Today marks the 1 year anniversary of my Blog site. There have been 2,000 views of the site over the last 12 months. That's an amazing number of views considering it has all been word of mouth with no advertising.
To be honest with you, I wasn't sure I would be blogging beyond a month or two let alone a year. It is far more time consuming than I thought, and it doesn't help that I still type using only 2 of my fingers. Don't laugh, I'm probably the fastest 2 finger typer you'll ever know.
I plan to continue blogging in hopes that I can still offer a little insight for those looking to invest in real estate. Times are challenging now, but this is the time to take advantage of some of the best values in years.
Tuesday, July 8, 2008
Saturday, July 5, 2008
Real Estate Cycle Trends Can Be Your Friend.
I've researched Real Estate cycles, trends, and related data for a number of years. It's fascinating to uncover the anatomy of real estate and expose what makes it tick. While doing a little research on trends, I found some interesting figures on median prices. In the United States, the median price of a home based on year was as follows: In 1960 $15,000; 1979- $50,000; 1987- $75,000; 1997- $100,000; 2000- $125,000; 2002- $150,000; 2004- $175,000; 2005- $200,000, and in 2006- $230,000. It is clear to see that real estate has been a great investment over the years, but down cycles do exist within the matrix of the ever growing up-side trend.
Throughout the course of history, there have been real estate corrections which have given back a portion of the gains made with each and every appreciation cycle. The long term trend however is always to the up side. These up and down cycles are very predictable because history details this predictability. Unfortunately, if you don't know your history, you may find yourself trapped in a cycle that can destroy a portion of your net worth.
The typical real estate cycle ratio is 5:2. This means for every 5 years of appreciation, we have 2 following years of correction. This is a very healthy part of the real estate cycle because it helps to prolong the affordability of homes. If homes only went up in value, the average person would not be able to afford the cost of homeownership. This correction also allows incomes to "catch up" with the cost of inflation thus allowing more potential homeowners to participate in the home buying process.
The most recent appreciation or "up" cycle was extremely stretched out. It technically started near the end of 1996 and terminated in late 2005 early 2006. This 10 year "up" cycle doubled the norm. One of the reasons for this record setting appreciation cycle was Interest rates. Interest rates were at 45 year lows thanks to the then Fed. Chairman Allan Greenspan who managed to keep the federal fund rate at 1%. Speculators also drove up prices resulting in multiple offers and lotteries. But what goes up does come down, and the ever growing bubble was destined to pop. By late 2005 early 2006 the signs of a correction were underway, and we have since been experiencing that which is known as a down cycle. Because we had an overextended appreciation cycle, the correction will be proportionate. This cycle if played right can be the buying opportunity of a decade because the homes are selling at 20% to 30% discounts compared to just 12 months ago. By buying in corrections, you stand to benefit from the future continuation of the median home price trend.
Throughout the course of history, there have been real estate corrections which have given back a portion of the gains made with each and every appreciation cycle. The long term trend however is always to the up side. These up and down cycles are very predictable because history details this predictability. Unfortunately, if you don't know your history, you may find yourself trapped in a cycle that can destroy a portion of your net worth.
The typical real estate cycle ratio is 5:2. This means for every 5 years of appreciation, we have 2 following years of correction. This is a very healthy part of the real estate cycle because it helps to prolong the affordability of homes. If homes only went up in value, the average person would not be able to afford the cost of homeownership. This correction also allows incomes to "catch up" with the cost of inflation thus allowing more potential homeowners to participate in the home buying process.
The most recent appreciation or "up" cycle was extremely stretched out. It technically started near the end of 1996 and terminated in late 2005 early 2006. This 10 year "up" cycle doubled the norm. One of the reasons for this record setting appreciation cycle was Interest rates. Interest rates were at 45 year lows thanks to the then Fed. Chairman Allan Greenspan who managed to keep the federal fund rate at 1%. Speculators also drove up prices resulting in multiple offers and lotteries. But what goes up does come down, and the ever growing bubble was destined to pop. By late 2005 early 2006 the signs of a correction were underway, and we have since been experiencing that which is known as a down cycle. Because we had an overextended appreciation cycle, the correction will be proportionate. This cycle if played right can be the buying opportunity of a decade because the homes are selling at 20% to 30% discounts compared to just 12 months ago. By buying in corrections, you stand to benefit from the future continuation of the median home price trend.
Monday, June 16, 2008
The Cash Investor V.S. The Leveraged Investor...Who Wins?
Other than inheritance, there are 2 main ways to acquire real estate...pay cash or get a loan. There has always been an ongoing debate by investors as to which is the better method. The truth of the matter is, both have their strengths and weakness' depending on the real estate cycle we're in. My bias is to the Cash investor methodology because it is my method of choice as it has allowed me to thrive in what has been a very difficult real estate climate for most. My Leveraged investor friends and associates have struggled in this climate and in some cases have failed to survive. For those of you fortunate enough to have a choice in you purchase method, I will lay out cases for each.
The Cash Investor: Have you ever heard of the saying, "Cash is king"? Cash is "King" and for good reason. A cash buyer doesn't have to worry about qualifying for a loan which could make or break his investment. Timing is everything and without cash, your time table is at the mercy of the lender's underwriting team and associated loan processing departments. Inversely, the seller doesn't have to worry about the buyer not being able to fund the purchase which adds a sense of seriousness and legitimacy to the Cash buyer's offer.
Cash investors who buy real estate for the purpose of generating rental income will be at an advantage over the leveraged investor due to lower overhead. If you take out a loan to purchase a rental property, you will have to come up with the monthly mortgage whether you have it rented out or not. Most mortgage payments are amortized which means the banks get their profits upfront with each and every payment (most monthly mortgage payments are comprised of 95% interest profit to the bank leaving only 5% going to decreasing your loan balance). If your rental is vacant, this money will come from your own reserves and when you include Property tax, insurance, maintenance, HOA dues, advertising, Property management fees, utilities and Misc. assessments, you can be out of pocket a pretty penny. The Cash investors in this situation have no monthly mortgage expense which allows them to save the profits the banks made on the Leveraged investor. Cash buyers can also be more competitive with their rents over the Leveraged investor since they don't have the additional monthly mortgage payment. The investor who has to get a loan will try to set a rent that covers the mortgage which may be quite high. Being a Cash investor allows far more price flexibility, and lower rents reduce rental vacancy periods which increase investor profits.
The Leveraged Investor: Donald Trump is famous for his ability to leverage (borrow) money for his Real Estate investment purposes. Although this technique has put a few bankruptcies in his file, he has managed to master the art of leverage and remain a dominant force in real estate. The idea behind borrowing other people's money to buy real estate is that you can make a profit from the sale of property purchased with the bank's money and not your own. This is a very attractive method for those investors with limited liquidity. In some cases, this is the only choice the investor has to invest in property but it must only be done when we're in an appreciation cycle. When the real estate market cycle is appreciating, money can be made if the property goes up in value enough to offset the following: Interest that you paid to the bank via mortgage payments, commissions to the Real Estate agents, escrow fees, closing costs on the buy and sell side, Capital Gains tax due to state and federal authorities, and any other costs related to the disposition of the property.
Leveraged buying in the right conditions can allow an investor to invest in many more properties than would have been possible otherwise. The profit potential can be substantial if timed right. If timed wrong though, it could lead to financial ruin. When you borrow from a lender, someone other than yourself is setting the terms of the contractual obligation. If these obligations aren't met, you could lose the property(s) to foreclosure. This is what is currently happening to investors all over the country. Putting someone else in control of your investments (the Banks) can be a blessing or a curse depending on market conditions beyond your control. I personally like to be in control over my investments making leveraged investing very unattractive for me. Time is not on the side of the Leveraged investor because payments are due the bank regardless of market conditions. If you don't have the reserves to weather the storm of market corrections and volatility, you should limit your risk by being conservative with the number of properties you buy through leveraged investing.
