Navigating California's Real Estate
Investment Market
We developed this guide as a quick reference for Real Estate
Investment professionals navigating the California Real Estate
Market. Whether you are a seasoned Real Estate Investor or
someone who is just starting out we hope you �nd this guide
useful and it brings you continued success in all your Real
Estate investment endeavors.
Sincerely,
-Ken Meyer President Trust Deed Capital
Navigating California's Real Estate Investment Market
Table of Contents
3 Diverse California Real Estate Investment Markets ...................................1
How to Successfully Navigate the California Real Estate Market.............4
How To Think Like A Real Estate Investor..........................................................6
How to Finance Investment Property in a Buyers’ Market..........................8
How To Flip a House in Today's Real Estate Market.....................................10
5 Tips for Finding O� Market Real Estate Investment Deals....................12
California and Hard Money Lending: Why it Works.....................................14
3 Diverse California Real Estate Investment Markets (San Francisco, Los Angeles, San Diego)
California is the most populous state in the nation, has the highest gross domestic product
and covers more area than any other in the lower 48 states other than Texas. As such, the state
of California has a vibrant and remarkably diverse real estate market. In fact, the National
Association of Realtors Realtor Magazine just forecast the biggest home price increase (5 to 7
percent) in the state of California. For investment property, the potential pro�ts will be even
greater. Below are the key areas that will drive that increase:
Los Angeles Real Estate Investment MarketLos Angeles County is the largest by population in the United States and, although is one of
the largest cities in area, it is still densely populated. This and the fact that there is no real rail
system has turned Los Angeles into the premier “car town” in America. Whether this is good or
bad is left up to the reader, especially if you have ever experienced a “Sig-Alert” on any of the
LA freeways.
LA County’s real estate investment opportunities are spread throughout a vast area that
covers 4000 square miles and includes 158 cities and 114 neighborhoods within the actual
city of Los Angeles alone. There are �x and �ip opportunities in cities such as Santa Clarita to
the north, Long Beach, San Pedro and Cypress to the South, and Downey and Azusa inland to
name a few. The savvy real estate investor will know a deal that makes sense when he �nds it.
The opportunities are de�nitely plentiful in Los Angeles County.
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San Diego Real Estate Investment MarketWhile downtown San Diego certainly has its charms, the city and the rest of the coast from La
Jolla in the north to Coronado and Imperial Beach in the south is really focused on taking
advantage of the Mediterranean climate that dominates the area. This is most obviously seen
in the beach communities that dot the coast such as Mission and Paci�c Beach. While it may
be di�cult to get �x and �ip properties to pencil in these San Diego beach communities, there
are many other areas in San Diego County that do make sense.
Inland to the north you will �nd areas such as Oceanside, Vista, San Marcos, and Escondido
where there are many rehab investment properties. Moving inland to the east there is Poway,
Santee and El Cajon and to the south there are still great �x and �ip opportunities in La Mesa,
Lemon Grove and Chula Vista. In summary, the San Francisco, Los Angeles and San Diego Real
Estate Market is chock full of areas where the experienced Real Estate Investor can make
money. It just requires you to do your homework and �nd the right deal that makes sense.
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San Francisco Real Estate Investment MarketMuch like other port cities around the world like New York City and Hong Kong, San Francisco
is seriously constricted on almost every side by water. This makes properties in the Bay Area
highly desirable and usually outside the ability of most average workers to a�ord. Still, the Bay
Area has a highly developed mass transit system that allows the vast majority of its suburban
residents to work in and enjoy the downtown lifestyle.
The Bay Area includes a variety of neighborhoods from the wine country areas of Napa and
Sonoma in the north as well as exclusive Marin County. To the south of San Francisco is San
Mateo County and southeast is Santa Clara which can be quite pricey. In the East Bay, there is
Alameda and Contra Costa Counties which is a more a�ordable �x and �ip area. Experienced
Real Estate Investors in the San Francisco area know the speci�c areas they are most
comfortable with and tend to stay within the boundaries that have historically brought them
the most pro�t. In short, the San Francisco area provides a wide range of real estate
investment opportunities if you learn the areas where your working capital will bring the best
return.
How to Successfully Navigate the California Real Estate Market
The California real estate market is one of the most active and lucrative markets in the country. Velocities are high, large numbers of both bank and hard money lenders provide capital, and some markets o�er signi�cant opportunities for appreciation. However, the unique nature of real estate in the Golden State also poses some challenges. Here are some tips to help you close the right deals:
Bring CashGiven the �erce competition for the best investments in California, zero down properties are almost impossible to �nd. Further complicating matters, some California markets are still underserved by the traditional lending community, although hard money loans are usually available. This means that you will need to be prepared to make meaningful down payments on desirable investment properties.
There's More to California Than the BeachOne county in California -- San Bernardino -- is larger than Massachusetts, New Jersey and
Connecticut combined. It's also completely landlocked with no access to the Paci�c Ocean.
Much of California is located inland. Those markets typically carry lower costs and higher
returns than the big coastal markets, although they can also carry bigger risks.
