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brycewheeler

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Reply with quote  #91 
My God Minh.  You never cease to amaze me.  Are you sure you are REAL?

Not only are you impressively bright but you have a HUGE HEART to match all your other outstanding qualities.  You are a GEM on this Board.

Keep it up.

Bryce Wheeler
brycewheeler

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Reply with quote  #92 
I don't think Minh is a real person.  He must be sand-baggiin us.   He is probably some 
SUPER CLONE from some experimental laboratory, put together by a group of mad scientists, maybe from Area 51 (?)

Anybody got any better ideas?

Bryce    
mlreits

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Reply with quote  #93 
Quote:
Originally Posted by brycewheeler
I don't think Minh is a real person.  He must be sand-baggiin us.   He is probably some 
SUPER CLONE from some experimental laboratory, put together by a group of mad scientists, maybe from Area 51 (?)

Anybody got any better ideas?

Bryce    


Bryce,

You're hilarious.  Thanks for the compliments.  We just got in contract today for a beautiful 4plex at $950k.  It's located at 710 N. 2nd St, San Jose, CA 95112.  The deal we just closed last month was 561 S. 7th  St, San Jose, CA 95112.  If you pull up the files, you will see they have a mailing address in Palo Alto. That is where my partner resides.  He also has a SFH in Palo Alto, which he bought in March 2012 for $2.35M.  It's been rented for $9,600/month.  He's a high networth individual that mks_97 on this board introduced to me in September 2012. 

mks_97 went and my partner went to college together.  My partner and 3 friends started up a company in 1994, and it got bought out by Monster.com in 2000 for $150M.  After it got bought out, he took 4 years off and traveled the world at the age of 29.  In 2004, he and another friend started up another company, which calls celltech.com.  He left the company in 2012 for personal reason.  Then he got interested in real estate investment.  He called mks_97, and that was when mks_97 introduced him to me.  Small world isn't it?

"Help others get what they want, and you will get everything you've ever wanted."  Isn't that what life is all about?  [biggrin] [biggrin] [biggrin]

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Minh

"Be formless, shapeless like water." Bruce Lee
abc

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Reply with quote  #94 
That is a very nice story Minh giving that lady a 2nd chance and how hard she worked to stay....selling a bed to make rent, wow.  Hard to not have a soft spot in your heart for single moms.

abc

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Reply with quote  #95 
Quote:
Originally Posted by Apickering
Minh, I have been buying some units in yuma... A 5 unit for $135k a 3 unit for $118K. These 2 closed last month and am closing on a duplex Friday for $65k. Rents are approx $500. So should cash flow decently but I believe limited appreciation. My property manager owns several properties in Yuma... I would not have gone there otherwise. Also had cash sitting earning nothing! Yuma is 3 hours from here so can visit... If I have to! The difficulty nowadays is trying to find opportunities! If you ever in San Diego, I would like to buy you a beer or coffee Cheers Alan


Those seem like good numbers Alan.  The key to out of area is having really strong property management.  Report back to us, as I would like to see how over time it is to manage those units from a distance & if the cash flow stays strong.  

I read on the Bigger Pockets forum about of a lot of CA folks buying properties out of state as the numbers no longer work well in CA.  You hear these stories of buying duplex's for $30k in Milwaukee and Ohio that rent for $800.  I want to hear how these work out long term after some repairs, turnover, evictions, snow removal, etc...  I have mostly been doing hard money lending with my cash since the CA buy & hold deals went away in 2012.  You don't get rich quick off 11%, it's like hitting singles, but I feel more control there then the stock market.  I'm not sure what I'm going to get into next.  Seattle where I live it's hard to get good numbers on rentals.  But I may beat the bushes and see if I can find some rentals that work in the more blue collar areas on the outskirts of town.  Not sure if I want to buy marginal deals though, got spoiled with those deals post crash 2009-2011.


