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.

Are You Advertising For Your Agent?

How long has that sign been in your yard?  Are you advertising for your agent or are you selling your home?  The January sales figures are out and they are not good if you look at them for raw numbers.  If you dig a little deeper you see three different stories developing.

The first story line is aggressive agents promising low commissions and high prices to get signs up.  This makes them look busy and makes them look like they "own" part of an area.  At the end of the day though, most of those "sellers" are simply advertising for the agent whether they realize it or not.

During a recent meeting with a potential seller, he asked "How come {Agent X} has so many more listings than your whole office?".  My answer was simple.  "How many days have those signs been up and when was the last time you saw one of our signs go over a couple of months?"  We sell homes, the other agent lists homes.  The more agents I talk to around the country, the more we are seeing this phenomenon.  It might be partially the sellers fault though.

The second story line is about the sellers.  The average listing price per square foot took a big leap at the end of the year, and the number of new listings dropped.  Some sellers saw a market rise last year and simply said "Hey if I can get $XXX for my home, I'll sell it." so some agent slapped up a sign and there it sits.  Other sellers decided that it was a good time to sit and wait a bit longer while prices keep rising.  Fewer listings and fewer sales equals a stalled market.

The third story line is about the buyers and their banks.  New rules limit how much a house can go up in value when an investor buys it to sell it in less than six months.  The quick clean and flip is essentially gone.  Also the FHA changed the minimum down payment to 5% but does allow a "gift".  Some banks are using seller points to offer some similar programs that help with closing costs and down payments.

The real problem here is a combination of cash and credit.  Even with rates hovering in the 4% range, banks are still quite cautious about a buyers real income, and many buyers simply don't qualify.   More simply don't have the spare cash for closing fees and a downpayment making it an excellent investment market for those who do.  Rents in many areas are very close to PITI payments on the day of closing.  Normally it takes 5 years or more to get positive cash flow out of a rental.  Now If you buy right you can have positive cash flow day one.

If you want to sell your house, the NAR statistics show a couple of interesting trends.  The homes that are priced right sell within 10 days or 10 showings.  If they don't, they are overpriced.  If you want a top of the market price, you are likely going to pay top of the market commissions for a very aggressive marketing campaign by your agent or you are going to end up being a billboard for them.

Another option is to price low and take the high offer.  The risk here is not paying enough commission for great marketing to get the best price.  The MLS alone won't do it.

At the end of the day as a seller, it is your choice.

For more information about buying or selling a home feel free to call, email or post a question on my Facebook page.

Is A 4% Home Loan A Good Deal?

It is amazing how many people think rates will keep dropping.  Personally, I think the printing press economics of the Obama administration are going to catch up with stagflation like we saw in the late 70's and early 80's.  I think that Obama is handing his replacement a bigger economic mess than Carter handed Reagan. 

So is 4% a good deal?  If you are in investor, the question is can you make money with it?  Or can you sit on the property until you can?  If you are a home buyer the real question is, can you afford the payment?  If you can answer yes, then 4% is a good deal.

As a Real Estate investor and agent, anything below 4% is a smoking deal when it comes to financing real estate.  Why?  Inflation has been historically calculated at 3% per year.  Since the loan is fixed at 4%, as the home increases in value, the money is essentially free after just a couple of years.  On a 4% loan, nearly half of the payment is going directly to the principle.  You don't get much of a tax deduction but you get a great savings account in your house.  It might even be tax free or tax deferred.

I bought my home at 4% and refinanced at 3.25% a year later.  I did it because if rates went up to just 4.5% I couldn't get the loan for my house.  Remember the late 70's and early 80's?  If you don't, loan rates jumped from 8% to 14% and peaked right at 18%. 

The trick to surviving in the real estate game is to leave some wiggle room.  When money was really easy to borrow from 2004 to 2006 home prices went up based on greed, not economics.  People bought what they couldn't afford on the assumption they could use their home like an ATM and just keep taking money out to keep up with the bills.  Bad plan.

