As an Investor what should we hope for????

So I am torn on the following question and would appreciate your feedback.

First off I think is more than obvious that the government has their finger prints all over the single family home market via tax credits, loan programs, etc. My question is as an investor do we want them involved???

If the government were to suddenly say no more help go figure it out on your own a couple of things would happen. Prices would collapse in many places, banks would be more inclined to reduce loan balances and the market would clear as economist say. But it would likely be very-very painful!!!! But probably last no more than18-24 months as the seeds of capitalism would start to bloom again in the bloody aftermath of the market turmoil.

The other option is the government stays involved. This likely means less of a dramatic price drop but it also means the market is not working optimally. I suspect this means that we will just bleed price drops and flat line at some point for years, perhaps as long as 5-8 years.

But again as an investor do I want the violent price drop that would produce plentiful deals or the slow train wreck that will produce deals for years to come.

I suspect the answer lines in how large a pile of cash you have today. If you had access to lots of cash today you want the violent price drop but if you are like most investors looking to add deals as you secure capital you want the longest runway possible.

So in the end I guess I am glad the government is involved …. As a capitalist this goes against my nature but as an investor that wants the best for my family I need the long runway to secure lots of deals.

Good Investing

Be Thankful for this Investment Opportunity

There are lots of reasons to be thankful but given this is a real estate investment blog I just want to say lets be Thankful for the opportunity to invest in this market. In a decade people are going to talk about all the money made during 2009-2010. I believe there are always deals in real estate but you may never see opportunities like we have today again.

Do some research and look for your good deal

Good Investing

Don’t believe the Hype!!!

So the latest real estate numbers have been fairly positive but unfortunately they are laced with artificial sweeteners and they can’t be believed.

Let’s see:

We have the $8,000 tax credit that was set to expire and wasn’t extended until late in the month. So demand had to be pulled forward.

We have foreclosures and short sales moving up the real estate curve so these new distressed sales actually raise the average price.

Various supply constraints of loan workouts, extended short sales, etc.

In the end this reporting period will likely look like a blip rather than a trend as the subsequent months show reduced demand and increased supply.

We are not out of the woods just yet

Good Investing

Rents are getting soft so be conservative

As you might expect with Single Family housing prices falling more and more investors are choosing to buy rental properties as investments. This means a couple of things are likely to happen in the short term.
First the floor of the market is either in or very nearly in as first time buyers and investors snap up properties that are either cheaper to own or produce oversized cash flow returns. As more properties are converted from owner occupant to rentals in the short term we are likely to see rental rates fall as supply out paces demand.

I have already seen rental rates in my investment area take a $50 hit on several of my properties. So when you are buying today run all of your estimates and calculations with very conservative numbers. For example if you think you can get $950 a month, run the same calculations at $900 or even $850. If the deal still looks good you really have a great deal on your hands.

Something else to keep in mind is has rents fall the value of multi family properties will fall which may cause additional distressed sales of small multi families as many of these suffer from the same type of over financing.

As a new investor understand that in the short term rental rates are falling so buy with this in mind. But also understand that this will turn around in a big way as inflation takes hold.

Good Investing

Being Patient but Persistent Pays off BIG TIME!!!

If you have been an active investor over the last year or so like I have you have probably noticed a very different market at the end of year verse the start of the year. In short deals were easy to find during the first 4 months of the year as long as you had cash or a solid hard money lender. But then the market changed. The government created all these programs to restrict supply and increase demand.

The solid cash flow house went from easy to find to almost impossible. Most weeks I would make 10-12 offers on houses that meant my criteria and in every case I was now being out bid and sometimes by a large margin. I remember several houses going for 40% more than list price. Many houses would get 10+ offers within the first 48 hours. It started to feel much like 2005 all over again (Except the prices were much lower).

I refused to play in bidding wars and went 4 months without locking up a property which is my longest stretch in 5+ years. It wasn’t always easy but I stayed patient and just kept tracking properties. It was about mid year where I identified a particular duplex that would be a solid addition to my portfolio. I made a few calls and offered prices that were about 60% of list price. To say my offer was laughed at is not an understatement as the agent already had 10+ offers.

Well the property was quickly put in escrow but the buyer couldn’t close. So it came back on the market. I made the calls again and offered my same 60% of list price and was laughed at again. I was told they had multiple buyers willing to go over asking price. Sure enough it was in escrow again in a couple of days. This happened 4 times over 6 months. Each time I would call and offer the same amount and guarantee a close.

Well after 6 months and a dozen or so phone calls I just put this property in escrow at the exact number I offered 6 months ago. After doing my detailed walk through today with my repair team I am even more excited about this property. It will be my BEST DEAL of 2010 by far.

Lessons I learned from this. Be very comfortable with your numbers and don’t over pay if the market gets crazy and starts over paying. Keep a list of the properties you like as they may come back especially in this market with tight financing.

Most important always stay patient but persistent

Good Investing

Let’s start 2010 Goals Early

Good news I just granted you 13 Months to accomplish your 2010 goals. Sit back over the next week or so and think about what you want to accomplish. The Thanksgiving week is a perfect time to do this as you are likely around family and friends having a good time, instead of New Years Eve where alcohol and parties rule the day (not to mention that New Years kiss from the special someone).

We chose real estate investing for the lifestyle it can provide and thus lets set some goals to accomplish over the next 13 months.

I’ll start.

I will add 10 REO rentals to my portfolio that each produces greater than 20% cash on cash return.

Good Investing

Things are getting bad again (I mean good again)

Before you say anything I know that I am a little of my rocker but hear me out. Over the last two weeks I have started to hear the first couple of cracks in the media around this suckers rally we have had in the market (Real Estate and Stock Market). For about 4 or 5 months now I have been hearing nothing but good news and not really understanding where it was all coming from.

But over the last 2 weeks I am starting to see more and more people realize we are not out of the woods yet and we will have a lot more pain. Don’t get me wrong I don’t see the Armageddon option on the table again. We survived that near miss but just because we survived it doesn’t make everything better.

So I suspect over the next 6 months we will finally put in a bottom and then it will take 2-3 years to get out of this mess as we have a lot of idle capacity we have to chew through.

Signs that a bottom is in place will be some of the following:

Another Stimulus is approved by Congress (After all TARP will be mostly paid back so they will sell the public on the idea that they are just reusing capital, (Our Capital)).

People will stop talking about the Fed raising rates in 2010. It is not going to happen people. In fact I think it is 50/50 that they raise rates in 2011 (If they do raise them it won’t be over 1%)

Government will pass a $5,000 stimulus for anyone to buy a foreclosure, that should chew up excess capacity quickly

FHA or other Government entity will increase investor loans from 10 properties to 30 or 50 properties

Bank of America will be majority owned by the government with the next bailout, they have to regret buying Countrywide

Public Builders will start to buy each other out for their cash positions and to reduce future building capacity

Taxes will go up (If we keep spending we will have to raise taxes)

Keep in mind I made my best deals of 2009 in Jan-March just as the financial panic was hitting TILT. So we should all have a chance to ring the register again.

Buy Cash Flow properties and hold for the long term

Good Investing