I believe the Cash investor wins over the Leveraged investor if the goal is to manage overhead expenses and reduce investment risk. The Leveraged investor has the potential to make substantially more money than the Cash investor due to the volume of investments that can be achieved but has a risk potential that can lead to financial ruin if the market drops in value. The choice is yours, make your decision wisely.
The Cash Investor: Have you ever heard of the saying, "Cash is king"? Cash is "King" and for good reason. A cash buyer doesn't have to worry about qualifying for a loan which could make or break his investment. Timing is everything and without cash, your time table is at the mercy of the lender's underwriting team and associated loan processing departments. Inversely, the seller doesn't have to worry about the buyer not being able to fund the purchase which adds a sense of seriousness and legitimacy to the Cash buyer's offer.
Cash investors who buy real estate for the purpose of generating rental income will be at an advantage over the leveraged investor due to lower overhead. If you take out a loan to purchase a rental property, you will have to come up with the monthly mortgage whether you have it rented out or not. Most mortgage payments are amortized which means the banks get their profits upfront with each and every payment (most monthly mortgage payments are comprised of 95% interest profit to the bank leaving only 5% going to decreasing your loan balance). If your rental is vacant, this money will come from your own reserves and when you include Property tax, insurance, maintenance, HOA dues, advertising, Property management fees, utilities and Misc. assessments, you can be out of pocket a pretty penny. The Cash investors in this situation have no monthly mortgage expense which allows them to save the profits the banks made on the Leveraged investor. Cash buyers can also be more competitive with their rents over the Leveraged investor since they don't have the additional monthly mortgage payment. The investor who has to get a loan will try to set a rent that covers the mortgage which may be quite high. Being a Cash investor allows far more price flexibility, and lower rents reduce rental vacancy periods which increase investor profits.
The Leveraged Investor: Donald Trump is famous for his ability to leverage (borrow) money for his Real Estate investment purposes. Although this technique has put a few bankruptcies in his file, he has managed to master the art of leverage and remain a dominant force in real estate. The idea behind borrowing other people's money to buy real estate is that you can make a profit from the sale of property purchased with the bank's money and not your own. This is a very attractive method for those investors with limited liquidity. In some cases, this is the only choice the investor has to invest in property but it must only be done when we're in an appreciation cycle. When the real estate market cycle is appreciating, money can be made if the property goes up in value enough to offset the following: Interest that you paid to the bank via mortgage payments, commissions to the Real Estate agents, escrow fees, closing costs on the buy and sell side, Capital Gains tax due to state and federal authorities, and any other costs related to the disposition of the property.
Leveraged buying in the right conditions can allow an investor to invest in many more properties than would have been possible otherwise. The profit potential can be substantial if timed right. If timed wrong though, it could lead to financial ruin. When you borrow from a lender, someone other than yourself is setting the terms of the contractual obligation. If these obligations aren't met, you could lose the property(s) to foreclosure. This is what is currently happening to investors all over the country. Putting someone else in control of your investments (the Banks) can be a blessing or a curse depending on market conditions beyond your control. I personally like to be in control over my investments making leveraged investing very unattractive for me. Time is not on the side of the Leveraged investor because payments are due the bank regardless of market conditions. If you don't have the reserves to weather the storm of market corrections and volatility, you should limit your risk by being conservative with the number of properties you buy through leveraged investing.
I believe the Cash investor wins over the Leveraged investor if the goal is to manage overhead expenses and reduce investment risk. The Leveraged investor has the potential to make substantially more money than the Cash investor due to the volume of investments that can be achieved but has a risk potential that can lead to financial ruin if the market drops in value. The choice is yours, make your decision wisely.
Friday, June 6, 2008
Picking Good Tenants Requires Some Discipline.
Finding a qualified tenant for your rental property can be a challenge at times. Although I've come close, I've never had to evict anyone from my rental properties. When talking to fellow investors about tenants and eviction, it's clear that my track record does not fall within the norm. I'd like to share with you a few guidelines I use in the tenant selection process. These guidelines may help you avoid the hassles involved in evicting future tenants.
1) One-Third Rule: People will often try to live beyond their means. The rent should not be more than 1/3 of the tenant's gross income. Requiring your future tenants to earn 3x the monthly rent will help assure consistent and timely rent payments. Tenants that live beneath their means tend to be the best tenants.
2) Landlord Reference: I've never understood the value of personal references on rental applications. Why would the applicant put down a reference that would speak badly of them? Right? References should be chosen by the landlord. You should always ask the applicant to list their last landlord as one of the references whenever possible. If the applicant can't give you this information, clearly this is a RED FLAG.
3) The Subtle Oral Interview: Liars will be very inconsistent with the things they tell you. During rental property showings, I ask many questions. Often, I will ask the same question in many different ways. It's amazing how often applicants will give you different answers to the same question. Again, another RED FLAG to watch out for.
4) Distance From Employment: Renting can often be an emotional decision for tenants and lack logic. If an applicant works 45 minutes to an hour away, there's a good chance they will tire of the drive and eventually want to live closer to their employment. This may not lead to eviction, but it may force the tenant to try to get out of their lease early.
The more common methods for assessing a tenant's qualifications such as credit score and criminal background checks are obviously useful, but the fore mentioned guidelines can be easily implemented to assess the likelihood of future problems.
1) One-Third Rule: People will often try to live beyond their means. The rent should not be more than 1/3 of the tenant's gross income. Requiring your future tenants to earn 3x the monthly rent will help assure consistent and timely rent payments. Tenants that live beneath their means tend to be the best tenants.
2) Landlord Reference: I've never understood the value of personal references on rental applications. Why would the applicant put down a reference that would speak badly of them? Right? References should be chosen by the landlord. You should always ask the applicant to list their last landlord as one of the references whenever possible. If the applicant can't give you this information, clearly this is a RED FLAG.
3) The Subtle Oral Interview: Liars will be very inconsistent with the things they tell you. During rental property showings, I ask many questions. Often, I will ask the same question in many different ways. It's amazing how often applicants will give you different answers to the same question. Again, another RED FLAG to watch out for.
4) Distance From Employment: Renting can often be an emotional decision for tenants and lack logic. If an applicant works 45 minutes to an hour away, there's a good chance they will tire of the drive and eventually want to live closer to their employment. This may not lead to eviction, but it may force the tenant to try to get out of their lease early.
The more common methods for assessing a tenant's qualifications such as credit score and criminal background checks are obviously useful, but the fore mentioned guidelines can be easily implemented to assess the likelihood of future problems.
Tuesday, May 27, 2008
You Can Bend, Twist and Skew Numbers, But You Can't Fool Me!
Turn on the news, radio, or open a newspaper and you'd think the majority of homeowners are out on the street or close to losing their homes.
Hmmm, something is very, very fishy here. You see, I like to engage in this little thing called "Fact Finding" before I get my underwear all up in a bunch. In 2007, there were 2.2 million households going through foreclosure. Now you may be saying, "WOW, that's an incredible number of people losing their homes", but what you should be asking is, "What percentage of American homeowners does that figure represent?". At the end of 2007, there were 128.6 million homes in the USA. The 2.2 million households losing their homes to foreclosure in 2007 made up only 1.7% of all homeowners. Do you see how unimpressive the true number of foreclosures are when compared to the overall number of households?
Truth in numbers doesn't make for exciting headlines, so the media will bend, twist and skew numbers to support their agenda which is sensationalism. Foreclosure numbers are just one example of how things aren't always what they seem. In 2007, 98.3% of Americans were not in default on their mortgages...WOW, 98.3%...now that's impressive, but you'll never hear or see that figure in the media. I'll make sure to give you the truth when I blog not sensationalized fiction. Trust me, there is a lot of hype out there that is presented with no relativity.
