One casualty of the run up in real estate prices in Marin County in the mid 2000s was that staple of American real estate, the investment property. When home values got to a certain point the numbers just stopped working–no longer was it feasible (without a huge down payment) to buy a starter home or condo and have the rent from a tenant cover your mortgage, taxes, and other monthly expenses. But falling home prices and a fairly consistent rental market have made it possible again, at least for the time being.
For example, 3 bedroom, 2 bath units in Western Oaks III, one of the nicer townhome developments in Novato, have been selling in the mid $300Ks, after peaking around $600K back at the height in 2005 and 2006. They average around 1400 square feet, with 2-car garages, in a nice complex with two swimming pools. If you got one for say $350K and were to put 20% down, with a 4.5%, 30-year fixed loan your monthly outlay including the mortgage, taxes, and HOA dues would total about $2,000. A nice townhome in that development should rent for $2,000 or more per month, which would mean covering your costs or even possibly a little positive cash flow to maintain the unit and/or put in your pocket. This of course assumes you have the extra $70,000 for the down payment, and since you wouldn’t be putting that money in another investment you’d be forgoing whatever return you might have realized somewhere else. But in the right situation it’s certainly interesting to think about, and nice to know the numbers at least are making sense again.
It’s important for anyone thinking about buying a condo or townhome to consider units in better developments, as there are big differences in desirability from complex to complex, and the right property will have more upside. And even within the same complex some locations are better than others. In Western Oaks III for example, units closer to the freeway come with substantial road noise, while those set back from 101 are much quieter.
And of course nobody can predict with certainty what the housing market will do in the next couple of years, though there does seem to be some stabilization in the lower price ranges lately, as buyers have been snapping up distressed properties and the entry level segment has been relatively active.