Real Estate Deals up to 87% off in Califiornia?

Dawn Thomas - a Realtor friend of mine here in the Bay Area tells me that she's getting Internet inquiries from folks looking to purchase investment property in the San Francisco Bay Area. Specifically - they are looking for properties in Palo Alto, Los Altos, Cupertino, Saratoga, and Los Gatos for $100,000 to $200,000.

Let's pull out the trusty calculator (I've had my 2 cups of java this morning, but it's not yet happy hour - the perfect time to do arithmetic). Assuming the median home price in Los Altos last year was $1,500,000 (it was a little higher than that... but let's be conservative). And assuming you can find that same "median" house now for $200,000 - that would be .... an 87% drop in value. [note... my original calculation was bass-ackwards & was OFF! obviously I need another cup of coffee!]

I'm guessing the only way we're going to see prices like that is when my engineer-husband finally perfects his time travel machine. He's planning to go back to circa 1958 and buy Portola Valley. All of it.

And in the mean time - if you're a 2009 investor looking for a great property in the $100,000 to $200,000 range - I suggest trying a slightly different market! Perhaps just a hop, skip, and a jump away in another part of California... stay tuned!

And if - by some twist of fate - you come across some $200,000 fixers in Los Altos (that are bigger than a dog house) - buy all of them you want. Then call me. I want the rest!

Roughed up in Raleigh

Evidently I got a new role in the bailout bonanza & didn't even know it! Now - I am helping to stimulate the coffers of the fair city of Raleigh, NC.

Raleigh has enacted a new ordinance requiring that owners of investment property within their city limits register their rental properties. The Rental Dwelling Registration ordinance lists benefits including resident safety, expediting repairs, and safeguarding property values.

All this for an annual $30 fee per parcel (plus $10/unit for multi family units).

Here's the rub.

• Affected property owners are not being notified of the new ordinance. If you are lucky - your property manager will inform you (another reason to use professional management) - or perhaps you heard about the law in the local media if you are nearby.
• The owner must personally register the property (online is recommended) - the property manager can not do it for you.
  
• The penalties for noncompliance are stiff - $50/day up to a maximum of $2000/month.
  

Evidently - the city is expecting this law to generate some serious revenue. It is planning to fund several employee positions with the proceeds. So I'm guessing that ignorance of the law is not going to be seen as a valid excuse! (and as a resident of the fiscally-troubled state of California - I can only guess that other localities are considering similar actions....)

The deadline to register rental properties in Raleigh is April 30, 2009. Registration forms, general info, and frequently asked questions are available on the Raleigh city website here.
Please help get the word out!

Are You a "Buy and Hold" Wine Buyer?

Besides stocks, bonds, real estate, and precious metals - what else are you investing in? I fondly remember the good old days when I justified that pair of black high heels or that cashmere sweater as "an investment" that would serve me for many years to come (not).

Evidently - I can be a great "buy and hold" real estate investor - but not so much for sweaters.... I guess I'm more of a flipper in that department!

One other area where my husband and I are (too good) at buy and hold is our wines. We have a number of special bottles gathering dust in anticipation of that momentus date that warrants their opening. I was intrigued today to hear about the annual "Open that Bottle Now!" event invented by Dorothy J. Gaiter and John Brecher - authors of the Tastings column in the Wall Street Journal.

They have designated the 4th Saturday in February as the date when you should open that bottle you've been saving & celebrate with your friends. The economy will have its ups & its downs.... and through everything - we have our friends, our families, and our memories. Open that bottle this weekend & toast life.

Cheers!

Nice Price - Nice Investment?

The National Association of Home Builders/Wells Fargo Housing Opportunity Index recently published their updated list of the "most affordable" areas in the U.S. for buying a home. Not surprisingly - they found that a larger percentage of the population could afford to buy a home now than a year or two ago..

Here's their rank order of the most affordable metro areas:I have had questions from clients about whether this list is a good list of potential markets for real estate investing.

