No Inventory, High Prices, Can You Still Get A "Deal" In Real Estate?

This week has been an interesting one.  Normally I don't "house shop" with buyers, and rarely am I out reviewing properties in person I haven't done a major research on first.  As an investor buyer, I am very comfortable buying properties I have never seen, or have just driven buy.

In this case the buyers are friends who are working with an agent at another office.  They have been house shopping for some time, and it is making everyone crazy including each other.

At the end of the day, major progress was made, and they are down to their last trade off decision.

Buying real estate is always a major tradeoff decision.  You can be one block from water with no view and get a great house with a three car garage, or be up the hill with a two car garage, smaller house and a great view.  So which is it access or view and how much are each worth.

The most difficult part about being a buyers agent is to get those decisions made first.  If you know what you want before you even start looking, you are much more likely to get a deal, and not get emotionally locked to something you might grow tired of quickly.

Many deals fall apart and buyers get cold feet because they "loved the view" and over the course of the next few weeks realize the house won't meet their needs and they aren't willing to adjust.

The app isn't finished yet, but I am working on it.  The app is a way for one or two people to sit down and build a perfect house by "score".  For instance, would you give up a larger bathroom for a gas kitchen?  If you make those decisions up front, the emotion of buying the home is whittled to the core where it needs to be.  That core emotion is what you are going to be living with while you are in that house.

This is how investors buy homes, and believe it or not, it does work for people buying homes. The key for the buyers agent is to understand the buyer first.  Better yet, if you the buyer will admit up front where you are having difficulty making a decision, your agent can be a lot more helpful.

You might think view is important, and find out that being next to a park for your kids really is the winner for you.  When you sit down and make those decisions up front, you will know a deal the minute you see it.

Interest Rates Fall A Bit But.....

This past week interest rates dropped a little bit. Also several banks have changed the rules on 10% down loans. So the big question I heard is "Do I buy now or wait?"

I have been saying for over two years "Buy Now". Why? In simple terms straight line 3% inflation tells us that homes are still slightly underpriced in many areas. Across the country with 20% down you can buy a home and rent it for more than the mortgage payment.

If you are thinking of selling and moving, now is a great time so you can lock in lower tax rates. If you wait for your house to sell for a higher price, You will be buying at a higher price and locking in higher taxes for as long as you live in your new house. Higher taxes are never good.

Looking at the buying situation you see a few things. One aspect is that most people can't save enough money to buy a home. Our National practice of "keeping up with the Joneses" has made it difficult to save. This is creating an opportunity for those you have the money and credit to grab some real estate bargains.

So how can I keep saying this for two years straight? Simply put the prices still haven't caught up and even though two years ago was a better time to buy, this is still a great time to buy real estate. Am I biased because I am a real estate agent? No, I am also buying myself. There are just too many deals for me to grab so I'm trying to help as many of my friends as I can.

Even if you can't afford to buy investment properties in Southern California, I have programs available to pick up turnkey investment properties with 20% down and positive cash flow at the close of escrow across the country. These properties have already been cleaned up, rented out and property management placed. We are trying to make it as easy as buying stock. Just like people want Coca-Cola they want a clean safe house to live in and as an investor you can provide that.

If you want to buy or sell in Southern California give me a call and I'll be glad to help or find someone in your area who can. If you want to invest and have positive cash flow today give me a call.

Scott Bourquin

BRE# 01911988

714-594-SELL (7355)

Is Now The Right Time To Buy Your First Home?

#BuyFirstHome

As a Realtor I will tell you that just about any time is the right time to buy your first home.  As an investor, I am happy to collect your rent.  What is most important though is how you buy it.  So is now the right time to buy your first home?

Before you tune out and say any time can't be the right time to buy a first home, let me give a little background.  In 2004 I genuinely believed the California Real Estate Market was about to burst.  I missed the call by two years because the big banks got together and figured out how to make it look like loaning people money that didn't have the income wasn't really that risky.

From 2004-2006 I would have told you that it is very hard to "buy right", and probably wouldn't have sold you anything.  I sold my personal home and my investment properties at a substantial profit.  The reality was none of my properties value went below what I originally paid for them, so I would have been petter off sticking to my original plan and holding the properties.

In that little nugget is the truth.  Buying right is everything.  So how do you know if you are buying right.  First of all, you need to be able to afford the payments.  Even if values drop and you can afford to stay, you will be alright.  The mortgage crisis was fueled by people who over bought, banks that extended loans to people who where already over extended, and then it was accelerated by people who just wanted out of their loans because they could.

If the government said "tough luck, if you can afford it, it is yours" the dip might not have been as bad.  At the same time though, they couldn't let people stay in their homes if they couldn't afford it.  A very small percentage who were able to renegotiate the loans to a much lower value or interest rate were the only real winners.  Everyone else got the shaft because the government wouldn't hold people accountable for buying homes they couldn't afford, nor did they really hold the banks accountable for the loans they should have never made.

So here you are today, pondering the question, "Is now the right time to buy your first home?"