Think of it this way.  If you have a home with a $1000 monthly payment, over $400 is being used to pay down the loan on a 4% loan.  If you had the same loan at 8%, you would have a $1480 monthly payment that still only paid $400 of your loan that first month.  When prices go up or interest goes up, rents usually follow.  If you get transferred in just two years, and rates climb to 6%, the chances are good you can rent the house out for a nice profit.

At 4%, a $200,000 home only needs to rent for $600 a month to cover your real expenses.  Remember, the other $400 is buying you a house.  Think of it as a forced savings account.  If you can afford it, historically it is much better than a savings account.  If you rent it for $1000 per month meaning you have zero cash flow, you are still growing your equity at $400 per month plus the increase in the home value.  That is free wealth.  After five or ten years if you can rent it for $1200, then they are buying you a home and you are getting $200 a month for letting them do it.

So is 4% a good deal?  That is all up to you and your goals.

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".

SoCal Heats Up And So Does Real Estate

Small swings of a pendulum can make big changes.  In Real Estate you can see that happening right now in my little micro market of the Huntington Harbor at the far north end of Huntington Beach.  Three years ago if a home hit the market it was a short sale, auction type deal.  The house would be held open for a day, and the best offer was taken to the bank.  It could take 30 days or 18 months to close escrow.

I bought one of these homes at bargain basement prices.  It wasn't nearly as easy as you would think though.  There was at least one if not two or three houses on each street either for sale, in escrow or waiting for bank approval.  Several owners gave up and walked away.

Almost 24 months to the day after I closed escrow on my home, Huntington Harbor is an entirely different story.  Instead of for sale signs, there are contractors signs on every block.  Homes that sat for $1.8 Million on the market for a year, are now bulldozed and a new home is being built in it's place.

There is a minor renaissance occurring, so the question is what really changed in 24 months?  Unemployment is still high, interest rates are low and yet credit is still tight, so what is happening here?

The answer is the pendulum swung across the middle.  Interest rates dropped making real estate more appealing to investors.  I just refinanced my house at 3.25% on a 30 yr fixed rate.  That is cheap money when Coca-Cola stock was recently yielding 3.62%  If you have the cash, buy Coca-Cola, get a loan on the house and make a little on the spread.  Small changes make big shifts.

Additionally, once the foreclosure rush was over and prices stabilized, fewer people were allowed to short sell their homes so they just took them off the market.  Fewer homes on the market led to slightly upward price pressure.  Gently increasing prices last fall caused more people who where thinking of selling to hold out as the last few foreclosures sold.

By late winter the prices of off water properties started to rise, followed quickly by the waterfronts.  All that was needed was a "breakout property".  The breakout property is the property that sells at a price high enough everyone notices.  Two of them happened at once.  A large very nice custom broke the $3 Million mark, and a tear down broke the $1.6 Million mark.

Those two breakouts added enough confidence that fences started going up and remodeling was up and running in a big way.

I could see all of this happening just walking my dogs and paying attention to the neighborhood.

As some of the remodel project near completion, the moving trucks tell us they aren't selling.  This gave just enough confidence to the market that several homes were listed at near 2006/2007 peak prices.  Two already have gone into escrow.

We won't know for 30 to 60 days if those houses sold near, at or even above the peak value, and if one of them breaks out, you can bet the wave will spread inland.

I have been saying for two years, that if you are thinking of upgrading, now is the time.  Prices are rising, interest rates are at record lows.  If you are thinking about moving and aren't sure about it, give me a call.  If you are living in or looking in Huntington Harbor, Huntington Beach, Sunset Beach or Surfside, give me a call.

If you live outside that area, I can find you someone that can help if you don't already have an agent.  Take advantage while you can.