	Metro Area	2008 Median Home Price	Employment Growth 1998 to 2008	Est Population Change 2000 to 2007
1.	Indianapolis, Ind.	$103,000	4.9%	11.1%
2.	Warren, Mich.	$125,000	-7.3%	-5.4%
3.	Youngstown, Ohio	$73,000	-5.7%	-5.4%
4.	Detroit, Mich.,	$90,000	-10.0%	0.3%
5.	Grd Rapids, Mich.	$102.00	1.0%	4.9%
6.	Syracuse, N.Y.,	$88,000	2.9%	-0.7%
7.	Dayton, Ohio	$90,000	-7.5%	-1.5%
8.	Akron, Ohio	$90,000	5.1%	0.6%
9.	Cleveland, Ohio	$100,000	-4.6%	-2.4%
10.	Scranton, Pa.	$85,000	4.0%	-2.0%

Regardless of whether you're a "cash flow" or "appreciation" investor - you want to have a steady supply of employed tenants who merrily pay your rent. For a rough analysis of this - I added the Employment and Population data from the nice folks at the Bureau of Labor Statistics and the Census Bureau.

Interesting! I was surprised by the results for Indianapolis. It certainly stands out in terms of having positive job growth over the last decade - along with double digit population growth. Out of this list of 10 areas - it would be the first place where I'd do more investment investigation.

But how does Indianapolis stack up again other metro areas in the U.S.? Perhaps less "affordable" - but maybe a better investment from the perspective of employment and population demographics. Here's a few other metro areas for comparison:

Metro Area	2008 Median Home Price	Employment Growth 1998 to 2008	Est Population Change 2000 to 2007
Raleigh, NC	$218,000	29.8%	31.4%
Austin, TX	$176,000	29.0%	27.9%
Dallas/Fort Worth	$155,000	16.8%	19.1%
Atlanta, GA	$153,000	15.1%	24.3%
Las Vegas, NV	$178,000	50.3%	33.5%
Phoenix, AZ	$161,000	28.8%	28.5%
San Jose, CA	$605,000	-6.1%	3.9%

In comparing these markets to the Homebuilders list - Raleigh, Austin, Dallas/FW, and Atlanta have more sustained employment and population growth. I added data for the bad boys in Las Vegas and Phoenix for some contrast. Both of these metro areas have had great growth over the past decade - but housing supply (and speculation) grew faster than demand. As we slowly chew through excess inventory in these markets - it will be interesting to see if they start to show up on investors' radars again. (I'd start by looking at the nearer term employment and population trends - are they accelerating or decelerating?)

Then there's my hometown - Silicon Valley - San Jose, CA. I talk to folks all the time who want to invest here where they live. I was intrigued to see that our population is down over the past decade and our population growth is weak... we still have not fully recovered from the Dot Com Bust. But there's something to the Bay Area - our limited land supply, the gorgeous climate, the allure of innovation and venture capital that keeps the market here going. It's a tough place to invest - but a great place to live!

I think I'll continue living here - and investing outside California!

Confessions of a Ponzi'ed Investor

Some real estate investing stories strike too close to home.

The Denver Post reported on Friday that Colorado-based real estate promoter Frederic "Rick" Dryer was sentenced to 132 years in prison following his conviction last year on 44 felony counts of theft, securities fraud, conspiracy, and racketeering. He was the founder of the "Mile High Capital Group" which took $34 million from more than 1200 investors - who thought they were investing in new duplexes in growing markets.

My husband and I were some of those investors - this was our very first real estate investment - in a duplex in Greenville, South Carolina. Since this was a pre-construction deal - we put about $16,000 of earnest money down, signed the contract, and started waiting for the updates on the construction.

In a bit- we received an update that Mile High was being placed into "receivorship" as part of bankruptcy proceedings.

The final outcome? The hubby and I were offered the chance to "transfer" our earnest money deposit into another investment that Mile High had going - that was actually already built. That's how our very first investment property turned out to be a condo in Raleigh, North Carolina - a solid investment in a great market.

It's not a perfect investment - the percentage of investor-owned units is too high in my opinion and our financing was a little expensive since the development was "non warrantable" when we closed. These are both issues that time will correct.

