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Smart money is snapping up homes
This foreclosed home at 1404 Red Ribbons Lane has four bedrooms and three bathrooms with 2,752 square feet listed for $229,900. - photo by DENNIS WYATT
Out-of-state investors who have savvy are treating Manteca foreclosures as the deals of the century.

They are taking cash from other investments and snapping up homes with the strategy of renting them for three to six years and then selling them.

That might seem shortsighted as values may not come back up to pre-2006 levels for a decade or so according to a number of experts.

But when you have cash and you’re talking about return on investment it makes not just a lot of sense but a lot of dollars as well.

First, Manteca is a solid market. It is growing even as the housing market has been pounded. Yes, there are plenty of foreclosures out there but remember that 2,252 existing homes have closed escrow in the past 23 months while at the same time almost 500 new residential dwelling units have sold. The same is true of the commercial sector as vacancies grow in many areas even as new stores are being built. You won’t find very many markets that have been bouncing back like Manteca. Of course, the area is doing better than many other regions in the country because we plunged into the pit created by liar loans and shaky lending practices before the rest of the country.

Even so, why park cash in a house in Manteca when you’re in New York City?

Take the foreclosure at 1404 Red Ribbons Lane in southwest Manteca that was built earlier this decade and has 2,752 square feet with four bedrooms and three bathrooms. It is listed for $229,900. Assume the bank gets that amount. From the looks of the home, the investor may have to spend $5,000 to $8,000 on stuff that’s strictly cosmetic – paint, front yard, and flooring. So by the time is all said and done we’ll talking $237,000. Let’s say they can get $1,700 a month rent and clears $1,500 after paying a property management firm. In a year’s time the $237,000 will generate a return of $18,000 or a yield of 7.6 percent on the money. Try getting that from a bank by saving the money.

That rent seems low but in today’s market it isn’t. The odds are they can start pumping the rent up in two or three years. An increase in rent isn’t the big money since the investors aren’t in the landlord business for the long haul.

Prices will start rising again. Will the Red Ribbons home that is similar to another that sold for over $550,000 regain that value in five years? Probably not. Let’s say it goes up to $387,000 by 2015 which is very plausible. That means the $237,000 initial investment would have a $48,000 average annual yield if it was sold for that price. That would reflect a yearly return on investment over five years of 20.2 percent annually.

One day the home will reach its original value but an investor doesn’t have to wait that long to make a solid return.

They can sell to someone else when it recoups $157,000 of the $318,000 drop in value and have a stronger return that in almost any other investment that’s available today.

Smart money doesn’t panic and looks for solid investments. That makes the Manteca housing market ideal for investors.

The sky isn’t falling down for everyone. They recognize that. They also realize houses in Manteca are undervalued as many are selling now for less that it would cost to build them from scratch including the price of the land and infrastructure.

And the real beauty is they can’t lose if it is a slow rebound or if housing surprises everyone and bounces back strong. Either way they will have an investment that will be performing better than virtually any place they can park their cash without worrying about volatility that comes along with things such as gold and other commodities.