I've mentioned before that "fear" is to blame for real estate collapses. If you think a home you're interested in buying is going to be worth less next month than more, you will probably wait on the side lines hoping for a better price. When everyone interested in buying thinks the same way, this can cause a domino effect of declining prices that can snowball out of control. Now why would potential home buyers think a property they're interested in would be worth less in the future? I have the answer...they believe the ratings motivated twist on numbers put out by news sources that leave them feeling like a housing crisis is either here or eminent. This fear becomes a self fulfilling prophecy that is responsible for each and every down cycle in recorded history. There lies the opportunity for the Real Estate Investor. When Warren Buffet, arguably the greatest investor of our time, says "Be fearful when people are greedy and greedy when people are fearful", what he's saying is fear is temporary and in fearful times, the best investment opportunities lie in it's wake.
When people make their way out of the cloud of fear, it can be a very painful reality. They will have a front row seat to the price appreciation cycle that follows every down cycle and in more cases than not, they will witness their once owned property rise rapidly in value, potentially costing them hundreds of thousands of dollars in lost equity. When a homeowner buys a property for lets say $300,000 and sells it for $250,000 because of fearful market conditions, it can be very painful to see the new owners enjoy a rise in value to $400,000 or more during the following appreciation cycle. That's when the second guessing comes in and you start to get this sick feeling in the pit of your stomach. I've talked to many homeowners that have experienced the mistake of selling into fear and I can tell you it has left an indelible mark on their lives.
Don't make the mistakes others have made when it comes to your real estate investments. Do your homework and invest with facts not emotion or media twisted numbers. This will separate the successful investor from the money losing speculator.
Hmmm, something is very, very fishy here. You see, I like to engage in this little thing called "Fact Finding" before I get my underwear all up in a bunch. In 2007, there were 2.2 million households going through foreclosure. Now you may be saying, "WOW, that's an incredible number of people losing their homes", but what you should be asking is, "What percentage of American homeowners does that figure represent?". At the end of 2007, there were 128.6 million homes in the USA. The 2.2 million households losing their homes to foreclosure in 2007 made up only 1.7% of all homeowners. Do you see how unimpressive the true number of foreclosures are when compared to the overall number of households?
Truth in numbers doesn't make for exciting headlines, so the media will bend, twist and skew numbers to support their agenda which is sensationalism. Foreclosure numbers are just one example of how things aren't always what they seem. In 2007, 98.3% of Americans were not in default on their mortgages...WOW, 98.3%...now that's impressive, but you'll never hear or see that figure in the media. I'll make sure to give you the truth when I blog not sensationalized fiction. Trust me, there is a lot of hype out there that is presented with no relativity.
I've mentioned before that "fear" is to blame for real estate collapses. If you think a home you're interested in buying is going to be worth less next month than more, you will probably wait on the side lines hoping for a better price. When everyone interested in buying thinks the same way, this can cause a domino effect of declining prices that can snowball out of control. Now why would potential home buyers think a property they're interested in would be worth less in the future? I have the answer...they believe the ratings motivated twist on numbers put out by news sources that leave them feeling like a housing crisis is either here or eminent. This fear becomes a self fulfilling prophecy that is responsible for each and every down cycle in recorded history. There lies the opportunity for the Real Estate Investor. When Warren Buffet, arguably the greatest investor of our time, says "Be fearful when people are greedy and greedy when people are fearful", what he's saying is fear is temporary and in fearful times, the best investment opportunities lie in it's wake.
When people make their way out of the cloud of fear, it can be a very painful reality. They will have a front row seat to the price appreciation cycle that follows every down cycle and in more cases than not, they will witness their once owned property rise rapidly in value, potentially costing them hundreds of thousands of dollars in lost equity. When a homeowner buys a property for lets say $300,000 and sells it for $250,000 because of fearful market conditions, it can be very painful to see the new owners enjoy a rise in value to $400,000 or more during the following appreciation cycle. That's when the second guessing comes in and you start to get this sick feeling in the pit of your stomach. I've talked to many homeowners that have experienced the mistake of selling into fear and I can tell you it has left an indelible mark on their lives.
Don't make the mistakes others have made when it comes to your real estate investments. Do your homework and invest with facts not emotion or media twisted numbers. This will separate the successful investor from the money losing speculator.
Monday, May 19, 2008
The Questions Keep Coming
"Is it time to buy?"; "Is this the right time to invest in property?"; "Are you doing OK in this real estate crisis?"; "Are you upside down on any of your properties?"; "Should I sell my property or try to rent it out?"; "Are you buying now?".........these are just some of the questions I hear on a daily basis.
From Donald Trump to the small time investor, there is a uniformity of thought that this is the right time to buy. I wish I had a nickel for every time I've said, "Buy low and sell high". Doesn't it just make sense to buy real estate when it's substantially lower than it once was? I've said this before, "God isn't making any more land and the population is growing exponentially". This is the perfect recipe for making money.
Real estate is cyclical; it typically goes up in value for 5 years then corrects for 2 years. When I say, "corrects", I mean it gives back some of the appreciated value (usually 15 to 20%) from the current uptrend. This is actually a healthy part of the cycle because without corrections, real estate would be out of reach for the average person. Imagine if real estate went up each and every year. Homes would be in the millions making home ownership an elite only possibility. Granted, it sucks if you're trying to sell a property in a down market, but remember, if you're selling in a down market, you can purchase in the same environment which will save you thousands of dollars.
In my opinion, YES...this is the time to buy!
From Donald Trump to the small time investor, there is a uniformity of thought that this is the right time to buy. I wish I had a nickel for every time I've said, "Buy low and sell high". Doesn't it just make sense to buy real estate when it's substantially lower than it once was? I've said this before, "God isn't making any more land and the population is growing exponentially". This is the perfect recipe for making money.
Real estate is cyclical; it typically goes up in value for 5 years then corrects for 2 years. When I say, "corrects", I mean it gives back some of the appreciated value (usually 15 to 20%) from the current uptrend. This is actually a healthy part of the cycle because without corrections, real estate would be out of reach for the average person. Imagine if real estate went up each and every year. Homes would be in the millions making home ownership an elite only possibility. Granted, it sucks if you're trying to sell a property in a down market, but remember, if you're selling in a down market, you can purchase in the same environment which will save you thousands of dollars.
In my opinion, YES...this is the time to buy!
Saturday, April 26, 2008
Investing With A Partner Can Be A Smart Move
I try to invest in Real Estate in different areas to avoid putting all of my eggs in one basket. Spreading your investments around can help you hedge against the possibility of declining value in a particular neighborhood. If you were to buy all of your Real Estate in one area, and it became a bad neighborhood over time, it could present disastrous results to your Investment Portfolio.
An Investment Partner could be the key to multi-property diversification. A partner can cut your expenses in half allowing more property deals to take place. For example, lets say you had $200,000 cash to invest. You could buy 1 moderately sized home using all of your capital or you could use the money to buy 2 small homes for $100,000 each. An Investment Partner contributing 50% of his own capital would allow you to double the number of homes in the fore mentioned example thus allowing you to spread your capital investment over a wider area. The cost of ownership is also cut in half making this type of investing attractive to those with limited cash reserves.
It is important to note that Partnerships don't always work out. It is important to find a partner who thinks the way you think. If your partner's personality is very different from your own, it could spell trouble. A plan should also be implemented so all parties know what their responsibilities are. Someone will usually take the lead due to location of the property or because they have an expertise or skill the other may not have. Accounting is a major area of importance with Partnerships. Tax liabilities are split between both parties as well as profits. Record keeping becomes crucial when 2 parties are involved.
Investing with a partner can be a smart move but make sure you pick your partner wisely.
An Investment Partner could be the key to multi-property diversification. A partner can cut your expenses in half allowing more property deals to take place. For example, lets say you had $200,000 cash to invest. You could buy 1 moderately sized home using all of your capital or you could use the money to buy 2 small homes for $100,000 each. An Investment Partner contributing 50% of his own capital would allow you to double the number of homes in the fore mentioned example thus allowing you to spread your capital investment over a wider area. The cost of ownership is also cut in half making this type of investing attractive to those with limited cash reserves.
