Posted on April 22, 2008 @ 11:33 pm - Written by BawldGuy
Was talking with a client today, when she brought up a common misnomer. “Shouldn’t we be buying 10-20% below market value? Isn’t it a buyer’s market?” Great question. (Thanks Brandi) The answer may surprise some. It falls under, ‘Ya can’t have it both ways’.
Though in the last year or so we’ve been able to secure clients some impressive discounts, most of the circumstances making those discounts possible have changed.
Let’s think this through. Demand for well located real estate is increasing in the regions in which we do business. This is a good thing. Take Austin — a place we no longer do business. Don’t get me wrong, we love the place, but the demand has increased to the point prices have made it relatively unattractive to investors. The rent/price ratio has degenerated to the point where investors must now put enlarged down payments in order to break even.
See? On one hand you have the good news showing the Austin area roaring back from the market correction. On the other hand you have the consequences of that same good news. A double edged sword just waiting for the inexperienced investor. Higher prices driven by significantly increased demand, outpacing rents, (Increased rents will very soon follow, but not fast enough in Austin.) results in investors looking elsewhere. Why spend your hard earned capital in Austin for $X worth of property, when you can go to friendlier areas and acquire $2X worth of property? If capital growth is numero uno on your agenda, investing in half the property you could prudently afford makes zero sense.
Posted on April 17, 2008 @ 10:11 pm - Written by BawldGuy
As promised, the subject will be subprime in general and scheduled loan resets i particular.
Yesterday I was able to view a chart (alas, unavailable) showing a very interesting chronology of these resets. It showed an clearly obvious peak. This peak was hit in Dec. ‘07/Jan ‘08 — then they dropped of into the black abyss — a 75-80% drop. Seriously. This level more or less remained until the 3rd to 4th quarter of next year. In other words, the tsunami of resets has already happened. The market now has well over a year, and possibly 18 months before the next wave (much smaller) hits.
There are folks for whom even these historically low interest rates don’t matter. In fact, if 0% was available they still couldn’t refinance. No equity is no equity no matter how you slice it. Then there are the borrowers who can use the next 12-18 months to refinance before their loan resets. Or they can sell. Some, because of the way their loans work will be able to just keep on keepin’ on, ‘cuz the reset won’t put them in the poor house.
The system is working. Property will change hands, and lessons will be learned. As more and more buyers cast themselves off the fence, this process will inevitably gain speed. Before we know it, the cycle will have begun anew. Is the system about to serve us all up a big juicy burger? Hhmmm.
Posted on April 16, 2008 @ 12:08 am - Written by BawldGuy
In exactly six more months I’ll have 39 years as a licensee. In that time I’ve not seen it all, but have seen a bunch. Booms, busts, double digit interest rates, changes in the tax laws, more tax law changes, and that’s not even the tip of the iceberg. They all have a common thread.
Normal returned.
In the face of all the crazy things we’ve all seen in the last couple generations, pretty soon normal seeks us out. Grandma told me it always has, and always will. That from a woman married and having four kids in the Great Depression. Normal always wins out.
Ever felt like the end of the tunnel, or just around the bend had a freight train headin’ your way? When Murphy visits us we can lose sight of the big picture. It happens to the best of us.
We’ve all seen how people respond to bad times. Some surprise us with their courage and ability to slog through sometimes unfair circumstances. We can do we can, but it’s just not in the stars for us to be in control all the time. This is one of those times.
Posted on April 8, 2008 @ 9:14 pm - Written by BawldGuy
A real free market capitalist may not embrace recessions, but they understand them, and would rather treat them for what they are — a cleanup crew taking away the debris slowing the economy down. It’s sometimes a brutal process, but what’s the alternative? A government controlled economy? One can certainly argue our economy isn’t totally free, and they wouldn’t hear a peep from this corner. Still, it’s pretty much the most agile, fluid, and adjustable economy in the world, so I’ll take it.
Let’s assume we’re in a recession now. It’s too early to be positive, but the numbers seem to show a certain velocity toward that end. We could avoid it, but at this point it doesn’t seem likely. My take, based on experience, checking my windsock, and a cracked crystal ball, says it’ll be very short lived, and probably pretty shallow.
As usual, I’ll invoke the BawldGuy Disclaimer: That opinion along with my heavily armed Starbucks card will get us both some coffee and a cookie.
Real estate investors shouldn’t be celebrating, but on the other hand, if indeed we’re in even a short and shallow version, it should lengthen somewhat the ‘window’ I’m constantly talking about. You know the one. It’s allowing us to stay under the radar while we’re buying very cool and performing investment property in selected growth regions. This opportunity happened, in different form, the last recession back in 2001. Investors who paid attention, won, and won big.
Posted on February 27, 2008 @ 12:11 am - Written by BawldGuy
Those who’re more or less regular readers here might remember my prediction, made in the first week of the year. In a nutshell I said we’d look back a 2008 knowing it was the year the correction bottomed and began it’s long and ponderous U-Turn.
Sam Zell is a multi-billionaire — and real estate is definitely his forte. Well guess what? He thinks this spring will mark the beginning of the housing recovery.
Does this mean since Sam says so it’s happening? Uh, hellllloooo. Remember that pesky guy, Reality? Sam Zell has tremendous credibility, at least from where I sit. If I was gonna look for one guy to give me the heads up on real estate it’d be Zell by a mile. I’ve watched him for quite awhile — he’s simply the cream of the cream.
I write all this for a pretty reason. I was on the phone today enough to require two recharges. Over half of them at some point wanted to know why I keep saying the window is closing. These pages have enumerated those reasons ad infinitum. Instead of asking why I say it, ask yourself another question.
Does Sam Zell go live on CNBC saying, “I think the housing market this spring will begin its recovery phase.” if he doesn’t believe it, and hasn’t been convinced for his own reasons? Of course not. Could he be totally wrong, out to lunch? Yep. Wanna bet against his track record in real estate? His money — his billions have largely been made calling these market transitions and being ahead of the curve.
Heck, I’m tickled to death I’m on record here saying the same thing over two months ago.
Why does this all matter to you? It matters because THE WINDOW? SHE IS CLOSING.
If you’re in San Diego and need to sell yer stuff to take advantage of the growth regions — then sell yer stuff. Email me — Call me — Send a message via carrier pigeon — but you need to take your San Diego equity (Palo Alto this means you too!) and start the process that’ll get you Outa Dodge. You should begin this process around 4:30 yesterday afternoon if not sooner.
You can go to the Brown and Brown company site, or contact me from here. Remember, if you’re a San Diego income property owner our new local business model will save you a whole bunch of dead presidents. It’s already proving to be pretty attractive to local investors — that is if a two phone charge day is an indicator.
I realize I’ve been beating the timing drum lately. The evidence is beginning to indicate a potential for a recovery is plausible. We won’t have an opportunity like this for quite awhile in my opinion. The last time was over a decade ago.
Yet again, I’ll repeat the mantra — Time isn’t your friend when it comes to this window. Sell your high priced San Diego (heck, anywhere in California) property and Get Outa Dodge!
I’ve heard this song far more while on a baseball diamond than a dance floor. When umpiring it was played whenever I raised an arm towards the bullpen and tapped it, signaling what pitcher was to relieve the one getting bombed. Let’s all have a positive thought, and enjoy a trip in the Way-Back Machine. I nominate it as the theme song we should play as the current Market Correction leaves us — whenever that may be.
Wanna bet against his track record in real estate? His money — his billions have largely been made calling these market transitions and being ahead of the curve. 