From:
href="http://money.cnn.com/2007/04/09/real_estate/forecast.moneymag/index.htm">
Forecast: 100 biggest markets
Analysts still are looking for a relatively mild downturn - but in some areas, things will get worse before they get better.
April 11 2007: 11:38 AM EDT
(Money Magazine) -- Major real estate forecasters are looking for prices to bounce along the bottom this year and next and fully recover by 2009.
"Once the correction from the boom works through, we'll see slow, steady growth," says Celia Chen, Economy.com's director of housing economics, who expects annual price gains of between 2 percent and 4 percent by 2009.
And on Wednesday, the National Association of Realtors said it expects its measure of home prices to fall this year for the first time since the group began tracking sales nearly 40 years ago.
Overall, her firm is predicting that the downturn that started in late 2005 will end up pushing median home prices down 8.7 percent nationwide by the time it ends in early 2008. The nationwide figures, of course, mask a great deal of local variation.
Regions that saw the greatest price appreciation (and speculation) during the boom, such as Florida, Las Vegas, Phoenix and San Diego, are now taking the hardest hit - and will continue to do so until all the air is out of the bubble.
While Fiserv is forecasting flat prices nationwide over the next 12 months, the firm expects price drops of as much as 9 percent in half of the 50 biggest markets. Home prices in Las Vegas, down 5 percent over the past 12 months, may fall another 9 percent in the next year.
Miami real estate could see a similar slump. The housing market will also struggle in nonbubbly rust belt states such as Michigan and Ohio, chiefly because of the ongoing loss of manufacturing jobs.
But in parts of the South and West - especially areas that never enjoyed double-digit annual price gains - homes continue to appreciate.
Clink Link to see Top 100 market forecasts:
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Sunday, August 26, 2007
Stocks vs. Real Estate
http://money.cnn.com/galleries/2007/real_estate/0704/gallery.stocks_v_realestate.moneymag/index.html
Both real estate and stocks have had their day, but the question you need answered is this: Which contender is the superior long-term bet today?
By Marlys Harris, Money Magazine senior editor
1978 to 2004 1 of 9
Round 1
Performance
Real estate has packed quite a punch of late, appreciating 12.4% annually between 2001 and 2006, according to the S&P/Case-Shiller U.S. Home Price index. That clobbered stock prices, which gained only 4.3% a year as measured by the S&P 500.
But over the long run stocks win easily. A new study by Jack Clark Francis, a finance and economics professor at Baruch College in New York City, and Yale's Roger G. Ibbotson compared the annual returns of real estate from 1978 to 2004 compared with those of 15 different "paper" investments, including stocks, bonds, commodities futures, mortgage securities and real estate investment trusts (REITs).
The results? Housing delivered a solid but unimpressive annualized return of 8.6%. Commercial property did better at 9.5%. The S&P, however, delivered a crushing 13.4%.
Other studies argue that real estate's returns are much worse. Yale finance and economics professor Robert Shiller, author of Irrational Exuberance, who looked back to 1890, contends that only twice has real estate produced truly outstanding returns: after World War II, when returning troops were starting their families, and from 1998 to 2005, a period he thinks is a bubble.
Housing's rate of return, he argues, has to trend back to the mean of about 3% a year - barely above the inflation rate. If that's starting to happen now, he says, we could be facing many years of losses.
Before you decide that real estate is already down for the count, though, consider this: Equity REITs, which own stakes in commercial properties, were among the best performers in the Francis-Ibbotson study, with annual returns of 14.8%. But REITs are stocks, after all.
Round 2
Leverage
Real estate partisans reply that these academic studies leave out the asset's strongest advantage: leverage, or the use of a mortgage to amplify the return on your cash.
You know the math: You make a 20% down payment on a $500,000 house. Two years go by and the house increases in value to $550,000, or 10%. The return on your down payment - your real stake in the deal - is a stunning 50%, however.
What about stocks? Well, you can leverage them by buying on margin, but you can borrow no more than 50% of the purchase price. You could also play in the options market, but you risk losing your entire investment.
Of course, a lot of real estate fans who chased a quick buck in recent years are finding out about the other side of leverage. Suppose you put 5% down on a $250,000 condo in Las Vegas in 2005. You planned to rent the unit out for a while, then flip it. Now the condo glut there means that when you sell - if you can sell - you might get $220,000.
So you'd wind up minus your original investment and owe the bank $17,500 to boot. That's a sucker punch many people in formerly hot markets are feeling now.
Still, as a way to turn a small stake into a lot of money in a rising market (and home prices have generally gone up), you can't beat the leverage that real estate offers.
Round 3
Costs
What leverage gives you, transaction costs take away. When you buy, you shell out for mortgage processing, credit reports, title insurance, appraisals, a lawyer for the bank, a lawyer for you, local transfer taxes and other charges. You may also pay a percentage point or more of the loan up front to lower your interest rate.
All in all, closing costs can run 2% to 4% of your purchase price. Sellers have to lay out a 6% commission for their agent, prepare a place for sale and, if it's their home, pay to move. Buying and selling can total about 10% of the purchase price.
Such costs make real estate a tough game. That $550,000 house (the one that gained 10% in two years) just turned into roughly a break-even proposition. And that total doesn't include the cost of maintenance and refurbishing, mortgage interest, taxes or insurance, which may add up to more than what you'd have laid out to rent a similar property.
Expenses run even higher if you are the owner of an investment property. You have to add the cost of advertising for tenants, evicting those who mess with you and carrying empty apartments.
In their study, Francis and Ibbotson didn't deduct such costs when they calculated returns. Had they, real estate would have fared worse. Stocks, by comparison, are incredibly cheap to own and sell. At a discount brokerage such as Scottrade, you can pay anywhere from $7 for an online purchase to $27 for one that is broker assisted.
Same when you want to dump your stock. A mutual fund that tracks a broad index of stocks can cost you as little as 0.09% of assets a year.
Round 4
Taxes
Stocks can throw two decent punches in this round: First, if you (or your mutual fund) hold a stock for more than a year before selling, then you owe only a capital-gains tax that tops out at just 15%. Second, you can offset any investment losses you realized against your gains on your income tax return.
Real estate, by contrast, delivers a battery of tax benefits, especially for your home, says Ronald Hegt, a senior tax partner at Hays & Co., a New York City C.P.A. firm. You can deduct mortgage interest and property taxes yearly. And when you sell your house, the first $500,000 in profits are tax-free (for individuals, the first $250,000). You are on the hook for long-term capital gains taxes for any extra profit, but the top federal rate is only 15%.
Rental and commercial property also come with breaks. Expenses to maintain the property are deductible. And you can write off depreciation, a break for the supposed wear and tear on the property. On the flip side, there's no exclusion from taxes when you sell, and you pay 15% in capital-gains taxes on any profit. Worse, the government makes you pay taxes on the depreciation you took.
Round 5
Transparency
One share of Google common stock is the same as every other share. The price is updated constantly, and it is accessible to anyone. Each piece of real estate, on the other hand, is unique. Buying or selling at the "right" price is, at best, an educated guess. At worst, you're a sucker.
An easy round for stocks? Think about Enron, Tyco and WorldCom. All were widely followed by investment professionals, their results audited, their financial reporting regulated by the feds. And now their CEOs are in jail and investor losses total in the tens of billions. If Wall Street failed to notice anything amiss, how would you?
Real estate, on the other hand, is tangible. You can check the basement, consult a termite inspector and make sure that nobody is building a pig farm next door. Of course, if you've watched Flip This House and Flip That House, two cable-TV programs that feature people trying to get rich quick by buying and fixing up properties, you know that savvy folks often learn too late that the plumbing is shot or that vermin ate the wiring.
Still, John T. Reed, editor of "Real Estate Investor's Monthly," insists that such mistakes are avoidable - just not easily avoided. "You can verify the property taxes, the cost of utilities and everything else about the property," he says. "Those are knowable."
Round 6
Effort
Stocks are the easy winner here. Owning property - even your own house - can be a pain in the neck. Every time you turn around you have to fix, or pay to fix, the havoc wrought by a mechanical or natural disaster.
Some folks may thrill to the drama of termites and broken pipes, but that's a pretty small group. If you consider such events nuisances, you're better off sitting in a plush chair and choosing from a manageable list of big, well-know stocks (see the Sivy 70). Or choosing mutual funds that are run by a professional manager or that track an index.
Round 7
Volatility
One visitor to CNNMoney.com wrote: "I once lost 20% in one week holding Hewlett-Packard stock. That situation will never happen to me with a smart purchase in real estate."
He's got a point. Because real estate takes so much time and effort to buy and sell, it rarely soars or plunges. The Francis-Ibbotson study, for example, found that over the 27 years surveyed, homes in their worst year returned 3.5% and commercial property lost only 5.6%.
The S&P 500's worst annual performance was a 22.1% decline. That doesn't mean you can't lose your shirt and everything else on real estate. Hartford, Houston and Los Angeles, for example, experienced 20%-plus price drops at some point since the '80s. But those declines unfolded over several years, and all three markets recovered.
On the other hand, we're still a ways from knowing whether the current slowdown in the housing market is about to end or is only getting started.
Diversification
Mama told you not to put all your eggs in one basket. And so it goes with investments. Diversifying among asset classes, industries and investment vehicles makes you safer. When one falls, another rises. Amassing a diversified portfolio of individual stocks, bonds and other paper assets may take a lifetime of saving. But with a cash outlay of $2,500 or so, you can get instant variety by purchasing a mutual fund or an exchange-traded fund.
Not so with real estate. Unless your surname is Trump or Helmsley, you're not likely to have the means to own the hotels, stores, apartments, office buildings, parking garages and casinos you'd need to achieve a properly diversified real estate portfolio.
There is, however, a real estate investment that offers the low costs and low maintenance of stock: the equity REIT, a company that owns a batch of commercial properties. The shares trade on national stock exchanges, and Francis and Ibbotson found that equity REITs returned more than any other asset class except small-cap stocks.
But as an asset class, REITs don't behave much like property. They can drop like rocks in a well. In their worst year, they lost 17.5%. And they've never returned as much as they have in recent years, when they've benefited from investors' enthusiasm for both the real estate and stock markets.
There's no way to know whether that streak can continue or whether this is an asset class that's just about punched itself out.
Round 9
Decision
Stocks win the bout four rounds to three, with one round a draw. But the fight is in truth considerably more lopsided.
Stocks roll up large margins of victory in performance, costs, diversification and effort you need to expend as an investor.
Real estate's only big win is in leverage. Using that leverage to buy a home you can afford makes sense. You're building equity and collecting other benefits as well. (And no landlord can stop you from owning a big, hairy dog or throwing a party for 200 of your noisiest friends.)
But jumping into the real estate ring thinking you'll use others' money to score an investing knockout is plenty risky. And the big prize, as you may have noticed if you've tried to flip a condo lately, is more elusive than it might have seemed.
Thursday, August 16, 2007
Scary Times?! Or times of Opportunity?
There is so much turmoil in the housing market right now. Seems to be crashing fast. What I wonder about is whether the price of raw land (pre-developed) will follow the rest of the housing market? And also, when this blood bath will end.
So far it doesn't seem to be affecting the Silicon Valley area too much, save for the outskirts in places like San Jose, Concord, far east Bay, and South San Jose. Many "not so desireable" parts of the far Bay area have dropped. My own residence dropped by 75K in a matter of 6 months earlier this year.
The prime areas like Mountain View and Palo Alto still are seeing speedy turn arounds, however just a few miles away in Santa Clara we see properties falling out of escrow due to the reduced buyer pool from the Credit Crunch. A house next to mine supposedly fell out of escrow 3 times in the past few months, the last time of which was for financing reasons.
This seems to be a great time to go bargain hunting!
For the number for foreclosures and shorts happening, one should brush up their skills on short sales and foreclosure investing.
And seek no refuge in the stock market either -- times are not pretty!
So far it doesn't seem to be affecting the Silicon Valley area too much, save for the outskirts in places like San Jose, Concord, far east Bay, and South San Jose. Many "not so desireable" parts of the far Bay area have dropped. My own residence dropped by 75K in a matter of 6 months earlier this year.
The prime areas like Mountain View and Palo Alto still are seeing speedy turn arounds, however just a few miles away in Santa Clara we see properties falling out of escrow due to the reduced buyer pool from the Credit Crunch. A house next to mine supposedly fell out of escrow 3 times in the past few months, the last time of which was for financing reasons.
This seems to be a great time to go bargain hunting!
For the number for foreclosures and shorts happening, one should brush up their skills on short sales and foreclosure investing.
And seek no refuge in the stock market either -- times are not pretty!
