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October 31, 2009
As we have mentioned in various posts and on our site ( www.wealthbuildingpro.com ) we enjoy helping people get started in real estate investing. Over the years many of the questions we get are the same or at least very similar and as time goes by we will take stabs at answering all of them in posts or articles. Our goal is to provide a one stop shop for new investors to answer their early questions on the road to real estate wealth.
However, on occasion we get asked a question that we just have to write about. Today we were asked by a new/potential investor what they should do with $200k. First off that is a ton of cash and you could do a lot of things with it. After asking a few questions we learned that this new investor is very conservative and had planned to just buy a house cash and have no mortgage. In our mind the investor would be house rich and cash poor.
This is certainly one option and one that this new investor (home buyer) may move forward with. As you might imagine we had another recommendation.
The following is a rough outline of what we recommended as a second option for the 200K.
1) Take 40K and buy the 200K house with a 80% mortgage and get a 30 year fixed rate loan as close to 5% as they can
2) Then we recommended the client focus on buying 4 – Duplexes over the next 12-18 months. The goal being to find Duplexes that need some work and can be purchased for under 75K and produce greater than $1,300 in income each. Depending on rates (currently around 6.5%) and required down payments we estimate cash flow will be greater than $500 each once repaired and leased.
3) We estimate that depending on repairs and other miscellaneous costs the investor should be left with 20-30K in cash that they can tuck away for unexpected costs of being a landlord or new home owner.
The strategy above does a couple of things.
1) It produces a positive carry of over $1,000 a month (2,000 in Cash Flow from Duplexes - $750 Mortgage Payment from primary house)
2) It creates a larger foundation or real estate for when inflation picks up
3) It enables the investor to safely take advantage of the market while it is depressed (Buy Low – Sell High)
In the end we don’t know if the investor will become an investor or decide to pay cash for their primary house. However, we feel good about providing the alternative option.
Thanks for reading
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Saturday, October 31, 2009
Thursday, October 29, 2009
Our Top 5 Real Estate Investing Books
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October 29, 2009
For those of you new to our blog or our website (www.wealthbuildingpro.com) we are primarily buy and hold investors who target under valued or distressed properties.
Like other active investors we are constantly looking for new material to read and review. We do it not so much to find new ways of investing but more to hear other stories, challenges and deals. We are happy to read a book just to get further validation but when we can learn just one thing it can put thousands of dollars in our pocket, which is what we really like. We estimate that we have read 100+ investing books to date and average about 2 a month. Without further a due here are our top 5 Real Estate Investing Books:
1) Investing in Fixer-Uppers by Jay DeCima
2) How I turned $1,000 into $5 Million in Real Estate in my Spare Time by William Nickerson
3) Investing in Goldmine Houses by Jay DeCima
4) The Millionaire Real Estate Investor by Gary Keller
5) Equity Happens by Robert Helms and Russell Gray
The keys behind each of these books were the author’s review of past deals and details on what it took to be successful over the long term. These are not get rich quick stories but instead offer principals the average investor can leverage in today’s market.
Get Educated and Take your Shot
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October 29, 2009
For those of you new to our blog or our website (www.wealthbuildingpro.com) we are primarily buy and hold investors who target under valued or distressed properties.
Like other active investors we are constantly looking for new material to read and review. We do it not so much to find new ways of investing but more to hear other stories, challenges and deals. We are happy to read a book just to get further validation but when we can learn just one thing it can put thousands of dollars in our pocket, which is what we really like. We estimate that we have read 100+ investing books to date and average about 2 a month. Without further a due here are our top 5 Real Estate Investing Books:
1) Investing in Fixer-Uppers by Jay DeCima
2) How I turned $1,000 into $5 Million in Real Estate in my Spare Time by William Nickerson
3) Investing in Goldmine Houses by Jay DeCima
4) The Millionaire Real Estate Investor by Gary Keller
5) Equity Happens by Robert Helms and Russell Gray
The keys behind each of these books were the author’s review of past deals and details on what it took to be successful over the long term. These are not get rich quick stories but instead offer principals the average investor can leverage in today’s market.
