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Archive for the ‘real estate markets’ Category

The weather has been weird this year, the rains lasting surprisingly long into spring/summer. I watered my flowers for the first time this year. And in other summer signs, the for sale signs are popping up in our East Bay Redwood Heights neighborhood. The next door neighbors are selling surprisingly enough, and we’ve been watching the prep effort on a nice house in the neighborhood, on Jordan Street, in the valley behind the hill we live on. The house on 3253 Jordan St. just listed at $699,000, which while below the peak of a few years ago, is still not cheap by any measure.

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Looking for a real estate investment? What if I had an investment for you that …

  • Had no annual property taxes
  • Had little or no insurance costs
  • None of those annoying extra costs, such as landscaping or HOA fees
  • No concern regarding theft or vandalization of empty property, because the property had no appliances, or anything else to steal! (including toliets)
  • And, bonus, this empty concrete shell is considered desirable and new!!

Interested?

Well, if you are a Chinese national, this is an compelling investment opportunity! See you don’t have much else to invest in and real estate never goes down, right?

Forget that there are realms of empty, investor owned properties (in fact a whole city of them), all across China. Chinese economy is strong, right? Prices always go up. Surely the real estate bust that wiped out thousand of US investors can’t happen in China, right? Buy China!

And BTW, read this.

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Smart Money just released an article on the 5 real estate markets expecting to fare best in 2010.  Predicted to be the best is Tacoma, WA up a predicted whopping 2.44%.  The rest of the 5 come under 1%.  Well that’s certainly going to make up for the staggering downturn of the last couple of years (yes that last sentence was sarcasm).

Hinted at in the article is trouble that might be caused by a coming big wave of adjustable mortgages adjusting to much higher payments.  I’ve seen many blogs and articles warning that we are not done yet with the damage caused by ARMs, where the loan value keeps increasing and the home value keeps sinking.   While activity has picked up in many real estate markets, it seems primarily driven by the $8K tax credit and the availability of cheap foreclosed homes.

We are not out of the woods yet.

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The new year, out with the old, in with the new!  Many people are glad to see 2008 go.  It was the year where a bad housing market turned into a freefall rout.  Where many lost their jobs.   So you can’t blame folks for having a lot of hope for a 2009 that is better than 2008.

With the new year comes economic outlooks and predictions.  I recently listened to an interview with Harry S. Dent, an economist known for accurately predicting the Japanese decade long recession, and the DOW hitting 10K, back in the 80s.  According to Harry Dent, we are just in the beginnings of another great depression.   While 2009 might see a short lived rally in the stock and housing market, overall we are in for several more bad years according to Dent.

Harry Dent will be speaking at Wealth Summit Live, an event in Orlando on January 24th and 25th, featuring a number of well known speakers geared towards helping people succeed despite the dour economy.

If you invest in real estate, I would recommend listening to the interview with Dent.  Even if you don’t completely agree with him, his knowledge of trends and how they impact the economy is a message any investor should listen to.  You can access the interview for no cost by registering at the Wealth Summit Live site.   Maybe I will see you in Orlando!

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Happy Black Friday!  For those of you with money, all sorts of assets are for sale at rock bottom prices.  Go forth and buy!

  • In many parts of the country you can scoop up houses for less than the cost of building them.   A friend of mine is buying houses in Florida for $25,000 when just a few years ago they were selling for over $100K.   I challenge anyone to be able to build a home at $25,000 (mobile or pre fab homes don’t count).
  • Stocks are for sale, Warren Buffet is reportedly on a buying spree.  And why shouldn’t he be?  With his knowledge of what constitutes a good company (my guess is that no or low debt on the balance sheet is one criteria) he can get good company stock for cheap.

So those of you with cash that are sitting on the sidelines, buy an asset!  It is almost hard to go wrong.  Invest for the long term and be prepare for prices to dip more .. but if you have the long term view you will be ok.  To me real estate seems more like a sure thing than stocks, but it depends on what you know best and your willingness to manage your asset (stocks don’t stiff you for 2 months rent and then leave a mess to clean up).

And, if on this Black Friday, you insist on being a consumer rather than an investor, you still have great bargains awaiting you.  New cars are selling for thousands less than they did just recently.   The settlement on a wrecked 2006 Prius was enough to buy a brand new 2009 in one case.   Dealers are so desparate that there are buy one and get one free deals out there.   Anyone up for two Dodge Rams for the price of one?

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Loan modifications are becoming a popular alternative to foreclosure.  A loan modification, sometimes called a workout, is where the lender changes the terms of the loan, such as the interest rate, the amortization type, or even the principal balance (dropping  the principal balance is still not common but it does happen). The idea is by changing the terms of the loan to lower the payments the borrower can continue to make payments on the loan and prevents loan from becoming non performing.

Here’s what I have heard so far on loan modifications:

  • They are not working with investors
  • They won’t talk to you unless you are behind on your payments
  • The customer service folks won’t help you, you have to talk to the actual decision makers

Of course this is all hearsay.  However I do believe there is some truth to the buzz I’m hearing.  Navigating the bank hierarchy to get agreement on a loan modification is hard.  That is why there are a number of companies that will help you do just that.

According, to the Loan Modification Handbook the first step is to draw up a hardship letter and a budget. What can you afford? And why do you need a loan modification? Banks are numbers businesses and if you can show them that the new numbers make sense you might have a good chance of getting a loan modification.