It is important to note that Partnerships don't always work out. It is important to find a partner who thinks the way you think. If your partner's personality is very different from your own, it could spell trouble. A plan should also be implemented so all parties know what their responsibilities are. Someone will usually take the lead due to location of the property or because they have an expertise or skill the other may not have. Accounting is a major area of importance with Partnerships. Tax liabilities are split between both parties as well as profits. Record keeping becomes crucial when 2 parties are involved.
Investing with a partner can be a smart move but make sure you pick your partner wisely.
Wednesday, April 16, 2008
Current Housing Unit Numbers
At the end of 2007, there were 128.6 million homes in the good ol' USA. 17.7 million of those homes were vacant, 75.2 million of those homes were homeowner occupied, and 35.7 million were occupied by renters.
Note that 35.7 million were occupied by "Renters". As I mentioned in earlier posts, people are being forced to rent as a result of losing their homes or having less than perfect credit making it difficult to buy a home. This is a factual overview that supports the notion that renting your investment property can be a great alternative to trying to sell it in this depressed market.
Rents are on the rise, and an investment in rental property now will not only allow you to capitalize on the cheap prices, but also allow you to make an 8% to 10% return annually from the rents you can now command.
Note that 35.7 million were occupied by "Renters". As I mentioned in earlier posts, people are being forced to rent as a result of losing their homes or having less than perfect credit making it difficult to buy a home. This is a factual overview that supports the notion that renting your investment property can be a great alternative to trying to sell it in this depressed market.
Rents are on the rise, and an investment in rental property now will not only allow you to capitalize on the cheap prices, but also allow you to make an 8% to 10% return annually from the rents you can now command.
Monday, March 24, 2008
Home Sales...1st Gain In Seven Months
The National Association of Realtors reported today that for the first time in 7 months, home sales increased 2.9 percent. In February, 5.03 million units sold compared to 4.89 million units sold in January. In my opinion, this is another signal that the housing correction is plateauing and an appreciation cycle is on it's way.
The Federal Reserve has been very proactive in recent weeks to help stimulate the economy. Last week, Fed. Chairman reduced the Fed Fund Rate by 3/4 basis points.
The Congress has pushed through the new Conforming loan limit which has been raised from $417,000 to $625,000. This should stimulate the refinancing sector as those with higher Jumbo rates look to reduce their interest rate to a conforming one.
If we get another increase in home sales next month, I think it'll be the confirmation that the bottom has not only been reached, but an appreciation cycle is on it's way.
The Federal Reserve has been very proactive in recent weeks to help stimulate the economy. Last week, Fed. Chairman reduced the Fed Fund Rate by 3/4 basis points.
The Congress has pushed through the new Conforming loan limit which has been raised from $417,000 to $625,000. This should stimulate the refinancing sector as those with higher Jumbo rates look to reduce their interest rate to a conforming one.
If we get another increase in home sales next month, I think it'll be the confirmation that the bottom has not only been reached, but an appreciation cycle is on it's way.
Monday, March 10, 2008
Lower Home Values Have A Tax Benefit
Property Tax is based on the County Assessor's valuation of your home. Typically, Property Taxes go up each year as the value of your home appreciates, but what happens to your tax bill when property values decline? Typically, the average Property Tax bill will still go up in a declining market. Doesn't seem fair, does it?
There is a way around this unfair Property Tax increase in a declining market. Did you know that most counties have an appeal process to inform the county that your home is being taxed on an inaccurate valuation? It's true...The "Petition for Review of Valuation" form can be picked up from your local County Assessors office. There is usually a deadline to file the petition so don't procrastinate. The county will then notify you of their reassessed valuation of your property. In most cases, your property taxes will be substantially lower saving you money.
There is a way around this unfair Property Tax increase in a declining market. Did you know that most counties have an appeal process to inform the county that your home is being taxed on an inaccurate valuation? It's true...The "Petition for Review of Valuation" form can be picked up from your local County Assessors office. There is usually a deadline to file the petition so don't procrastinate. The county will then notify you of their reassessed valuation of your property. In most cases, your property taxes will be substantially lower saving you money.
Friday, February 8, 2008
Home Rental Prices Are On The Rise
If people can't get loans to buy homes, they're forced into the Rental market...whether they like it or not!. Hundreds of thousands of potential home buyers have been shut out of the home buying experience as a result of the Sub-prime crisis. Foreclosures have forced banks and mortgage companies to tighten up their Underwriting guidelines and abandon the once sought after Low to No Documentation loan programs. Although this is quite unfortunate for those wanting to buy a home, it provides a JACK POT of opportunity for investors with homes to rent.
Over the last 12 months, I've noticed a 25% increase in the number of calls I get when I advertise a vacancy. I've also noticed an increase in home rental prices from my competitors as more and more people compete for the rental home inventory that remains. The volume appears to be coming not only from those unable to get a loan, but from those losing their homes to foreclosure.
Apartments are an option for renters, but homes offer many more advantages such as increased square footage, yards for kids to play in, and garages to park vehicles or provide storage. Rental Homes also offer renters the possibility of future home ownership through Option To Buy programs. These programs often give renters a credit from rents paid toward the purchase. Apartments just can't compete with that.
This a great time to buy an investment property for purposes of generating rental income. The added benefit will be the increased gain in property value as we move into the next appreciation cycle. This is a Win-Win situation for most investors.
Over the last 12 months, I've noticed a 25% increase in the number of calls I get when I advertise a vacancy. I've also noticed an increase in home rental prices from my competitors as more and more people compete for the rental home inventory that remains. The volume appears to be coming not only from those unable to get a loan, but from those losing their homes to foreclosure.
Apartments are an option for renters, but homes offer many more advantages such as increased square footage, yards for kids to play in, and garages to park vehicles or provide storage. Rental Homes also offer renters the possibility of future home ownership through Option To Buy programs. These programs often give renters a credit from rents paid toward the purchase. Apartments just can't compete with that.
This a great time to buy an investment property for purposes of generating rental income. The added benefit will be the increased gain in property value as we move into the next appreciation cycle. This is a Win-Win situation for most investors.
Friday, February 1, 2008
The Bottom Of The Real Estate Cycle Has Finally Arrived.
Finally...the signs of a Real Estate cyclical bottom have arrived. In December of 2007 Home Builder stocks across the board hit 52 week lows. In January of 2008, about a dozen Home Builders saw their stock increase as much as 100% off their December lows. This is one of the first signs that the tide is turning. Stock Investors feel the worst has already been factored into Real Estate stocks. This psychology leaves investors seeking very attractive entry points in home builder stocks which in turn drives up stock prices.
The Federal Reserve Board, led by Fed. Chairman Ben Bernanke helped stimulate the economy by lowering the Federal Fund Rate and the Discount Rate by a total of 125 basis points in less than 2 weeks. This bodes extremely well for real estate recovery. Homeowners on the cusp of foreclosure may now refinance at lower rates which may reduce the number of inventory homes on the market. High home inventories put downward pressure on home values, so anything that reduces inventory is a good thing. There is also a move by congress to increase the conforming loan limit of $417,000 to $625,000. This will move home buyers out of higher interest Jumbo loan rates into lower interest conforming loan rates. Again, great for a housing recovery.
A cyclical bottom doesn't mean that home prices will not drift lower in some areas, but what it does mean is that the bias is to the plateauing of the market which will soon be followed by a trend to the upside. I believe the second quarter of 2009 will be the beginning of a 5% - 7% upward move in home prices. There is still a substantial number of inventory homes to work through and foreclosures yet to come, but the worst is behind us.
To paraphrase Warren Buffet, "Be fearful when people are greedy and be greedy when people are fearful." In other words, the best time to invest is when prices have been driven down by mass fear. When people are no longer fearful of continued price depreciation, values will begin to rebound. By investing during the lows of the market, you stand to profit greatly from the rebound. This is how REAL wealth is achieved. Wealthy individuals tend to do the opposite of whatever the masses are doing. I have personally benefited from this contrarian point of you, and I frequently tell friends and associates to adopt this way of thinking.