Apickering

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Reply with quote  #96 
Abc,
I have been in Seattle for a couple of days... Leave on a cruise tomorrow.
It is amazing how much construction is going on in Seattle. We counted well over 20 construction cranes looking from the space needle yesterday..
I will keep you updated on yuma.
Cheers
Alan

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Alan
milk2tea

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Reply with quote  #97 
I visit this board often and learned quite a lot from some of you.  Comparing with a few of you like Minh, Bryce, abc, etc. I consider myself an amateur.  Actually I am an amateur and still holding a desk job besides buying a few SFH investment. 

I started buying properties since 2005.  I average bought one SFH per year and didn't get into these high fly areas such as AZ, FL, CA (except my primary resident) before 2008.  And started buying in my local SJ northern CA after 2008.  I consider myself lucky. Yes, most of properties got appreciated, especially those in CA.  But for me, it is still on the paper.  So what's the exit strategy? I like the steady income and not tend to sale any of them in near future (it is so easy to manage them in CA).  But I am always afraid another correction like 2008's in the horizon.   At same time, I also have cash in hand and want to look next opportunity too.  But really cannot find any good deal in San Jose area.  So buy or sale? 

You know what,  from all these years, I haven't sold any real estate except the primary house in TX when I moved out there 15 years ago.  From reading the market, I set in a holding pattern now.  But really estate is a highly unliquidable  business.  I need some strategy in place should anything happen.  But so far, I don't have any.  Any advice?

-John
brycewheeler

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Reply with quote  #98 
John.  Giving advice on strategy is really a tough question because it depends on your personal desires, your age, your family situation, your whole financial set-up, your income level, your qualifications, your interests, your goals, plus, plus.  

Many on this Board are much more qualified than me to give advice on how to accomplish your strategy once it is defined.

But take heart and do not be too humble on us because you seem to be a very successful guy well on his way to financial independence with a good nest egg of rental homes with a good, steady income.  Plus you are a pretty seasoned investor already and were smart enough to keep your job as insurance.  You have almost no downside risks and a terrific future.

If everything is going well with each of your properties, don't change a thing until you (maybe with the help of others) can figure out just what your strategy is.   You need to do some tough spade work analyzing that yourself, and it appears to me you have started your analysis already by identifying the problem (strategy) and sharing it with this  Board. 

After you flesh out your strategy a bit more, you may want to spin off the least desirable property (or the biggest headache) by an outright sale, or a 1031 tax-deferred exchange,
and use that dry powder to invest in something that more fits whatever strategy you eventually develop.  Gaining experience in selling is part of most strategies and makes you think and consider lots of factors.  Besides, profits are nice for your psyche and your bank account.

Bryce




larrywww

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Reply with quote  #99 
Apickering:

I don't mean to be overly critical, but I have always had my doubts about Imperial County, California or Yuma county, Arizona, especially the Southern parts of these counties that straddle the border (including Yuma Arizona), even if they are close to the 8 freeway.

First, is there anywhere in Imperial County where it would really be advisable to invest?  Because it's a cash flow area reasonably close to San Diego, one would think that some members of the board might have successfully tried this.  But I have never met such an investor, if that is true.  And I don't tend to think of Imperial county as nearly as attractive compared to other inland counties in California.  And I would be hard put to identify any specific area that would really make sense to invest in.  Does anyone claim otherwise? 

To the north of Imperial County, are those cities that cluster around the Salton Sea, which has seen some of the most speculative investment on Planet Earth, IMHO. (There was a post that I made about it, unbelievable quite frankly why anyone would invest there.)  Why build around a highly polluted Sea (fed by the New river, one of the most polluted rivers in Mexico) that is subject to frequent fish and aquatic life kills, that frequently smells bad,. etc.  At the time I wrote about it, there were no drug or food stores and not much retail.  The investment in these towns was sufficiently outlandish that it merited a front page article from the LA Times basically wondering why anyone could so foolish as to build there?, etc.  At the time, the # of foreclosures was truly stunning--it was like you couldn't give properties away.  The problem was that there are few jobs in this area, so who are you going to rent to?   At the time, there were alot of vacant homes.