Plan for Prop 13When you do your proformas to look at how you expect a property to perform, it's important
to be aware of how property taxes work in California. Property tax increases are capped at
roughly 2 percent per year while an owner controls a property. However, the tax assessment
can be increased to a property's sales price when a property changes hands. This means that if
you buy a property that was held by the same person for 30 years, your property taxes could
easily be three times what the previous owner paid.
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Leverage Makes More Sense Than UsualMany investors in California �nd that their returns are driven by equity growth and
appreciation, rather than cash �ow. Given the impact of leverage on multiplying growth
potential, using it in California can be especially advantageous. If you're able to buy a property
using a hard money loan at 50 percent down, which is usually doable in most California
markets, and it goes up in value by 10 percent, your equity growth is twice that since you get
all of the growth in the property's value while the lender just gets their money back.
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How to Think Like a Real Estate Investor
“Buy low, sell high” is one of those maxims that conceal a whole host of problems for an
investor. While the actual words seem simple enough to understand and implement, the
practicality of the advice is far from evident especially if one is interested in real estate as an
investment. In short, real estate investing can be a di�cult business for the uninitiated.
On the other hand, for those who can “think like a real estate investor,” the possibilities and
the pro�ts are almost endless. So, instead of applying a simple, throwaway phrase like the one
above, take some time to really understand the real estate investment process. Here are a few
suggestions to help get you started:
Understand the Deal and Your RoleDo not take any shortcuts on understanding the deal and your responsibilities within it. A
thorough familiarity of the �gures will allow you to ask relevant questions and ensure that
your concerns are met. Ask for any current photos, plans or sketches of the property that will
allow you to understand the project to your satisfaction. The borrower should not be
blindsided by these questions. If so, �nd another deal.
Realize that Both Parties Have NeedsIt is all well and good to hold out for the best deal possible but taking a non-compromising
attitude on every detail will quickly derail any negotiation. You must learn to think like the
borrower and understand that they need the loan to meet certain requirements or it is of no
use to them. Acting as if you are the only one whose needs must be met simply wastes
everyone’s time and energy.
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Obtain the Right SecurityOne of the primary bene�ts of a real estate deal is that the loan is secured by real property.
Once you understand this fact, you can negotiate away much of the fear by adjusting the
loan-to-value (LTV) ratio and thus bringing the deal in to your “comfort zone.”
A Great Starting PointWhile understanding these points is the �rst step in thinking like a real estate investor, having
a knowledgeable advisor does not hurt. Private money lenders are experts at bringing
quali�ed investors and dependable borrowers together and can explain everything from the
basics to complex details to everyone. Intimately involved with the industry, they really do
understand how to think like a real estate investor.
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How to Finance Investment Property in a Buyers’ Market
In general, for the small investor, it is somewhat problematic to �nd capital for a
high-risk/high-return property even in a so-called “buyer's market.” In general, savvier
investors will do their homework ahead of time - on the property itself, on the neighborhood
and on the prevailing sentiment in the investing community.
Then, with these pertinent facts in hand, they can lay out a compelling argument as to the
lucrative opportunity that awaits their potential investors. Still, regardless of how attractive a
deal looks on paper, �nancing investment properties is just not that easy.
In actual fact, entrepreneurial buyers often run into a host of problems when it comes to
�nancing their projects. Here are just a few of their more common problems:
Unusual Property Anything from a standard 3-plex to a resort villa will fall outside the guidelines of a traditional
lending institution. For more unique properties, a real estate entrepreneur must look to other
funding sources like private money lenders.
Unusual Terms While traditional lenders are willing to customize the lending terms of a mortgage, they
usually charge exorbitant fees and interest for the privilege. Other lenders are far more
reasonable in their costs when they take these factors into account.
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Unusual BorrowerWhether you are �ush with cash and no credit or vice-versa, traditional lenders like banks and
S&Ls are unlikely to consider you for a loan because you fall outside the guidelines for
government guarantees. Private money lenders will look at your overall track record and your
most recent accomplishments to overcome this fact.
Unusual Anything
Traditional lenders are now looking to turn down as many real estate loans as possible. With
the current governmental regulatory climate, it is simply not in their interest to approve any
loans that deviate from the norm by even a little bit.
Bottom LineThe best place for entrepreneurial real estate buyers to �nd investment capital is with private
money lenders. These organizations have the experience, the expertise and the resources to
provide it at an a�ordable cost and with reasonable facility.
For more information on �nancing investment properties in creative ways, contact your local
real estate professional or a private money lender. They will have the right answers for any
situation.
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How To Flip a House in Today's Real Estate Market
Figuring out how to �ip a house today is a much easier process than in the past. After all,
buyers are back in many markets and prices are either stable or, in many places, increasing.
However, with prices going up and debt still hard to source, the market is not without
challenges. Here is a process that can help you �gure out not only how to �ip a house but also
choose which one to �ip.
1. Identify markets that are attractive to �rst time homebuyers but are occupied by older
homeowners. These neighborhoods frequently have low prices and properties that are
fundamentally sound but in need of cosmetic upgrades.