The Federal Reserve Board, led by Fed. Chairman Ben Bernanke helped stimulate the economy by lowering the Federal Fund Rate and the Discount Rate by a total of 125 basis points in less than 2 weeks. This bodes extremely well for real estate recovery. Homeowners on the cusp of foreclosure may now refinance at lower rates which may reduce the number of inventory homes on the market. High home inventories put downward pressure on home values, so anything that reduces inventory is a good thing. There is also a move by congress to increase the conforming loan limit of $417,000 to $625,000. This will move home buyers out of higher interest Jumbo loan rates into lower interest conforming loan rates. Again, great for a housing recovery.
A cyclical bottom doesn't mean that home prices will not drift lower in some areas, but what it does mean is that the bias is to the plateauing of the market which will soon be followed by a trend to the upside. I believe the second quarter of 2009 will be the beginning of a 5% - 7% upward move in home prices. There is still a substantial number of inventory homes to work through and foreclosures yet to come, but the worst is behind us.
To paraphrase Warren Buffet, "Be fearful when people are greedy and be greedy when people are fearful." In other words, the best time to invest is when prices have been driven down by mass fear. When people are no longer fearful of continued price depreciation, values will begin to rebound. By investing during the lows of the market, you stand to profit greatly from the rebound. This is how REAL wealth is achieved. Wealthy individuals tend to do the opposite of whatever the masses are doing. I have personally benefited from this contrarian point of you, and I frequently tell friends and associates to adopt this way of thinking.
Saturday, December 29, 2007
FEAR alone is to blame for dropping home values
What has changed in Real Estate over the last 24 months?...nothing but fear. The house you bought for $300,000 2 years ago is probably worth about $225,000 today. Nothing has changed about the home or the land it sits on, but there is a very menacing emotion that can destroy the most valuable asset you own...it's called FEAR.
The "MEDIA" is notorious for instigating this fear. In it's attempt to provide material worth viewing and reading, the MEDIA can single handedly destroy any and all confidence people have in purchasing a home. It actually starts when things are going extremely well in the housing market. The media will flirt with the idea that rising home prices can't continue forever and that a bubble in housing "appears' to be on the horizon. Then they focus on unsustainable percentage gains people are realizing when they sell their homes. Once you hear that repeated over and over again, you can be sure that the "_ hit" is about to hit the fan. People start to become fearful when they constantly hear of the potential of a bubble bursting in real estate. They start to second guess their decision to buy a home and eventually this fear spreads to the masses causing an exodus out of the home buying experience. This domino effect is completely fear driven causing trillions in lost asset value throughout the country.
As values sink, people become "upside down" in their mortgages forcing many into foreclosure when their homes are worth less than they owe. Adjustable rate mortgages only compound the problem because when they adjust, the interest rate can add hundreds of additional dollars to each payment even though the home is now worth far less. The correction in house values also takes a toll on all those homeowners who took out Home Equity Lines of Credit (HELOC's) when their homes were worth far more than they're worth today.
Unfortunately, logic in housing is trumped by the emotion called fear. It doesn't matter that nothing materially changed in the home you bought or the land you had it built on...if the bulls (the frightened home buyers) are running you better get out of the way...or should you?
I still believe that when fear causes home prices to drop to ridiculous levels, this becomes an opportunity of a lifetime time to buy Real Estate. Smart investing is about buying low and selling high. What better time to buy real estate when there are discounts of up to 50% in some areas. If you're able, start adding to your real estate portfolio during this period of the cycle. Your rewards will be great in the long run.
The "MEDIA" is notorious for instigating this fear. In it's attempt to provide material worth viewing and reading, the MEDIA can single handedly destroy any and all confidence people have in purchasing a home. It actually starts when things are going extremely well in the housing market. The media will flirt with the idea that rising home prices can't continue forever and that a bubble in housing "appears' to be on the horizon. Then they focus on unsustainable percentage gains people are realizing when they sell their homes. Once you hear that repeated over and over again, you can be sure that the "_ hit" is about to hit the fan. People start to become fearful when they constantly hear of the potential of a bubble bursting in real estate. They start to second guess their decision to buy a home and eventually this fear spreads to the masses causing an exodus out of the home buying experience. This domino effect is completely fear driven causing trillions in lost asset value throughout the country.
As values sink, people become "upside down" in their mortgages forcing many into foreclosure when their homes are worth less than they owe. Adjustable rate mortgages only compound the problem because when they adjust, the interest rate can add hundreds of additional dollars to each payment even though the home is now worth far less. The correction in house values also takes a toll on all those homeowners who took out Home Equity Lines of Credit (HELOC's) when their homes were worth far more than they're worth today.
Unfortunately, logic in housing is trumped by the emotion called fear. It doesn't matter that nothing materially changed in the home you bought or the land you had it built on...if the bulls (the frightened home buyers) are running you better get out of the way...or should you?
I still believe that when fear causes home prices to drop to ridiculous levels, this becomes an opportunity of a lifetime time to buy Real Estate. Smart investing is about buying low and selling high. What better time to buy real estate when there are discounts of up to 50% in some areas. If you're able, start adding to your real estate portfolio during this period of the cycle. Your rewards will be great in the long run.
Thursday, November 15, 2007
Home Builders...Some Good...Some Bad
Some builders have lost sight of their life-line...the customer. I'm currently adding 2 new homes to my investment portfolio. One home is being built by the home builder "Pulte Homes" and the other is being built by "Richmond American". It's amazing how different the experience can be from builder to builder.
The Sales Associates for both builders are nice, professional, and make an effort to accommodate within their limits. I call the Sales Associates "Foot Soldiers" because they're on the front line and understand the "buyers" needs more so than the big wigs above them.
The biggest difference between Pulte Homes and Richmond American is how the superintendents and their superiors interacted with me during the construction of the homes.
Pulte Homes is by far the best of the 2 builders. I've purchased several homes from Pulte in the past because of my favorable experience with them. Pulte makes sure the buyer is satisfied and happy with their service.. Pulte has consistently made sure that all issues of concern were addressed and taken care of in a timely manner.
Richmond American, (sales associate excluded), has taken on a very arrogant attitude during the construction of my home. A kind of "take it or leave it" attitude that absolutely has no place in the home buying and construction experience. A "Quality Build" should be the priority of any home builder, but my experience with Richmond American leads me to believe that production time lines are their priority...not quality. I've spent countless hours on the construction site making sure poor quality issues were uncovered and formally addressed (basically doing the superintendents job). You would think the superintendent would want to prove just how qualified they were by catching problems before the home buyer, but unfortunately that was not and is not the case with this new build.
I could literally write a small book on how disappointed I've been with the Richmond American home buying experience which leads me to the point of this post. When buying a home from a builder you have no history with, knock on the doors of people who live in the community or subdivision built by that builder. Ask the hard questions like, "Were you happy with the builder?", "Were you satisfied with the construction of your home?". The answers, if negative, could save you the stress of working with a builder that has no interest in making sure your buying experience is pleasant. In my case, it was the Lot and location that sold me...not the builder Richmond American. If the location is phenomenal, and you have no choice over the builder (as was the case with me) you may have to roll up your sleeves and fight the good fight to make sure your investment is built with the quality and workmanship you would expect.
The Sales Associates for both builders are nice, professional, and make an effort to accommodate within their limits. I call the Sales Associates "Foot Soldiers" because they're on the front line and understand the "buyers" needs more so than the big wigs above them.
The biggest difference between Pulte Homes and Richmond American is how the superintendents and their superiors interacted with me during the construction of the homes.
Pulte Homes is by far the best of the 2 builders. I've purchased several homes from Pulte in the past because of my favorable experience with them. Pulte makes sure the buyer is satisfied and happy with their service.. Pulte has consistently made sure that all issues of concern were addressed and taken care of in a timely manner.