Sure, Yuma might make considerably more sense than many of the other border towns, some of which were truly horrifying (think Ciudad Juarez).  However, it is also true that the Mexican provinces that border the US have seen outsized share of drug violence (although I haven't heard about Yuma specifically).

I seem to recall an LA Times article about El Centro, another city on the 8 freeway (which skirts the border) in which it was basically intimated that because El Centro was part of the corridor for drug transportation, that it had an outsized population of drug addicts, etc. The addicts were attracted there, in part, because you could buy drugs much more cheaply since this was part of an established mule route.  The result was that the crime rates were way higher and completely out of proportion to a town of El Centro's population size.  And El Centro probably has a more favorable upside compared to most towns in Imperial county since it is the county seat and has some government employment.  The conclusion that I arrived at (and this was before the drug violence that has hit the border in the last decade), was that I would never be remotely tempted to invest anywhere along the border.  I recall that I knew someone who attended Sdcia meetings who lived in Tijuana.  He was forced to get up several hours each day for the long wait at the border.  The other factor is that now tourism is in decline, the most viable kind of work along the border probably involves one or more of its illegal occupations (drug smuggling, illegal immigration, prostitution, etc etc)

And I have also tended to avoid Imperial County, because, despite its proximity and the reasonable prices, because I can't figure out anywhere where I think it would make sense to invest there.  (Further away, in Arizona for example, I would never consider going that far away.)  Investing out of state usually is a mistake because unless you receive significant appreciation, the expenses won't make it worthwhile.  The property management fees will tend to erode all of the profit.

But the book that I would strongly advise you to read is Amexica by Ed Vulliamy.  A former war correspondent who speaks fluent Spanish, I believe he lives in Tucson, Az.  He has covered the Iraq wars as well as the wars in Bosnia, Croatia, Yugoslavia, etc.  Anyway, he wandered down the complete length of the US border from Texas to California, stopping on both sides of the border.  His basic conclusion was that the border wasn't really part of Mexico (or the part that is most attractive about that country), not part of the US (or the most attractive parts of that country).   Neither country seems anxious to claim the border, and with good reason.  I don't recall if he had anything to say specifically about Yuma or not, but he has plenty to say about the border in general, much of it unfavorable.  It's a rather amazing journey (and quite frankly a bit foolish, in retrospect,). Although I guess because Vulliamy is this old man who walks with a limp, who dressed down and only spoke in Spanish, no one seemed threatened by him, and he even spoke on occasion to some of the narcotrafficantes.

One of the strangest incidents from the book, BTW, was that Vulliamy arrived in Ciudad Juarez just after a drug rehab clinic run by a priest had been essentially massacred, for what reason, no one in retrospect could quite figure out.  Vulliamy actually visited the clinic the day after the massacre, which was deserted and in a very remote area.   One of the reasons, apparently, so many women have been killed in Ciudad Juarez is that there are numerous maquiladoras there, many of whom hire women only (apparently, because they can pay them less in Mexico).  So this area has proven a magnet for women migrating from rural areas.  And many of them have to wait at lonely bustops for the buses to take them to work.  You would think that the maquiladoras could do a better job of protecting their own workers.  It's also one of the ironies of this situation that El Paso, which is right across the border, is one of the safest cities in the US (the 3rd safest US city for a city of its population according to a NY Times article in 2010)---right across from what is essentially a failed city.  Although I have heard news that recently Ciudad Juarez nightlife has recovered to some extent, which is a good sign, I suppose.  But so long as the murder rate is so high---and the % of solved homicides is so low---it's still unreasonably dangerous.

The bottom line is that the border is a very strange place, and I don't really see jobs moving here, etc etc.  Even decades ago Juarez was a strokes folks place--there is a Dylan song about frequenting prostitutes there that he released 3 decades ago (Just Like Tom Thumb's Blues).  However, the Mexicans, in general, are still very friendly people.  One of the ironies about Mexico is that they have always ranked in the top 10 nations where the people are happiest, a list the US never seems to make because all of the stress, even if our economy may be stronger.  And travel writers/cooks like Anthony Bourdain rave about the great Mexican food they have had in Mexico City, or mole in Oaxaca and Puebla, etc etc.  And it seems like the tourism industry has recovered, though this has apparently more to do with Europeans than gringos right now. 