Get Educated and Take your Shot
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Investing in the Fresno Market
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October 29, 2009
As we start our series of postings on how we see the Real Estate Investing (REI) market in Fresno it is probably best to see where we have been, because any single point does not make a trend.
First off it should be noted that we have been investors in the Fresno market for 7+ years (been a crazy ride) so we have some experience. It should also be noted that we put our money where our mouth is as we have picked up 11 properties in the last 10 months. We focus on fixer type properties that need work in decent older areas. We avoid war zones and areas where we would feel unsafe getting out of car at night.
We look for deals everyday and are always looking to expand our network of experienced real estate professionals. If you support the Fresno/Madera market we would love to hear from you. Go to www.wealthbuildingpro.com for contact information.
On to the topic at hand: The current market.
In today's market it goes without saying that the lower end of the market is much stronger than any segment, especially when you compare it to 6-9 months ago at the peak of the financial storm. It is our opinion that at the beginning of the year the banks wanted CASH and they wanted it in a BIG way so they took some cash deals that they wouldn't take in today's market. SO if you were active during this window good for you, but that market is gone!!!!
As active investors we have to ask ourselves is this a short term buying storm caused by $8,000 tax incentives, low rates and limited new foreclosures (not to mention the summer buying season has just passed) or is this the new trend upward (or at least flat).
We obviously have no information outside of what we read but it is our opinion that we are in an artificial market that is acting like it is on a sugar high. When this wears off we will again test the lows of earlier in the year. We see all the pending and back up properties in the MLS which makes the available inventory look almost non existent (in our desired markets). How can this be? 6 months ago you could buy a vacant 3/1 REO house that needed work for around 50K, but today it probably would take 65K to 70K (For you math wizards out there that is a 30%+ increase inside of 6 months).
Can a 30%+ increase inside of 6 Months be healthy? I think you know the answer to that, "No".
So either what will prove to be the bottom was artificially depressed (certainly possible) or the sudden spike is artificial. It is our opinion that you can not have both.
So what is an investor to do when faced with a tough decision? Do you double down now and bet the market is racing back to replacement cost or do you take a deep breadth and pause for a few months and see what happens. Both options are risky and could cost you lost wealth.
We propose that you ask yourself a couple of hard questions and then decide:
Have Foreclosures peeked?Will the 8,000 Tax incentive be extended or enhanced a seond time?Has unemployment hit bottom in Fresno?Is net migration to Fresno up or down?Where are interest Rates going?Is Inflation around the corner?
No one every said investing was easy. But it certainly is fun.
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October 29, 2009
As we start our series of postings on how we see the Real Estate Investing (REI) market in Fresno it is probably best to see where we have been, because any single point does not make a trend.
First off it should be noted that we have been investors in the Fresno market for 7+ years (been a crazy ride) so we have some experience. It should also be noted that we put our money where our mouth is as we have picked up 11 properties in the last 10 months. We focus on fixer type properties that need work in decent older areas. We avoid war zones and areas where we would feel unsafe getting out of car at night.
We look for deals everyday and are always looking to expand our network of experienced real estate professionals. If you support the Fresno/Madera market we would love to hear from you. Go to www.wealthbuildingpro.com for contact information.
On to the topic at hand: The current market.
In today's market it goes without saying that the lower end of the market is much stronger than any segment, especially when you compare it to 6-9 months ago at the peak of the financial storm. It is our opinion that at the beginning of the year the banks wanted CASH and they wanted it in a BIG way so they took some cash deals that they wouldn't take in today's market. SO if you were active during this window good for you, but that market is gone!!!!
As active investors we have to ask ourselves is this a short term buying storm caused by $8,000 tax incentives, low rates and limited new foreclosures (not to mention the summer buying season has just passed) or is this the new trend upward (or at least flat).