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In dealing with a toxic mortgage you can no longer carry, so far I have identified three options:

  • Stop making payments and let the bank foreclose on you.
  • Find a buyer and negotiate a short sale with the bank
  • Keep the property and get a loan modification

I’ve written about short sales previously in this blog.  The foreclosure option is the option of last resort.   Although I have no emotional attachment to the properties it appears the least harmful thing I can do to my credit is to try and negotiate a loan modification as a first step.  If that didn’t work I could look into a short sale or simply give the deed back to the lender.  This is called a “deed in lieu of foreclosure” and not quite the same as a foreclosure.

I belong to a few real estate mailing lists.  One poster to the group, claimed she was able to negotiate a loan modification that cut down on her payments and knocked $46K off the principal balance.  That sounded pretty good to me, so purchased the book she recommended: The Loan Modification Handbook

Written by Michael Albert and Rami Ibrahim, it arrived from Amazon a few days ago.  The Loan Modification Pamphlet would have been a better name for it.   So at first I was rather disappointed at the rather slim size for the price.  However it is a good introduction to the topic.  It provides examples of letters you write to the lender and good advice on how to get to the right decision maker (hint: it’s not the person that answers the customer service line).  A nice touch was a listing of the actual phone numbers for many banks’ loss mitigation departments.  That alone is quite useful, as anyone knows from navigating a large corporate bureaucracy by phone.

So far I haven’t acted on any of the steps in the book, but I will soon.   I read somewhere that a loan modification is 40% cheaper for a bank than a foreclosure.  For one of my houses in particular, the area is gutted with foreclosures and nothing is selling, if the lender has any sense at all they should be willing to work with me.

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A couple of days ago, I talked with the third person I have met that has been burned by a Cabana Cay investment. About two years, the Cabana Cay investment pitch was making the rounds on the real estate investment clubs/seminar circuit. Cabana Cay was in the building of building or refurbishing resort properties, mostly in Florida. From what I gathered the deal was a preconstruction opportunity that, when finished, you would own a resort condo that would lease out to vacationers at high rents providing lots of cash flow.  The deal was sweetened by a developer lease back for a year or two, and/or the ability to put your down payment towards mortgage payments, so there was very little out of pocket.

Fast forward a couple of years and everyone I have met is trying to get out of the deal by selling the unit as a short sale. They have all stopped making mortgage payments (which were big once the funding for them – lease back/down payments – ran out), which of course has trashed their credit. There are allegations of fraud as it appears that consistently the units were valued higher than what they were worth. Promises of refurbishing a resort into a 5 star property never happened and Cabana Cay, as a real estate developer, apparently is defunct. Although you would never know it from browsing the internet.

There appears to be a viable Cabana Cay property in northern Florida.  I couldn’t find the other ones.

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A real estate agent once told me that 20% of the agents make 80% of the money.  From what I have seen it has to be true.  I’ve had the pleasure to work with great agents, but these can be hard to find, so I’ve ended up having to deal with not so great agents.  It seems to me that many agents are just glorified order takers, which might have worked ok during the boom, but this tough market requires more aggressive marketing strategies.

What is amazing to me is that the mediocre agents continue to be well .. mediocre.  You would think that they would see the writing on the wall and take their game to a new level.    When will these people wake up and either find a new profession or improve?

Here’s what I have had to put up with:

  • Inability to write decent copy. You would think they would mention that the property has a view, or is the lowest price in the subdivision.
  • Not returning phone calls for days or checking email.
  • Turning their cell phone off after 5pm and on weekends.
  • Not very tech saavy – ie. they can’t figure out how to upload pictures to the internet.
  • Listing an ad in a print publication and then not checking that the listing makes it to the online version.
  • Taking the dart board approach to pricing. For example, not knowing their market and listing it too high, then incrementally lowering the price 5 or 10,000 per month.
  • Not being able to answer the question: what sites will my property be listed on?
  • Not being able to articulate their marketing plan.

Yes, I might be more focused on the internet and online marketing than others. But, hey wake up, it’s the way of the future! And where your prospective clients start their property search, why some agents seem to not understand that is beyond me.

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In a stunning slap to President Bush, the original bailout bill was rejected by Congress.  Now a new modified bill is making the rounds, with some sweetners (I’m watching the AMT earmark myself) that might just get everyone to vote yes.

Understand that no one wants this bill.  It’s like cough medicine, you know you have to take it but it still tastes awful going down.  Of course cough medicine usually helps your cough, but the country’s financial system has caught bronchitis not just a trifling cold — so it is questionable whether the bailout bill will end the financial crisis.  Still everyone seems resigned to the cold hard fact that there is really not much choice.

I’m involved with two real estate development deals.  Thankfully they are not condos.  One of the developer wisely switched to building apartments from the original condo plan.  The other is a commercial development.  So what’s the problem?  Like you had to ask, of course it is financing.

Recently overheard in a corporate hallway somewhere in Silicon Valley, “our stock price is so low, we are prime take over bait .. but no one can organize the financing”.  Even the tech section is affected, isn’t that food for thought.

With both the real estate deals that I’m involved in, the bank providing the original construction financing went under.  So the developers are scrambling to find new financing .. but to no avail.  Word is, that banks are getting downgraded just for having construction loans on their balance sheets, whether performing or not, so they have the door firmly closed for new ones.

So will the bailout bill help real estate developers?  Well if it helps the banks start lending again, it should.

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