And the answer of course is "Yes, if you buy right".  Buying right isn't just buying a house you can afford, it means buying in a place you want to live.  Buying right means buying in a place where you would be willing to spend the time and energy to make the house your home.

If you can get a deal, then you are even better off.  Normally I favor older homes that need work in good areas.  You might not want to do a lot of work though.  If this is the case, then negotiating with a builder can be tough.  Watch the options and compare prices from other contractors.  Don't let the builder overprice your new home with upgrades.

Don't just listen to me, here is a very nice chart from my friend Michael Wright at United American:

Rent vs. Own Comparison JOE RENTER       DON'T THROW YOUR HARD EARNED $$$ DOWN THE DRAIN Joe Renter vs. Joe OwnerCalculation Assumptions Monthly Rent $2500.00 Estimated Yearly Rent Increase - 3% Estimated Yearly Appreciation-3% Estimated Tax Bracket 20% Where would you want to be in 10 years?   Year Annual Rent Annual Payment Federal Tax Savings Estimated Value Loan Balance Estimated Equity 1 $30,000 $37,377 $6,166 $463,500 $433,033 $30,467 2 $30,900 $37,377 $6,079 $477,405 $424,573 $52,832 3 $31,827 $37,377 $5,989 $491,727 $415,789 $75,938 4 $32,782 $37,377 $5,895 $506,479 $406,670 $99,809 5 $33,765 $37,377 $5,797 $521,673 $397,203 $124,470 6 $34,778 $37,377 $5,696 $537,324 $387,375 $149,948 7 $35,822 $37,377 $5,591 $553,443 $377,172 $176,271 8 $36,896 $37,377 $5,482 $570,047 $366,580 $203,466 9 $38,003 $37,377 $5,369 $587,148 $355,584 $231,564 10 $39,143 $37,377 $5,252 $604,762 $344,168 $260,594 Total $343,916 $373,774 $57,315 $604,762 $344,168 $260,594 Loan Type FHA Reg Sales Price Term $450,000 30 Years Rate APR 3.750% 5.168% Dwn Pmt Closing Costs $15,750 $1,475

What Is The Difference In APR and APY?

What is the difference between APR and APY?  In the simplest terms, the APR is the "Rate" you pay on paper, the APY is the actual "Yield" after expenses for the Loan Originator.  Basically, the bigger the difference between the APR and APY, the more costs that are built into the loan, and the more profit for the bank.

This can be built into the loan or fees you pay up front that make the yield higher for the investor or loan broker.  This is why shopping a loan is so important.  If you aren't sure about the differences in loans ask your agent or accountant.

For instance a VA loan will normally have a higher APY because there is a "funding fee" that is standard with every loan.  That funding fee is either paid up front or rolled into the loan.  Rolling it into the loan means you owe more money than the bank pays the seller.  For instance if you bought a house for $200,000 and had a 1% funding fee, the loan would actually be for $202,000 because the 1% fee is added to the loan.  This is "rolling it in".

Reality and Real Estate

Are Reality and Real Estate connected?  Sometimes I wonder.  I think that at the point where Real Estate, specifically residential real estate stopped being a place we live and became an "investment", Real Estate pricing disconnected with Reality.

Of course city, state and local taxes, schools and businesses all play a little part.  Those things separate one area from the next.

The last housing bubble has been exhaustingly studied, and the problem is clear.  When Freddie Mac and Fannie Mae got greedy and joined the sub prime game, too many people who couldn't afford a home bought one.  Others used their home like an ATM and just kept taking out money because "it was worth more".  Craziest thing I ever heard.

In Texas a second mortgage was banned for many years.  I don't know if it still is.  This ban if nothing else prevents things like a complete meltdown when houses go down a point or two or interest rates go up a point or two.

They say that history repeats itself.  If this is true, we should be looking back to about 1976 when Jimmy Carter was in office and the long cycle of stagflation started.  During that era, I was a youngster, but I could see that buying homes was a way to make a lot of money and keep up with inflation.  Somehow I understood Warren Buffets philosophy of infinite returns and applied it to homes.

In simple terms, if you buy a house and have a 100% mortgage on it, and rent it out for the same amount as the mortgage after taxes (meaning a slight cash flow loss at first), then raise the rents to match inflation, two things happen.  First, you become cash flow positive in just a few years for doing nothing more than being responsible.  Now there is an observation I hadn't made before.  Second, at some point the house is paid off, you get all of your money back AND now you get free money as long as you own the property and keep it rented.

The same is true of dividend stocks.  If I buy Coca-Cola for $30 and it pays $3.00 per year in dividends, in 10 years, I got all of my money back and I get $3.00 per year for free.  This is why Warren Buffett is so rich.

So how does that make the housing market disconnected from reality?  Just like non-dividend stocks, flipping homes based on speculative price rises rather than real income adds a significant amount of volatility to the the markets.  Just last night I was discussing a property that peaked at $810,000 according to some appraiser trying to push through yet another re-finance for someone who couldn't afford it.