2. Calculate the cost to buy an existing home in need of upgrades. Add in the cost of making
the upgrades and of sourcing private mortgage �nancing. Since banks are still not active in
most investment property markets, private money may be your only choice. Given that private
lenders will sometimes lend on an as-improved value and can also execute very quickly, they
are frequently also the best deal out there even if you can �nd bank �nancing.
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3. Project what your net proceeds after �ipping the property to a homebuyer. To be safe,
subtract 5 to 10 percent from your expected net proceeds, just in case something goes
wrong.
4. Subtract all of your costs from your adjusted projected net proceeds to see if the project
can be pro�table.
5. Move forward with the transaction if you can meet your pro�t expectations. When you
calculate your pro�t, don't look at the total purchase price and the total sales price. Look at
the cash that you will put into the deal and the cash that you will take out after a successful
�ip.
Given the new found stability in the market, doubling or tripling your down payment is
probably unlikely today. However, returns in the neighborhood of 30 to 60 percent are
possible. A healthy return like this can help you build your equity account so that you can
return to the market with a di�erent problem -- �guring out how to �ip a house in two or
three di�erent neighborhoods at once.
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5 Tips for Finding O� Market Real Estate Investment Deals
Whether you're looking for real estate for sale by owner or bank-owned properties, o� market
deals are frequently the best ones. Here are some strategies that can help you �nd them:
O� Market Real Estate Tip #1: Property for Sale By OwnerWhile FSBO pricing has improved with the availability of Internet data sources, it still isn't
always as spot-on-the-market as the list price that a quali�ed real estate agent will come up
with. As such, you might �nd some FSBO deals that are underpriced relative to other
properties in the market. Dealing directly with the owner may also give you additional
negotiating leverage that you can use to turn even an overpriced property into a great deal.
O� Market Real Estate Tip #2: Expired ListingsWhen real estate that was listed expires, sometimes, the owner still wants to sell it.
Furthermore, once real estate goes o� the market, you can go directly to the owner and make
an o�er that is less than what he needed to get when he had to pay an agent. These
properties can turn into very good deals just on the basis of that discount alone.
O� Market Real Estate Tip #3: Know Area LendersWhile most conventionally-mortgaged homes end up going through Fannie, Freddie or
Ginnie Mae's sale process, properties that have loans held by local banks or private lenders
have a much less predictable sale process. Sometimes, you can contact the lender directly
while the property is in foreclosure and carve out a position for yourself before the real estate
goes on the market. Getting to know the realtors that work with private lenders can also give
you a leg up.
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O� Market Real Estate Tip #4: Contact Owners DirectlyAnother way to �nd property for sale by owner is to contact owners directly. When you
do this by calling or writing and delivering the straightforward message that you are
willing to buy the property, you can not only potentially avoid brokerage fees, but you
can also avoid competition and maybe save money.
O� Market Real Estate Tip #5: Tread CarefullyJust because a deal is o� market, doesn't mean it's a good one. For instance, real estate
for sale by owner isn't listed because real estate agents wouldn't list the property at the
owner's price. Deals also sometimes expire because they're overpriced. As such, it's
always a good idea to do your own due diligence before rushing out and making an
o�er to make sure that the property is as good a deal as you think it is.
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For years, the continually rising real estate market in the state of California was the envy
of the rest of the United States, if not the entire world. While a dose of reality was
introduced in the mid-2000s and brought the market back down to earth, it still left
plenty of opportunity for the practical investor using hard money.
Here are just a few reasons why hard money lending is especially valuable in the
California real estate market:
Breadth of MarketObviously, di�erent investors have di�erent needs. The various real estate markets in
California can provide properties in every niche from raw land through single and
multi-family residential homes to commercial and industrial sites.
Knowledgeable Investor BaseSimilarly, the wide variety of California properties for sale has created a very
knowledgeable base of investors and other real estate professionals – appraisers,
inspectors and lenders to name just a few – across the entire spectrum of the industry.
This fact is most pertinent in the business knowledge and ‘sense' that the investors
bring to a deal. In many cases, they can even give the investor a new perspective on the
proposed deal.
California and Hard Money Lending: Why it Works
Availability of CapitalIt should be obvious but, in case it isn't, there are a lot of wealthy individuals in
California who are looking to make the best of their accumulated capital. Whether
retired executives, software developers or just “old money,” count on them to be willing
to invest in deals that a traditional bank or other lending institution would not dare
touch.
Limited MiddlemenWhile hard money lenders will usually demand a higher rate of return for their funds,
they will not hit you with a variety of hidden fees along the way. In other words, unlike
the traditional middle men of real estate transactions – read that as “banks” - what you
get is what you see. In addition, private hard money lenders are far more versatile and
responsive. Simply put, they do not have to answer to anyone but themselves and can
make a decision in a much more shortened time frame.
Hard Money LendersWhile all of these factors make California an excellent place to start a real estate
investing career, it does not mean that all of the pieces are readily available to the
inexperienced investor. For that reason, the new investor should avail themselves of the
services of hard money lenders. These real estate pros o�er a wide variety of services
and bring all the pieces of the puzzle of a real estate transaction together into one
place. In short, they provide a convenient and trustworthy platform where buyers and
sellers can meet and ful�ll their mutual needs.
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