Rate Rise Pushes Housing, Economy to `Blood Bath' (Bloomberg)
http://www.bloomberg.com/apps/news?pid=20601087&sid=akV2sasSGUY8&refer=home
By Kathleen M. Howley
A "Stop Foreclosure!" sign
June 20 (Bloomberg) -- The worst is yet to come for the U.S. housing market.
The jump in 30-year mortgage rates by more than a half a percentage point to 6.74 percent in the past five weeks is putting a crimp on borrowers with the best credit just as a crackdown in subprime lending standards limits the pool of qualified buyers. The national median home price is poised for its first annual decline since the Great Depression, and the supply of unsold homes is at a record 4.2 million, the National Association of Realtors reported.
``It's a blood bath,'' said Mark Kiesel, executive vice president of Newport Beach, California-based Pacific Investment Management Co., the manager of $668 billion in bond funds. ``We're talking about a two- to three-year downturn that will take a whole host of characters with it, from job creation to consumer confidence. Eventually it will take the stock market and corporate profit.''
Confidence among U.S. homebuilders fell in June to the lowest since February 1991, according to the National Association of Home Builders/Wells Fargo index released this week. Housing starts declined in May for the first time in four months, the Commerce Department reported yesterday. New-home sales will decline 33 percent from 2005's peak to the end of this year, according to the Realtors' group, exceeding the 25 percent three-year drop in 1991 that helped spark a recession.
`Economic Recession'
``It's not just a housing recession anymore, it looks more and more like an economic recession,'' said Nouriel Roubini, a Clinton administration Treasury Department director and economic adviser who now runs Roubini Global Economics in New York.
Goldman Sachs Group Inc., the world's biggest securities firm, and Bear Stearns Cos., the largest underwriter of mortgage-backed securities in 2006, said last week that rising foreclosures reduced their earnings. Bear Stearns said profit fell 10 percent, and Goldman reported a 1 percent gain, the smallest in three quarters. Both firms are based in New York.
The investment banks, insurance companies, pension funds and asset-management firms that hold some of the U.S.'s $6 trillion of mortgage-backed securities have yet to suffer the full effect of subprime loans gone bad, said David Viniar, Goldman's chief financial officer. Subprime mortgages, given to people with bad or limited credit histories, account for about $800 billion of the market.
``I continue to believe that we haven't seen the bottom in the subprime market,'' Viniar said on a June 14 conference call with reporters. ``There will be more pain felt by people as that works through the system.''
He didn't return calls this week seeking additional comments.
`Drag on the Economy'
``This has been a drag on the economy,'' Treasury Secretary Henry Paulson said at a press briefing today after he testified in front of the House Financial Services Committee. ``I do believe that we are at or near the bottom.''
Homebuilding stocks are down 20 percent this year after falling 20 percent in 2006, according to the Standard & Poor's Supercomposite Homebuilding Index of 16 companies. Before last year, the index had gained sixfold in five years.
``There isn't a recovery about to happen,'' said Ara Hovnanian, chief executive officer of Hovnanian Enterprises Inc., the Red Bank, New Jersey-based homebuilder. The company's stock tumbled 42 percent this year through yesterday.
The share of people taking out all types of adjustable-rate home loans averaged 29 percent during the past three years, compared with the 17 percent average of the prior three years, according to data compiled by Mclean, Virginia-based Freddie Mac.
Higher fixed mortgage rates and stricter lending standards mean some of those borrowers won't be able to refinance into fixed- rate loans. Many of them have seen their home's value drop even as their interest rates adjust higher.
`Millions of People'
``When all these people see their mortgage payment and it's up 40 or 50 percent, they're going to say, `We can't stay in this house,''' Pimco's Kiesel said. ``And there are millions of people in this situation.''
The average U.S. rate for a 30-year fixed mortgage was 6.74 percent last week, up from 6.15 percent at the beginning of May, according to Freddie Mac, the second-largest source of money for home loans. That adds $116 a month to the payment for a $300,000 loan and about $42,000 over the life of the mortgage.
The recent increase in mortgage rates is the biggest spike since 2004. The change means buyers can afford 8 percent less house than they could five weeks ago, Kiesel said.
``Prices are going lower,'' he said.
The housing sector will push the U.S. economy into recession unless the Federal Reserve cuts its benchmark rate at the first surge in unemployment, said Kiesel, who expects the Fed to reduce rates.
Home Equity Loans
In addition to their primary mortgages, homeowners had $913.7 billion of debt in home equity loans in 2005, more than double the $445.1 billion in 2001, according to a paper by former Federal Reserve Chairman Alan Greenspan and James Kennedy on equity extraction issued by the Fed three months ago.
About a third of that money, extracted as home values surged 53 percent from 2000 to 2005, was used to buy cars and other consumer goods, according to the paper. The interest rate on those loans doubled to 8.25 percent in 2006 from 4 percent in 2003.
If the Federal Reserve lowers the rate it charges for overnight lending to banks, that would cut the prime rate that moves in tandem with it and reduce the interest on many types of adjustable home loans, including home equity mortgages.
Federal Reserve policy makers probably will keep the overnight bank lending rate unchanged at a six-year high of 5.25 percent when they next meet on June 27, according to a Bloomberg survey of 72 economists.
Boom and Bust
Homebuyers who got an adjustable-rate mortgage, a so-called ARM, in 2004 have seen their rate climb by about 40 percent. That's enough to add $288 to the monthly payment for a $300,000 mortgage. The average adjustable rate last week was 5.75 percent, an 11-month high, according to Freddie Mac.
Roubini predicts the decline in U.S. home sales will last at least another 12 months, reducing the median house price by 5 percent this year and next. That would take home prices back to 2004, when the national median was $195,200.
The primary cause of the 1990 to 1991 recession was a real estate boom and bust similar to the past seven years, Roubini said. A real estate ``bubble'' in the mid-1980s led to speculative buying and lower credit standards that resulted in widespread foreclosures, he said. The defaults triggered a credit crunch that turned into an economic recession in the spring of 1990, said Roubini, who is an economics professor at New York University's Stern School of Business.
He put the chance of a recession this year at ``50-50,'' above former Fed chief Greenspan's 33 percent estimate. A recession is a decline in gross domestic product for two consecutive quarters.
`Significant Drag'
Greenspan warned of ``froth'' in the real estate market in 2005, before leaving the central bank in January 2006. Three months ago Greenspan said there was a ``one-third probability'' of an economic recession this year, in large part due to the unsteady housing market. He reiterated that view last month at a conference hosted by Merrill Lynch & Co. in Singapore
``There is no doubt there is a slowdown going on in the U.S.,'' Greenspan said at the conference. ``We are clearly having troubles in the capital investment area, as well as potentially in the consumption area and obviously housing being a significant drag.''
A Fed survey of senior loan officers issued in April said that 45 percent of lenders had restricted ``nontraditional'' lending, such as interest-only mortgages, and 15 percent had tightened standards for the most creditworthy, or prime, borrowers. More than half had raised standards for subprime borrowers, according to the survey.
Subprime mortgages have rates that are at least 2 or 3 percentage points above the safest so-called prime loans. Such loans made up about a fifth of all new mortgages last year, according to the Mortgage Bankers Association in Washington.
Housing Chain
Making it harder for those people to buy houses is going to create trouble all the way up the housing chain as people who own starter homes find it more difficult to sell their real estate and buy bigger properties, said Neal Soss, chief economist at Credit Suisse Holdings USA Inc. in New York.
``The subprime market has changed character dramatically, and that takes a number of entry-level buyers out of the picture,'' said Soss, who was an adviser to former Fed Chairman Paul Volcker.
Home sales won't increase in any sustained way until 2008, though the stumble probably won't cause a recession because the housing market hasn't reduced consumer spending, he said.
Retail Sales Endure
``Here we are a year and a half into the housing slowdown and retail sales are off the chart,'' Soss said. The economy expanded at a 1.9 percent pace in the first quarter, compared with a year earlier, the smallest gain since the 1.8 percent rate in the second quarter of 2003, ``but it hasn't collapsed, and I don't think it will,'' he said.
Bank of America Corp. Chief Executive Officer Kenneth Lewis yesterday said the U.S. housing slump is almost over. ``The drag stops in the next few months,'' said Lewis, whose bank relies on the U.S. market for almost 90 percent of its revenue. ``We do not see a recession. Because that drag stops, you'll see the economy begin to pick up in the third and fourth quarters.''
Median Home Price
The median U.S. price for a previously owned home fell 1.4 percent in the first quarter from a year earlier, the third consecutive decline, according to the National Association of Realtors. Before the third quarter of 2006 prices hadn't dropped since 1993. The quarterly median may dip another 2.4 percent in the current period, the Chicago-based industry trade group said in its June forecast.
Measured annually, the national median price for a previously owned home hasn't dropped since the Great Depression in the 1930s, according to Lawrence Yun, an economist with the trade group. This year it probably will fall 1.3 percent, Yun said.
The share of mortgages entering foreclosure rose to 0.58 percent in the first quarter, the highest on record, from 0.54 percent in the final three months of 2006, the Mortgage Bankers Association said in a report last week. Subprime loans going into default rose to a five-year high of 2.43 percent, up from 2 percent, and late payments from borrowers with poor credit histories rose to almost 13.8 percent, the highest since 2002.
Prime loans entering foreclosure increased to 0.25 percent, the highest in a survey that goes back to 1972. That's a sign that even the most creditworthy borrowers are being squeezed, Roubini said.
Adjustable Rates
``We have a lot of people, even prime borrowers, who are at the edge because they either bought with no equity, they have an ARM that's seen a rate spike, or they used their house like an ATM and turned their equity into cash,'' Roubini said. ``Many of those people are under water today, and if they have to sell, it's going to drag down values in their neighborhood.''
Some owners are selling their homes at ``fire sale'' prices to avoid foreclosure after seeing their adjustable mortgage rates spike, said Lawrence White, an economics professor at the Stern School of Business.
``Prices will continue to soften for as long as we have distressed sellers,'' White said. Some regions of the U.S. could see price declines of 10 percent in the next six to 12 months, he said. The slump probably won't cause a recession, he said.
``It's not going to be the 1929 stock-market disaster, with people jumping out of buildings, but there is going to be widely dispersed pain for the next few quarters,'' he said.
The biggest problem is volatile home prices, said Gary Shilling, head of A. Gary Shilling & Co., an economic forecasting company in Springfield, New Jersey. Shilling put the chance of a recession this year at 75 percent.
`Exploding ARMs'
``A lot of people went out on a limb to pay the record high prices for homes, and they're in trouble now,'' he said.
Borrowers who got loans with so-called teaser rates are in the biggest bind, according to Shilling. Prices surged a record 12 percent in 2005, spurring buyers to ``stretch'' to qualify for bigger loans by using interest-only ARMs or so-called option ARMs with low introductory payments.
Some have payments based on interest rates as low as 1 percent. At the end of an introductory period, the rate can more than quadruple, leading them to be called ``exploding ARMs,'' he said. Some loans allow borrowers to choose how much they want to pay, with the balance added to the loan's principal, making it possible to owe more than the home's purchase price.
``Homeowners with adjustable-rate mortgages are getting squeezed on all sides,'' said Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago. Real estate taxes have surged along with home prices, and many U.S. homeowners saw their property insurance double after Hurricane Katrina ravaged Louisiana and Mississippi, she said.
Swonk said the housing slide will last into next year. Still, she doesn't expect the economy to slow because of it.
``The economy could easily beat expectations in the second half of this year,'' she said. ``The housing correction remains the primary threat to that happening.''
To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net .
By Kathleen M. Howley
A "Stop Foreclosure!" sign
June 20 (Bloomberg) -- The worst is yet to come for the U.S. housing market.
The jump in 30-year mortgage rates by more than a half a percentage point to 6.74 percent in the past five weeks is putting a crimp on borrowers with the best credit just as a crackdown in subprime lending standards limits the pool of qualified buyers. The national median home price is poised for its first annual decline since the Great Depression, and the supply of unsold homes is at a record 4.2 million, the National Association of Realtors reported.
``It's a blood bath,'' said Mark Kiesel, executive vice president of Newport Beach, California-based Pacific Investment Management Co., the manager of $668 billion in bond funds. ``We're talking about a two- to three-year downturn that will take a whole host of characters with it, from job creation to consumer confidence. Eventually it will take the stock market and corporate profit.''
Confidence among U.S. homebuilders fell in June to the lowest since February 1991, according to the National Association of Home Builders/Wells Fargo index released this week. Housing starts declined in May for the first time in four months, the Commerce Department reported yesterday. New-home sales will decline 33 percent from 2005's peak to the end of this year, according to the Realtors' group, exceeding the 25 percent three-year drop in 1991 that helped spark a recession.
`Economic Recession'
``It's not just a housing recession anymore, it looks more and more like an economic recession,'' said Nouriel Roubini, a Clinton administration Treasury Department director and economic adviser who now runs Roubini Global Economics in New York.