That property bottomed at $299,000 a little over a year ago.   It's real straight line value is about $440,000 in my book.  I look at all property just like stocks, and value it based on average returns to get a straight line value.  Many commercial investors do this.  It is when investors are willing to make a little less that prices go crazy.   Last year Zillow showed the property in the range of $265,000 to $310,000.  A year later Zillow is showing a 20% improvement.  Do the math and it won't be long at that rate to reach $810,000 again.  At 20% per year, it will take a bit over 4 years.  So do you walk away or ride it out?  That is the very question the owner was asking me.

This pattern is very similar to what we saw after the completion of the sales through the RTC or Resolution Trust Corporation when I was much younger, late 70's early 80's for those of you who forgot about the last real estate meltdown.  Last time it was called a "Savings and Loan" crisis.  This time the big banks got caught too.

The owner of the house above is trying to short sell the property and can't get the bank to budge.  Quite frankly he is a little late to the game.  With prices on the rebound, banks are inclined to wait it out.  So are investors.  When investors stop dumping prices level.  When speculators buy prices rise.  How can you tell speculators are buying?  Look at the number of homes that are purchased and are still vacant, without a "for rent" sign.  One investor in my area has announced he wants to buy and hold five waterfront homes.

I like rentals and I like dividend stocks.  I am not much of a flipper or speculator.  Just like dividend stocks that are out of favor with "the street" and yet highly coveted by Warren Buffet, there are certain types of real estate that make great rentals that speculators overlook.  When Coca-Cola makes an error, it loses 8% and recovers quickly.  When Netflix made a bad move it went from over $300 to $64 overnight, that isn't investing, that is speculating or more correctly gambling.

Yes in SoCal the speculators are back.  Eventually they will move back to Vegas, Reno, Phoenix and other areas that were headlines for empty homes just a few years ago.

If I want to gamble, I am going to the craps table in Vegas. At least I know when I lose it all they'll at buy me a drink and if I spent enough they might even let me stay the night before kicking me out.  Wells Fargo and BofA won't do that when your homes start sinking will they?

So is Real Estate connected to Reality?  I guess that depends on what you are looking at.

Get More Closed Deals And Work Less? Can It Really Be Done?

Can you really get more work with less effort?  Can Realtors close more deals with less work? The simple answer is yes.  That is the whole point of the focused approach.  When you get really good at one thing, that one thing will bring you all of the work you want.  In fact it will bring you work that you don't expect.

I would like to take a little tangent here and talk about a totally different field of work or two.  Since last September, my wife has been a background actress.  I have also been working a couple of times a month as well.  The difference is most of her income is money from acting where mine isn't.  Acting would be like a third or fourth place after marketing, training and writing. 

Last week we saw two events that are worth discussing in this blog an can be related to Real Estate.  First we went to Long Beach to work on a TV show where people from the audience get to speak on TV and give their opinion on camera.  Half of the people were background actors filling in.  It is a way for non-union actors to get some speaking practice on camera.

On Set & In Wardrobe

Most of the regular patrons and background actors were very normal and talked about the product as if two friends were asking each other for advice.  One couple, turned up the acting and really went all out to pick it apart.  The whole room stopped and stared.  The interviewer jumped up and walked out of the room, talked to the director and the interviews were abruptly ended.

Just prior to that we went to Burbank California to meet some casting directors.  There we witnessed another exchange I thought would be worth understanding.  I already posted this on Facebook because I thought it was so important as a lesson in business and life.

A woman in her mid twenties with tattoos all the way down her arms, commonly called gang sleeve's, and those tribal ear hole enlargers, which she called "ear plugs", was asking for more roles as a conservative parent, office worker, lawyer or detective.  Roles my wife gets regularly, and since we aren't parents, she always wonders why they pick her to be a parent.

The woman went on to explain how she has a great wardrobe of "conservative" clothes and has "tricks" to hide her tattoos and ear plugs.  She spent another couple of minutes trying to convince the casting directors to use her more for those roles.

Politely the first casting director said that there are thousands of people that want those jobs and it is easier to pick the ones that don't have tattoos and ear plugs because there is less of a chance the director will send them home and be mad at the casting director.
The woman argued for another couple of minutes.

A second casting director responded, "With all of the shows that allow tattoos and ear plugs why don't you just submit for those?  Looking around the room, you are the only one here that fits that role. "

The woman didn't know.  It is possible that the woman was "conservative" and the ink and ear plugs were just bad choices.  More likely, the ink and ear plugs were a reflection of her real personality.  She looked very comfortable with them, and arguing about them.  My advice would be, don't argue with your boss before they hire you, but that isn't the point here.

Both of the casting directors basically said the same thing.  You will get more work with less effort if you just be the best "you" that you can be.  That is true in any field of work.  If you are in the wrong line of work, the best "you" will eventually find a way to move on to where you belong, or someone will recognize your talent and take you there.

My wife also began to understand that as an 18 year veteran of elementary school classrooms, she is the "look" that Hollywood likes to use as a parent and she is great with kids making her the perfect TV "parent".  She also has an MBA and Real Estate License with a great business wardrobe.  When she gets to the set to be a lawyer or detective, the wardrobe people are always happy and never have to find her clothes or dress her up.  It makes everyone's job easy when she just takes roles as herself.