Also, I would caution you that you are buying near the top of the market.  Why not wait until the market crashes before investing heavily, especially if you are talking about bread and butter type rentals?  It's always a source of amazement for me that sellers couldn't bribe buyers enough in 2009 to 2011 to buy (they even had to bribe them 8 grand at one point), and now they are more than willing to pay top dollar to jump on the bandwagon.

Although, in the end, it's your money, and your choice.
Apickering

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Reply with quote  #100 
Larry,
Thanks for your reply and input. My biggest concern in yuma is maintenance cost. The rents are low and I do not think the cost to fix / repair will be proportionately lower than Vista, also I found that maintenance in my units in Vista always cost me more than what I budgeted!
On the positive yuma produces 80 to 90% off the United States winter lettuce, has a decent military base and influx of snowbirds in winter. The price of the units is low... Average $32k per door.
Yuma will be primarily a passive investment - my property manager owns several properties in yuma.
Probably will not invest any more day until I see how this investment turns out.
My hope is a steady cash flow (my main goal) with hopefully a small amount of appreciation.
To be quite honest I do not think this is going to be a homerun but what other options are there?
Thanks again
Alan

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Alan
RobertCampbell

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Reply with quote  #101 
Quote:
Originally Posted by Apickering
but what other options are there?


 I'll take a shot at your question. 

I get the feeling that the only investments you'll consider are real estate investments - so I'll stick to that.

1.  If you want cash flow, how about investing in short-term mortgages?

9% (or more) ROI.

2.  You can also learn how to invest in REITs.  You can make higher average annual returns in REITs (12% or more) than you can with short-term mortgages.  Plus, you have 100% liquidity, which is a big plus to investors like me who follow trends.

Because you can't have it all with any one type of investment strategy, you have to be patient and be willing to take a slightly longer-term view with a REIT investment strategy.

To diversify your portfolio, soften the cycles and make higher risk-adjusted returns - you could invest in both asset classes.




abc

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Reply with quote  #102 
Quote:
Originally Posted by RobertCampbell
Quote:
Originally Posted by Apickering
but what other options are there?


 I'll take a shot at your question. 

I get the feeling that the only investments you'll consider are real estate investments - so I'll stick to that.

1.  If you want cash flow, how about investing in short-term mortgages?

9% (or more) ROI.

2.  You can also learn how to invest in REITs.  You can make higher average annual returns in REITs (12% or more) than you can with short-term mortgages.  Plus, you have 100% liquidity, which is a big plus to investors like me who follow trends.

Because you can't have it all with any one type of investment strategy, you have to be patient and be willing to take a slightly longer-term view with a REIT investment strategy.

To diversify your portfolio, soften the cycles and make higher risk-adjusted returns - you could invest in both asset classes.




Robert, what educational materials would you recommend for learning more about strategies around REIT investing?  Also one thing about buying trust deeds (outside of retirement plans) is you pay ordinary income taxes on the interest income from trust deeds.  If you are in a high tax bracket this takes a major bite out of your NET income from trust deeds.  Dividend payments from many dividend stocks are only taxed at 15% in comparison.  By the way, I know very little about dividend paying stocks and I have never owned any, I just know the tax rates on dividends paid from dividend paying stocks can be favorable increasing your NET income.

(Here is a interesting link to an article of Peter Schiff thinking of moving to Puerto Rico so he would not have to pay taxes on dividends:  

http://www.bloomberg.com/news/2014-06-26/paulson-s-puerto-rico-paradise-lures-rich-fleeing-taxes.html

Maybe Puerto Rico needs to be my next stop after Seattle???)

