Pasadena Income Property

Many self proclaimed real estate investors began looking at income property as a means to increase their wealth. Buying rental property provided a way to spread your risk over more than one property and offered what seemed like a better chance for profit than other investment vehicles. Since qualifying for a mortgage was a relatively easy process, many who delved in ask themselves “Do I have the courage to be rich”? This was an old passage I remember reading from a real estate investment magazine several years ago. The underlying meaning is there is an inherent risk in any future potential reward.

This property, a duplex features two units, each with 2 beds / 1 bath and about 1000 sq ft each. each unit also has its own fireplace. In January ’06 it sold for $750,000. A short sale was approved in November ’08 for $630,000.

This Spanish style duplex was sold in June of 2006 for $795,000. One side featured 2 beds / 1 bath and a bonus room for a third bedroom. The other side was a 2/1. Encompassing about 2200 sq feet, it featured central heat and air. Originally brought on the market for approximately $895,000 in mid 2008, it closed in January ’09 for $535,000. It was listed for $585,000. Another short sale, the bank accepted an offer $100,000 less on this property with more amenities than the above property. As I pointed out in my last article, there is a way to negotiate a short sale and banks are becoming more acceptable to buyers who are eager to make a deal and are well qualified.

Pasadena Single Family Homes

This ranch style home offered many upgrades including newer central heat and air, granite counter tops and new appliances. It also had hardwood floors and upgraded double paned windows. Built in 1959, it offered 3 beds / 2 baths and 1642 square feet. Listed for $575,000, it sold in November ’08 for $559,000. In May of 2006 it had sold for $670,000.

If there is such a thing as an “average” house in Pasadena, this would probably fit the statistical description. The lot size is 7300 square feet, in a picturesque quiet neighborhood.

The last example is a Craftsman style home built in 1905. With 4 bedrooms and 2 baths, it offers 1950 square feet on a 7000 square foot lot. Located more to the west than the other pictured homes, it offers many wonderful upgrades and may qualify for a special property tax exemption. Listed at $525,000 it sold for $515,000 in November ’08. The house was last sold in July 2005 for $640,000

Time for a Property Tax Reassessment?

If you bought your property within the last 12 to 36 months, it would probably be a good idea to contact the LA County Tax Assessors office. If the market value of your property has declined anywhere from $100,000 to $200,000, you could possibly save as much as $2300 in your annual property tax bill.

The same can be said of the Pasadena real estate market. The market overall continues to pick up steam. We continue to see unit volume increases, indicating that buyers are returning to the market which is good news. On the flip side those buyers are opting for many of the foreclosures and bank owned properties in Pasadena.

Unfortunately we can not confuse an increase in unit sales as being beneficial. Currently an inverse relationship exists with the number of houses that are being sold and the median price. Right now as more homes are sold, the median price continues to decline as short sales and foreclosures are eliciting multiple offers.

Market Action

In a slower market homes that are priced in the mid price ranges ($700.0 – $999.0) are usually prone to slower selling times. The reason is many buyers and investors look for opportunities to buy below market value in the the lower price ranges. In the higher end homes above $1MM, home buyers are not as susceptible to the increased demands of loan qualification, therefore homes are more likely to turnover.

The big question to which there is much speculation is “Is Pasadena real estate close to a bottom?”

If the projected sales numbers for November are any indication, the answer is “not yet”. Of the homes currently in escrow the median price appears to be lower than what was recorded for the month of October.

Pasadena Homes Market Report

The enclosed slides break out the numbers for the overall residential market. Included are single family along with condominiums and town homes. The report is best viewed by using the full size icon in the lower right hand corner.

In real estate the old adage was to buy the least expensive home on the best street. Most home buyers have a particular budget in mind when they shop for a home and what they can qualify for in terms of a loan and house payment. At least these days they do, the banks are seeing to that.

Neighborhood Value Considerations

Why does South Pasadena real estate seem to hold its value better than Pasadena?

1. Number of households -with So Pas having approximately 1/5 the number of housing units there is less diversity and much more homogeneity. Pasadena had better opportunities for entry level home buyers due to its history of lower median prices, while South Pasadena has been more of a move up market.
2. Distressed Properties – more housing units in Pasadena and lower entry prices have resulted in more properties in the foreclosure process, depressing home prices in the area.
3. More Equity, Less Leverage -when home buyers move up, they typically put more of their own money into the transaction meaning less volatility in market ups and downs.
4. Public Schools – schools in So Pas enjoy a very good reputation. Does a correlation exist between high home prices and good public schools? A recent comment by one of our readers made an excellent point about public schools. It would be interesting to see the effect on Pasadena home prices if the public schools had the same reputation as South Pasadena.
5. Other factors – neighborhood amenities, (retail, worship, topography, traffic, local services) and crime statistics can also have a role in the overall purchase decision, however these things may be more subjective to a large degree with the exception of crime in an area. If a home buyer is concerned about neighborhood crime, it is always a good idea to talk with the local police department.

When markets are bullish, we see prices rise across the board with no real concern of quality or value. The tech bubble comes to mind, followed by the real estate bubble. However when prices begin to fall, neighborhoods or cities that successfully address the above criteria will be less susceptible to market gyrations.

The problem used to be the rising cost of gasoline. As we fill our tank and drive 70mph down the freeway, that issue is in the rear view mirror. The number one issue these days is:

How do we solve the continuing problem of declining real estate markets and stabilize home prices?

Real estate being a tangible asset touches many people’s lives. People just get it. They may not understand why the stock market dropped 700 points today, but they can drive through the neighborhood visiting open houses and get a good idea of the value of their home.

Bring Tax Incentives Back

Someone should tell me why you have to pay a capital gains tax on the sale of your home if your are fortunate enough to exceed the $250,000 and $500,000 limits, but if you bought when the market was high and sold at a loss, you are not allowed a deduction? Uncle Sam just grins and says “tough luck”.

To fix the American economy, we have to address the issues at home first. Yes I mean our homes. Our leaders can continue to throw money at Wall St., and prop up the next failing institution, but until they address AnyStreet, USA the problems will persist. If it were up to me, I would immediately implement the following:

1. Bring Back Accelerated Depreciation – this was taken away from real estate investors with the Tax Reform Act of 1986 which increased the number of years a residential property could be depreciated from 15 to 27.5.
2. End Depreciation Recapture – when an income property is sold, the depreciation that was taken in every tax year has to be added back as income to the sale of the property. Modifying or ending these two provisions would encourage individual investors to acquire property. The other issue we have with Pasadena real estate is prices are still relatively high enough to discourage investment unless you have a 40 to 50% down payment. Addressing the depreciation issue will encourage many would be investors by making it more financially feasible to own rental property.
3. Allow Homeowner’s to declare a loss on a principal residence by offsetting other income.
4. Access to retirement accounts – as we watch more of our retirement funds evaporate in the stock market, why shouldn’t we be allowed to have access to our money for investment in other vehicles? Senator Obama has now proposed access up to $10,000, which is far short of addressing the real problem. Senator McCain’s program struck me as lackluster as well.

You have to provide people with an opportunity to make a difference. Government will not pull our economy out of the tank, individuals and businesses will. Well intentioned government programs only serve to tie our hands behind our back. Conventional does not work anymore. Its time we had meaningful incentives to get our economy back on track.