Last November, I was standing with Jerome Hamilton, so I asked what I could do to move up the food chain.  He said 'Brother, you just keep doing what you are doing.  Look around at the rest of the background, you'll get there faster than you think."  15 minutes later he was right.  I got an "upgrade". It was the best advice he could have given me at that time.


Real Estate isn't any different.  There is a very agressive agent in our office who picked one very narrow and deep niche I honestly thought was dead.  The receptionist said tha tover half of the calls coming in now are his deals.  It took several months, but he found a niche in Real Estate that he fits.  You can see the excitement on his face when he runs out to the next listing presentation.  

Because he is presenting to a very specific seller, and serving a very specific buyer, he is able to move a lot of property.  He is also very good at the paperwork now, and has it down to a simple process where I would be fumbling all over the place.  Who do you think the seller wants to hire?  There is a reason he gets the listings.

Don't get caught up worrying about getting ahead the way other people get ahead.  Don't even worry about the competition.  Look in the mirror and be the best that you can be, enjoy your life as you and things will happen. 

No Inventory in Real Estate - Now What?

In just the last thirty days, there has been another noticeable change in the Southern California Real Estate market.  Homes are selling.

I know, in 2012, more home sold than anytime since 2007, but there is more to the story.  If you look all around the county, homes that have been sitting for a year or more are now moving into escrow.  When these homes leave the market, then the average Days on Market or DOM drops further.  The key here is with fewer homes on the market these homes moving off market will have an even greater impact statistically.

What does all of this mean?  It means a clear shift in the market is happening.  The bottom diggers have scrapped everything off the bottom there is.  So now the big investors who are a little more conservative are putting up money for people to buy.  One loan agent says that even though "liar loans" have gone the way of the DoDo bird, there are still ways to do creative financing.

Private equity is once again pushing the limits on payment to income ratios' allowing people to buy into the more expensive homes that have been sitting.

A billboard in downtown LA proclaims "Home Loans Up To $10 Million".

The tide is shifting.

From the agents perspective, I am seeing a few very smart agents start to roll with this new market.  Mass marketing in Real Estate hasn't been cost effective since 2007.  Mass mailing email lists to thousands of people is a waste of time, since there are a dozen other agents and websites that will do it for them.

The agents that are starting to roll are adding value.  Private open houses, active buyer lists with qualified buyers and very direct person to person marketing is working.  This will be the new reality for a while I believe and it will filter out the incomes of many agents even further.

Online and mobile marketing tools that reach directly to sellers and buyers are going to continue to grow in popularity and importance.  Why?  Simply put these tools allow the buyers to keep a bit of anonymity until they feel like they have met the right agent or found the right deal.

Agents will need to know everything about a property.  "It is really a great house" won't cut it anymore.  If the internet can tell the prospects more than you can, chances are an internet agent will get the sale.

An app for that?

While the big websites have mobile aps for their potential customers, individual offices and agents have been behind the curve.  New tools are emerging that will change that.

Getting listings may really have to go all the way back to door knocking, which in some areas is very difficult.  Agents will likely need to live in their neighborhood and really know everyone in order to get a listing.   Listings are going to be life for agents moving forward.

Agents who mass market will spend too much time chasing maybe's where the agents that hold the line and only work with qualified buyers are going to move homes.  Imagine someone knocking on the door with three familys that want in your neighborhood and an agent with three signs that have been up for six months.  Who do you want to talk too?  One moves homes, one has signs.

The tide is shifting.

The Big SECRET Of Buying A Foreclosure

With all of the information on the internet about buying a foreclosure, you wouldn't think there are any secrets left would you?  Now I have to ask, If there aren't any secrets, how come everybody isn't buying foreclosed houses at half price and getting rich?  There must be a secret to buying foreclosures.

Easy access to information online and a subtle change in the market have made for an interesting real estate market.  Right now many people are  getting information about foreclosures online without understanding what it means.  They look at NOD, REO and Foreclosure listings on sites like RealtyTrac.com and many consider them the same thing.  The first part of the secret to buying a foreclosure is understanding what these things are.

Last year the market was very different.  Stocks were up so investors were staying in the stock market.  One day, Warren Buffet says he would like to own thousands of single family homes and then investors started throwing money at real estate again.

At least once a week I get a call or a lead from a website that starts the conversation with "I want to buy one of those million dollar foreclosures for four hundred thousand that I saw on somecrazyforeclosuresite.com", when can I get one, and oh by the way it needs to be stunning, with a three car garage and ocean views."  Do those "foreclosure deals" exist is what they should be asking.

Under the right conditions, I can help you get one of those houses if you are ready to make a wholesale buy.  Otherwise, you might pay eight hundred thousand for a home that someone else paid over a million for.  The conversation then goes to NOD's and Pre-Foreclosures.  Everyone wants a deal and they think the deals are everywhere and they are for everyone.