I think I still I like well located cash flow rental property as the very best source of income from investments period.  Better then trust deeds.  I always remember hearing Mike Cantu explain why he never sold his large free and clear rental portfolio at the peak back in 2006.  He would explain that after paying all the taxes, Realtor commission, depreciation recapture, etc... he would be left with 60 cents on the dollar for all his equity.  And then what would he do with the 60 cents on the dollar capital gain he just got????   Just buy more rental property!  So why sell it all in the first place?










RobertCampbell

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Reply with quote  #103 
Quote:
Originally Posted by abc
Quote:
Originally Posted by RobertCampbell
Quote:
Originally Posted by Apickering
but what other options are there?


 I'll take a shot at your question. 

I get the feeling that the only investments you'll consider are real estate investments - so I'll stick to that.

1.  If you want cash flow, how about investing in short-term mortgages?

9% (or more) ROI.

2.  You can also learn how to invest in REITs.  You can make higher average annual returns in REITs (12% or more) than you can with short-term mortgages.  Plus, you have 100% liquidity, which is a big plus to investors like me who follow trends.

Because you can't have it all with any one type of investment strategy, you have to be patient and be willing to take a slightly longer-term view with a REIT investment strategy.

To diversify your portfolio, soften the cycles and make higher risk-adjusted returns - you could invest in both asset classes.




Robert, what educational materials would you recommend for learning more about strategies around REIT investing?  

A good place to start would be the book Trend Following by Michael Covel.  Then use the bibliography to take you where it may if your interest builds. 

This book applies to investing in all major asset classes - including REITs.

Also one thing about buying trust deeds (outside of retirement plans) is you pay ordinary income taxes on the interest income from trust deeds.  If you are in a high tax bracket this takes a major bite out of your NET income from trust deeds.  Dividend payments from many dividend stocks are only taxed at 15% in comparison.  By the way, I know very little about dividend paying stocks and I have never owned any, I just know the tax rates on dividends paid from dividend paying stocks can be favorable increasing your NET income.

Most of the gains from equity REITs (which I like more than mortgage REITs) will come from capital gains - not dividends. 

The equity REIT SPG is currently paying about a 3.1% dividend on a $167 stock. 

I think I still I like well located cash flow rental property as the very best source of income from investments period.  Better then trust deeds.  I always remember hearing Mike Cantu explain why he never sold his large free and clear rental portfolio at the peak back in 2006.  He would explain that after paying all the taxes, Realtor commission, depreciation recapture, etc... he would be left with 60 cents on the dollar for all his equity.  And then what would he do with the 60 cents on the dollar capital gain he just got????   Just buy more rental property!  So why sell it all in the first place?

Equity REITs had an average annual return of 14.74% from 1974-2012 - with no leverage.

NOTE:  I'll finish this post when I get back from my beach run.  I have an attractive lady telling me to get off the f**king internet and go take a run with her - so off I go.









abc

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Reply with quote  #104 
Thanks Robert for the info I will look into.  That is an amazing return over the long term for REITS....with compounding interest that is a doubling of you money every 5 years.  A great niche newsletter would be "market timing for REIT investors".


Paul

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Reply with quote  #105 
Robert, If you're running on the beach with hot women, you're never going to find time for those ideas I sent you. [biggrin] 
RobertCampbell

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Reply with quote  #106 

REITs revisited

For those of you who prefer investing for cash flow vs. investing for capital gains, you might want to consider investing in NLY - which is a mortgage REIT. 

NLY currently has a 10.7% dividend yield.

SPG is an equity REIT - with a 3.1% yield. 

To repeat from a previous post, equity REITs have had an average annual return of 14.74% from 1974-2012 - with no leverage.   No market timing either - straight buy and hold with 100% liquidity. 

It's my view that if a person is willing to learn how to use trend-following strategies to invest in both equity and mortgage REITs, this can be a very attractive (if not better) alternative to buying and holding real estate rentals. 

Even better, because you don't have to deal with tenants and property management, REIT investing gives an investor more time to hit the gym, lift weights, and take care of his(or her) health and body.

RobertCampbell

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Reply with quote  #107 
Quote:
Originally Posted by abc
A great niche newsletter would be "market timing for REIT investors".