Goldman Sachs Group Inc., the world's biggest securities firm, and Bear Stearns Cos., the largest underwriter of mortgage-backed securities in 2006, said last week that rising foreclosures reduced their earnings. Bear Stearns said profit fell 10 percent, and Goldman reported a 1 percent gain, the smallest in three quarters. Both firms are based in New York.
The investment banks, insurance companies, pension funds and asset-management firms that hold some of the U.S.'s $6 trillion of mortgage-backed securities have yet to suffer the full effect of subprime loans gone bad, said David Viniar, Goldman's chief financial officer. Subprime mortgages, given to people with bad or limited credit histories, account for about $800 billion of the market.
``I continue to believe that we haven't seen the bottom in the subprime market,'' Viniar said on a June 14 conference call with reporters. ``There will be more pain felt by people as that works through the system.''
He didn't return calls this week seeking additional comments.
`Drag on the Economy'
``This has been a drag on the economy,'' Treasury Secretary Henry Paulson said at a press briefing today after he testified in front of the House Financial Services Committee. ``I do believe that we are at or near the bottom.''
Homebuilding stocks are down 20 percent this year after falling 20 percent in 2006, according to the Standard & Poor's Supercomposite Homebuilding Index of 16 companies. Before last year, the index had gained sixfold in five years.
``There isn't a recovery about to happen,'' said Ara Hovnanian, chief executive officer of Hovnanian Enterprises Inc., the Red Bank, New Jersey-based homebuilder. The company's stock tumbled 42 percent this year through yesterday.
The share of people taking out all types of adjustable-rate home loans averaged 29 percent during the past three years, compared with the 17 percent average of the prior three years, according to data compiled by Mclean, Virginia-based Freddie Mac.
Higher fixed mortgage rates and stricter lending standards mean some of those borrowers won't be able to refinance into fixed- rate loans. Many of them have seen their home's value drop even as their interest rates adjust higher.
`Millions of People'
``When all these people see their mortgage payment and it's up 40 or 50 percent, they're going to say, `We can't stay in this house,''' Pimco's Kiesel said. ``And there are millions of people in this situation.''
The average U.S. rate for a 30-year fixed mortgage was 6.74 percent last week, up from 6.15 percent at the beginning of May, according to Freddie Mac, the second-largest source of money for home loans. That adds $116 a month to the payment for a $300,000 loan and about $42,000 over the life of the mortgage.
The recent increase in mortgage rates is the biggest spike since 2004. The change means buyers can afford 8 percent less house than they could five weeks ago, Kiesel said.
``Prices are going lower,'' he said.
The housing sector will push the U.S. economy into recession unless the Federal Reserve cuts its benchmark rate at the first surge in unemployment, said Kiesel, who expects the Fed to reduce rates.
Home Equity Loans
In addition to their primary mortgages, homeowners had $913.7 billion of debt in home equity loans in 2005, more than double the $445.1 billion in 2001, according to a paper by former Federal Reserve Chairman Alan Greenspan and James Kennedy on equity extraction issued by the Fed three months ago.
About a third of that money, extracted as home values surged 53 percent from 2000 to 2005, was used to buy cars and other consumer goods, according to the paper. The interest rate on those loans doubled to 8.25 percent in 2006 from 4 percent in 2003.
If the Federal Reserve lowers the rate it charges for overnight lending to banks, that would cut the prime rate that moves in tandem with it and reduce the interest on many types of adjustable home loans, including home equity mortgages.
Federal Reserve policy makers probably will keep the overnight bank lending rate unchanged at a six-year high of 5.25 percent when they next meet on June 27, according to a Bloomberg survey of 72 economists.
Boom and Bust
Homebuyers who got an adjustable-rate mortgage, a so-called ARM, in 2004 have seen their rate climb by about 40 percent. That's enough to add $288 to the monthly payment for a $300,000 mortgage. The average adjustable rate last week was 5.75 percent, an 11-month high, according to Freddie Mac.
Roubini predicts the decline in U.S. home sales will last at least another 12 months, reducing the median house price by 5 percent this year and next. That would take home prices back to 2004, when the national median was $195,200.
The primary cause of the 1990 to 1991 recession was a real estate boom and bust similar to the past seven years, Roubini said. A real estate ``bubble'' in the mid-1980s led to speculative buying and lower credit standards that resulted in widespread foreclosures, he said. The defaults triggered a credit crunch that turned into an economic recession in the spring of 1990, said Roubini, who is an economics professor at New York University's Stern School of Business.
He put the chance of a recession this year at ``50-50,'' above former Fed chief Greenspan's 33 percent estimate. A recession is a decline in gross domestic product for two consecutive quarters.
`Significant Drag'
Greenspan warned of ``froth'' in the real estate market in 2005, before leaving the central bank in January 2006. Three months ago Greenspan said there was a ``one-third probability'' of an economic recession this year, in large part due to the unsteady housing market. He reiterated that view last month at a conference hosted by Merrill Lynch & Co. in Singapore
``There is no doubt there is a slowdown going on in the U.S.,'' Greenspan said at the conference. ``We are clearly having troubles in the capital investment area, as well as potentially in the consumption area and obviously housing being a significant drag.''
A Fed survey of senior loan officers issued in April said that 45 percent of lenders had restricted ``nontraditional'' lending, such as interest-only mortgages, and 15 percent had tightened standards for the most creditworthy, or prime, borrowers. More than half had raised standards for subprime borrowers, according to the survey.
Subprime mortgages have rates that are at least 2 or 3 percentage points above the safest so-called prime loans. Such loans made up about a fifth of all new mortgages last year, according to the Mortgage Bankers Association in Washington.
Housing Chain
Making it harder for those people to buy houses is going to create trouble all the way up the housing chain as people who own starter homes find it more difficult to sell their real estate and buy bigger properties, said Neal Soss, chief economist at Credit Suisse Holdings USA Inc. in New York.
``The subprime market has changed character dramatically, and that takes a number of entry-level buyers out of the picture,'' said Soss, who was an adviser to former Fed Chairman Paul Volcker.
Home sales won't increase in any sustained way until 2008, though the stumble probably won't cause a recession because the housing market hasn't reduced consumer spending, he said.
Retail Sales Endure
``Here we are a year and a half into the housing slowdown and retail sales are off the chart,'' Soss said. The economy expanded at a 1.9 percent pace in the first quarter, compared with a year earlier, the smallest gain since the 1.8 percent rate in the second quarter of 2003, ``but it hasn't collapsed, and I don't think it will,'' he said.
Bank of America Corp. Chief Executive Officer Kenneth Lewis yesterday said the U.S. housing slump is almost over. ``The drag stops in the next few months,'' said Lewis, whose bank relies on the U.S. market for almost 90 percent of its revenue. ``We do not see a recession. Because that drag stops, you'll see the economy begin to pick up in the third and fourth quarters.''
Median Home Price
The median U.S. price for a previously owned home fell 1.4 percent in the first quarter from a year earlier, the third consecutive decline, according to the National Association of Realtors. Before the third quarter of 2006 prices hadn't dropped since 1993. The quarterly median may dip another 2.4 percent in the current period, the Chicago-based industry trade group said in its June forecast.
Measured annually, the national median price for a previously owned home hasn't dropped since the Great Depression in the 1930s, according to Lawrence Yun, an economist with the trade group. This year it probably will fall 1.3 percent, Yun said.
The share of mortgages entering foreclosure rose to 0.58 percent in the first quarter, the highest on record, from 0.54 percent in the final three months of 2006, the Mortgage Bankers Association said in a report last week. Subprime loans going into default rose to a five-year high of 2.43 percent, up from 2 percent, and late payments from borrowers with poor credit histories rose to almost 13.8 percent, the highest since 2002.
Prime loans entering foreclosure increased to 0.25 percent, the highest in a survey that goes back to 1972. That's a sign that even the most creditworthy borrowers are being squeezed, Roubini said.
Adjustable Rates
``We have a lot of people, even prime borrowers, who are at the edge because they either bought with no equity, they have an ARM that's seen a rate spike, or they used their house like an ATM and turned their equity into cash,'' Roubini said. ``Many of those people are under water today, and if they have to sell, it's going to drag down values in their neighborhood.''
Some owners are selling their homes at ``fire sale'' prices to avoid foreclosure after seeing their adjustable mortgage rates spike, said Lawrence White, an economics professor at the Stern School of Business.
``Prices will continue to soften for as long as we have distressed sellers,'' White said. Some regions of the U.S. could see price declines of 10 percent in the next six to 12 months, he said. The slump probably won't cause a recession, he said.
``It's not going to be the 1929 stock-market disaster, with people jumping out of buildings, but there is going to be widely dispersed pain for the next few quarters,'' he said.
The biggest problem is volatile home prices, said Gary Shilling, head of A. Gary Shilling & Co., an economic forecasting company in Springfield, New Jersey. Shilling put the chance of a recession this year at 75 percent.
`Exploding ARMs'
``A lot of people went out on a limb to pay the record high prices for homes, and they're in trouble now,'' he said.
Borrowers who got loans with so-called teaser rates are in the biggest bind, according to Shilling. Prices surged a record 12 percent in 2005, spurring buyers to ``stretch'' to qualify for bigger loans by using interest-only ARMs or so-called option ARMs with low introductory payments.
Some have payments based on interest rates as low as 1 percent. At the end of an introductory period, the rate can more than quadruple, leading them to be called ``exploding ARMs,'' he said. Some loans allow borrowers to choose how much they want to pay, with the balance added to the loan's principal, making it possible to owe more than the home's purchase price.
``Homeowners with adjustable-rate mortgages are getting squeezed on all sides,'' said Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago. Real estate taxes have surged along with home prices, and many U.S. homeowners saw their property insurance double after Hurricane Katrina ravaged Louisiana and Mississippi, she said.
Swonk said the housing slide will last into next year. Still, she doesn't expect the economy to slow because of it.
``The economy could easily beat expectations in the second half of this year,'' she said. ``The housing correction remains the primary threat to that happening.''
To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net .
Monday, August 13, 2007
Land Opportunities in Lancaster
Anyone have input into how the price of land will be affected by the latest downturn in the housing sector? Is now a good or poor time to buy land?
I believe in the S. Cal story -- around Lancaster and Palmdale, but not sure this is the absolute best time to buy.
What do developers look for and what are the ways in which a land investment could fail?
Also, how does one valuate land? How much should be paid for it?
I believe in the S. Cal story -- around Lancaster and Palmdale, but not sure this is the absolute best time to buy.
What do developers look for and what are the ways in which a land investment could fail?
Also, how does one valuate land? How much should be paid for it?
Friday, August 10, 2007
Current State of Mortgage Financing...What's Going On?
Anyone watching or reading the financial news over the last few days and weeks has seen a lot of angst and consternation over the state of the mortgage industry. In fact, one of the larger lenders in the US, American Home Mortgage, was forced to shut down operations last week. But why? What is happening, and most importantly, what does all this mean to you? Let's unpack the definitions and details, so that you really understand the truth behind the headlines.
Over the past several years, many loans were made to homeowners with somewhat non-traditional or "non-conforming" situations, be it a poor credit history, inability to document income, or any number of factors that do not fit within the traditional "box" for home loans. These loans are often called "Sub-Prime", or "Alt-A", meaning that they were somewhat riskier in nature than A credit, prime, or traditional loans. Another type of "non-conforming" home loan is one where the credit and income might be perfectly fine, but the loan amount is higher than $417K, which is the current maximum loan that can be done using pools of money from mortgage giants Fannie Mae (FNMA) and Freddie Mac (FHLMC). If the loan amount is higher, it can certainly be done - it's called a "jumbo loan" - but the end money comes from private institutions, not from the large government sponsored entities of Fannie and Freddie.
Most non-conforming loan product rates popped significantly higher in the last week. Here's the scoop.
The end investor for Subprime or Alt-A loans will charge a premium for taking on a pool of these loans, because they know that traditionally, they might have a higher rate of default and delinquent payments within that risky pool. But lately, default and foreclosure has been on the rise - partly due to the fact that with credit tightening and a soft real estate market, many troubled homeowners are unable to refinance or sell in order to get out of trouble. So now, these end institutions are demanding a much higher "risk premium" for taking on these pools of loans, as they see the rates of default are climbing higher.
But since these institutions are purchasing these pools of loans sometimes months after the borrower has actually closed at a given rate, this increase to the risk premium means that instead of paying $101K for a $100K loan that will bear interest, they may only be willing to pay $95K for that $100K mortgage to account for the risk. Multiply that times thousands upon thousands of loans...and you have millions upon millions of dollars in loss for the company trying to sell the pool at a much lower price than they were expecting. This is called a "liquidity crisis", and is exactly what happened to American Home Mortgage - there was no mismanagement, but they simply got caught holding too many "hot potato" loans, forced to sell them at massive losses...and eventually they had to make the decision to close the doors and stop the bleeding.