Unlike most other markets, real estate presents a different level of risk.  Especially when it comes to speculation.   I usually start  with  "So, do you invest in stocks?" most of the time the answer is "Why?".  I then ask "Do you borrow money for investing in stocks on margin?"  That is usually followed by a puzzled look or silence on the phone.

When you buy a foreclosure site unseen and ask the bank to invest money, that is exactly what you are doing.  Right now, banks aren't really happy doing that kind of loan.  That is what "hard money" is for.

So what does all of this mean to you, and what is the Secret?

I said the first part of the Secret is understanding the terms.

1. NOD - Notice of Default - This is not a foreclosure.  All the filing of an NOD means is the banks told the homeowner that they aren't paying their mortgage and the bank would like their money.  They are also filing a copy at the county recorders office so they can eventually maybe someday start the actual foreclosure process.

Most of the NOD's filed are for people who are trying to get a better deal from their bank.  It is a tactic used to negotiate a reduction on the loan.

At this point about 1 out of 80 homes that get an NOD end up on the market, as a short sale, and at least a dozen agents will call in the first two weeks to get the listing.

2. Pre-Foreclosure.  This is where the home is easier to read.  By this point it is either for sale as a short sale and the owners are making an effort to get out, or they are running a gamble to see if the bank will go all the way to foreclosure.  The grey starts getting a little more black and white.  Picking up a house in this area that isn't already listed is highly unlikely.  I would put the odds in the 1000:1 range that you could convince an owner and a bank to sell you the house at a great price during this phase.

3. Foreclosure Auction Date Set - Well not really.  Even when the "auction date" is set a deal can be made and the home won't make it to auction or it can be delayed.

4. Foreclosure Auction - This is the cash only auction on the courthouse steps, not the auction at auction.com or Williamsauction.com.  Investors and banks bid for the house on that day.

At the auction there are two outcomes.  1. The bank bids to keep it or 2. An investors bids for it.

In the first case, this is where every agent that has a relationship with the bank scrambles to get the listing.  If the house is in good shape, the banks will clean it up to FHA standards and try to sell it at a "retail" price.  The home is good enough to get a loan on.

If the house is a dump, the bank then assigns a "wholesale" price, which is what investors are looking for. The house won't qualify for a "standard" or "FHMA compliant" bank loan.  You need cash or very expensive "hard money".  Unless you have a lot of time on your hands and are a good contractor, it is tough to get in as a wholesale buyer.

This is where the confusion is.  A lot of people think that they should be able to get a "normal" home loan and buy a house "as-is" and fix it up.   The reality right now is that banks are not allowed to, nor do they want to accept this risk.  The bank doesn't want to get the dump back and go through all of this again.  It is expensive.

This is where information without understanding is a problem.  People spend dozens of hours scouring sites to get a "deal",  and then they call an agent because they don't understand that buying wholesale houses is a business, not a hobby.  If you are going to borrow "hard money" at very high interest rates, you have to be dead on your budget and flip the house quick or get a good tenant in there fast.

Bursting The Bubble.

So now the big answer.  There isn't a secret.  When you see an investor make $5,000, $50,000 or even $500,000 on a deal, they didn't just work that deal.  They likely worked hundreds or even thousands of deals and offers to make some good money.  The more they practice, the better they get.  Like Art Williams says, they "Do It" a lot.

The big risk is that you might not make money for a while.  Day trading, you might make money in an hour, with home flipping or investing in can take weeks or years.  When you leverage with other peoples money. The upside percentages can be phenomenal and the downside can be devastating.

That isn't to say you shouldn't buy Real Estate.  There are always great deals once you learn the business, and with interest rates under 4% I feel strongly that it is time to buy.  Last year when I posted that the market had bottomed in Orange County along the coast, I dove in head first and bought the most expensive house I could afford at a short sale. 

So how can you put this market to work for you?

If you have the patience, the best way to come close to a wholesale deal is to buy a short sale.  A short sale means that you are going to buy the house for less than the bank is owed for it.  The average in Orange County CA is just under 300 days right now from open to close on a short sale.  Nationally it was 308 days last month.  That is why you need patience.  As a general rule, the closer you are to the amount owed, the faster the sale happens.

The bottom line is if you need to move anytime soon and are using the banks money, my advice is find the best house you can afford and be happy.  If you have some time and would like to trade that time for equity while hoping the loan rates don't jump up, take a shot at a short.  Finally if you have cash and aren't a professional investor, buy wholesale very carefully with an agent who has been an investor themselves.

Happy Hunting.

This Weekend In PCH Real Estate

This week in Real Estate along PCH in SoCal offered some interesting new listings and a change that I will be following closely.  The biggest change for me of course was bringing my marketing and business skills on board with my wife at Keller-Williams.  I have officially made the move from investor to agent/investor.


Back the the weekend notes, I found some interesting things, starting at the north end of OC.  The Seal Beach super home offered for $12 Million appears to have been taken off the market already.  After personally seeing the house,  I wish I still had the sheiks financial advisors number.  The house was fit for a king.  In fact I am still digging hoping to find that business card just in case. 