Thank you for the idea - and my brain has been in high gear thinking about it.

I already invest in REITs - so your idea could easily be added to my real estate timing niche.
Apickering

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Reply with quote  #108 
Robert, thank for your ideas. Much appreciated
Regards, Alan

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mlreits

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Reply with quote  #109 
Quote:
Originally Posted by milk2tea
I visit this board often and learned quite a lot from some of you.  Comparing with a few of you like Minh, Bryce, abc, etc. I consider myself an amateur.  Actually I am an amateur and still holding a desk job besides buying a few SFH investment. 

I started buying properties since 2005.  I average bought one SFH per year and didn't get into these high fly areas such as AZ, FL, CA (except my primary resident) before 2008.  And started buying in my local SJ northern CA after 2008.  I consider myself lucky. Yes, most of properties got appreciated, especially those in CA.  But for me, it is still on the paper.  So what's the exit strategy? I like the steady income and not tend to sale any of them in near future (it is so easy to manage them in CA).  But I am always afraid another correction like 2008's in the horizon.   At same time, I also have cash in hand and want to look next opportunity too.  But really cannot find any good deal in San Jose area.  So buy or sale? 

You know what,  from all these years, I haven't sold any real estate except the primary house in TX when I moved out there 15 years ago.  From reading the market, I set in a holding pattern now.  But really estate is a highly unliquidable  business.  I need some strategy in place should anything happen.  But so far, I don't have any.  Any advice?

-John


John,

First of all, congrats on your accomplishments so far.  A lot of people just keep dancing around and never take any action.  As much as real estate is illiquid, there's still a way to tap the equity or get a HELOC on these investment properties.  It's good to have it readily available so you can pounce on opportunities. 

If you can acquire an average 1 property per year for 20 years in coastal CA, you're set for life IMO.  In year 21, tap the equity on the 1st property. In year 22, tap the equity on the 2nd property, etc.  You don't have to pay any taxes on the tapped equity.  Sweeeeet.  [biggrin]

There's a lot of cash out there, and everyone is looking to park it somewhere to get some decent yields so you're not alone.  Tell us more about your risk tolerance. 

If I have money sitting around doing nothing, I would buy some SDRL.  It's giving about 10% yield, and the stock price is relatively cheap IMO.  AGNC is giving 11% yield, and the recent earning came out good.  I believe this stock has turned the corner.  ARR is currently giving about 14% yield, but I believe it will cut its dividend to 4c/month in the coming months.  Looks like the market has priced it that way.  AAPL is on the verge of breaking out.  My guess is that it will break out near the time it's announcing the iPhone 6. 

We're scheduled to close on our apartment building on 9/5.  We got the price down to $930k after inspections.  Fortunately, we were able to borrow at 3.05% with 0.5 points and no closing costs.  It will be about a 6% to 7% cash on cash returns after stabilized.  IRR is in the mid teens so we're happy with that.     


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"Be formless, shapeless like water." Bruce Lee
mlreits

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Reply with quote  #110 
Got the 3rd quarter newsletter from Bruce last week and finally finished reading it.  The title is "Why are real estate sales down?"

Here is the recap of what Bruce learned in 2014.

1. 2014 was unlike any year California has ever had.

2. We can have declining sales in the same year that we have affordability over 30%, declining interest rates, improving employment, a decline in foreclosures, a decline in short sales, a decline in delinquencies, and a decline in negative equity.

3. He has to re-examine his future expectations about what's about to happen in 2015 and get to the bottom of what happened in 2014.

We can't ignore what happened in 2014.  It happened despite some very positive forces and defied history!  IT'S A BIG DEAL.  His question is if we can have a lousy 2014 after a great 2013, what guarantee do we have that 2015 will be any different?

There are a few very bright people who expect 2015 to range from bad to awful.  Bruce is going to take a serious look at all of this in the next 90 days and report his finding in the January 2015 newsletter.  The title will be:  2015 Proceed With Caution!  We may well be in uncharted territory so be careful!

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kaihacker

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Reply with quote  #111 
Thanks for sharing this summary Minh.