Further, even when a lender is able to take some losses, they may be subject to a "margin call". This means that as their losses and risk premiums increase, the value of their loan portfolio decreases. As the value decreases, the credit lines that are secured by those portfolios begin to issue margin calls as the value of the asset that they are secured on is now diminished. This is exactly like margin calls in the Stock market. If you have a loan against a Stock that is losing value, you will get a "margin call" and need to pay down the loan, as the underlying Stock is losing too much value to be considered adequate collateral any longer. So for the big lenders, as their portfolio is losing value due to increased risk premiums and losses...the margin calls start coming in, and they are required to pay down their balances. In turn, this means that they have less availability to fund their new loans, which then exacerbates the problem.
In response to seeing this situation play out in the demise of American Home Mortgage, lenders of other non-conforming loan products increased their interest rates dramatically almost overnight to be better prepared - and likely over-prepared - for increased risk premiums down the road. Even though loans above $417K are not presently suffering from increased delinquencies like the Subprime and Alt-A loans are, these rates popped higher as well, because they are being purchased by smaller private entities that can't afford to take on any margin of risk.
What happens next, and what should you do now?
The present situation will likely settle out over the coming year, and the rates on products that have moved so significantly higher now should trend lower down the road as delinquency rates stabilize. But here are a few important things to do right now.
Over the past several years, many loans were made to homeowners with somewhat non-traditional or "non-conforming" situations, be it a poor credit history, inability to document income, or any number of factors that do not fit within the traditional "box" for home loans. These loans are often called "Sub-Prime", or "Alt-A", meaning that they were somewhat riskier in nature than A credit, prime, or traditional loans. Another type of "non-conforming" home loan is one where the credit and income might be perfectly fine, but the loan amount is higher than $417K, which is the current maximum loan that can be done using pools of money from mortgage giants Fannie Mae (FNMA) and Freddie Mac (FHLMC). If the loan amount is higher, it can certainly be done - it's called a "jumbo loan" - but the end money comes from private institutions, not from the large government sponsored entities of Fannie and Freddie.
Most non-conforming loan product rates popped significantly higher in the last week. Here's the scoop.
The end investor for Subprime or Alt-A loans will charge a premium for taking on a pool of these loans, because they know that traditionally, they might have a higher rate of default and delinquent payments within that risky pool. But lately, default and foreclosure has been on the rise - partly due to the fact that with credit tightening and a soft real estate market, many troubled homeowners are unable to refinance or sell in order to get out of trouble. So now, these end institutions are demanding a much higher "risk premium" for taking on these pools of loans, as they see the rates of default are climbing higher.
But since these institutions are purchasing these pools of loans sometimes months after the borrower has actually closed at a given rate, this increase to the risk premium means that instead of paying $101K for a $100K loan that will bear interest, they may only be willing to pay $95K for that $100K mortgage to account for the risk. Multiply that times thousands upon thousands of loans...and you have millions upon millions of dollars in loss for the company trying to sell the pool at a much lower price than they were expecting. This is called a "liquidity crisis", and is exactly what happened to American Home Mortgage - there was no mismanagement, but they simply got caught holding too many "hot potato" loans, forced to sell them at massive losses...and eventually they had to make the decision to close the doors and stop the bleeding.
Further, even when a lender is able to take some losses, they may be subject to a "margin call". This means that as their losses and risk premiums increase, the value of their loan portfolio decreases. As the value decreases, the credit lines that are secured by those portfolios begin to issue margin calls as the value of the asset that they are secured on is now diminished. This is exactly like margin calls in the Stock market. If you have a loan against a Stock that is losing value, you will get a "margin call" and need to pay down the loan, as the underlying Stock is losing too much value to be considered adequate collateral any longer. So for the big lenders, as their portfolio is losing value due to increased risk premiums and losses...the margin calls start coming in, and they are required to pay down their balances. In turn, this means that they have less availability to fund their new loans, which then exacerbates the problem.
In response to seeing this situation play out in the demise of American Home Mortgage, lenders of other non-conforming loan products increased their interest rates dramatically almost overnight to be better prepared - and likely over-prepared - for increased risk premiums down the road. Even though loans above $417K are not presently suffering from increased delinquencies like the Subprime and Alt-A loans are, these rates popped higher as well, because they are being purchased by smaller private entities that can't afford to take on any margin of risk.
What happens next, and what should you do now?
The present situation will likely settle out over the coming year, and the rates on products that have moved so significantly higher now should trend lower down the road as delinquency rates stabilize. But here are a few important things to do right now.
Thursday, August 9, 2007
Webinar Tonight: Bulk Pre-Construction Luxury Homes, Guaranteed builder buy-back
http://www.axiomrealtycapital.com/pages/beaconhill.html
Beacon Hill's Wholesale Purchase Opportunity
Join us for a Webinar on August 9
Space is limited.Reserve your Webinar seat now
at:https://www.gotomeeting.com/register/234958601
In this informative webinar learn:
How to earn an average of $330,000 built-in equity
Why Utah property is appreciating so quickly
Why this is one of the best exit strategies we have ever seen
How to be in and out of this real estate investment in only 14 months
Strategies to keep your money secure
The Chateaus of Beacon Hill
The Chateaus of Beacon Hill - nestled in the mountains of Highland, Utah - is home to one of the fastest appreciating real estate markets in the United States. A report issued by the OFHEO in June of 2007 showed that Utah County’s home prices have grown 19.7% over the last 12 months.
The Chateaus of Beacon Hill are just minutes away from Timpanogas Cave National Monument and Robert Redford’s Sundance Resort.
Mountain LuxuryThere are 16 home designs ranging from 6900 to 9089 square feet, all of which feature granite counter tops, stone and brick accents, glazed walls, vaulted ceilings, and extensive crown moldings.
Wholesale Real Estate OpportunityAxiom is offering buyers a purchase opportunity of 28 luxury homes and lots in the Highland, Utah area. These homes are at the highest point in the project with the best views.
Through Axiom you can acquire a preconstruction luxury home and lot at a discount of 15%
Expected resale timeline: 13 months
Developer agrees to re-purchase property for 15% more than your purchase price if it is not re-sold during the twelve month construction period.
Substantial built-in equity ($315,000 - $345,000)
Only 10% deposit required ($178K to $195K)
Beacon Hill's Wholesale Purchase Opportunity
Join us for a Webinar on August 9
Space is limited.Reserve your Webinar seat now
at:https://www.gotomeeting.com/register/234958601
In this informative webinar learn:
How to earn an average of $330,000 built-in equity
Why Utah property is appreciating so quickly
Why this is one of the best exit strategies we have ever seen
How to be in and out of this real estate investment in only 14 months
Strategies to keep your money secure
The Chateaus of Beacon Hill
The Chateaus of Beacon Hill - nestled in the mountains of Highland, Utah - is home to one of the fastest appreciating real estate markets in the United States. A report issued by the OFHEO in June of 2007 showed that Utah County’s home prices have grown 19.7% over the last 12 months.
The Chateaus of Beacon Hill are just minutes away from Timpanogas Cave National Monument and Robert Redford’s Sundance Resort.
Mountain LuxuryThere are 16 home designs ranging from 6900 to 9089 square feet, all of which feature granite counter tops, stone and brick accents, glazed walls, vaulted ceilings, and extensive crown moldings.
Wholesale Real Estate OpportunityAxiom is offering buyers a purchase opportunity of 28 luxury homes and lots in the Highland, Utah area. These homes are at the highest point in the project with the best views.
Through Axiom you can acquire a preconstruction luxury home and lot at a discount of 15%
Expected resale timeline: 13 months
Developer agrees to re-purchase property for 15% more than your purchase price if it is not re-sold during the twelve month construction period.
Substantial built-in equity ($315,000 - $345,000)
Only 10% deposit required ($178K to $195K)
Wednesday, August 8, 2007
How much money do you need to retire?
Great question huh?
Check out MSN Money for a nice little calculator. It takes into account your life expectancy (based on medical hisotry & lifestyle), current savings, return on investments, savings at retirement, and draw down during retirement.
http://moneycentral.msn.com/retire/planner.aspx
I was encouraged to see that the amount I need is not as much as I thought it would be! Plug in your numbers today! Click the picture below for example scenario:
Check out MSN Money for a nice little calculator. It takes into account your life expectancy (based on medical hisotry & lifestyle), current savings, return on investments, savings at retirement, and draw down during retirement.
http://moneycentral.msn.com/retire/planner.aspx
I was encouraged to see that the amount I need is not as much as I thought it would be! Plug in your numbers today! Click the picture below for example scenario:
Tuesday, August 7, 2007
Fun Website: Second Life -- Choose your New Life
http://secondlife.com/
Second Life is a 3-D virtual world entirely built and owned by its Residents. Since opening to the public in 2003, it has grown explosively and today is inhabited by a total of 8,674,840 Residents from around the globe.
From the moment you enter the World you'll discover a vast digital continent, teeming with people, entertainment, experiences and opportunity. Once you've explored a bit, perhaps you'll find a perfect parcel of land to build your house or business.
You'll also be surrounded by the Creations of your fellow Residents. Because Residents retain the rights to their digital creations, they can buy, sell and trade with other Residents.
The Marketplace currently supports millions of US dollars in monthly transactions. This commerce is handled with the in-world unit-of-trade, the Linden dollar, which can be converted to US dollars at several thriving online Linden Dollar exchanges.
Welcome to Second Life. We look forward to seeing you in-world.
Second Life is a 3-D virtual world entirely built and owned by its Residents. Since opening to the public in 2003, it has grown explosively and today is inhabited by a total of 8,674,840 Residents from around the globe.
From the moment you enter the World you'll discover a vast digital continent, teeming with people, entertainment, experiences and opportunity. Once you've explored a bit, perhaps you'll find a perfect parcel of land to build your house or business.
You'll also be surrounded by the Creations of your fellow Residents. Because Residents retain the rights to their digital creations, they can buy, sell and trade with other Residents.
The Marketplace currently supports millions of US dollars in monthly transactions. This commerce is handled with the in-world unit-of-trade, the Linden dollar, which can be converted to US dollars at several thriving online Linden Dollar exchanges.
Welcome to Second Life. We look forward to seeing you in-world.
Monday, August 6, 2007
SVIClub August 8th & 9th Meetings: How to Make Money in Commercial Real Estate
Certain markets in residential real estate are facing a bubble in valuation and supply. Is this the same for the Commercial Real Estate Market? Apparently not. Commercial real estate, for the most part, is driven by cash flow.
Mr. Paul Olson is the CEO of Commercial Cashflow Advisors of San Jose. Mr. Olson's firm assists its clients by helping them generate more cash flow from the commercial properties they own. CCA's clients include Fortune 500 Companies to owners of one to two properties. Mr. Olson and his staff have been in the commercial industry for over 30 years.
At this meeting Mr. Olson will educate our Investor on:
Why invest in commercial real estate
How to invest in commercial real estate
Types of commerical real estate: pros and cons
Making money in commercial real estate: the time value of money, leverage, cash flow
The four key ways to leverage your commercial real estate investment
Spreadsheets: run the numbers, understand the numbers, live by the numbers
Lights, Camera, Action!
Wow - spent the weekend installing new lighting and electical fixtures! I had a nice home to work on -- I changed out 3 light fixtures (2 ceiling), fixed builder errors (wrong boxes in dry wall), and even installed a new range hood! Repaired ceiling fan lighting. It was fun and all new for me. I learned what CFM means for range hoods! I can now add this to my list of ever-growing talents, lol :)
Real Estate Finance Class at DeAnza College, Fall 2007
I'm looking forward to this timely class in the fall at DeAnza college. Hopefully see you there? :)
http://deanza.edu/schedule/classes/
I'm sure this sub-prime shock wave will provide plenty of interesting fodder for a class like this!
By the way, even though the class lists a pre-requisite, they are not strict about this. I took the RE economics class last quarter without it.
Course Description: Regulations and procedures for financing real estate: types of lenders; primary and secondary investors; methods and guidelines for qualifying for real property loans.
Department: Real Estate (new window)
REST 53: Real Estate Finance (Lecture)
4 Units
Hours: Four hours lecture.
Call Number
Schedule ID
Location
2201
REST-053.-61
FOR1
Time
Days
Instructor
6:00PM- 9:40
Tuesday
CASAS
Prerequisites:
Prerequisite: Real Estate 50.
http://deanza.edu/schedule/classes/
I'm sure this sub-prime shock wave will provide plenty of interesting fodder for a class like this!