So how to avoid these situations? A few tips from my husband and me (after a bottle of wine & some heavy editting to keep the post rated PG-13).

1. Who Holds the Earnest Money? Before writing that check - find out who will be holding your earnest money deposit. It should have been a "red flag" that the deposit went directly to the developer - and not into escrow. If you are considering an investing opportunity where the earnest money isn't going into escrow - ask (a lot) more questions before committing.
   
2. Do Due Dilligence. So much gets written about doing due dilligence on the dirt - checking out the viability of the property itself. You also need to investigate the people who are offering you the opportunity.
3. Sleep on It. Be wary of opportunities that are going so fast that you need to make an immediate decision. Take your time - do your due dilligence on the people, their relationships, and their methodology. If you miss this opportunity - you'll be ready to move quickly on their next one.
4. Diversify. Forget about buying multiple properties simultaneously from a group you've just met - particularly in the same development in the same market! While I was concerned about potentially losing $16,000 in an investment - I know people who committed to multiple properties with Mile High - and have a six-figure loss. Ouch!
5. Take the Lifeline if it's Offered. Even with all the possible precautions - you may find yourself in a situation like this one day. If an offer is made to help you recoup some/all of your investment - seriously consider it. I am glad that we took the opportunity to move our investment dollars to Raleigh. We have friends who kept waiting for something better - and ended up with nothing.
6. Keep the Long View. If you've got a puppy - eventually you're going to step in a little poop. But that's no reason to get rid of the puppy. Some real estate investments will make you lots of money, some will be a royal pain, and some will cost you money. Just keep doing it - and learning!
   

Who's Got Their Knickers in a Knot?

Or as my Irish friend Paul likes to say... "who's got their panties in a bundle?"

These days - its seems like just about everyone.

One of the key economic indicators is "consumer confidence." It's closely monitored and reported by the media. You know the dance... bad news sells. The media finds and reports bad news, then consumer confidence falls, then the media has more bad news to report! Life in a vicious cycle.

When I talk to fellow real estate investors - it seems that "investor confidence" is following a similar pattern. There's interest in investing in real estate. There's mindshare that this is the opportunity of a generation to buy investment real estate. But the confidence to take action now is not there. We have become a nation of investment voyeurs... all eyes, no action.

Eventually - this economic cycle will pass. And the "almost" investors will be left with "coulda, woulda, shoulda". Let's take a different perspective.

Google "positive economic news". It's there. Build your investor confidence muscle NOW and take action! Two good resources to get started:

• GoodNewsEconomist.com
• PositiveEconomicNews.com

Skimping on Just $500K a Year?

Forbes magazine is at it again... they have ranked the Top Ten Cities To Live on for $500,000. When I first heard about this list - I thought it was the best cities with a median or average home price under $500,000.

Nope.

These are suggestions for the executives whose salary is being capped by the Obama administration when their companies accept bailout money. So where do you live when your annual salary is only $500,000?

And what does that have to do with real estate investing? Check out the criteria Forbes used for the ranking. They surveyed 9000 of the largest U.S. cities and ranked them using:

• Affordability of a 4 bedroom, 2 bathroom, 2200 square foot home
• Patent filing activity in top 10% of cities (indicating innovation)
• High venture capital investing (also indicating innovation)
• Shorter commute time
• Average annual cost of living less than $100,000

In other words - the ranking values affordability (a relative thing), jobs, and quality of life. All things that affect the choice of a good market for real estate investing. So I am not surprised that some of my favorite markets for real estate investing show up on this list: The top cities were:

1. Irvine, California
2. Raleigh, North Carolina
3. Bellevue, Washington
4. Portland, Oregon
5. Sunnyvale, California
6. Redmond, Washington
7. Austin, Texas
8. Chandler, Arizona
9. Rochester, New York
10. Plano, Texas

I think an investor would be well served to investigate Raleigh, Portland, Austin, Chandler, and Plano... probably not quite in the same neighborhoods where these penny-pinching executives will be relocating!

I wonder what Forbes will be ranking next week?