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Gene Hacker

Passive and active real estate investment opportunities.
http://RiverLakeRE.com riverlakere@gmail.com

Home Inspections in Bakersfield and all of kern county:
http://bakersfieldinspections.com
kaihacker

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Reply with quote  #112 
I don’t thinks its really that big of a mystery why 2014 was slower than 2013.
 
BN talks about how lending standards are a bit looser than last year...that may be true but if you compare them to where we are now to previous cycles, they are super tight.  And in 2013 a huge amount of transactions were cash deals....so lending standards really didn't play a big roll overall.  But now with the headgefunds bowing out and the cash deals diminishing, the effects of a very tight lending environment are starting to stand out. 
In 2013 hedge funds, foreign investors, and private investors were going nuts and competing with each other driving prices up. 
In most cycles less savvy investors (the masses) get involved later in the cycle.  I think the reason this has not happen this time is that lending standards are super tight.  Sure interest rates are low but ease of credit is tight. 
 
The studies and polls I have read show that renters want to own houses.  Young adults view real estate as a good investment.  They say the reason they are not buying is because they cannot qualify for financing.
 
 

__________________
Gene Hacker

Passive and active real estate investment opportunities.
http://RiverLakeRE.com riverlakere@gmail.com

Home Inspections in Bakersfield and all of kern county:
http://bakersfieldinspections.com
abc

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Reply with quote  #113 
Quote:
Originally Posted by kaihacker
I don’t thinks its really that big of a mystery why 2014 was slower than 2013.
 
BN talks about how lending standards are a bit looser than last year...that may be true but if you compare them to where we are now to previous cycles, they are super tight.  And in 2013 a huge amount of transactions were cash deals....so lending standards really didn't play a big roll overall.  But now with the headgefunds bowing out and the cash deals diminishing, the effects of a very tight lending environment are starting to stand out. 
In 2013 hedge funds, foreign investors, and private investors were going nuts and competing with each other driving prices up. 
In most cycles less savvy investors (the masses) get involved later in the cycle.  I think the reason this has not happen this time is that lending standards are super tight.  Sure interest rates are low but ease of credit is tight. 
 
The studies and polls I have read show that renters want to own houses.  Young adults view real estate as a good investment.  They say the reason they are not buying is because they cannot qualify for financing.
 


The thing is financing is not as hard to get as the media makes it out to be.  You can get a FHA loan with pretty bad credit with just 3.5% down.  You basically just need a job (and have had it for 2 years) and a decent debt-to-income ratio and you can get a loan.   The only thing that hasn't come back is stated income loans for the masses with low down payments & interest-only loans, which will not come back for the masses.  I think it's less the difficulty of financing as it is the perception that it's difficult.  I don't think it's as much financing that's holding back buyers, it's more the stability and quality of their employment situation that is holding them back and their incomes not going up.  I also think in California (especially coastal areas) affordability is an issue for most people.  Without interest-only loans and stated income, buyers are hitting an affordability wall much faster then in the past.  There is also a lot of talk about millennial buyers delaying marriage and kids a lot longer then past generations, and marriage and kids are a big driver of buying your first home.

I'm not a big believer that financing is really not as tight as the media is making it out to be.  It's just that it is normal now vs. 2001-2007.  I think financing is pretty similar to the 70's, 80's, 90's.  FHA is opening more now to giving loans to people with credit scores in the 500's now.  If you have a decent full time job and even marginal credit you can get a loan with 5% or less down.  But 5% for most people in the U.S. is a struggle to save.  








rickencin

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Reply with quote  #114 
In most industries you need to consider the entry level consumers.

Real estate is now competing with students loans for income.

http://www.usnews.com/news/blogs/data-mine/2014/10/07/student-loan-expectations-myth-vs-reality

"The standard repayment plan for federal student loans puts borrowers on a 10-year track to pay off their debt, but http://www.onewisconsinnow.org/files/OWIStudentLoanEconomicReport.pdf" target="_blank" rel="nofollow">research has shown the average bachelor's degree holder takes 21 years to pay off his or her loans. Under federal income-based repayment options, remaining debt is forgiven after 20 years."

