10 Predictions for 2010

With the closing of one year and the start of the next I thought I would take some time and jot down some predictions for 2010. I want to do this for a couple of reasons. First it allows me to shares my thoughts on the next 12 months with a lot of people who can point out my errors. Second it allows me to look back in 6 or 12 months and evaluate how I did reading all the tea leaves of real estate investing

1) We will see the peak in residential foreclosure in 2010

2) The Case-Shiller Index will turn negative and continue negative until July or August which will prove to be the bottom people have been looking for

3) Duplexes – Quads will prove to be great buys in 2010 assuming you can get financing as banks will want to dump these as rents continue to get soft and loan quality continues to get worse

4) Great Long Term Holds can be purchase in 2010

5) Rents stay soft for all of 2010 (But 2011 will see this turn around)

6) Small Commercial apartments 5-40 units start to foreclose in greater numbers providing excellent buys late in the year

7) Government extends the first time buyer program at least 1 more time as real estate stays soft through Q1

8) The Fed stays on hold all year and does not raise rates in 2010

9) Stock market (Dow) will retest 7,500 before June 2010

10) Home building industry consolidates to remove capacity from the system as new housing starts stays weak throughout 2010 as we burn through the foreclosures

As always let me know what you think.

Good Investing in 2010

One Data Point is not a Trend but …

So I just heard from one of my REO agents. She indicated that this past week she was given 20 REO properties where she rarely saw more than 2 or 3 a week the past 6 months. She also expects more next week in a short week.

I don’t know if this is a trend yet but the backlog might finally be hitting the market.

Curious if you are seeing an increase of REO’s in the MLS in your market.

Good Investing

Real Estate Investing will TEST you ...

To the new investors looking to get started make sure you and your significant other is totally committed because investing in real estate will test you. When you get started everything is great. Deals seem plentiful and you are making all the correct moves. You may even buy a property, get it rented and bring in the repairs under budget.

But then boom the roof leaks, the water heater goes out and the tenant doesn’t pay rent and skips town. Stuff happens with real estate investing. So be prepared and make sure you have the support of the family at home because there will be months that will surprise you.
Remember if Real Estate Investing was easy - EVERYONE would do it

Good Investing

Looks like inventory on the low end is building again

I might be wrong but over the last 10 days I am starting to see a growing number of low end houses for sale. Which could mean the buyers have gone away for the winter OR the banks are finally releasing some inventory. Either way this will certainly have a negative impact on December sales.

My prediction is that December is reported as a negative month when all the metrics are released in January.

If this is true we just had what stock investors would call our "Dead Cat Bounce". As a pet lover this is a terrible term but in this case the real estate market just had a bounce and we may see a dive deeper with more foreclosures and short sales and lack of new buyers ...

Is the media Negative or Positive on Housing as Investment

I only ask as I saw an article in Yahoo Finance that said Housing Flipping is back and it documented a couple of very impressive examples of profit. I know it is not that easy especially when you’re buying on the court house steps as the article discusses. But telling someone they can make 100k simply by buying an REO and selling it is bound to bring in more new investors.

I don’t know about you but I get really nervous when the main line media starts highlighting Real Estate as an easy, quick and lucrative business. This type of attention seems to bring in the masses and start a nasty bubble. Could we really be starting another bubble in housing so soon?

I doubt it as financing is tight and unemployment is too high, but more articles like this are sure to make great investments harder to find.

I am curious if you are seeing the more negative or positive articles in the media. In March it was 100% Negative with Zero Positive. Today I would guess it is 70% negative and 30% Positive. What do you think?

Good Investing

Market seems to be changing again:

In my investment market I am starting to see signs that the market is changing again. In the early part of 2009 if you had cash you could close on some very nice deals. Then the world changed with supply constraints and artificial demand looking to scoop up cheap homes.

As an investor I am happy to report that I believe the market is changing as I am starting to see inexpensive homes come on the market in greater numbers. I am also seeing small multi families (2-4 units) come on the market in great numbers. The final bit of good news is that small commercial buildings are being listed (5-20 units) at reasonable prices.

I have looked at several apartments that appear to be ok deals but they require 25%. The market in this space will turn when the bank holding the property chooses to finance the building at 10%. If they simply changed the required down from 25% to 10% they could move some properties. Hey they could be like the FHA and only require 3.5% down…

Good Investing

So does 1.5% make a difference???

In my investment market the most popular loan programs are sponsored by FHA. Which only requires 3.5% down payment for first time buyers and given the $8k tax credit meant each buyer would have to come up with very little out of pocket cash when they netted out the tax savings.

As we are relearning if the home owner has next to no skin in the game they are less motivated to keep paying on a depreciating asset. Given the poor performance new FHA loans, FHA is looking at raising the requirement almost 30%. But on a nominal basis the change will only take it from 3.5% to 5%. So why does 1.5% make such a big difference?

People are suggesting that this small change is going to put a damper on the housing market. I say are you kidding me. The market is going to cool down because the supply of housing is going up and demand is going down.

If you don’t have 5% or even 10% for the down payment keep saving. Owning a home is a great thing but it can not be just given to everyone.

Don’t blame FHA changes for the coming slow down in real estate sales. If FHA doesn’t address their guidelines now they will just become the next sub prime lender and all of us tax payers will feel the burden of bailing them out.

We need to create loan programs that encourage investors to own real estate. We need to encourage capitalism to insure we turn this thing around.

Good Investing

Said it before and I’ll say it again:

If you are a new investor you have to get your hands dirty and touch your real estate. It is not about just buying properties or investments but about putting a long term business together.

I didn’t always get that. I thought I was setting the world on fire just buying multiple properties and that would set me free. Please learn from my mistake. I invest 3 hours away so it is not easy for me but I now spend several weekends a month in my investment market turning properties as they go vacant.

I strongly believe this makes me a better investor. It also gives me experience as I work my way towards investing full time some time in the future.

Good Investing