your equity in the investment property and can now use that property to buy a better home for yourself and your family.

Read below for more info...

If money is an object, hold off on buying a home
(Advice for novice real estate investors)

Most people new to real estate think that buying a home is the first step to living the American Dream. But really it is the largest investment most people will ever make and very few consider the alternative to buying a home, which is buying multiple unit properties.

With the same type of financing, you can actually purchase a 2-unit, 3-unit or 4-unit building. For first time home buyers, you can’t buy more than a 4-unit property because anything larger is considered a commercial investment and so the financing rules change, along with the requirements for down payment.

So rather than immediately buying a home, why not think about a multi-unit property? It boils down to what your goals are. So ask yourself that very question. Why do you want to buy a home?

For most people, buying real estate is an emotional decision, like buying a car. But don’t be like most people. Property and vehicles are investments. Be a novice real estate investor and don’t see homes for sale, just see houses on the market. Take the emotion out of buying because this is a long-term, serious investment that will take you 30-years to pay off. This is a major financial commitment and this is your future, so don’t be rash. Home is where the heart is, but houses are where the money is. Weigh the pros and cons.

So now think of buying a property as buying an investment. If I were to offer you an investment that gave you a greater return on your down payment, would you at least consider it? Honestly, why would any investor buy a 1 unit property, when he/she can get a 4 unit property for almost the same price and same great financing? The investor wouldn’t because it doesn’t make sense financially.

Let’s go back to the original question, which is what are your goals in purchasing your first real estate investment?

The main reason should be about creating true financial wealth, not be about satisfying a desire to live the American Dream in the traditional sense because the essence of the United States is not cute homes with picket fences. The US symbolizes the spirit of the entrepreneur, the visionary, the cowboy. And so when it comes to buying your first real estate investment, the American Dream is really about being an investor with the credit, liquidity and gumption to seize opportunities, where others see risk or lack the discipline to put their emotions aside.

Now, if money is not an object and you are financially comfortable, than go buy the most expensive house you can afford and live happily ever after. But, if money is an object (as it should be not matter what your financial status is), consider holding off on buying that house and start considering multiple units. You may decide that a house is for you and units are not, but know that there are many options when you purchase your first investment property.



What are Foreclosures and How Do I Buy One?

Lately, everyone has been talking about foreclosures and how they want to "get into them." Well, it's pretty simple to find them these days, but there are major issues you should consider.

To find a foreclosure property, contact me or conduct a Property Search, and you'll see that a good majority of listings on the market now are foreclosures. Foreclosures is a term that is usually and many times incorrectly used as a catch-all phrase for other types of property deals, including Notice of Defaults, Notice of Trustee Sales, Short Sales, and Real "REO" or Bank .

Foreclosure is the process in which a mortgage company or bank goes through the legal procedure of repossessing the property that was used as collateral for the mortgage or other lending instrument. Normally, banks allow their clients miss a few months before they start the first step of the foreclosure process, which is filing a Notice of Default. This takes a few months to expire.

If the entire delinquent amount has not been paid (including any fees), the next step is the Notice of Trustee Sale. This is the process where the borrower is given notice that in a week to two weeks, his/her property will be sold on at a live auction on county court steps (around 8am everyday, crowds of people gather with cashier's checks waiving in hand to purchase these properties, normally sight unseen). The first bid is automatically the 1st lender or Trustee.

If no one bids on the property, it defaults to the lender or Trustee and becomes an REO or Bank Owned property.

What are Short Sales?

We are starting to see more of these types of listings on the market, which means that lenders aren't eager to foreclose, and that's because they need to hedge their loses by allowing the borrower to list the property at a reduced amount (usually significanly less than what is actually owed on the property).



What is an REO or Bank Owned Property?

These properties have sprung up in low-income neighborhoods like South Los Angeles and the North-Eastern San Fernando Valley. In these situations, the lenders either couldn't sell the property through a Short Sale process or at Foreclosure.They are normally in very poor condition and require extensive rehab work. While you can save a huge amount of money on the property and land, the cost to tear-down the property and rebuild, or to completely rehab the property usually make it a very tough sale.

What is a Syndication?

1. A combination of bankers or capitalists formed for the purpose of carrying out some project requiring large resources of capital, as the underwriting of an issue of stock or bonds.

2. A group, combination, or association of gangsters controlling organized crime or one type of crime, esp. in one region of the country.

The point of a syndication is it minimizes your personal risk and increases the possibility of making a profit for the entire group.

Right now is a golden opportunity to invest in Southern California real estate. Prices have dropped dramatically (in some cases by the hundreds of thousands) and because the US economy is in a recession, interest rates are aggressively low. This is ideal for our syndications, because we are investing in low-priced properties with low interest rates. We are purchasing REO (Real Estate Owned) and foreclosure properties throughout Southern California.

Currently, I have a handful of clients, friends and family who are waiting eagerly to jump in on this great opportunity. You have always heard the expression, "Buy low, sell high," and now is the time to start looking for investments to buy low. By investing in a property that has cash flow, your financial position will be exponentially greater because you will be making money every month, will have major tax breaks, and within a few years will capitalize on increased property values.

What it takes to buy an apartment building in this economy
(Or a brief explanation why you shouldn't invest in gold bars)

Very few people will ever own an apartment building, but almost everyone will rent at one point in their life or another. Even with the many requirements fulfilled, securing a commercial loan can be especially tough in an economy like this one.

Though retail and office buildings sales have plummeted, with huge retail chains and businesses slamming their doors over night, tenants are still viewing and renting apartments, and investors are still buying and selling commercial real estate everyday. This will never change no matter what economy we’re in.

So what does it take to buy this hot type of commercial building (a commercial / apartment building is considered 5 units or more)? It takes a lot. So if you’re interested in building true wealth, you need to know what is expected and take the necessary steps.

The most obvious requirements are cash and credit. For a conventional commercial loan with an interest rate of 6 to 6.5 percent, you will need a minimum FICO score of 680 and have 30 to 35 percent of the purchase price for a down payment. This is not very different from conventional residential financing at about 5 to 6 percent, where you need a minimum FICO score of 640 and about 30 percent for a down payment. But that’s were the similarities end.

(Example: You will need $225,000 down to purchase a 10-unit apartment building for $750,000).

In Southern California, those aren’t very rigorous requirements because there’s an abundance of cash flowing throughout the region. But obviously, $225k is not chump change and for the large majority of people that live month-to-month on salary, this will never become a reality.

What do you need next? You must be liquid (aka have cash reserves) equal to 6 to 12 months worth of mortgage payments (interest and principal combined) and have a net worth that is equal to or greater than the purchase price of the property (networth equals your assets minus your liabilities).

So that’s what it takes to own an apartment building. It’s a blue print for becoming an apartment tycoon and creating true financial wealth, but these requirements are the reasons why there are so many renters and so few owners, and why investing in apartment buildings is better than investing in gold.

For those that can't buy an apartment building, the alternative is buying up to a 4-unit building, which is a hybrid: You can buy multiple units and collect rent, all the while utilizing a conventional residential loan to purchase the property.