Richmond American, (sales associate excluded), has taken on a very arrogant attitude during the construction of my home. A kind of "take it or leave it" attitude that absolutely has no place in the home buying and construction experience. A "Quality Build" should be the priority of any home builder, but my experience with Richmond American leads me to believe that production time lines are their priority...not quality. I've spent countless hours on the construction site making sure poor quality issues were uncovered and formally addressed (basically doing the superintendents job). You would think the superintendent would want to prove just how qualified they were by catching problems before the home buyer, but unfortunately that was not and is not the case with this new build.
I could literally write a small book on how disappointed I've been with the Richmond American home buying experience which leads me to the point of this post. When buying a home from a builder you have no history with, knock on the doors of people who live in the community or subdivision built by that builder. Ask the hard questions like, "Were you happy with the builder?", "Were you satisfied with the construction of your home?". The answers, if negative, could save you the stress of working with a builder that has no interest in making sure your buying experience is pleasant. In my case, it was the Lot and location that sold me...not the builder Richmond American. If the location is phenomenal, and you have no choice over the builder (as was the case with me) you may have to roll up your sleeves and fight the good fight to make sure your investment is built with the quality and workmanship you would expect.
Saturday, September 8, 2007
The POT OF GOLD In Today's Housing Slump
This is one of the most amazing buying opportunities in over a decade. If you've ever considered investing in real estate but were afraid to pull the trigger because of high prices, YOUR DAY HAS COME!
Have you seen the housing data lately? Talk about blood in the streets, almost every home builder that is publicly traded in the stock market has hit a new 52 week low in their stock price this week. There is even talk that Beazer homes may go bankrupt. These are absolutely brutal times for home builders and for homeowners trying to sell their properties. There is another side of the coin however...a side that can make the participants a boat load of equity (CASH)!!! I've said this over and over, buy low and sell high. This market is priced to perfection for the investor with limited investment capital. Home builders have such high inventories, that they are practically giving them away. I've seen incentives that would just blow your mind...I'm talking about offers of a new car with home purchase, a swimming pool, first 6 months of your mortgage paid for you, it just goes on and on.
I'm starting to see home builders open up their doors to investors once again. During the appreciation cycle or "seller's market", investors were having doors slammed in their faces and were looked at as pariahs, responsible for the destruction of neighborhoods and the cause of overinflated pricing that kept families from being able to afford an entry level home. Investors, however, have always made up 25% of the buying public and when you say no to the investors, you're really allowing a potential 25% correction that in time will hurt the builders, as we see today. Saying "no" to the investors is not the only cause for a drop in home sales but it does make a substantial impact over the long term market cycle. Those investor bashing days appear to be behind us in this equity crushing sign of the times. Investors are now looked at as saviors and are welcomed with open arms with hopes of saving the day....which they will.
Miss this real estate buying opportunity, and I guarantee you will regret it. The if I would've, could've, should've mantras will ring loud 6 to 7 years from now when all of today's purchases have produced double and even triple digit percentage returns. History has shown that property values typically rise 3 - 5% per year but properties purchased in desired locations during the lowest part of a market correction can see values rise 100% to 200% in the following up cycle. You can either be in it to win it, or sit back and watch opportunity depart into the fog of ignorance.
Have you seen the housing data lately? Talk about blood in the streets, almost every home builder that is publicly traded in the stock market has hit a new 52 week low in their stock price this week. There is even talk that Beazer homes may go bankrupt. These are absolutely brutal times for home builders and for homeowners trying to sell their properties. There is another side of the coin however...a side that can make the participants a boat load of equity (CASH)!!! I've said this over and over, buy low and sell high. This market is priced to perfection for the investor with limited investment capital. Home builders have such high inventories, that they are practically giving them away. I've seen incentives that would just blow your mind...I'm talking about offers of a new car with home purchase, a swimming pool, first 6 months of your mortgage paid for you, it just goes on and on.
I'm starting to see home builders open up their doors to investors once again. During the appreciation cycle or "seller's market", investors were having doors slammed in their faces and were looked at as pariahs, responsible for the destruction of neighborhoods and the cause of overinflated pricing that kept families from being able to afford an entry level home. Investors, however, have always made up 25% of the buying public and when you say no to the investors, you're really allowing a potential 25% correction that in time will hurt the builders, as we see today. Saying "no" to the investors is not the only cause for a drop in home sales but it does make a substantial impact over the long term market cycle. Those investor bashing days appear to be behind us in this equity crushing sign of the times. Investors are now looked at as saviors and are welcomed with open arms with hopes of saving the day....which they will.
Miss this real estate buying opportunity, and I guarantee you will regret it. The if I would've, could've, should've mantras will ring loud 6 to 7 years from now when all of today's purchases have produced double and even triple digit percentage returns. History has shown that property values typically rise 3 - 5% per year but properties purchased in desired locations during the lowest part of a market correction can see values rise 100% to 200% in the following up cycle. You can either be in it to win it, or sit back and watch opportunity depart into the fog of ignorance.
Tuesday, September 4, 2007
The SECRET Dance Between The Stock Market And Real Estate
The Secret...I've spent a considerable amount of time studying current and past Real Estate trends, economic statistics, and all facets of the Stock Market. As a result of years of study, I've found something that I think my readers will find very interesting. There is an absolute inverse relationship between the Stock Market and the Real Estate Market.
The rich get richer for a reason. They understand money better than the masses and make financial moves that typically yield the highest returns possible from their investments. The #1 way to accomplish this in the Stock market and the Real Estate Market is to buy low and sell high. I'm sure this concept isn't new to most of you but did you know there is a predictable cyclical shift of cash out of the stock market which goes directly into the real estate market? Did you also know there is a predictable cyclical shift of cash flow out of the real estate market back into the stock market?
The stock market like the real estate market goes up and down. Some may find it a coincidence that the stock market is usually at its highest high at the same time the real estate market starts to crash and that the real estate market is at it's height when the stock market is experiencing a substantial correction. I'm here to tell you that it is no coincidence. When the stock market surges to higher highs, the smart money starts to liquidate their positions thus locking in their profits before the market corrects and takes it back. When you're sitting on a lot of cash, your money isn't growing. The wealthy will then look for alternative investments that will produce the highest potential returns. A down real estate market presents a great opportunity to buy low and eventually sell high in the next real estate up cycle. So that's where their capital goes. This will in turn result, over time, in a stock market correction. By the time the stock market hits it's bottom, the real estate market begins to hit it's highest high in the cycle. Properties are then sold at the high for a substantial return and placed back into the stock market because the stocks are trading at a huge discount. This is the Secret dance between the Stock Market and Real Estate.
The rich get richer for a reason. They understand money better than the masses and make financial moves that typically yield the highest returns possible from their investments. The #1 way to accomplish this in the Stock market and the Real Estate Market is to buy low and sell high. I'm sure this concept isn't new to most of you but did you know there is a predictable cyclical shift of cash out of the stock market which goes directly into the real estate market? Did you also know there is a predictable cyclical shift of cash flow out of the real estate market back into the stock market?
The stock market like the real estate market goes up and down. Some may find it a coincidence that the stock market is usually at its highest high at the same time the real estate market starts to crash and that the real estate market is at it's height when the stock market is experiencing a substantial correction. I'm here to tell you that it is no coincidence. When the stock market surges to higher highs, the smart money starts to liquidate their positions thus locking in their profits before the market corrects and takes it back. When you're sitting on a lot of cash, your money isn't growing. The wealthy will then look for alternative investments that will produce the highest potential returns. A down real estate market presents a great opportunity to buy low and eventually sell high in the next real estate up cycle. So that's where their capital goes. This will in turn result, over time, in a stock market correction. By the time the stock market hits it's bottom, the real estate market begins to hit it's highest high in the cycle. Properties are then sold at the high for a substantial return and placed back into the stock market because the stocks are trading at a huge discount. This is the Secret dance between the Stock Market and Real Estate.
Friday, August 31, 2007
A Win-Win Situation
Real estate investments not only deliver profits in an up market, but down markets can yield attractive returns as well.
