Cash Flow
This option looks at the return based on the rent collected. We will typically aim for a return of certain percentage based on the area of investment and the condition of the real estate market. For example, I would typically look for 30% return in Stockton in 2009 or we’re looking for about 8-10% in currently in Hayward.
Appreciation
This type of investment focus on the potential for appreciation of the property. It is typically carried more risk (but potentially with higher return) due to uncertainty in forecasting future real estate market. However, there are other factors that may reduce those uncertainties and lessens investors’ liabilities. For example, this community in Milpitas (already sold out) has a high probability for short term appreciation due to its close proximity to the newly constructed BART station and the Santa Clara light rail station. Furthermore, purchasing during an early phase of the project is beneficial because the builders will only increase the price as further phases were released for sale.
Flips
As its name inferred, this type of investment involves buying fixer-uppers for below market value, make necessary repairs and sell for profits. Investors will usually have sufficient time to organize and manage these projects. Obtaining conventional financing are typically not viable due to the property condition and thus either cash or hard money financing are needed. The risk, if well managed, are minimal as contrary to conventional wisdom.
Opportunistic
There are properties that may need some slight adjustments to increase its value. Examples include:
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Updating County records to correct the square footage and/or number of bedrooms or bathrooms.
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Tree trimming and/or addition of the perimeter fence to increase privacy and the usable lot area.
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Look out for bargains on properties that have been sitting on the market for a while.