If you are planning to downsize, then waiting might not be so bad.  That answer depends more on your long term tax situation.  The more you make selling, the more you will pay in property taxes on your new place for as long as you live there.  Make a little less now, or pay a lot more forever?  You decide, and then call me if you have any questions

Huntington Harbor Sunset from my iPhone, no tricks...

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.

2013 Real Estate Market - Looking Forward

The Real Estate Market is shifting once again.  At the start of 2013, we are moving into really new territory.   Many other pros are a little unsure of where they are going with the 2013 Real Estate Market.  When I say pros, I mean agents, brokers and investors.  A salesperson from one of the major real estate websites called me, asking me to “fill in a great spot” that just opened up in my section of Orange County.  That call led to a very interesting conversation.  Because of that conversation, I decided to write about my observations as a buyer, investor and Realtor©.

It turned out that one of my major competitors and two smaller ones were pulling their ad campaigns from his company’s website.  During the conversation, he made a funny comment.  He said, “It is just like all the agents have decided to roll over and die.  They are all giving up.”  That got me thinking.

He was right in more ways than he realized.  He was also missing the real issue.  It isn’t the agents that have died, it is the market.   Yes many agents are leaving the business, but that isn’t the big issue with todays Real Estate Market.

In the area I focus on, my “farm”, listings are nearly zero.  Three years ago there would have been 20-30 signs at any given time.  Last weekend, there were just four.  Three of these are simply over priced which will require a very willing cash buyer.  I even like one of the homes, but it is priced too high and out of my budget.  Three of these homes also have been on the market over a year, one of them over two years.  The home that has been on the market the longest is held open just about every weekend now.

That house is an odd case.  It really is a great home and it is in a great location.  The problem is that it is a “middle house”.  There are significantly nicer homes and a few “fixers”.  The cash investors are buying the “fixers” and the cash buyers are going for broke.  My guess is they agree with me on inflation.  I think Real Estate is a better hedge against long term inflation than gold.

In a high dollar market like Orange County California, there is another issue.  Lenders aren’t lending the way they used to.  The ratio’s that we as agents learned to use for the past five or ten years are no longer valid.  Higher credit scores are required just as much as lower payment ratio’s.  

Being self employed, my income is avaeraged.  When I bought my home, I had a 52% ratio. That means the day I bought the house, 52% of my take home pay was going to be used for the monthly payment.  While that sounds crazy, it really wasn’t, if I was right. 

The bet I made was that the market prices had bottomed, interest rates were near bottom and I was buying my home below market due to the sellers stress.  So far it looks like I was right or lucky.   I bought into this market with a fixed rate loan, and knew that my wife would be going back to work bringing the 52% closer to 40%.  

Today, that kind of loan isn’t going to happen.  A payment to income ratio with 40% of take home pay for the house payment would be considered quite high now.   A couple of the loan officers I talked to at the big banks are saying they would like to see 30-35% ranges.

If I were house shopping today that means that I wouldn’t be able to buy anything close to what I live in now.  

This is the root of the problem with the Real Estate Market, not the agents.

When you take out “liar loans” and cut the maximum payments, you can see why the average buyer isn’t buying.  You can also see why sellers aren’t selling.  Nobody can move up.  The few people who I am lucky enough to talk with about listing their home are usually moving inland to lower priced property or out of state because of our new taxes.

House prices are creeping upwards here in Orange County, and I believe this is due to simple inflation, not a recovering market.  Days on Market is usually a great indicator to tell the status of the market.  That number is dropping, which in “normal” markets would indicate a move to recovery.  In this case, it is merely a symptom of the shrinking Real Estate Market.

What does it all mean, and when will the market recover?

For buyers, it means you need to be prepared.  You need at least one if not two loans pre-approved before you even start shopping.  Why?  Because when your agent does find you that house, you’ll need to move quickly before the seller changes their mind or gets an offer from someone better prepared to buy.  Sellers that do sell aren’t playing games and have cash offers lining up.