During an appreciation cycle, it's quite easy to make a profit. As the demand for housing goes up and inventories run low, upward price pressure follows. Successful investors understand the up and down cycles of real estate and use this predictable movement in the market to capitalize on buying and selling opportunities. Note: It can be risky to buy too late into the up cycle because real estate corrections are inevitable...what goes up will come down...so timing is the key.
THE BEST TIME TO BUY IS IN A DOWN MARKET. Investing is all about buying low and selling high. A down market provides the most opportune time to find and buy properties that have the greatest potential for appreciation. The most successful investors understand and implement this strategy to get the highest returns on their investments. This is a strategy I've personally used and have benefited greatly from it's execution. Another benefit of holding property in a down market is the increased demand for rentals. As foreclosures rise, banks lose a tremendous amount of money resulting in tighter lending practices. As it becomes harder to borrow money to buy homes, many families are forced to rent until the lending environment improves. This is a great opportunity for investors to get premium rents for their rentals and reduce their vacancies. Interestingly enough, the rich are buying property when the masses are selling, and the rich are selling when the masses are buying. These contrarian buy and sell moves by the rich should be followed by all. The rich get richer for a reason...follow their actions and you too can be on the right side of the buy and sell transaction.
Saturday, August 25, 2007
The Best Time To Buy Or Sell Is When You Don't Have To.
This may seem like a strange position to take when investing in real estate, but the best time to buy or sell (from a negotiation point of view) is when you don't have to. When you invest in real estate, it is crucial that you negotiate the best price you can. If the price is non-negotiable, it's probably best that you move on to a deal with more favorable terms. Emotion has no place in real estate. Every move you make should be based on objective data, logic, due diligence, and a position of power...not weakness. This approach will yield you the best potential return on your investment and should never be sacrificed to get the deal done.
The best deals of my life have been made when I didn't need to make the deals in the first place. When you have nothing to lose, there is simply no pressure at all to give in to the terms of the person sitting across from you. In a very nice way, you are basically negotiating from a position of take it or leave it. This take it or leave it attitude will cut out 90% of the "chest puffing" you will endure from your opponent (home seller or buyer). Caution: If you do walk away from the investment due to the terms of the deal, know that you may not get a second chance to re-negotiate. Timing is everything in this game, and there may be an investor lying in wait to take that deal from you. Have a price in mind based on your research not based on the discount you've negotiated off the list price. If the price is pretty close, don't lose the deal over a few dollars.
It never hurts to submit a low offer no matter how discounted it may appear to be. What's the worst that can happen? You don't get a counteroffer or you do at a higher price? Big deal....that didn't hurt, but what if they accept? You may have just saved yourself tens of thousands of dollars. Most sellers will "pad" the price of their home anyway, expecting the investor to negotiate. This is where a Comparative Market Analysis comes in to level the playing field. You can't possibly negotiate a great deal if you don't know the value of the area and surrounding homes. The CMA will give you an idea of what a below market price might be thus giving you a basis for your offer.
One very important note: An Appreciation Cycle and a Correction Cycle will have a huge impact on your ability to get the best deal possible. When pricing is moving to the upside, know that the seller tends to have more control, and when pricing is falling, the buyer tends to be in the driver's seat. Good negotiating however can be had in both an up or down cycle. Just remember, if you don't have to buy or sell a property, you will have a greater opportunity to capitalize on either side of the coin.
The best deals of my life have been made when I didn't need to make the deals in the first place. When you have nothing to lose, there is simply no pressure at all to give in to the terms of the person sitting across from you. In a very nice way, you are basically negotiating from a position of take it or leave it. This take it or leave it attitude will cut out 90% of the "chest puffing" you will endure from your opponent (home seller or buyer). Caution: If you do walk away from the investment due to the terms of the deal, know that you may not get a second chance to re-negotiate. Timing is everything in this game, and there may be an investor lying in wait to take that deal from you. Have a price in mind based on your research not based on the discount you've negotiated off the list price. If the price is pretty close, don't lose the deal over a few dollars.
It never hurts to submit a low offer no matter how discounted it may appear to be. What's the worst that can happen? You don't get a counteroffer or you do at a higher price? Big deal....that didn't hurt, but what if they accept? You may have just saved yourself tens of thousands of dollars. Most sellers will "pad" the price of their home anyway, expecting the investor to negotiate. This is where a Comparative Market Analysis comes in to level the playing field. You can't possibly negotiate a great deal if you don't know the value of the area and surrounding homes. The CMA will give you an idea of what a below market price might be thus giving you a basis for your offer.
One very important note: An Appreciation Cycle and a Correction Cycle will have a huge impact on your ability to get the best deal possible. When pricing is moving to the upside, know that the seller tends to have more control, and when pricing is falling, the buyer tends to be in the driver's seat. Good negotiating however can be had in both an up or down cycle. Just remember, if you don't have to buy or sell a property, you will have a greater opportunity to capitalize on either side of the coin.
Sunday, August 19, 2007
Ready To Buy?..........OK, Now What? Cont...
Part 3 of 3
Where you buy is as important as what you buy in the real estate game. There are several reasons why I moved to Arizona from Los Angeles, California. The reasons pertinent to this blog involve investments in the Arizona real estate market and my desire to be close to the properties I own (it's much easier to manage your rental properties when they're in driving distance from you). Compared to the West Coast, Arizona real estate is a steal. You can find properties in AZ for as little as $55 per square foot. The median price per square foot in Los Angeles is well over $300 and in the nicer neighborhoods you are looking at $600+ per square foot. Looking over the numbers, It's easy to see why AZ is an ideal place to buy real estate.
I would not be as successful at doing my due diligence if it weren't for the Internet.The Internet is an amazing tool for research. When I started looking for properties to buy, I was able to research the location, builder, subdivision, pricing, and community amenities all from the the comfort of my Desk chair. I can't imagine how many miles were spent flying and driving to scout properties before the wide spread use of the Internet. Tools like Virtual tours on the Internet allow you to see video of the interiors of homes you're interested in without the hassle of driving to the actual home. Floor plans and property detail pages also give you greater insight into the style and layout of the home. As I did my research, Queen Creek, AZ kept popping up as an awesome place to invest in. The size of the homes coupled with the price per square foot was just unheard of. The icing on the cake was how "new" the area was to residential construction. It was truly virgin territory and the land developers were just starting to catch on.
The best locations of all to invest in are the locations that will bring you the highest and fastest return on your investments. A strategy that has worked for me is finding areas that aren't on anyone's radar. I look for places that no one is talking about YET but the potential of the area is just oozing dollar signs. Let me give you a real life example of such a strategy. I found this little subdivision in Queen Creek, AZ, on the Internet, while I was still living in Los Angeles. I almost fell out of my chair when I saw what the homes were going for. I'm talking about Golf Course homes for $75,000 - $95,000, yes that's right....$75,000 - $95,000. I called a couple of friends and basically said, "I'm jumping on a plane to AZ to pick up a couple of fantastic investment properties....anyone want to come?" Well, we took that flight, drove to the subdivision and checked it out for ourselves. The subdivision looked like a Ghost town. A Tumbleweed literally rolled right across my foot while crossing the street and my two buddies looked at me like, "what in the heck did you get us into." I laughed pretty hard and said, "Trust me, if this was a well established and sought after neighborhood, the homes wouldn't be going for $75,000. It's new, and no one knows it's here...YET!...build it and they will come, to steal a line from a movie, and trust me, they will come." Well, my two friends were not convinced and decided to pass on buying in such a remote location. I, on the other hand, did sign a contract that day. The neighborhood had over 20 newly built Spec. homes, and I had my pick of whatever I wanted. I chose a smaller single story home with a few nice upgrades like tile floors and a covered back patio. Within 6 weeks of my purchase, all of the newly built Spec homes had been purchased. 3 months after my purchase, the same sized home in the community was selling for 50% more than what I paid, and in 8 months, I had made a 100% return on my purchase. Yes, I doubled my money in 8 months. I did keep my two friends updated on how well the investment turned out. I think you can figure out how that went.