We obviously have no information outside of what we read but it is our opinion that we are in an artificial market that is acting like it is on a sugar high. When this wears off we will again test the lows of earlier in the year. We see all the pending and back up properties in the MLS which makes the available inventory look almost non existent (in our desired markets). How can this be? 6 months ago you could buy a vacant 3/1 REO house that needed work for around 50K, but today it probably would take 65K to 70K (For you math wizards out there that is a 30%+ increase inside of 6 months).
Can a 30%+ increase inside of 6 Months be healthy? I think you know the answer to that, "No".
So either what will prove to be the bottom was artificially depressed (certainly possible) or the sudden spike is artificial. It is our opinion that you can not have both.
So what is an investor to do when faced with a tough decision? Do you double down now and bet the market is racing back to replacement cost or do you take a deep breadth and pause for a few months and see what happens. Both options are risky and could cost you lost wealth.
We propose that you ask yourself a couple of hard questions and then decide:
Have Foreclosures peeked?Will the 8,000 Tax incentive be extended or enhanced a seond time?Has unemployment hit bottom in Fresno?Is net migration to Fresno up or down?Where are interest Rates going?Is Inflation around the corner?
No one every said investing was easy. But it certainly is fun.
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Today’s Metric and what it means? 14.5% of homes are vacant!!!
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October 29, 2009
There is no sugar coating this number. This is really bad news for Real Estate, Banks, the Financial system, our Recovery, etc. Why you ask?
Do you know why most houses are vacant in our opinion? Because people have given up and just moved, because banks are sitting on homes and not foreclosing because it keeps them from recognizing a loss, because people can’t rent them for a profit, etc. No matter how you slice it this number is bad and based on today’s reading it is getting worse not better. We suspect the more vacant housing you have the more foreclosure you will have and the more depressed pricing will be. 2010 is going to be a rough year but we need to get through it and come out stronger.
As you hear on TV all the time, real estate numbers are getting less bad. The whole second derivative argument for why we are turning a corner. Let us be the first to tell you that the market is not getting better and it will not get better until we turn this vacancy problem around. Fewer vacancies mean people can not only choose to live there but they can afford to live there.
Things are going to get worse before they get better. We need to stop building homes and create incentives to turn the current inventory into useful housing or just knock them down and recycle the material for better use. Our vacant and boarded housing stock becomes a problem that brings all kinds of unhappy things to neighborhoods.
On another related topic do you want to know why the Case Shiller index is up the last 3 months? The answer is unfortunately simple. Last year we were foreclosing on a sub prime home that was at the lower end of the market and now we are foreclosing on the move up and luxury market. Even if you sell the move up house for 50% off it will still raise the Case Shiller index because that 200K sale this year was a 90K sale last year so the average looks better.
Just track the transaction volume and months supply to see how we are doing because the “average” sale this year is very different than the "average" sale last year and it can be very misleading.
We need to think of programs to turn this vacancy number around!!! More jobs would be a good thing ...
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October 29, 2009
There is no sugar coating this number. This is really bad news for Real Estate, Banks, the Financial system, our Recovery, etc. Why you ask?
Do you know why most houses are vacant in our opinion? Because people have given up and just moved, because banks are sitting on homes and not foreclosing because it keeps them from recognizing a loss, because people can’t rent them for a profit, etc. No matter how you slice it this number is bad and based on today’s reading it is getting worse not better. We suspect the more vacant housing you have the more foreclosure you will have and the more depressed pricing will be. 2010 is going to be a rough year but we need to get through it and come out stronger.
As you hear on TV all the time, real estate numbers are getting less bad. The whole second derivative argument for why we are turning a corner. Let us be the first to tell you that the market is not getting better and it will not get better until we turn this vacancy problem around. Fewer vacancies mean people can not only choose to live there but they can afford to live there.
Things are going to get worse before they get better. We need to stop building homes and create incentives to turn the current inventory into useful housing or just knock them down and recycle the material for better use. Our vacant and boarded housing stock becomes a problem that brings all kinds of unhappy things to neighborhoods.