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Reply with quote  #115 
I agree that if you fit in the income guide lines you can qualify...but there are a lot of people that do not that do not fit those hard and fast rules that are very low risk borrowers.  If you fit into the hard and fast requirements set up by the GSEs then no problem but if you do not...there seems to be no other options.  Basically the big change I notice is is the limited availability of equity based lending.  

One example...I know an older investor that no longer have significant income but they have money tied up in investments.   They wanted to pull equity out of an SFH (rental) that they owned free and clear to buy another deal.  He would go as low as 70% LTV and had a credit rating just under 800...he could not find anything other than super expensive hard money lenders.  This was not how it worked in the past...and not just comparing to the crazy years but anytime in the past 40 years.  With 30% down...and great credit...IMO that is way less risk then a 97% loan to a borrower with sub 700 credit.

Equity loans have always been part of the lending environment and today it seems they are very rare.  
These new restrictions make things very hard for the non employee borrowers...self employed and investor types used to have other options that are not possible today.

The rules are changing consistently so if this has changed recently, and there are new options for borrowers that don't fit the Debt/income but have a large down payment, I would love to hear about them.    

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Reply with quote  #116 
It is true it is harder to get a loan if you can't prove your income today.  Self-employed borrowers have to show enough NET income on their returns to qualify.  But if you are not going to look at borrowers incomes, that means you are going back to stated income or No doc loans.  And I think there is a place for No Doc loans at a certain loan-to-value with superior credit, say 65% and below LTV with 700+ credit.  

But the absence of low LTV low doc loans is not hurting first time buyers.  First time buyers do not get low LTV loans.  They would not be candidates for low LTV No doc loans since they don't have large down payments.  First time home buyers mostly get low down payment full doc types of loans.  And those loans are freely available right now with really low rates.  Getting any looser on these types loans in my opinion would mean you are starting to lend again to people who may not have the capacity to pay the loan back (like was done from 2003-2007).
JovannySmith22

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Reply with quote  #117 
I found an article on it
http://yourcastle.org/2014/05/14/where-are-we-in-the-real-estate-market-cycle/

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larrywww

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Reply with quote  #118 
If you were waiting for the other shoe to drop, after I Survived Real Estate 2014, Bruce Norris announced that he will be coming out with a new report "2015: Proceed with Caution" on or around 1/31/2015.

Is he still abiding by the tried and true faith of 17% affordability?  I guess we will find out.
hbkmat

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Reply with quote  #119 
Prices have been going up a good amount.  In a lot of places affordability is already in the teens.  Seems to be the high end areas with a lot of cash deals.  Proceed with caution is what I am sure a lot of us are already doing. This up coming spring will be interesting to see what happens.
larrywww

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Reply with quote  #120 
If you listen to I Survived Video (only parts 1 and 2 are available), Chris Thornburgh appears to be saying that 2015 will be a year for higher prices.  His theory is that the impasse/slight downturn was basically due to the changing of the guard----the investors who buoyed the market in the early going  are now exiting the market en masse and weren't being replaced by new buyers at a sufficiently high rate in 2014.  But now Chris thinks that is changing, prices are started to go up, we are looking for a price runup in 2015 because the traditional buyers are finally catching fire, etc.  And even if alot of the traditional buyers have turned into renters (especially the younger generation), there are enough buyers (given the low inventory) to power a price rally forward.

I think he is assuming (and he says this) that lenders are going to stop going to be an impediment and will assist the rally, especially since alot of these would be buyers don't have all cash like the investors.  I guess we will see what will happen, but he claims that prices are already rising, etc. 

It will be interesting to see if this prediction holds true.

But Bruce has been saying all along that there is no way prices don't ultimately go up given the low inventory, etc.  Although this doesn't tell us when to exit the market.

BTW, the I Survived videos (parts 1 and 2) are available on Youtube.  The Norris Group only has part 1 so far.
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