At the same time at the south end of my area in Corona Del Mar, not one but two Cameo Shores tear downs hit the market empty and running.  This is something I haven't seen in the nearly three years I have been monitoring the Cameo Shores and Cameo Highlands areas.  Just 18 months ago I was trying to put together an offer just under $2.0MM for a home that didn't even have a view just to get into that area.  The home sold before i could get a lender to commit.

The big news starts with an ocean front home sitting on a stunning lot that is going to auction.  It was originally listed at $14MM and had no takers for over 6 months.  The tax value is very low indication an original owner, so I am guessing the family for whatever reason just wants to sell it and get the money.  


The Auction information lists a starting price of $5.5MM making the property a smoking bargain.  The agent dropped the price to $9.9MM before the seller agreed to auction off the house.  If you are interested in more information call me, and I'll get you the details on bidding.  There are some great architects and builders in the area that could turn this property into a once in a lifetime buy.  

I think the lot at $5.5MM is a deal beacuse you could knock down the house or live in it.  There aren't many lots for sale at a price like this that include a livable house.  Just up the street off the water is a another original house with some great ocean views for $2.5MM.  

Having two homes in Cameo Shores at lot pricing isn't something that happens every day and both of them will likely sell this week unless the ocean front home has a high reserve at auction.  For those of you that don't know Cameo Shores, it boasts one of California's few private beaches.  There are three access points for the homes that are off water.  Several waterfront homes have a private path to the water.  

Both of the properties have a great opportunity to build some stunning subterranean space and create a very unique finished property.  For the short term the property might not be a huge profit move for an investor, but givin the current market changes, I'd bet my commission that by the time the new houses are finished they will be money makers.

Some time ago I said the sub $1MM bottom had hit Orange County, and the numbers are backing that.  Above $1MM there is still a lot of concern and homes are all over the board.  

In between Seal Beach and CDM there are a couple of nice new waterfront listings in the Huntington Harbor.  More than once I have heard the Huntington Harbor called the "half price Newport Harbor".  This might be true, a nice waterfront home with Viking Appliances and a 50 foot boat dock came on the market this week for $1.975MM.  Less than the price of the knockdown with a view in Newport. 

For buyers in the $1MM-$5MM market there are some deals to be had, digging for deals below $1MM is getting tougher every day.  Word on the street is the auctions have dried up at the courthouse and the banks are holding out.

If you are thinking of buying or selling along the coast in OC give me a call.  If you see something else happening, let me know your thoughts.

The Sub $1Million Bottom in Orange County Real Estate?

Lately we have seen a couple of interesting trends.  Homes that are below $1 Million and priced right are selling relatively quickly.  This  means banks are lending and closing.  This is a big difference after last year where 50% of the "Approved" buyers couldn't get funded and didn't close.  It was making agents crazy.  All that work and no commission.

Buyers were having fun either and many just gave up after one try.  Personally I had five "pre approved" loans when I made the offer on my house.  Three of the five cancelled my approval after the 17 day contingency period leaving me to lose my deposit.  Thankfully two kept moving forward, and yes I paid fees to all five of them.

At the very last second, the bank I was about to sign with backed out.  At the end of the day only one lender stuck it out and closed the deal.  My wife and I were not the listing or selling agents on the deal, and I can tell you that poor woman called almost every week to see if the banks were still going to loan.

The difference between me getting the house and the people that didn't close that month was simple.  I didn't quit when the first bank said "No".  Quitting isn't how you get a deal on a house, or any other kind of deal for that matter.

These days the above $1.0 Million homes are still soft, even if they are priced right.  When I say soft, they are closing more than last year, but they are sitting unless they are priced very low.  The spread between wholesale foreclosures/short sales and retail in the sub $1 Million home priced in Orange County and LA County is narrowing.  The $1.0 Million plus market is getting a little wider.  My guess is people are holding out longer and getting into more trouble, and banks don't want to dump those jumbo loans.

Sunday the L.A. Times had a pretty good chart that showed LA county was seeing a similar change.  Homes that were hit the hardest in areas like Lancaster were starting to see a little rebound.  The water front homes of Long Beach and Manhattan Beach were still falling although in single digits now indicating we are near a bottom.

I want to use a little caution here and say this isn't a "demand" bottom, rather it is an inflationary bottom.  What that means is that houses are just following the increasing prices of everything else.  While the Fed is still loaning money at record low interest rates, they are also printing it at record rates.  That is the real definition of inflation, more money available without an increase in supply of goods equals inflation.

That inflation is what we are seeing right now, and the benefit to the housing market is that the loans are worth less as the house prices follow inflation upward.  If the home market falls at 5% relative to the previous year and there is 5% inflation, the result is no change in home prices.  This looks good for the president in the short run, but sets us up for double digit inflation in the next couple of years.  Look back at the Carter-Reagan years.  Remember 18% home loans?

The second interesting trend reported by the National Association of Realtors last week was a significant drop in the number of "low ball" cash offers.  Another indicator that we have hit bottom and the cash buyers are looking for a different kind of deal.