On another related topic do you want to know why the Case Shiller index is up the last 3 months? The answer is unfortunately simple. Last year we were foreclosing on a sub prime home that was at the lower end of the market and now we are foreclosing on the move up and luxury market. Even if you sell the move up house for 50% off it will still raise the Case Shiller index because that 200K sale this year was a 90K sale last year so the average looks better.
Just track the transaction volume and months supply to see how we are doing because the “average” sale this year is very different than the "average" sale last year and it can be very misleading.
We need to think of programs to turn this vacancy number around!!! More jobs would be a good thing ...
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Wednesday, October 28, 2009
National Headlines and our opinions for Oct 28th, 2009
October 28, 2009
As we have mentioned previously we are very focused buy and hold investors in
Of the many headlines this week two caught our attention. First was the drop in mortgage applications (3rd week in row as we recall). What could this mean as interest rates have not ticked up any great deal. We propose there are three contributing factors, if we are correct, it will mean this number will continue down in the coming weeks.
First is the fact that refinancing has to be slowing down. As rates have been pretty close to 5% for a while now and thus anyone who could or is likely to refi the loan has done so or at least tried to. To kick start the refi engine again you either raise the average price (value) or you need to drop the average rate below 4% to restart the refi wave.
The second area that is a contributing factor is the $8,000 tax credit that is currently set to expire on Nov 30. For our money we suspect most people went ahead and got a mortgage processed already and they purchased their home or are just about to close escrow. There may be a few brave souls that are trying to cut it close and thus just starting the mortgage process but it won’t be a large number. So our guess is the peak of the first time buyer is over and done with.
The final area is that investors are still locked out of the traditional market for loans. If you own even a semi decent portfolio of properties you are toast as no bank will talk to you. We constantly find deals for 50% of replacement cost that will cash flow $400+ a month but as experienced investors we are locked out of the market unless we go with hard money option which requires 40% down (not fun but we do it because the deals are that good).
The next headline that got our attention was that new home sales were down but also new investors were down. All the articles I read on this were negative and talking about the second crash and a falling market. All of these are hogwash!
These headlines tell me that the capitalist system still works and if the government would get out of the way the market would clear itself. This clearing process would be VERY painful but it is going to happen the only question is do we swallow the pain in 12-18 months or do we let it linger for 3-5 years?
Back to the topic at hand and why we think these metrics are a great thing for the real estate market. For that we will give you an example.
Let’s say you are in the market to buy a
So back to the specific metrics;
New homes sales are down. GOOD – about freaking time. We need to chew up the supply of slightly used and vacant existing homes that were built, sold and foreclosed on ASAP. So new homes sales need to go down and go down further if you ask for our opinion.
Sales are down but Inventory is down more. GOOD, no GREAT news. This means people running for profit homebuilding operations are NOT being stupid and burning their cash. In fact if we were homebuilders and we knew our product and cost structure we would seriously be looking at buying some distressed foreclosed homes in our old markets that we sold out in 2005-2006. Think about the good karma they could build up not to mention profit by buying properties at prices significantly below their cost structure and then reselling them again. If they have confidence in their product the builders should look at revisiting communities hit hard by foreclosures. We don’t have any specific numbers but let’s say that in 2005 they could build a house for $160K and then they could sell it for $210K which gave them a profit before expenses of $50k. We suspect given the details above that if the builder wanted they could go back and buy that house for 100K, spend 10-20K on repairs and then sell it for $150K making 20-30K in profit. They would also help out the neighborhood by selling homes at retail prices instead of distressed prices.
In the end the problem we need to work through as a country is the pile of existing home sales.
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Monday, October 26, 2009
New Wealth Building Pro web site
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Oct. 26, 2009
Check out this new site talks about real estate investment in Fresno and Madera areas...
www.wealthbuildingpro.com
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Oct. 26, 2009
Check out this new site talks about real estate investment in Fresno and Madera areas...
www.wealthbuildingpro.com
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