Yermo Investments Part 1

Values of Yermo Investment Homes are still low in the Victor Valley area, so most people can buy homes and have a lower home payment then paying rent. But to everyone's supprise Yermo rental homes are still in demand. Why?

First, lets talk about why people are comming to the Victor Valley area from the LA Basin or Down the Hill as we call it. Low interest rates has created the domino effect. Prices of homes down the hill have sored out of sight. Today less people qualify to buy Yermo homes, so more people are renting creating a shortage of rental homes. Rents have increased making people look at the Victor Valley area where Yermo rental homes are still reasonably priced.

To qualify for a typical mortgage, people need at least two of the follwing items: 1) down payment 2) good credit 3) good job. As a property management company, we see rental applicants everyday and most people have the job but lack the down payment and/or credit. These people have no choice but to rent until they can improve their financial position. This has created the demand for Yermo rental homes in the Victor Valley area.

Since Yermo rental homes are in demand, we see investors buying new track homes and renting them out. As a former landlord, I see this as a poor short-term investment today.

Because we have too many investors who bought new Yermo homes here. New rental homes have dropped to $1,200 and $1,300. Depending on the financing, the investor probably has a negative cash flow. Investors are counting on flipping Yermo homes in six months. But, we now have an excess inventory of investor homes on the market for sale making it harder to make short term profit. So be prepared to hold homes for a while.

The rental formula is simple. Today, rents should be from $1100-$1,200 depending on the square footage and these Yermo homes rent fast. Our entants are required to have a gross income of 3 times the rent, therefore most people qualify for our rental homes. People who can afford $1,200+ can usually qualify to buy Yermo homes. This means there are fewer renters who pay $1,200+, so it takes longer to find a good tenant. Having empty rental homes for 2-3 months can keep the investor in a negative cash flow.

To this situation. Having a larger down payment can offset the negative cash flow, but then the Yermo investor is not fully leveraging her/his money.