For sellers, it means that you also need to be prepared.  You should clean up the house to get the most you can for it, and be ready to move when a good offer comes in.  You also need to be ready to find out the buyers really can’t buy.  Even two pre-approvals may not get a loan these days.  

Sellers also have the advantage of being able to select from many hungry agents who are getting back to work.   Some are still figuring out the new rules and others are out door knocking for listings.  Either way, sellers need to be careful.  An agent trying to sell a home under last years rules won’t get you the best price or deal you can get.

There are still a few lazy “experts” that live in an area and have a listing or two.  If you do a little homework before listing your home, they are easy to spot.  All you have to do is read their listings and look at the details.  Don’t select an agent because they are your friend or neighbor, select an agent who will work for you.

When other agents are looking at the wrong information on the MLS, your house is going to have a hard time selling.  Recently I previewed a property after receiving several calls about it.  From the MLS data, the home was a deal, and I had a cash buyer who would be very interested.  While doing my research, I found the listing agent listed the monthly land lease of $4,000 as the annual lease.  Even after I pointed out that he had understated the annual lease by $44,000 he left the listing as is.  $44,000 per year is an entirely different category of buyer in this market.

For agents, the 2013 Real Estate Market means you have to go to work.  Not work like 2006 where you could plug a sign in the ground, and write a contract.  Work like really knowing your buyer before ever start shopping for them.  Anyone can surf the internet and find houses.  Our job as agents is to represent the buyers and find them a home, investment and help them fulfill dreams.  Todays challenge isn’t selling a home, it is fighting for the listing.  

Working with buyers is a whole new dynamic of research.  Knowing your area is key, and knowing when to let go of a buyer is also a skill many have forgotten.  When buyers are willing to go anywhere, you can’t help them.  Even thirty year veterans like my mentor can’t know every area in Orange County.  

While all of this is bad news for the local Real Estate Boards, since membership will likely continue to decline for the next two years or so, it is good news for agents willing to work.  Full commissions will be justified as you become the expert helping buyers and sellers navigate the overload of information and correct the misinformation from the internet and the press.

Like all things, the 2013 Real Estate Market will come and go, and next year will be different.  For now, hold on, it is going to be a rough ride.

Authors Note: Scott Bourquin is a Real Estate Agent and investor with Keller Wiliams Realty in Newport Beach California representing the Orange County Coast.  Not all areas will experience the same Real Estate Market.

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.

Waterfront Auction Ends Today

The current real estate market can have some real interesting deals happen.  In the go-go days of 2004-2006, super luxury and unique homes were auctioned off quickly and easily.  Today many auctions don't even attract a buyer if the home is over $1MM.  Other times the banks are putting such a high reserve that nothing happens.  


I am not talking about the foreclosure auctions on the courthouse steps, rather I am talking about the big auction houses online and offline.  Last year I was the high bidder on several properties with bids under $50,000 and the banks wouldn't let me have them.  That was my first clue the market was turning, or at least the banks thought they could stop the dive by not letting homes go so cheap.  I don't know why they stopped taking any bid but they did, and it has been that way ever since for homes that are a FHA qualifying prices.


When you break $1 Million though, the rules are still all over the board.  Family greed and squabbles do funny things at estate auctions.  For probate, the courts are just telling the trustees to sell, and I am seeing some movement in those markets.  Even the short sales of homes over $800,000 have seen a decrease in the average closing times.  So where does that leave us today?


In Corona Del Mar California I have been watching a certain auction with a keen sense of interest.  Originally the property was listed at $14 Million, then over time lowered to $9.9 Million.  As an agent in the area $9.9 Million was a good starting point but it had been on the market so long the buyers just weren't interested for whatever reason.


The trustee decided to send it to Auction.  The property is one of the few original ocean front homes left in Southern California that hasn't been knocked down.  Walking the property I could clearly envision a new Tuscan style home featuring a subterranean garage.  I started emailing all of my clients who might consider such a project.  No interest at all.  One said "That isn't where the money is going."  Now I knew this would be interesting.  That came from a pretty savvy investor.