Where you buy is as important as what you buy in the real estate game. There are several reasons why I moved to Arizona from Los Angeles, California. The reasons pertinent to this blog involve investments in the Arizona real estate market and my desire to be close to the properties I own (it's much easier to manage your rental properties when they're in driving distance from you). Compared to the West Coast, Arizona real estate is a steal. You can find properties in AZ for as little as $55 per square foot. The median price per square foot in Los Angeles is well over $300 and in the nicer neighborhoods you are looking at $600+ per square foot. Looking over the numbers, It's easy to see why AZ is an ideal place to buy real estate.
I would not be as successful at doing my due diligence if it weren't for the Internet.The Internet is an amazing tool for research. When I started looking for properties to buy, I was able to research the location, builder, subdivision, pricing, and community amenities all from the the comfort of my Desk chair. I can't imagine how many miles were spent flying and driving to scout properties before the wide spread use of the Internet. Tools like Virtual tours on the Internet allow you to see video of the interiors of homes you're interested in without the hassle of driving to the actual home. Floor plans and property detail pages also give you greater insight into the style and layout of the home. As I did my research, Queen Creek, AZ kept popping up as an awesome place to invest in. The size of the homes coupled with the price per square foot was just unheard of. The icing on the cake was how "new" the area was to residential construction. It was truly virgin territory and the land developers were just starting to catch on.
The best locations of all to invest in are the locations that will bring you the highest and fastest return on your investments. A strategy that has worked for me is finding areas that aren't on anyone's radar. I look for places that no one is talking about YET but the potential of the area is just oozing dollar signs. Let me give you a real life example of such a strategy. I found this little subdivision in Queen Creek, AZ, on the Internet, while I was still living in Los Angeles. I almost fell out of my chair when I saw what the homes were going for. I'm talking about Golf Course homes for $75,000 - $95,000, yes that's right....$75,000 - $95,000. I called a couple of friends and basically said, "I'm jumping on a plane to AZ to pick up a couple of fantastic investment properties....anyone want to come?" Well, we took that flight, drove to the subdivision and checked it out for ourselves. The subdivision looked like a Ghost town. A Tumbleweed literally rolled right across my foot while crossing the street and my two buddies looked at me like, "what in the heck did you get us into." I laughed pretty hard and said, "Trust me, if this was a well established and sought after neighborhood, the homes wouldn't be going for $75,000. It's new, and no one knows it's here...YET!...build it and they will come, to steal a line from a movie, and trust me, they will come." Well, my two friends were not convinced and decided to pass on buying in such a remote location. I, on the other hand, did sign a contract that day. The neighborhood had over 20 newly built Spec. homes, and I had my pick of whatever I wanted. I chose a smaller single story home with a few nice upgrades like tile floors and a covered back patio. Within 6 weeks of my purchase, all of the newly built Spec homes had been purchased. 3 months after my purchase, the same sized home in the community was selling for 50% more than what I paid, and in 8 months, I had made a 100% return on my purchase. Yes, I doubled my money in 8 months. I did keep my two friends updated on how well the investment turned out. I think you can figure out how that went.
Wednesday, August 15, 2007
Ready To Buy?..........OK, Now What? Cont...
PART 2 of 3
Should you buy new or old construction? When I started investing in real estate, I lived in Los Angeles, California. The available homes for sale were typically 50 to 80 years old. The option of buying new in the area was very limited and very expensive due to shortages in residential lots to build on. Here in Arizona, the opposite is true. There are new subdivisions popping up every day with huge inventories of new homes. Having invested in both new and old construction, it is my opinion that "new" is the only way to go when possible.
Think about the following before you buy: New homes typically have a 2/10 warranty attached to them. That means if anything goes wrong with the home in the first 2 years, the builder will make the repairs at no cost to you. The "10" in the 2/10 warranty refers to the structural components of the home. If you have structure related issues, the builder is obligated, under the warranty, to correct the issue(s) for up to 10 years. The 2/10 warranty is something you won't find offered on older homes. An older home may come with a 1 year warranty such as American Home Shield, but if you read the details of the warranty, you'll find their liability is very limited and there are deductibles you'll have to pay with each and every service call.
New construction has the advantage of very attractive entry points into the market. In a down real estate market, builders become desperate to unload their inventories of homes. It is not unusual to see price reductions of 20% to 30% when inventories rise, not to mention other incentives like paid closing costs and discounts on upgrades. The typical homeowner selling his or her home just can't compete with that. Builders can sell their homes for just about whatever they want as long as there's a profit in it for them. The typical homeowner has a mortgage that limits just how low they can price their home. Most homeowners see the builders as the enemy in a down real estate market because of the constant downward pressure on pricing. This, however, is music to the ears of the investor. Correcting real estate markets mark the sign of frenzied buying by those investors sitting on cash looking to find a bargain. Down cycles are a time of massive real estate accumulation for most investors as they yell to the heavens "load up and buy as much as you can afford". Homeowners on the other hand are not as full of glee and optimism. No, for them, it's pretty much doom and gloom.
Older homes do have their place. If you want that one of a kind view home in the hills overlooking the city, you may be quite content with it's age, especially if it's in good condition. You may have a specific neighborhood in mind or area you favor investing in that's completely built-out. In that case, an older home may fit the bill. Just keep in mind, older homes usually mean older plumbing and electrical components that may need updating, greater chance of pervasive termite infestation, leaky roof possibilities, and antiquated decor. Make sure you hire a licensed inspector to reduce your chances of buying an unsound property. The cost of hiring an inspector is well worth the money and may serve to help you keep your money from falling into a money pit of repairs.
Should you buy new or old construction? When I started investing in real estate, I lived in Los Angeles, California. The available homes for sale were typically 50 to 80 years old. The option of buying new in the area was very limited and very expensive due to shortages in residential lots to build on. Here in Arizona, the opposite is true. There are new subdivisions popping up every day with huge inventories of new homes. Having invested in both new and old construction, it is my opinion that "new" is the only way to go when possible.
Think about the following before you buy: New homes typically have a 2/10 warranty attached to them. That means if anything goes wrong with the home in the first 2 years, the builder will make the repairs at no cost to you. The "10" in the 2/10 warranty refers to the structural components of the home. If you have structure related issues, the builder is obligated, under the warranty, to correct the issue(s) for up to 10 years. The 2/10 warranty is something you won't find offered on older homes. An older home may come with a 1 year warranty such as American Home Shield, but if you read the details of the warranty, you'll find their liability is very limited and there are deductibles you'll have to pay with each and every service call.
New construction has the advantage of very attractive entry points into the market. In a down real estate market, builders become desperate to unload their inventories of homes. It is not unusual to see price reductions of 20% to 30% when inventories rise, not to mention other incentives like paid closing costs and discounts on upgrades. The typical homeowner selling his or her home just can't compete with that. Builders can sell their homes for just about whatever they want as long as there's a profit in it for them. The typical homeowner has a mortgage that limits just how low they can price their home. Most homeowners see the builders as the enemy in a down real estate market because of the constant downward pressure on pricing. This, however, is music to the ears of the investor. Correcting real estate markets mark the sign of frenzied buying by those investors sitting on cash looking to find a bargain. Down cycles are a time of massive real estate accumulation for most investors as they yell to the heavens "load up and buy as much as you can afford". Homeowners on the other hand are not as full of glee and optimism. No, for them, it's pretty much doom and gloom.
Older homes do have their place. If you want that one of a kind view home in the hills overlooking the city, you may be quite content with it's age, especially if it's in good condition. You may have a specific neighborhood in mind or area you favor investing in that's completely built-out. In that case, an older home may fit the bill. Just keep in mind, older homes usually mean older plumbing and electrical components that may need updating, greater chance of pervasive termite infestation, leaky roof possibilities, and antiquated decor. Make sure you hire a licensed inspector to reduce your chances of buying an unsound property. The cost of hiring an inspector is well worth the money and may serve to help you keep your money from falling into a money pit of repairs.
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