Of course the banks still hold the wild card with over one million homes in the foreclosure process at some stage.  I don't imagine they will dump all of these homes at once.  Instead as the new foreclosure rates decline, they will start releasing a few homes for sale.  That is exactly what we are seeing in Orange County right now.

What is going on in your part of the state?

Save California Save Prop 13? Say What?

There is a lot of grumbling from Jerry Brown and the people in Sacramento we elected to work for us up there about Prop 13.  I agree in California we have a budget problem.  Everyone does and you can't overlook it.  I normally don't like to talk politics but this is an important issue for everyone that is being clouded by rhetoric and outright deception.  

Gov. Brown is blaming the budget problem on the rich and the land owners.  Specifically he says Prop 13 killed the state and county budget.  When a company loses money they borrow a little and then start cutting.  Thousands lost their jobs at airline after airline after September 11th.   Walk in to any airport and look at how many computer kiosks replaced people.  The line at the DMV is still around the corner every morning in Newport Beach Ca.

When a company can't pay it's bills, the state shuts it down and takes away the owners property.  Maybe it is time the Governor move into a FEMA trailer for a while.  After all he has had since 1978 to figure out how to lead a government and budget accordingly.  

Governor Brown is complaining that his credit card is maxed out and he needs more money.  If you or I do that the banks say no.  Our choices are simple.  1. Go bankrupt and lose everything, which I wouldn't do. 2. Negotiate a better deal with your creditors and workers, and 3. Work harder to add value.  Right now number 3 is the choice the Governor is overlooking.

Instead of chasing businesses out of the state that create jobs, maybe he should welcome them.  Make it harder to collect unemployment, and easier to employ.  That increases income to the state and decreases expenses.  Instead he cut the state employee roster just 1.3% while the state lost nearly 8% of the private sector jobs.  The private sector in some way shape or form pays all of the bills for both the private and public sector.

When the state of California Economy shrinks 20%, you can't cut 1.3% and expect to keep up.  That is simple bad fiscal management we all have to pay for, both now and later.  Since 1999 California's GDP is nearly off 50% according to the analysts at Chase.

Governor Brown anti business budget for 2012 chases businesses out of the state and yet he wonders why he can't get a budget increase.  That is like chasing your boss out of the room with a broom stick and promising the people standing there the TV's that he was carrying in.  

If you let the government raise taxes at will, two things happen.  The people that can really afford the taxes leave, or it turns out the taxes are just rhetoric.  Just look at the residents of Incline Village Nevada that are former California residents.  Or take a look at how little President Obahma's "Millionaires Tax" really created in revenue.  Tax hikes on the rich don't even scratch the surface.

We have to face facts, it is time to hold the elected representatives fiscally responsible.  That means we need to take their charge cards away.

Everyone knows that when you take out a loan for something the interest fees make it cost a lot more.  In California, cities have high permit prices to help pay for things like fire stations and police stations and schools before the neighborhood is finished.  Paying in advance is how investors get rich and states can do more with less money.  Politicians don't like it because they have to be responsible.

California wants to change things and the Governor says Prop 13 is killing his budget.  When home prices skyrocketed in 2006-2008 far outpacing inflation, you didn't hear any county or state rep talking about how they were saving or investing the new income.  What new income you ask?  Well, in 1995 I bought a home for $235,000 that the previous owners paid just $75,000.  That meant an increase in the tax income from my home of over 300% to the county.

Did the county save that money?  Over the next 4 years, 32% of my neighborhood sold.  Statistically in California from 2003-2008, at least 50% of the homes changed hands and increased the tax revenue to the locality 50% or more.  Many areas got 100% raises in tax revenue.  Did you get a 100% raise? Did you hear them complain?  Take a look at where the money went and you will quickly vote no and vote them all out.  

In 2000 the local schools attempted a bond measure.  I brought the increase in taxes due to the new neighbors to the meeting and the measure quickly died.  The school district didn't bother to tell anyone they had a 400% increase in income, and a 5% decrease in students over the previous 5 years.  

Don't be fooled by the man behind the curtain.

In California we have two problems. First we have a very high number of people who have "good jobs" working for the state.  Working for the government should be a service.  We should all give four years just so we can see how crazy people get when they are trying to register a car in the DMV line.

In many border areas, the "State" workers don't even live in the state.  With high unemployment, California is hiring out of state workers and contractors to do the job.  Why aren't we training people receiving benefits from the state to do these jobs?  The answer is simple. A free ride buys votes and Governor Brown depends on it.

Politicians are getting very good at pulling the heart strings and using the very unions they helped create against you.  You don't want to lose teachers do you?  You don't want to lose firemen do you?  Did you once hear "You don't want to lose your representative do you?" or "You don't want your representative to lose his government car do you?"  Why does he get a car and I have to pay to commute to work anyway?

Maybe "they" should start cutting the budget and start with their salary and benefits.  Maybe they'll quit chasing business out of the state and figure out businesses bring in money, so they don't have to keep raising taxes to pay their bills.