After really walking the property, and noticing all of the little details.  Details like the kitchen with the polished concrete floor still scarred by the tile squares, and the white washed wood vaulted ceiling in the master, and the 1960's style electrical light dimmers with clear switch plates, my wife looks at me and says "I could live here just like this."  With the opening price of $5.5 Million, it was clearly out of this weeks budget so I knew it wasn't going to happen at this auction.  I put a couple more feelers out to my friends who could write a check like this while I was admiring the view from the back yard.

My wife is always the romantic when it comes to homes and real estate.  I am generally more business.  Somehow I started to picture myself sitting in a wicker style chair writing my next book on the back lawn overlooking the Pacific.  I wrote my first book sitting on a balcony of my Texas McMansion overlooking a lagoon pool with a tropical garden as the backdrop.  How much cooler would it be to be sitting on a cliff above the Pacific writing that next book that is swirling around my head.

As I checked in this morning, the property was just approaching $6.0MM.  As an investor, that is still a bargain with a lot of room to make money.  As I write this there are just over 10 hours to go so I am interested to see if this is like poker and the two real bidders are waiting in the wings to make a snipe attempt at the end or if some lucky person is going to get a once in a lifetime buy on this land.

If I could just get that big advance for the next book or find a .05% interest only 5 year loan, I would buy it for $6.0MM and worry about it later, and that just isn't how I do business, there is something romantic about this property.

If you want to see it or bid on it in the next 10 hours, call me.

Overwhelmed by Real Estate and Don't Know Where to Start?

Sitting out on the balcony at a nice resort after a weekend of Real Estate Investing seminars is a very refreshing break.  After two full days of listing to people talk about how to be a better investor and talking with several people about their investments I am glad to just be sitting alone with my thoughts on the balcony.

Once in a while people will walk by and look up, probably wondering why I am not at the bar or out at the pool, but other than those few wandering souls it is pretty quiet up here.

Having been “investors” part time for nearly 20 years, my wife and I decided to step it up a little this year and put more money where my mouth is.  On Beach Street News, I called the bottom of the Orange County Market just after buying my current home.  From what I heard over the last two days, Phoenix and Las Vegas also appear to have bottomed.  This is great news for everyone.

We came here to learn how to “wholesale” property.  Wholesaling means that I find property really really cheap I do all the negotiating and get a contract on the property.  I find property that nobody else wants because they can’t figure out it’s value or it has been marketed wrong.  

Next,  I use my marketing skills to reach out and find buyers that want to make 15% on their money and have it secured by real estate.  I make somewhere between 5% and 12% on the deal.  My buyer is still getting a smoking cheap property, and I help them with the fix up, rental and maybe even find them a property manager.

If you are asking “How do I buy one of those deals from you?” the answer is simple, send me an e-mail with how much cash you can come up with and when, and I’ll build the deal.  No financing just cash.  As the old saying goes, “Cash is King”.  Banks and distressed owners don’t want any risk in the deal if they are going to let the property go at a 35%-50% discount from retail value.  You gotta have cash.

Many of the people here were seasoned investors so I learned some new methods I had never heard.  I also saw some wide eyed people who were totally overwhelmed by the whole idea of having to buy and sell a property in 14 days in this market.  Some didn’t even own their own home and had no idea about title, escrow, attorneys and agency fees.

The guy hosting the seminar was Dean Graziosi, the de-facto king of Real Estate Informercials.  As hard as Dean tried to cater to all levels at this event, there was a small group of about 15% who were totally overwhelmed and lost.  One lady even lost a small fortune using a competitors “system” which was a joke the way she explained it to us.  

