What are some basic strategies for capitalizing on Real Estate investment opportunities in the current Southern California market?

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Answered by: Kurt, An Expert in the Investing in Real Estate Category
Southern California real estate has seen a drastic decline in value since the peak of the housing market in 2008. The meltdown in the mortgage industry has had a cascading negative effect in home values as homeowners have discontinued making their mortgage payments. Sometimes they are unable to continue making their payments due to economic hardship such as a job loss, or because the interest rates ratchet up as the value of the home has slipped. There are also those homeowners who stop paying their mortgage simply because the underlying value of the home has fallen below what is owed on the property.

Obviously the value of real estate is driven by the state of the economy. But Southern California real estate has seen many booms and busts in its history. And even in the current climate there are many real estate investment opportunities for anyone savvy enough to find them. To illustrate how values work, there are neighborhoods that have lost 50-60% of their value or more from the recent peak market.

And there are other neighborhoods that have lost less than 10% of their value over the same time period, or have even appreciated. And quite often, those areas that declined the least were also the ones that appreciated the most in better years. These are generally the areas that offer the safest and highest potential for profit. To be successful at investing in real estate in southern California, it is crucial to evaluate an area with this idea in mind.

But even in the best neighborhoods, values are sometimes impacted by factors that may not be readily apparent just by looking at statistical information. The difference between good, better and superior neighborhoods in upscale areas such as Brentwood, or Malibu may not be obvious without considering hidden factors such as planned future development. As an example, the city of Los Angeles is considering designating a section of Hollywood to be developed into high rise apartments along the recently completed subway system that runs through the heart of some of the most historic neighborhoods in the city.

The neighborhood groups that oppose the plan are mostly comprised of residents who live in bungalow houses in the area, and will likely see drastic changes in their quality of life. Not to mention the loss of whole neighborhoods to eminent domain because of the plan. The opportunities for real estate investment could be significantly different

depending on the proximity to the potential development.

To appreciate the factors that are driving this type of development, it is neccesarry to recognize the inefficient use of land that was developed around the automobile culture. As mass transit becomes more prevalent in the city, the likelihood of more of this type of development and the effect it will have on real estate investment opportunities available will increasingly become a factor.

Once an investor has found a property he can improve, develop or otherwise invest in, there are many considerations in evaluating the potential profit or risk of loss. These should all be factored in when analyzing the project. Obviously the specifics of a particular investment will primarily determine its viability. But even in the current economic climate, there is an abundance of opportunity to make a healthy profit from wise real estate investments in many areas of southern California.

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