With the rising costs of real estate, it’s no surprise that our economy still remains strong. For years, we as consumers have experienced the rise and fall of real estate prices. Specifically here in California, real estate has risen astronomically in recent years. We can attribute this to the fact that California is the ninth largest economy in the world. Most would argue that California is the birthplace of modem computing technology and the centralization of that technology in California, which has contributed greatly to the steep incline in rising real estate costs, has a great deal to do with the rising costs of living. Real estate is true wealth builder.
California is an abundant state, in that it is the third largest state in the continental United States. In recent history, California has become the technological capitol of the world due to its large computer corporations. Silicon Valley, in particular, is the epicenter of the computer industry spawning such companies as: Apple, Cisco, Intel, Amdahl, Creative, ffiM, National Semiconductor, Symantec, Global Village, Silicon Graphics, and Sun Microsystems. California has so many attractive features that people from all comers of the country are drawn to it in hopes of making big money. These are all reasons why real estate in California is shooting into space as fast as the Apollo 13 shuttle, and Oh Boy! California we do have a problem!
There are many reasons why people are attracted to California, some of which is that California has an attractive landscape and a beautiful climate. California encompasses so many activities to keep everyone entertained without the costs of major travel expenses.
Why is California So Attractive?
So what does the future hold for California? Why is investing in California a good idea? California is a vast growing state with plenty of farming, technology, and culture. There are various cultural communities for many different nationalities and religions. San Francisco has the world famous “Chinatown” and Sonoma County has the “Napa Valley Vineyards”. Just a short drive up the way there is Lake Tahoe, a place for skiing, hiking, and camping. There is a little bit of everything for everybody and that’s why many people move to this state each and every year.
The Spawn of Techies
In the 1970’s, California was going through a major transformation. Real Estate was still affordable and the cost of living was good. Universities such a Stanford engineering schools spawned a new breed of techies. The Compact Disc was invented by a couple of Stanford students who gave it to Xerox Parc, which in turn made the Compact Disc what it is today. The Yahoo search engine was also invented by a couple of Stanford graduates. Apple was also invented by a couple of young men who lived in the Cupertino area who worked out of their garage.
The “Techies”, as we know them today, contributed greatly to the rising cost of living in California due to the economic stimulation of growth in the technology sector. This also played a major role in making California the ninth largest economy in the world.
Renting vs. Buying
People would prefer to buy homes instead of renting for various reasons. Most people associate a certain amount freedom with owning rather than renting. The freedoms to make modifications and add onto your house are areas of independence. Some others feel that buying is a total waste of time and money. Those people in particular are the kinds who are either single or who are living in major metropolitan areas such as: San Francisco or Los Angeles. Most renters feel that with the money they save they can either invest in Stock and Bonds or 40lk plans, which are made extremely attractive when employers match your contribution.
Ways to Invest
There are many ways to invest money in today’s economy. Savings accounts at banks pay a small percentage of return on monies deposited averaging 1%. For bigger returns many people seek out the famous stock market. Companies like, Charles Schwab and Prudential specialize in managing the flow of investor’s money with an associated fee called a management fee, which is usually a percentage of monies earned or invested by the investor. These fees increase or decrease with the type of investment chosen, for example, aggressive or moderate. Ultimately, Real Estate is still the proven winner as a wealth builder. Investing in real estate gives the investor more power over their money than other methods previously discussed.
Investing in real estate can be a real wealth builder when using other people’s money and you need very little of your own, if any at all. Take the following example: You purchase a twenty-five unit building and close on the first of the month. Total rents are $12,500 per month. Total security deposits are $8,750. The seller has collected the last month’s rent in advance in the amount off $12,500. Real estate taxes are in excess of $22,500 per year and are paid in arrears. Your total credits at closing will consist of rents for the current month of $12,500 and security deposits of $8,750 and the last month’s rent of $12,500 with a real estate tax credit of $19,500. You have accumulated $53,250 of escrow money at closing, none of which has come out of your pocket.
Single or Multiple Family
Some considerations that have to be determined are whether or not you should buy a single family or multiple family properties. The cost per unit on a single-family home is 100%. With a vacancy, in this situation you’re looking at a 100% loss each month because no one is paying your mortgage for you.
With a multiple family property, your costs per unit drops dramatically when you have a vacancy, which also depends on the size of the property. The more rental units you have the lower the cost per unit and vise versa.
Growth and Overpopulation
While buying real estate in California can be a gold mine there are many differences associated with it, some of which being the overpopulation of the state. While the economy is strong here in California, not everyone is getting the piece of the pie. Taxes are at there highest in eight years, but real estate is a good tax shelter for anyone willing to invest in it. Growth is good for the real estate investor. It enables him or her to fill vacancies when he or she could otherwise lose money and gives them better control of their money. As the population increases with time, city and county governments will approve developments for newer communities, thus expanding growth into newer territories.
Just as the forty-niners had realized so many years ago, there is a gold mine here in California, but today it is real estate. As the Californian economy continues to grow so will its wealthiest real estate investors. Real estate has proven itself time and time again to be one of the best ways to invest money but yet many Californians lack that, risk taking, creative minded moneymaking attitude it takes to make money work for you and not for it. Most of us are brought up believing that the only way to make a living is working for others and maybe if you have a higher degree of education you might also make more money. In many cases this is true but the underlying truth of the matter is everybody wants to be rich.
“Our Town, Economy.” Sacramento Bee. 2000. <http://www.sacbee.com/ourtown/economy/housing.html>
Real Estate Principles Course. Redding, CA: United Educational Services, 1997. Sheets, Carlton. No Down Payment. Illinois: Professional Education Institute, 1997.
Tanzer, Milt. Real Estate Investments and How to make them. New Jersey: Prentice Hall, 1996.