I am sure at least one person is wondering why I would pay an infomercial guy to learn about investing in real estate.  I met Dean about a year ago at an event not related to Real Estate and was impressed with him as a genuine expert, and more importantly as someone who wanted to see the people who paid him succeed.  I felt like he was a guy who could help my wife and those who are close enough to me that I can’t teach them.  So I bought a small program that included tickets to the event which also let my wife start learning more on Dean’s website.  This afternoon, it was clear that Dean was a little disappointed to see how many people at this event had read the books and never “done a deal”.  

My wife is very keen to these things from her 18 years of class room teaching experience and introduced or pointed out several people who were clearly stunned over the weekend.  Noticing that isn’t easy in a room of 200 or more people.  I really didn’t want to speak at all during the event and was able to keep my appearances on the microphone down to one.

At the end of today I snuck out a little early to enjoy the resort pool and while I was working on my sunburn, I realized that I should have got on the microphone one more time.  I laid there thinking that I might be able to help the people who where still in shock.  They all had the same problem.  They needed a “simple” place to start.  Something that would take the pressure of the 14 day wholesale deal off of their shoulders.  To Dean and the other Pros, this was easy stuff.  Enough people got it to the point that it felt easy across most of the room, but not all of the room.

What I needed to say was this:

Keep in mind that every investor in here started with just one deal.  Wholesaling is not how Dean started.  I personally haven’t yet wholesaled a deal, and as an agent, I may never be able to wholesale a single family home.  Luckily the commissions are about the same as the “spread” on a wholesale deal, so I just need buyers ready to jump.

What I did, what Dean did and what many people in the room did, was start with one deal on one property.  In fact, I think we all started out purchasing a place that we lived in, fixed up and later rented.  Chad, the youth pastor with the “Buy and Hold” strategy started there and stayed there.

If you don’t own a home today, before you even become and investor, I would say go buy a home.  Find a Realtor like Kelly and go buy a government owned home in the 14 day window where investors can’t get it.  Start with a deal there.  If you own a home, even better.  Rent the house you live in and go buy another home with little or no down through one of the government foreclosure programs like Homepath.com.

Start with your house and your first rental.  Even if you get a Homepath house, you only have to live in it for a short while before you can go get another one.  When you have one home and one rental, you are learning lessons of business, property management and real estate investing the way Dean, Chad and I all learned it. 

The big difference is you can read about our headaches in Deans books so you at least know what to expect and how to avoid most of them.  With that experience, you are ready to come to a seminar like this weekend's E.D.G.E and start learning more advanced methods of presenting offers and doing deals faster.

Start with your house, and your first rental.  Use a Realtor As soon as you have done that, you are a real estate investor without any doubt.  You’ll know it, I’ll know it, Dean will know it.  You might not be any good at it yet, but now you have experiences to help you ask the questions and really learn from the pros here.  You can really step on the gas and accelerate your learning curve at an event like this if you know how to use it.  Until you do at least the first deal, it might all be jargon, gibberish and $2500 out of your account.

Read the books, buy a house, then buy another and rent the first, and you have just done what took me 3 years to do in less than a year.  Do that and next year, this event will be fun and you will learn a lot more, and be even better the year after. 

If you are dead broke, I mean really have no money, find someone in this room who lives in your city and intern with them on a per deal commission basis.  Learn how to “bird dog” one deal for them.  The first one will take time, and you won’t make much money.  The second will go faster, the third even faster.  After they have paid you for bird dogging three deals help them find buyers.  After you have helped them find 5 buyers.  GO DO IT FOR YOURSELF.

If you commit right now to doing one of those two things. Better yet if you commit to doing BOTH of them, when you get here next year, I guarantee you will be having a lot more fun, and making a lot more money.  

It is your choice.  What do you want to say when you are here next year?  “I did nothing” or “I helped Kelly with three deals, helped her get 5 buyers, bought a house and bought my first rental and now I make $200 a month more than I did last year.”  

You can’t even walk across the street unless you take the first step.  Start walking.

Maybe next year I’ll grab the microphone just one more time and say it, that is unless I am too busy making deals on my iPhone to leave the beach.

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?

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.