Just think all of this through.  If we repeal Prop 13 we all know taxes go up.  If taxes go up, house payments go up because most people have their taxes paid by the bank.  If people are having trouble with their house payments now, imagine what happens when the payments go up again.  Do you want your vote to cause people to lose their homes because the rent went up or the payment went up?  I don't, the banks don't and you don't.

Personal bankruptcies are still on the rise in California, let's not push anyone else over the edge.

Let's remind Governor Brown, and the other representatives in Sacramento who they work for.  Keep prop 13 and make them learn to manage money better so we cal all save California.  

Now I have to go find the website to donate to that Jarvis guy.

Orange County California Property Tax Collection Trouble?

A little birdie told me there is an impending problem in California.  This isn't about the foreclosures the banks are holding on to, but rather the bellwether that something else is about to happen.

It turns out California County tax collectors have a couple of problems this year.  First is that property values have fallen.  The lawmakers still hungover from the party, some still drunk from all the years of double digit real estate value increases are now crying the blues and asking for tax hikes.  Their mismanagement of money is our problem somehow.  For years, flippers where the states best friends, bidding up homes and driving up tax revenues.  The cities, counties and the state just sat back and spent like a college kid with a new credit card.

Now things are changing.  And the state is blaming the banking and real estate industry.  The politicians spent the money, not the bankers and real estate industry.

 The obvious thing is that home values are falling, and every time a home sells, so falls with it the income to the state, city and county tax collector.

What isn't obvious is the number of delinquent property tax bills.  This isn't easy information to dig up and compile without spending a lot of money.  It turns out someone did in Orange County California (where I live) and the numbers aren't good.

As the number of homes in tax default increases, the number of foreclosures are not far behind.  This is double jeopardy for the tax collectors and the honest tax payers.  Somebody still has to pay for all of those schools, roads, firemen and police.  It is tough to say out loud but a lot of people took pay cuts and lost jobs.  The government sector is going to have to own up soon.  Raising taxes won't fix anything.  There aren't enough "rich" to solve the problem.  It just sounds great on TV to "tax the rich".

Some areas of government can be cut temporarily but my source tells me this isn't an increase that represents a temporary problem, and the government has a very hard time cutting services at any level.

What does that mean for investors and agents?  It means keep an eye out for deals.  The banks have proven they are terrible at selling homes profitably, and the tax collectors don't have much experience either.  The worst case scenario is some back door deals or government giveaway that drags the entire market down further.

Like all crisis there is opportunity if you know what to look for.  This one is one that you can see coming which makes it an excellent opportunity for investors who can afford a buy and hold, buy and rent or are also contractors that can do very inexpensive work for a potential buy and flip.  The buy and flip will be pretty thin for the next 12-24 months as this settles out.  Banks won't keep letting people live in a home for free so deals will be out there.  Banks just got fined with a huge payout to the states, which some states are going to skim from to make up for the tax loses, further complicating the ongoing mortgage problem

As funny as it sounds, banks and the county offices need the help of experienced real estate agents, investors and speculators now more than ever.  That is really hard to admit for people who think the government should run everything.  As they realize the need for help and the need to cut budgets, look for some smoking deals to get put together at every level.

In every crisis there is opportunity.  This next 24 months is going to be a big one.

Home Shopping Season In Full Swing

This weekend the Southern California Coast was blessed with fantastic weather and more open houses than hungry homebuyers could devour.    Investors were still trying to figure out what is happening with the "mortgage deal" announced last week.  Already states are starting to dip in and take the money for their own use according the Huffington Post Article.

Investors are now watching to see how the banks react to the news they are being fleeced by the states and the homeowners aren't going to get as much as the banks and investors expected.

The word on the street though is that home loans are happening again.  Banks are still holding tight on continuing foreclosures and letting any real short sale deals shake loose.  Now that the banks are getting fleeced by the government for playing the game, they are looking very closely at everyone's ability to pay their loans.

Big companies can hire big law firms to move assets and spend cash to appear even more bankrupt.   Homeowners only have credit cards and auto loans to build up their proof that they can't afford their homes.  For many they are going to find out they are stuck.  A few will get lucky and renegotiate their loans.

With all of this going on, you wouldn't know the housing market wasn't hopping driving around Southern California.  Open house signs where everywhere with the occasional driveway hosting a moving truck.  Agents were working like it was 2005, and people were in the homes.

It is too early for me to put in writing that the home market has bottomed, but we are defiantly close and people are feeling a lot better about looking for and locking in their dream homes.

If you have the ability to get a loan, this might be a great time to get the house that you want at a pretty reasonable price.  My advice, don't stretch to thin yet, but start learning your market.  The time is coming soon when you will be looking at a deal that could be a great long term money maker.

Right now is a great time for a buy and hold or buy and rent strategy.  If you have the time and liquid cash, getting a foreclosure that needs some work can be a flip opportunity.  Step lightly here though since their are still thousands of home owners that haven't made a payment in years.  For now, the banks still hold the wild card.