By the way, even though the class lists a pre-requisite, they are not strict about this. I took the RE economics class last quarter without it.
Course Description: Regulations and procedures for financing real estate: types of lenders; primary and secondary investors; methods and guidelines for qualifying for real property loans.
Department: Real Estate (new window)
REST 53: Real Estate Finance (Lecture)
4 Units
Hours: Four hours lecture.
Call Number
Schedule ID
Location
2201
REST-053.-61
FOR1
Time
Days
Instructor
6:00PM- 9:40
Tuesday
CASAS
Prerequisites:
Prerequisite: Real Estate 50.
Monday, July 30, 2007
New Mississippi HUD program (Forgiveable loans for us!)
Mississippi Development Authority Small Rental Assistance Program
Sample HUD Application
Check out the new materials! I have builder friends in MS doing modulars -- contact me for more info.
Thursday, July 26, 2007
Mutual Fund PSPFX: Sold
This fund used to be a 5 star but started underperforming. For the past 2 years the performance has lagged its category of Natural Resources. It was strong earlier. SOLD.
EMRCX, GGNCX Funds Purchased
After many screenings I came up with these:
VAN ECK EMERGING MARKETS C (EMRCX)
What I liked was a) consistently outperforming the category (Diversified Emerging Markets), consistently outperforming the general Index, low risk, 5 star Morningstar Rating.
The downsides are a higher than category expense ratio, and an early redemption fee 1% (for < 1 year hold). Initial investment is $1000.
The 1 year return is 54%!
Average Annual Returns as of 6/30/2007
1 Year
3 Year
5 Year
Since Inception
EMRCX
54.71
42.63
--
34.46
Category
44.13
36.49
28.57
--
Index
27.00
22.24
17.73
11.00
NATIONWIDE GLOBAL NATURAL RESOURCES C (GGNCX)
Natural Resources sector fund.
What I liked was a) consistently outperforming the category (Natural Resources), consistently outperforming the general Index, low volatility, medium-low risk, and of course a 5 star Morningstar Rating.
Some loads and fees apply, 2% 90 day early withdrawl and 1% fee for less than 1 year hold.
The one year return is 25%, with low risk.
Average Annual Returns as of 6/30/2007
1 Year
3 Year
5 Year
Since Inception
GGNCX
25.74
41.89
--
42.25
Category
15.42
28.28
23.60
--
Index
20.59
11.68
10.71
11.53
VAN ECK EMERGING MARKETS C (EMRCX)
What I liked was a) consistently outperforming the category (Diversified Emerging Markets), consistently outperforming the general Index, low risk, 5 star Morningstar Rating.
The downsides are a higher than category expense ratio, and an early redemption fee 1% (for < 1 year hold). Initial investment is $1000.
The 1 year return is 54%!
Average Annual Returns as of 6/30/2007
1 Year
3 Year
5 Year
Since Inception
EMRCX
54.71
42.63
--
34.46
Category
44.13
36.49
28.57
--
Index
27.00
22.24
17.73
11.00
NATIONWIDE GLOBAL NATURAL RESOURCES C (GGNCX)
Natural Resources sector fund.
What I liked was a) consistently outperforming the category (Natural Resources), consistently outperforming the general Index, low volatility, medium-low risk, and of course a 5 star Morningstar Rating.
Some loads and fees apply, 2% 90 day early withdrawl and 1% fee for less than 1 year hold.
The one year return is 25%, with low risk.
Average Annual Returns as of 6/30/2007
1 Year
3 Year
5 Year
Since Inception
GGNCX
25.74
41.89
--
42.25
Category
15.42
28.28
23.60
--
Index
20.59
11.68
10.71
11.53
Wednesday, July 25, 2007
$30,000 LOAN FORGIVENESS PROGRAM FROM MISSISSIPPI
From Janet Morano:
The state has given final approval of the program. I have copies of the 8 page application. 2 years landlording experience is required. If you are interested in this, please contact me. Houses are priced at $139,900 and will go up August 1st. These are located in Bay St. Louis. Rents for 4 bedroom are $740, insurance is about $2000 per year. This area is number 6 in the nation for appreciation at 15% 1Q07. This is "work force" housing and is not for the inexperienced investor.
Sent By:
Home and Income Realty
11928 Sheldon Rd. #106
Tampa FL 33626U.S.A.
The state has given final approval of the program. I have copies of the 8 page application. 2 years landlording experience is required. If you are interested in this, please contact me. Houses are priced at $139,900 and will go up August 1st. These are located in Bay St. Louis. Rents for 4 bedroom are $740, insurance is about $2000 per year. This area is number 6 in the nation for appreciation at 15% 1Q07. This is "work force" housing and is not for the inexperienced investor.
Sent By:
Home and Income Realty
11928 Sheldon Rd. #106
Tampa FL 33626U.S.A.
Tuesday, July 24, 2007
Monday, July 23, 2007
iShares MSCI Mexico Index (EWW), BLDRS Emerging Markets 50 ADR Index (ADRE)
BLDRS Emerging Markets 50 ADR Index
iShares MSCI Mexico Index (EWW)
iShares S&P Latin America 40 Index (ILF)
Is this for real?! $40 to $250 in 4 years???
PERFORMANCE OVERVIEW
Year to Date Return (Mkt): 25.46%
1-Year Total Return (Mkt): 59.02%
3-Year Total Return (Mkt): 56.45%
PERFORMANCE OVERVIEW
Year to Date Return (Mkt): 25.46%
1-Year Total Return (Mkt): 59.02%
3-Year Total Return (Mkt): 56.45%
iShares MSCI Brazil Index (EWZ)
iShares MSCI Brazil Index (EWZ)
PERFORMANCE OVERVIEW
Year to Date Return (Mkt): 31.10%
1-Year Total Return (Mkt): 60.26%
3-Year Total Return (Mkt): 64.23%
iShares MSCI South Africa Index (EZA)
Nice growth on the South African Exchange traded fund EZA. iShares MSCI South Africa Index.
"I visit every year and every year I'm surprised by how much it's changed from the previous year. The place is booming. " "I think the South African story is still in the introductory chapter. "
5 Star Mutual Funds - New Picks
I've been checking out some mutual funds and a few select individual stocks to invest in. Here are some of the ones I've identified for further research. Let me know your thoughts after checking them out:
VHGEX
PRMTX
PRLAX
QFFOX
PRMSX
I am not sold on any of them quite yet. Not all of them have been beating their sector perfomances for annulaized 10 year returns by much. However, most of the 10 year annualized returns are 20% or greater.
I decided to sell my U.S. RE mutual fund today. Although international RE is doing well, the US market will be down for another 3-4 years.
"Sell order for AIGYX has been executed"
VHGEX
PRMTX
PRLAX
QFFOX
PRMSX
I am not sold on any of them quite yet. Not all of them have been beating their sector perfomances for annulaized 10 year returns by much. However, most of the 10 year annualized returns are 20% or greater.
I decided to sell my U.S. RE mutual fund today. Although international RE is doing well, the US market will be down for another 3-4 years.
"Sell order for AIGYX has been executed"
Saturday, July 21, 2007
Limiting the Downside risk
After a year or so of active investing and deal-making, what I have decided is important is limiting the downside risk. When trading stocks, one limits downside risk by selling when things go below a certain price. For example, head and shoulder or cup formations are looked at on technical charts.
In real estate and private busiesses, there are few specific technical charts to study. Real estate is an extremely regional phenomenon and data are often not available, other than walking the streets intelligence. Must be why most investors stick to their backyards!
My strategy now is to not only hope for the upside, but really work on limiting the downside. For example, take vacancy loss. A non-performing property can cost thousands of dollars a month and wipe out cash flow for months or years.
One possible solution to this problem is to partner on most deals. Then even if vacancies are present, less is being absorbed by each investor than would be individually. However, all investors can still partake in the upside when it happens.
The transaction costs for real estate and private businesses are quite high. Thus, I now believe partnerships (with reliable, honest) partners is the way to go.
Your thoughts?
In real estate and private busiesses, there are few specific technical charts to study. Real estate is an extremely regional phenomenon and data are often not available, other than walking the streets intelligence. Must be why most investors stick to their backyards!
My strategy now is to not only hope for the upside, but really work on limiting the downside. For example, take vacancy loss. A non-performing property can cost thousands of dollars a month and wipe out cash flow for months or years.
One possible solution to this problem is to partner on most deals. Then even if vacancies are present, less is being absorbed by each investor than would be individually. However, all investors can still partake in the upside when it happens.
The transaction costs for real estate and private businesses are quite high. Thus, I now believe partnerships (with reliable, honest) partners is the way to go.
Your thoughts?
Friday, July 20, 2007
Location Location Land
Velur Land Banking Seminar: Land Banking in Antelope Valley
Seems that land is still a great investment in the Lancaster/Palmdale area, if you pick the right location. Where have we heard that before? Location, Location, Location.
For now the right location seems to be around the developments that have already been approved and are waiting to break ground. Whether this is a commercial development, light industrial, or Residential master planned community.
The last time I was in Lancaster/Palmdale was over 5 years ago when I observed an case with an electrophysiology lab (yeah, my day job). A former colleague of mine bought land in Agua Dolce, in the high desert on the way to the Antelope valley, about 10 years ago for $250K. Her husband built a very beautiful and rustic log house (about 3000 sq ft), with high ceilings and sun-filled windows. They have 2 or 3 acres of rolling hills for a backyard. The property is now well over a $1M.
Velur, LLC has a staff of brokers and agents, and stays involved after the sale. Typically people are getting offers 4 to 5 years after they buy. Velur negotiates a sales price for you. Apparently land valuation is not for newbies. To really get top dollar, you need the backing of someone who really knows this trade.
Overall I liked the people and proposals made by Velur. I hope to do business with them.
My one doubt is around whether the incline in prices seen over the past several years will continue in the near term. To this Velur replied that the land market is still doing well, despite weakness in existing home inventory. Now is a good time to buy since RE is not "in."
Seems that land is still a great investment in the Lancaster/Palmdale area, if you pick the right location. Where have we heard that before? Location, Location, Location.
For now the right location seems to be around the developments that have already been approved and are waiting to break ground. Whether this is a commercial development, light industrial, or Residential master planned community.
The last time I was in Lancaster/Palmdale was over 5 years ago when I observed an case with an electrophysiology lab (yeah, my day job). A former colleague of mine bought land in Agua Dolce, in the high desert on the way to the Antelope valley, about 10 years ago for $250K. Her husband built a very beautiful and rustic log house (about 3000 sq ft), with high ceilings and sun-filled windows. They have 2 or 3 acres of rolling hills for a backyard. The property is now well over a $1M.
Velur, LLC has a staff of brokers and agents, and stays involved after the sale. Typically people are getting offers 4 to 5 years after they buy. Velur negotiates a sales price for you. Apparently land valuation is not for newbies. To really get top dollar, you need the backing of someone who really knows this trade.
Overall I liked the people and proposals made by Velur. I hope to do business with them.
My one doubt is around whether the incline in prices seen over the past several years will continue in the near term. To this Velur replied that the land market is still doing well, despite weakness in existing home inventory. Now is a good time to buy since RE is not "in."
Thursday, July 19, 2007
Hanley Wood Market Intelligence
http://www.meyersgroup.com
Welcome to Hanley Wood Market Intelligence
Covering 75 of the top U.S. markets, Hanley Wood Market Intelligence is America's largest and most trusted source for residential real estate research and consulting services.
As a provider of market information and business advice to the residential development industry, we help our clients analyze and interpret key trends impacting the housing market.
Welcome to Hanley Wood Market Intelligence
Covering 75 of the top U.S. markets, Hanley Wood Market Intelligence is America's largest and most trusted source for residential real estate research and consulting services.
As a provider of market information and business advice to the residential development industry, we help our clients analyze and interpret key trends impacting the housing market.
Wednesday, July 18, 2007
Partnership Strategy using Equity Shares
A lot of times people selling deals, whether ICG or another outfit, don't talk about the impact of vacancy losses. These can be significant in markets that are over saturated with investors. Many property managers don't work hand in hand with the investors, and we have all seen examples of scams/crooks in property management. It's very hard to trust anyone.
For this reason, I'm starting to think that the best way to do long distance investments is by partnering with someone local in the area. So for example - work with a real estate agent who would be willing to go in 50/50 with you on a deal. He or she would be local, and your investment would be secured and watched over. This would also possibly eliminate the need for a property manager.
I have had success with a long distance property even while not having a property manager. The tentant was willing to do a direct deposit into my bank, so a physical presence was not necessary.
One way to accomplish this goal is to use the equity share concept. Become an investor with someone who will live in and take care of the property for you, as they are half owners. The website for this I'm using is . I have been matched with a number of partners, but so far no solid connections. I feel that it will work eventually though.
