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?

Hey Brother! Can You Spare $2.5 Billion?

With TARP and the Stimulus package - a trillion here... a trillion there... eventually it all starts to add up to real money. I ran across a blog yesterday that made one part of the real estate /financial market seem like a comparative bargain. As of yesterday (2/18) - you could purchase Countrywide's entire portfolio of foreclosure REO (bank-owned) properties listed on their webiste for a mere $2.5 billion dollars.

Check out Countrywide Foreclosures Blog.

It indicates that Countrywide has 15,905 properties listed for sale on their financial website. California leads the pack with 4205 of those foreclosed properties (27%) - followed by Florida with 9% of the foreclosures. Nevada and Arizona are runners-up with 6%.

This blog entry must have an automatic update. Last night - when I first looked at the blog - it showed over 20,000 foreclosures with a total listing price over $3.2 billion. I'm not sure what happened to about 5000 properties over night - but I'm hoping that they closed escrow and a new owner is preparing to move in or find a tenant!

Vacation Homes - Buyers' or Renters' Market?

You’ve always wanted that beach-house, ski condo, or mountain cabin – but is it a good real estate investment? The Minneapolis Star Tribune reports that short-term rental advertisements in the Sun Belt (Florida, California, and Arizona) are way up. The rental website HomeAway reports that rental listings for Sarasota, Florida are up 56% versus a year ago and in San Diego, California - vacation listings are up 33% for the same period.

They attribute this increase to vacation home owners who are now looking for short term rentals to help cover expenses when they are reluctant or unable to sell the home.

But is owning a vacation home also a good real estate investment? Here’s my take:

On the plus side….

• You love going there. Now with a rental property in the area – perhaps at least part of your trip could be a business expense (consult your own tax professional for the nitty gritty fine print detail on real estate investing and taxes).

• Limited supply. There’s limited land near the waterfront or other vacation attractions. As long as people want to vacation there - the demand will help your property appreciate in value.

• Higher rents Could Mean Better Cash Flow. Short term leases may have higher rents than longer term leases. In other words – the rent you can ask for a weekly rental is usually more than 4x what you could ask for a monthly rental.

• Vacation with Other People’s Money. Perhaps you may even find yourself in that wonderful situation where the income from renting your vacation property covers all the annual expenses. And you get to stay for a vacation at the property – effectively for free. That beats Priceline just about any day.

But on the down side…

• One horse town? Is tourism the main – perhaps the only – employer in town? If so – you may want to plan extra reserves to cover higher than usual vacancy expenses when the economy burps.

• More Home Value Volatility. During boom times – everyone wants the condo in Maui and prices escalate. When money gets tight- people sell their vacation home before their primary residence, often flooding the market and driving vacation home prices down.

• Higher property management fees and expenses. Providing a fully furnished short term rental will cost more in terms of property management, cleaning fees, and repairs when the fraternity who rented the house for spring break sobers up enough to head back to school.

• Seasonality. So do you plan to use the property during peak rental periods like holiday weekends, Thanksgiving, and New Years? Or do you rent it out to maximize your cash flow? Hurricane watch by yourself in August on St. Croix may not be the dream trip you were looking for.

• Can You Commit? Here’s the big question. Do you love the place enough to want to go there regularly for years to come? Perhaps in lieu of going somewhere new?

That last point is my personal downfall. For years, I have had a goal of owning a beach house – ideally right on the Pacific ocean. But when push comes to shove – I have never been able to commit to any given town or property. My list of new places I want to visit always seems to win out over committing to one wonderful spot.

So in the mean time – I invest in boring real estate in towns with solid employment, population, and demographic fundamentals. And I vacation wherever I can convince my frequent flyer miles (and hubby) to go. Some resources for finding a great short term rental:

Resources:

• Beachhouse.com
• Homeaway.com
• Vacation Rentals By Owner
• Craigslist