What to Avoid When Investing in Malibu Real Estate

What to Avoid When Investing in Malibu Real Estate

  • Mark Gruskin
  • 10/31/22
Malibu, with its 21 miles of scenic coastal beauty, is home to some truly gorgeous properties with oceanside views every morning. If you’re considering buying property here, like beachfront property on Malibu Road or Broad Beach, you might have checked out a few online listings that caught your eye, and may even have the cash or financing ready to go. While these are essential steps in the process, there are a few things you may not know about investing in Malibu real estate.

For top guidance when buying a property in this gorgeous part of sunny California, you’ll want a trusted advisor by your side. Read on for Realtor® Mark Gruskin’s guide to avoiding pitfalls when investing in Malibu real estate. If you can avoid these pitfalls, you can expect a better return on your investment and a smoother purchasing process.

1. Not doing your homework

Photo courtesy of Mark Gruskin
As the saying goes, knowledge is power, and we live in a world where knowledge is easier to access than at any other time in history. Before you invest in Broad Beach or Malibu Road real estate, you should get to know the history of the house, along with studying up on the specific neighborhood and area where you’re buying.

Most buyers will order a general home inspection before removing their sale contingencies. But, in Malibu, especially on the beach, it is imperative to inspect the foundation and structural elements of the home - especially for homes built with pilings or piers underneath them.

In addition, the property’s septic system should always be inspected and a City of Malibu Septic Operating permit obtained before the close of escrow.  And this goes for homes both on and off the beaches of Malibu.

Finally, in certain areas, especially along the canyons and hillsides Malibu, it is often very important to have a geology inspection.

Depending on the findings of these inspections, you might then want to negotiate further with the seller or even walk away if the findings are unacceptable before removing your inspection contingency.

Last but not least, be sure to check on the availability and cost of home insurance before removing your inspection contingency as the sources of insurance has become quite scarce and the price can be quite high.

2. Unrealistic expectations about property value

Many of us remember when the housing market crashed in 2008. While a decline of that magnitude is unlikely in the short-term future, it’s unfair to expect that housing prices will only rise and never fall. Even the most upscale, gorgeous homes can fall in value subject to economic factors and other external elements outside of your control. This is why it’s wise to consider the risk you’re taking when purchasing any property, even in the most highly sought-after markets. Perhaps it’s a level of risk that you’re willing and able to handle, but if you’re uncomfortable with the possibility of a negative outcome, it may be wise to stop and think carefully about the decision that you’re making.

You might also consider how easy or difficult it may be to lease your property should economic conditions change and rental income is needed to help carry the costs of owning your home.

3. Not fully calculating the costs

Photo courtesy of Shutterstock
If you’re purchasing real estate in the Malibu area as an investment property, you may have to get a second mortgage. Certain ramifications are imposed by lenders when taking out a loan of this type. Some Malibu Road luxury homes might require a jumbo loan, and you should be prepared for a more extensive credit check in these situations. Often, purchasing a home with a jumbo loan also means that you’ll have to bring more cash to the table.

You should also take into account the operating expenses that will be required for maintaining the home. This includes any money you’ll spend on cleaning or painting the home, in addition to what you’ll spend on landscaping or yard care.

Furthermore, there are specific tax stipulations to take into account when you’re buying a second home. Certain City rules, regulations and taxes exist in Malibu for individuals who rent out their homes for less than 30 days.

And there are different capital gain structures for those who sell second homes and elect to do or not do a 1031 exchange.  Always consult with your accountant or tax adviser before making any decision to buy or sell in Malibu or elsewhere.

You’re not just choosing a home but also making a major investment and you’ll want to know how home prices have increased or decreased in the area over the last few years. Your agent is an excellent resource for determining the overall history, market and real estate landscape in the Malibu area and its specific neighborhoods.

4. Not having an exit strategy

An exit strategy is your backup plan if something goes poorly with your investment. If you reach a point where you’re short on cash, an exit strategy can work as your get-out-of-jail-free card. Some people will bring in another investor to help them shoulder the costs, while others may fix up the home and flip it with the hopes of making more than what they initially spent. While you always hope you don’t need an exit strategy, you also don’t want to be left without a plan in case things go south.

5. Working alone

Photo courtesy of WEA Homes
Buying an investment property presents a unique set of challenges and tasks that few people are equipped to handle on their own. If you want to make the wisest decisions about your investment, it’s smart to lean on the shoulders of experts and involve others throughout the process.
First and foremost, you will want to partner with an agent who knows the ins and outs of the area and who can help you get the most value for each dollar that you spend. Your lender knows how to find the best mortgage for you based on your unique situation and context. A tax professional can provide insight on tax strategies and how you can diversify your portfolio by investing in multiple properties rather than putting all of your eggs into one basket.

While Malibu is a great location for an investment property, most financial advisors still recommend multiple investments as a way of protecting yourself against risk.

Ready to move forward?

Now that you have a better idea of what’s expected of you when investing in Malibu real estate, you are ready to move forward with success on the horizon. Of course, to give yourself the best chance of meeting and exceeding your goals, it’s important that you partner with an agent who knows the area and who can act with your best interests in mind. For expert guidance into the Malibu area, from Broad Beach to Malibu Road real estate, Mark Gruskin is the Realtor® you can count on. Mark is a respected and trustworthy expert in Malibu luxury properties who will make sure you don’t make any of the common mistakes made by first-time Malibu property investors. He would love to help you get the process started.

*Header Photo courtesy of Mark Gruskin

Let's Schedule an Appointment...

My goal is to give every client insightful and intelligent advice, get them the best value possible, and serve professionally and with the utmost integrity. If Malibu is where you live or would like to live, then give me a call and let’s talk real estate.

Follow Mark On Instagram