For this reason, I'm starting to think that the best way to do long distance investments is by partnering with someone local in the area. So for example - work with a real estate agent who would be willing to go in 50/50 with you on a deal. He or she would be local, and your investment would be secured and watched over. This would also possibly eliminate the need for a property manager.
I have had success with a long distance property even while not having a property manager. The tentant was willing to do a direct deposit into my bank, so a physical presence was not necessary.
One way to accomplish this goal is to use the equity share concept. Become an investor with someone who will live in and take care of the property for you, as they are half owners. The website for this I'm using is . I have been matched with a number of partners, but so far no solid connections. I feel that it will work eventually though.
RE Boom in India
According to local intelligence the RE boom in India is alive and well. Here is some information for those of Indian origin wishing to own investment property in India. This an appreciation play. More details to come on a specific master planned community development. Will offer incredible returns, and a person local and familiar with the project will keep an eye on things for us. Pre-construction prices.
http://siadipp.nic.in/publicat/invpub/readyrec.htm
http://siadipp.nic.in/publicat/invpub/readyrec.htm
Another 5 star International fund (BJBIX)
JULIUS BAER INTERNATIONAL EQUITY A (BJBIX)
This fund has done great! It has consistently outperformed both the index and its own category for the past 10 years. Lucky for me I got in a few years ago.
Average Annual Returns as of 6/30/2007
BJBIX:
1 Year: 34.85%
3 Year: 28.19%
5 Year: 22.06%
10 Year: 16.71%
Category:
24.98%
21.28%
15.78%
7.05%
Index:
27.00%
22.24%
17.73%
7.66%
This fund has done great! It has consistently outperformed both the index and its own category for the past 10 years. Lucky for me I got in a few years ago.
Average Annual Returns as of 6/30/2007
BJBIX:
1 Year: 34.85%
3 Year: 28.19%
5 Year: 22.06%
10 Year: 16.71%
Category:
24.98%
21.28%
15.78%
7.05%
Index:
27.00%
22.24%
17.73%
7.66%
List of RE and Investment websites
I was sent a very extensive list of RE top websites by Anthony G., please email me if you'd like a copy. reenuhome@gmail.com
Here are a few:
Money
wall street journal on-line
financial times, world news
spots trends, events and opportunity
Forbes: eye on business
Statistics
state facts & info
statistics of the U.S.
get your data here
data quick news and stats
Here are a few:
Money
wall street journal on-line
financial times, world news
spots trends, events and opportunity
Forbes: eye on business
Statistics
state facts & info
statistics of the U.S.
get your data here
data quick news and stats
France: New Tax "Breaks" --> New Incentives --> NEW PROPERTY BOOM!!!
This is just in from Danny Silver in France. If you are interested in a partnership investment, please get in touch! (http://own2invest.com)
**Conclusion : No-one can say with 100% certainty that the above laws will cause a property boom; but we can speak from "history". When we look at UK; Germany; Sweden; Canada & Italy – when they brought in similar "mortgage interest" and "capital" tax incentives, their markets went thru an average of 5 very good "boom" years before settling down. In fact UK and Italy had to stop the "breaks"! The new President of France has introduced revolutionary "tax breaks", (as promised!), with the aim of "moving" the French property market from being a nation of "tenants" to a nation of "home owners". The Presidents aim is to move residential home ownership in France from 25% to 50% in his first 5 year term of office. This compares with UK, Germany and other countries with home ownership of over 80%. Link to publication of laws in "La Figaro" http://www.lefigaro.fr/impots/20070717.WCP000000216_paquet_fiscal_ce_qui_change.html
We have studied the new laws carefully with the help of our fiscalists, tax lawyers and notaires and have made comments & conclusions)
TAX RELIEF ON MORTGAGE INTEREST :
Tax relief on mortgages for singles to 3750€ and married 7500€ plus 500€ for each child for first five years – up to 20% of net income. To be deducted from nett income. * *Comment : this is ideal for the first time home owner – the market/property we specialise in for investors!
SUPPRESSION OF INHERITANCE TAX :
Their will be no inheritance tax between spouses, if one spouse/partner invested in only his/her name. Children allowance is increased from 50.000€ to 150.000€, (per child, per parent!), before any tax may be due. Therefore one child allowance is 300.000€ and 3 children is 900.000€! Gift tax : you now give children 30.000€, (instead of 3000€), per year in cash and deduct from tax; but now you can give a 300.000€ property as gift – every 6 years! There is no change in succession laws for children. * *Comment : enormous benefit/incentive for middle and upper income families to own property – either in their name; or the child-children!! Naturally it is excellent to give tax breaks and incentives, but people must be allowed to have more money to benefit – therefore the following laws are introduced :-
WORK HOURS :
If you work longer than 35 hours per week; all hours over 35 are exempt from both tax and social charges for both employee and employer!!
TAX (ALL) :
On your total worldwide income – income; investments; stocks; property; etc etc etc etc etc : You cannot pay more than 50%! Also "plus fortune" tax now allows you to deduct 30% of any property; but the 50% rule applies, effectively negating this tax.*Comment : effectively reduces top income tax by 20% and invalidates the "plus fortune" tax. Today a married couple with "gross" joint income of 40.000€, (approx. £30.000/$60.000), pay approx. 20% tax before deducting all their expenses. This normally reduces tax to approx. 14%. And even less with children. Then you deduct the mortgage interest on net!
Tuesday, July 17, 2007
30K forgiveable loan Program in Mississippi
Check out this article from my respected colleague and friend Scott Allen. Scott is a National Sales Director at a large bank...
The HUD small rental assistance program is once again, an incentive for an investor to build rental property with a subsidized rent. HUD is offering a 5 year forgivable loan in the amount of $30,000 for a single family home with a 90 day completion bonus of an additional $10,000 typically only good if you are building modular, which is what I am doing. What this means is that for a single family home(s) purchased, your rent is subsidized at 80% of the market rent on 51% of your investment properties in the area. An incentive on top of the incentive is that for 49% of your homes, your rent is going to be paid at 120% of the market rent. The market rent for a 3 bedroom house is $1057 per month. You can see the obvious incentive by building numerous.
Let's say you own 3 homes. Two of those homes are going to be subsidized at 80% of $1057. You will get a rent check from the tenant each month of $846 per month. For the 3rd home, you will receive 120% of the market rent of $1057. You will be paid monthly from the tenant in the amount of the 80% rent of $846, however on top of that, the state is going to send you an additional 40%, increasing your total monthly rent to $1250 per month on that house.
See Full Detailed Article (and others from Scott)
Scott Allan is the National Sales Director of NHBA (National Home Builder Advisors) a licensed brokerage. Scott specializes in product development and has the leverage of having his firm being the subsidiary company to one of the nations largest construction lenders.
Summary of Adiel Gorel lecture
Same lecture, different day.
This was for newbies more or less. Adiel makes some great points, but does he need 2.5 hours to make them in? :)
He talked about a possible Go-Zone extension.
The markets he suggested this time are Oklahoma, Raleigh, Huntsville, Dallas, Biloxi, Lafayette, Houston. Said they seem cheap compared to other markets, such as Phoenix, CA, and LV. Whatever sounds boring now (but is in the sunbelt) is where to invest.
He again made the point about renting his 5.5K rental house instead of buying the type of property he lives in (multi-million dollar).
It was a good crowd, about 100 people. He is promoting an advanced day Sept 8th, for $30 per person (call me if you're intersted in signing up together).
He recommends buying single family homes over duplex or apartments, as the neighborhoods they're located in have higher appreciations. Says apartments are only worth it for 150 to 300 units since you can get economies of scale.
He talked again about what qualifies to be a RE professional, how to get full benefits out of the GO zone. He gave his usual example of buying a house to pay for a child's college, and also about how mortgages in this country are a huge gift (as they don't let the bank even keep up with the cost of inflation). He says he's tried it all, but come back to SFRs in the end.
The question of absorbing vacancies, bad property mangaers, dealing with tenants, etc. remains. Many people buying through ICG do well, as long term holds. The markets he recommends are not the sexy or hot ones.
He suggests a 10 year hold time, as always. Part of my problem seems to be visualizing anything about my life 10 years out. I can barely picture 2 years from now! Who knows what 10 years from now looks like.
Monday, July 16, 2007
MLS-2.com: Find motivated sellers, price drops, short sales
This website lets you look for deals by motivated sellers, price drops, and short sales. Pretty neat... (sometimes their listings are out of date, so please follow up directly). http://www.mls-2.com/index.jsp
Redfin.com Discount Buy/Sell
http://www.redfin.com/Do your own work and save big $$. This company gives 2/3 commission back for buyers and offers a $3K upfront fee for sales listings.
Foreclosure Investing Secrets
For me, this class brought me out of being a casual homeowner interested in investing to an investor interested in homes for profit. This is one of those cornerstone classes...foreclosure the backbone of promissory notes, private money lending, other types of investing. The security for many of these investments is the property and the ability to recover value on the open market, should anything go wrong. Dick Goodell is an excellent teacher, and very knowledgeable. I would highly recommend this course (either this time or next time). Check Wealth Classes Website
Foreclosure Investing Secrets
111 Deerwood Rd.
San Ramon, CA 94583 Tuesday, Jul. 17, 2007
6:15 PM - 9:45 PM
Cost: $99
Taught by Dick Goodell, who has conducted foreclosure sales every day in the San Francisco Bay Area as a full-time business for nine years.
Equity Sharing Seminar
The Collins Law Group
"Come listen to one of the national authorities on equity sharing explain why it is the hottest method for people to invest in rental real estate or purchase a primary residence when they otherwise may not be able to afford it. Mr. Collins will explain how to set up the transaction and how to maximize the tax benefits of doing so. The Collins law group conducts free seminars from 5:45 pm – 6:45 pm the First Monday of each month."
Find partners for equity sharing
* “I want to buy a house to live in, but could use help with the down payment”
* “I want to invest in real estate without becoming a landlord or making ongoing payments”
* “I’m a licensed real estate agent who wants to increase my volume”
"Come listen to one of the national authorities on equity sharing explain why it is the hottest method for people to invest in rental real estate or purchase a primary residence when they otherwise may not be able to afford it. Mr. Collins will explain how to set up the transaction and how to maximize the tax benefits of doing so. The Collins law group conducts free seminars from 5:45 pm – 6:45 pm the First Monday of each month."
Find partners for equity sharing
* “I want to buy a house to live in, but could use help with the down payment”
* “I want to invest in real estate without becoming a landlord or making ongoing payments”
* “I’m a licensed real estate agent who wants to increase my volume”
Saturday, July 14, 2007
South Africa!?
Wow - how great is this? I have a friend who invested in property in S. Africa (just east of Capetown) and has been making a mint. For a down of 40% he purchased a property for 100K that is putting out 47% return a year (that's 20K a year on investment of 40K). It is gorgeous - situated a top an ocean cliff.
I will be travelling to S. Africa in the next couple months to check out the opportunity.
Interested? I'd like to find a partner to do a deal with, if it proves to be profitable.
Little Mosque on the Prairie
Little Mosque on the Prairie
This has got to be the most hilarious thing I've heard of recently! I only wish I lived in Canada and could get this show!
Check out the YouTube Episode!
This has got to be the most hilarious thing I've heard of recently! I only wish I lived in Canada and could get this show!
Check out the YouTube Episode!
Friday, July 13, 2007
Private jet destinations in the Caribbean and Mexico
Let's discuss popular Private Jet destination in the Caribbean and Mexico. My brother, working in the Private Jet aviation industry, will share his insights here...(see comments)
Success in the Energy Sector
The other funds I invested in a couple years ago that have done very well are in the energy sector. There is a Select SPRD offering of: XLE, and the mega-superstar giant PSPFX.
Phenomenally successful International RE Mutual Fund
Don't want to invest in individual homes or countries? Let the mutual fund do the work for you. Check out the dizzying heights and amazing climb of EGLRX:
Alpine International RE Fund
This is a fund that I've personally had phenomenal success with. While other mutual funds went down earlier this year, this one remained strong, stronger than the US RE fund (EUEYX) run by same group. It's like a giant bullet train on fire that never stops! Only $1000 minimum investment, no load.
Morningstar category: 5 STAR, Specialty-Real Estate
Fund Summary
The investment seeks long-term capital growth; current income is a secondary consideration. The fund invests primarily in the equity securities of non-United States issuers which are principally engaged in the real estate industry or own significant real estate assets. It gives particular consideration to investments in the United Kingdom, Western Europe, Australia, Canada, Japan, Hong Kong, Singapore, Malaysia and Thailand
Alpine International RE Fund
This is a fund that I've personally had phenomenal success with. While other mutual funds went down earlier this year, this one remained strong, stronger than the US RE fund (EUEYX) run by same group. It's like a giant bullet train on fire that never stops! Only $1000 minimum investment, no load.
Morningstar category: 5 STAR, Specialty-Real Estate
Fund Summary
The investment seeks long-term capital growth; current income is a secondary consideration. The fund invests primarily in the equity securities of non-United States issuers which are principally engaged in the real estate industry or own significant real estate assets. It gives particular consideration to investments in the United Kingdom, Western Europe, Australia, Canada, Japan, Hong Kong, Singapore, Malaysia and Thailand
Thursday, July 12, 2007
In the life of every investor some rain must fall
The first rehab project I took on was a long-distance Go-Zone property. I was introduced to a man named RB by a fellow investor in the community, LK, who claimed she was a very senior/advanced investor. We got on a conference call one fine day and RB was telling us about properties he had put under contract in the Gulf of Mexico area -- in New Orleans and Pass Chrisitian, a presigeous town about an hour east on N.O. that he would 'assign' to us.
The deal was that he would charge investors $25K-50K (depending on the house) up front as an assignment fee. With this came a contract that he would supervise the construction of the storm damaged property. My assignment fee was $25K, and the house was being sold to me at $250,000, with an After Repair Value (ARV) of $395-425K (according to appraisal). The repairs were to cost $30K and the profit to the investor was to be $75-100K.
RB said that he had a "turn key" investment for long distance investors. He would take our money, find the contractor, supervise the construction, and then sell the property using his "auction" techniques once completed. He promised, in writing, that construction would be finished in 3-4 weeks (on my particular property) since there wasn't much damage. Being a novice investor unfamiliar with construction, I trusted him. I figured he knew what he was doing -- afterall he was a national speaker and was slated to speak the Learning Annex soon. It didn't occur to me that someone could just be saying this to make a quick buck off my assignment fee.
I wired RB $25,000 in early July '06, exactly a year ago now. I was told that he would be getting the financing and that the house would close Aug. 15, 06. And that it would be 100% financing, so no further money would be required. He also said the type of loan he was getting would have no monthly payments during construction.
Aug. 15th came and went, and no close. In fact, hardly any calls from RB. I was starting to get worried. Then Sept 15th rolled around (which meant he had already had my money for 2.5 months at this point) the loan finally came through. HOWEVER, it was under completely different terms. The loan required me to come up with a 20% downpayment (roughly 66K), and required me to make payments during the construction period. I was shocked! However, I was still very much caught up in the fantasy that RB had painted. Also, if I didn't close, I would lose my $25K that I had already given to RB.
After some financial acrobatics, I was able to find the money required to close. RB begged me to close and told me to use my 401K or retirement money if necessary, even to borrow from my mother. He said the money would be in and out of my account in 60 days, since the house would be sold by then. I didn't want to risk the 10% penalty for early withdrawl, so instead I chose to liquidated my stock portfolio and use credit cards.
In addition to the loan terms being totally different, the amount the bank would accept for "repair draws" was totally different. Instead of $30K, the bank required $94K! However, RB said he had a "Latin Express" crew who would be doing the repairs and that the bank's estimate was highly overblown. Again, I believed him.
I went to visit the property just after it closed. To meet the contractor and see everything for myself. (Yes, another ameteur mistake, brought on by being excessively trusting).
TO BE CONTINUED...
The deal was that he would charge investors $25K-50K (depending on the house) up front as an assignment fee. With this came a contract that he would supervise the construction of the storm damaged property. My assignment fee was $25K, and the house was being sold to me at $250,000, with an After Repair Value (ARV) of $395-425K (according to appraisal). The repairs were to cost $30K and the profit to the investor was to be $75-100K.
RB said that he had a "turn key" investment for long distance investors. He would take our money, find the contractor, supervise the construction, and then sell the property using his "auction" techniques once completed. He promised, in writing, that construction would be finished in 3-4 weeks (on my particular property) since there wasn't much damage. Being a novice investor unfamiliar with construction, I trusted him. I figured he knew what he was doing -- afterall he was a national speaker and was slated to speak the Learning Annex soon. It didn't occur to me that someone could just be saying this to make a quick buck off my assignment fee.
I wired RB $25,000 in early July '06, exactly a year ago now. I was told that he would be getting the financing and that the house would close Aug. 15, 06. And that it would be 100% financing, so no further money would be required. He also said the type of loan he was getting would have no monthly payments during construction.
Aug. 15th came and went, and no close. In fact, hardly any calls from RB. I was starting to get worried. Then Sept 15th rolled around (which meant he had already had my money for 2.5 months at this point) the loan finally came through. HOWEVER, it was under completely different terms. The loan required me to come up with a 20% downpayment (roughly 66K), and required me to make payments during the construction period. I was shocked! However, I was still very much caught up in the fantasy that RB had painted. Also, if I didn't close, I would lose my $25K that I had already given to RB.
After some financial acrobatics, I was able to find the money required to close. RB begged me to close and told me to use my 401K or retirement money if necessary, even to borrow from my mother. He said the money would be in and out of my account in 60 days, since the house would be sold by then. I didn't want to risk the 10% penalty for early withdrawl, so instead I chose to liquidated my stock portfolio and use credit cards.
In addition to the loan terms being totally different, the amount the bank would accept for "repair draws" was totally different. Instead of $30K, the bank required $94K! However, RB said he had a "Latin Express" crew who would be doing the repairs and that the bank's estimate was highly overblown. Again, I believed him.
I went to visit the property just after it closed. To meet the contractor and see everything for myself. (Yes, another ameteur mistake, brought on by being excessively trusting).
TO BE CONTINUED...
How much does it cost to develop raw land?
I asked this question of my developer friends recently. They said it's approximately 1/3 to 1/2 the price of the land. Any thoughts? Figures? We're talking from absolute dirt to a place with roads, sewage system, drainage, electricity, water...
The people in CR tried to tell us it cost $1M/mile of road. This seemed very high to me.
The people in CR tried to tell us it cost $1M/mile of road. This seemed very high to me.
Best Resources for Asset Protection and Tax Advice
These two guys are absolute mega-mind superstars when it comes to Asset Protection, Tax strategies, and Entity Structuring for RE investors:
* Albert Aiello
* John Hyre
They're the best I have found over the past 1.5 years. I bought the Albert Aiello CDs, and they were worth every penny. He is extremely detailed. He's a very seasoned investor, tax attorney, and CPA. John Hyre is based in Ohio, Albert is based in Philly.
I would seek every opportunity to see and hear them in person. John Hyre will be speaking at the ICG advanced day this weekend.
* Albert Aiello
* John Hyre
They're the best I have found over the past 1.5 years. I bought the Albert Aiello CDs, and they were worth every penny. He is extremely detailed. He's a very seasoned investor, tax attorney, and CPA. John Hyre is based in Ohio, Albert is based in Philly.
I would seek every opportunity to see and hear them in person. John Hyre will be speaking at the ICG advanced day this weekend.
Go Zone Incentives in MS, AL, TX, FL
After Hurricane Katrina many government incentives were put into place. Let's hear from a local agent - Lewis on this...
Lewis is with ReMax and sold my Pass Christian (on Gulf of Mexico) waterfront home earlier this year (after a rehab gone bad!).
Please see the comments...
Lewis is with ReMax and sold my Pass Christian (on Gulf of Mexico) waterfront home earlier this year (after a rehab gone bad!).
Please see the comments...
My Goodness -- isn't life grand?
Tonight I went to a RE investing club event...and of all people who do I run into???
The buyers agent for the house I sold in MS!
And who else do I run into? A bank that had looked at (and rejected) financing the Costa Rica deal! We had a good laugh as I told them about how Helga had treated me. They had gone to this bank a couple years ago and been rejected from financing.
Had drinks and hung out with a great group of people. They are developers, banks, builders from the Gulf coast area.
Ironically, I had signed up to go to another event tonight, but somehow switched the dates and ended up at this one. Fortuitous since these same people would not have been at the event tomorrow night!
The buyers agent for the house I sold in MS!
And who else do I run into? A bank that had looked at (and rejected) financing the Costa Rica deal! We had a good laugh as I told them about how Helga had treated me. They had gone to this bank a couple years ago and been rejected from financing.
Had drinks and hung out with a great group of people. They are developers, banks, builders from the Gulf coast area.
Ironically, I had signed up to go to another event tonight, but somehow switched the dates and ended up at this one. Fortuitous since these same people would not have been at the event tomorrow night!
Wednesday, July 11, 2007
Home Equity Sharing
This is a great way to get into an $$ house without forking over all the $$. Equity sharing is a concept in which you find investors with money to fund part or all of your downpayment. The investor then takes a part of the profit as the house grows in equity. This is profitable for the investor since certain tax write-offs exist and she can gain footing into an expensive market (such as CA) without the negative cash-flow that would otherwise ensue.
http://www.homeequityshare.com
http://www.homeequityshare.com
An interesting investment idea: Bulk Pre-Construction Real Estate
This is a group I've been meaning to check out. I think the deals are structured in an interesting way. They are pre-construction deals in which investors make from 40% to 90% or higher returns in a 18 month period.
This company is a bridge between investors and developers. Early in the development process, developers need access to capital. When investors provide this, they get rewarded handsomely (so the theory goes).
What do you guys think? What are the ways in which something like this could fail? I figure, the worst case scenario is that the developer does not complete (or start) the building.
Read about the supposed benefits here:
http://www.axiomrealtycapital.com/pages/buyers.html
This company is a bridge between investors and developers. Early in the development process, developers need access to capital. When investors provide this, they get rewarded handsomely (so the theory goes).
What do you guys think? What are the ways in which something like this could fail? I figure, the worst case scenario is that the developer does not complete (or start) the building.
Read about the supposed benefits here:
http://www.axiomrealtycapital.com/pages/buyers.html
What is Land Banking?
Land Banking is the practice of purchasing land with the intent to hold on to it until such a time as it is highly profitable to sell it on to others for substantially more than was initially paid. Land is becoming increasingly popular as an investment due to the benefit of its being a tangible asset as opposed to Shares or Bonds. This type of investment has gained such popularity it is now possible to land bank worldwide and there are several firms set up to offer opportunities to do so.
Land banking can be an extremely lucrative investment. The land that you have banked can appreciate in value more than any other purchase you will ever make. If you had purchased one acre of land on Ventura Boulevard in the San Fernando Valley in 1967, it would have cost you 38,000 US dollars (USD). By 1979, that same plot of land was worth 380,000 USD, and by 1991, it was worth 2,100,000 USD.
Over the years, fortunes have been made in land banking. Financially minded investors who understood the lucrative concept of buying land in pre-developed areas have become very wealthy. Business tycoon Donald Trump is a huge fan of land banking. At the moment, he owns one of the last remaining, undeveloped land spaces in Manhattan, New York. It is a 100-acre plot that runs from 59th to 72nd streets along the Hudson River, and when developed will be called Trump Place.
There have been many other famous land banking visionaries in the past. Howard Hughes bought and held land in Las Vegas Valley and Southern California. In the early 1950s, Hughes acquired a 22,500 acres of land along the Las Vegas Valley. Today, this land is known as Summerlin, and by 2015 it is projected to be home to 160,000 residents living in 30 separate villages.
The comedian Bob Hope was a great believer in land banking. Hope invested huge amounts of money in Southern Californian land when it was little more than orange groves and scrublands. Hope owned nearly 30,000 acres of land and was the largest private landowner in California. When Bob Hope died, reports of his fortune were near the 1 billion USD mark.
Land banking, for some, can be a great investment opportunity if undertaken wisely. It can also be a way to preserve nature in a world in which urbanization seems to be a never-ending process. As the saying goes, they can't build anymore land.
On the right you will find links to Ace Capital Group and Velur --> two companies specializing in Land Banking in So. Cal.
Land banking can be an extremely lucrative investment. The land that you have banked can appreciate in value more than any other purchase you will ever make. If you had purchased one acre of land on Ventura Boulevard in the San Fernando Valley in 1967, it would have cost you 38,000 US dollars (USD). By 1979, that same plot of land was worth 380,000 USD, and by 1991, it was worth 2,100,000 USD.
Over the years, fortunes have been made in land banking. Financially minded investors who understood the lucrative concept of buying land in pre-developed areas have become very wealthy. Business tycoon Donald Trump is a huge fan of land banking. At the moment, he owns one of the last remaining, undeveloped land spaces in Manhattan, New York. It is a 100-acre plot that runs from 59th to 72nd streets along the Hudson River, and when developed will be called Trump Place.
There have been many other famous land banking visionaries in the past. Howard Hughes bought and held land in Las Vegas Valley and Southern California. In the early 1950s, Hughes acquired a 22,500 acres of land along the Las Vegas Valley. Today, this land is known as Summerlin, and by 2015 it is projected to be home to 160,000 residents living in 30 separate villages.
The comedian Bob Hope was a great believer in land banking. Hope invested huge amounts of money in Southern Californian land when it was little more than orange groves and scrublands. Hope owned nearly 30,000 acres of land and was the largest private landowner in California. When Bob Hope died, reports of his fortune were near the 1 billion USD mark.
Land banking, for some, can be a great investment opportunity if undertaken wisely. It can also be a way to preserve nature in a world in which urbanization seems to be a never-ending process. As the saying goes, they can't build anymore land.
On the right you will find links to Ace Capital Group and Velur --> two companies specializing in Land Banking in So. Cal.
How To get 18% fixed return on your money, secured by Real Estate
I work with a business man in NY who has been giving me a consistent fixed rate of return, based on trust deeds. I have been working with him for over a year and everyting has gone exactly as he said. I have been making 24% on my money fixed annual return, however new investors are being taken in at 18%.
I'll be happy to share his info, if anyone is interested (see comments).
I'll be happy to share his info, if anyone is interested (see comments).
My Costa Rica "Fly and Buy" Adventure
My Costa Rica Trip
***Please note that facts and figures presented here are not confirmed by independent reviewers. Readers are encouraged to conduct their own research prior to any investment decision.***
I learned of a "fly and buy" program though a local investment club. A few weeks before the trip I attended a webinar where they described the property and the deal. I understood that properties were somewhere around the $250 mark, and land was starting at $75K. I had no idea where the land was, and I barely knew where Costa Rica was! The trip was to be 4 days and 3 nights, with them taking care of everything while you are there -- food, transport, hotel. The hotel was located on a beach at the Pacific ocean, and consisted of a number of rooms on the beach. (The first thing that impressed me when I got to the hotel was the quality of the wood.)
I booked my ticket, which cost $650 on Delta into San Jose. I was routed through Atlanta, and the journey was 9 hours of plane rides, a few hours of layovers.
I couldn't get a clear answer on what the itinerary was prior to the trip (despite asking), so I booked a flight that seemed reasonable. It arrived on the night of the 4th, which was the day before the group trip was to start, on the 5th. I was told to stay at the Hampton Inn, near the airport, and that the shuttle would pick us up there the next afternoon at 2:30 pm.
I decided to rent a car and explore the country on the 5th, instead of waiting for the shuttle bus at the hotel.
I checked into the hotel that night, and it was easy. The hotel was up to American standards, had free Internet, as Hampton Inns do. Before I left I printed out some maps of the country, and tried to figure out what there is to see and do in this exciting new place.
The next morning I woke up and went down to breakfast. I met up with a couple there who were from San Diego. They were probably in their early 60's, and were retired. They told me they moved to CR after considering it for 6 years. They said they loved it and have been there 1 month now. They glowed with pride about their home, the quality of the construction, the wood inlays of teak, the floors of hard-wood, the workmanship, the stucco, and how none of the walls in their home were 90 degree angles, but rather all rounded. They said they had an American contractor friend with 30 years experience look at the place and they were amazed at the quality of the construction. In CR everything is made of cinder block or stucco. There is no 'wood construction' or 'dry wall' like we are used to in the States. They said their house was a palace, of over 4000 sq. ft. They were in town, and had stayed at the Hampton to go shopping that day. Their place was in Guanacaste, near Tamarino on the northern Pacific coast. It cost just under $1M. Mark and Kathy were both retired -- Mark worked as a CFO for a biotech company in San Diego formerly. He was a surfer and loved the white sand beach of Tamarindo.
They said they really took their time looking at places because there were many many scams that go on there, esp. involving real estate. I told them I was there for a RE property investment trip, and they said to be very very careful. That there were many cases of developers taking money and not finishing the job, that there were many "gated" communities that consisted of nothing but the gates!! When you go inside, there is nothing -- not a single house built. They also said free & clear title is of the utmost importance, and difficult to confirm. They said that often times developers are given permits, and then permits are taken back. That the government and environmental agencies are corrupt or capricious. They advised it best to buy a house that has already been constructed, as theirs was.
I left the hotel and drove up to the active Volcano known as Arenal. Arenal is located about 5 hrs drive from San Jose, even though I was told it would take 2.5 hours! Driving up to Arenal I saw the town of San Ramon, and La Fortuna. The country side is extremely beautiful and lush and green tropical. Along the road were many little souvenir shacks run by locals, and many small outdoor restaurants.
On the way, the engine light came on in the rental car. I was mortified. I stopped in San Ramon and luckily found a mechanic. They were kind and accommodating and let me use their phone to call the rental company. The guy assured me that the car was fine, so I carried on. I was already annoyed with the rental company bc. the rate they charged me for the car ended up being DOUBLE of what I booked and paid for online. When I got there, they said there was this insurance and that tax, blah blah. I book cars all the time in different places...this was the first time I have seen something like this. (Later I heard of other Americans complaining about the same thing).
I drove and drove and it was raining. Then it would clear up. Then rain again. I stopped for pictures along the side of the valleys a few times.
I finally made it to the town of La Fortuna, which is the closest town to Arenal volcano. There are many nice upscale resorts there. Many restaurants, shops, and attractions for tourists. I was having a lot of fun!
I finally reached the national park, around 4:00 pm. Went inside. Took pictures of the "active" volcano. The volcano would grumble loudly every 20 minutes or so. I saw puffs of steam emanating from it as lava flowed down the sides. The part of the volcano with the lava flow was black. I was told that if I wanted to see the red lava flow I would need to be there at night.
Unfortunately since I was on the investment trip I couldn't spend the night. It would have been great to since the small inns were reasonably priced, starting at $20/night.
SO, I started to make my way back. In my mind I had thought it would get dark around 8:30, since that's what's happening in Cali now, only to learn that it gets dark at 6:30 pm! Closer to the equator, of course.
My way back was some of the most treacherous driving I have ever done/seen. The mountain roads were narrow, and often filled with one lane bridge crossings. The trucks travel on them at about 15 mph! The roads were incredibly full of THICK bulging fog. I was really hard to see, and it was dark, quite dangerous winding roads. I drove through this for about 5 hours. It seemed to be a never ending, exhausting drive...as soon as one mountain ended, another would start! I was so thankful for the GPS that outlined the road as I drove.
Once I reached flat land, near the beach, after 5 hours of that drive, I pulled over to get gas. It cost $4.70 a gallon!
After another 1.5 hrs, I finally made it to the hotel, not really having an address or anything (I only knew the town to go to). They were about to close, so I was lucky to make it just before 10:00. Luckily I had had dinner at a local resto. on top of the mountain.
I met there with Paco, one of the hosts on the investment trip. I learned that the hotel has no internet. He said there was dail-up.
The next morning I woke up and met the group for breakfast, at the restaurant on the beach. It was cloudy yet very humid. The beach had no people on it, and was a black sand/mud beach. I met the other couples, the investor guides (Ted and Jorge), and a woman named Helga , an American from the South. She was the head managing member of the syndicate that had purchased this land. I met the other investors on the trip. There were 3 couples. 1 older couple from Orlando, one younger couple (my age) from Toronto, and another couple from my back yard here (also around my age). The couples each had 1 child.
After breakfast we were taken on a zip line tour through the canopy of the rainforest. That was great fun. We were strapped into harnesses and could traverse the canopy via metal lines that were tied tree to tree, and connected on platforms. Supposedly on the better zipline tours you can see animals and wildlife. No such luck on our zipline, however there were some nice panoramas of the ocean.
I learned of a "fly and buy" program though a local investment club. A few weeks before the trip I attended a webinar where they described the property and the deal. I understood that properties were somewhere around the $250 mark, and land was starting at $75K. I had no idea where the land was, and I barely knew where Costa Rica was! The trip was to be 4 days and 3 nights, with them taking care of everything while you are there -- food, transport, hotel. The hotel was located on a beach at the Pacific ocean, and consisted of a number of rooms on the beach. (The first thing that impressed me when I got to the hotel was the quality of the wood.)
I booked my ticket, which cost $650 on Delta into San Jose. I was routed through Atlanta, and the journey was 9 hours of plane rides, a few hours of layovers.
I couldn't get a clear answer on what the itinerary was prior to the trip (despite asking), so I booked a flight that seemed reasonable. It arrived on the night of the 4th, which was the day before the group trip was to start, on the 5th. I was told to stay at the Hampton Inn, near the airport, and that the shuttle would pick us up there the next afternoon at 2:30 pm.
I decided to rent a car and explore the country on the 5th, instead of waiting for the shuttle bus at the hotel.
I checked into the hotel that night, and it was easy. The hotel was up to American standards, had free Internet, as Hampton Inns do. Before I left I printed out some maps of the country, and tried to figure out what there is to see and do in this exciting new place.
The next morning I woke up and went down to breakfast. I met up with a couple there who were from San Diego. They were probably in their early 60's, and were retired. They told me they moved to CR after considering it for 6 years. They said they loved it and have been there 1 month now. They glowed with pride about their home, the quality of the construction, the wood inlays of teak, the floors of hard-wood, the workmanship, the stucco, and how none of the walls in their home were 90 degree angles, but rather all rounded. They said they had an American contractor friend with 30 years experience look at the place and they were amazed at the quality of the construction. In CR everything is made of cinder block or stucco. There is no 'wood construction' or 'dry wall' like we are used to in the States. They said their house was a palace, of over 4000 sq. ft. They were in town, and had stayed at the Hampton to go shopping that day. Their place was in Guanacaste, near Tamarino on the northern Pacific coast. It cost just under $1M. Mark and Kathy were both retired -- Mark worked as a CFO for a biotech company in San Diego formerly. He was a surfer and loved the white sand beach of Tamarindo.
They said they really took their time looking at places because there were many many scams that go on there, esp. involving real estate. I told them I was there for a RE property investment trip, and they said to be very very careful. That there were many cases of developers taking money and not finishing the job, that there were many "gated" communities that consisted of nothing but the gates!! When you go inside, there is nothing -- not a single house built. They also said free & clear title is of the utmost importance, and difficult to confirm. They said that often times developers are given permits, and then permits are taken back. That the government and environmental agencies are corrupt or capricious. They advised it best to buy a house that has already been constructed, as theirs was.
I left the hotel and drove up to the active Volcano known as Arenal. Arenal is located about 5 hrs drive from San Jose, even though I was told it would take 2.5 hours! Driving up to Arenal I saw the town of San Ramon, and La Fortuna. The country side is extremely beautiful and lush and green tropical. Along the road were many little souvenir shacks run by locals, and many small outdoor restaurants.
On the way, the engine light came on in the rental car. I was mortified. I stopped in San Ramon and luckily found a mechanic. They were kind and accommodating and let me use their phone to call the rental company. The guy assured me that the car was fine, so I carried on. I was already annoyed with the rental company bc. the rate they charged me for the car ended up being DOUBLE of what I booked and paid for online. When I got there, they said there was this insurance and that tax, blah blah. I book cars all the time in different places...this was the first time I have seen something like this. (Later I heard of other Americans complaining about the same thing).
I drove and drove and it was raining. Then it would clear up. Then rain again. I stopped for pictures along the side of the valleys a few times.
I finally made it to the town of La Fortuna, which is the closest town to Arenal volcano. There are many nice upscale resorts there. Many restaurants, shops, and attractions for tourists. I was having a lot of fun!
I finally reached the national park, around 4:00 pm. Went inside. Took pictures of the "active" volcano. The volcano would grumble loudly every 20 minutes or so. I saw puffs of steam emanating from it as lava flowed down the sides. The part of the volcano with the lava flow was black. I was told that if I wanted to see the red lava flow I would need to be there at night.
Unfortunately since I was on the investment trip I couldn't spend the night. It would have been great to since the small inns were reasonably priced, starting at $20/night.
SO, I started to make my way back. In my mind I had thought it would get dark around 8:30, since that's what's happening in Cali now, only to learn that it gets dark at 6:30 pm! Closer to the equator, of course.
My way back was some of the most treacherous driving I have ever done/seen. The mountain roads were narrow, and often filled with one lane bridge crossings. The trucks travel on them at about 15 mph! The roads were incredibly full of THICK bulging fog. I was really hard to see, and it was dark, quite dangerous winding roads. I drove through this for about 5 hours. It seemed to be a never ending, exhausting drive...as soon as one mountain ended, another would start! I was so thankful for the GPS that outlined the road as I drove.
Once I reached flat land, near the beach, after 5 hours of that drive, I pulled over to get gas. It cost $4.70 a gallon!
After another 1.5 hrs, I finally made it to the hotel, not really having an address or anything (I only knew the town to go to). They were about to close, so I was lucky to make it just before 10:00. Luckily I had had dinner at a local resto. on top of the mountain.
I met there with Paco, one of the hosts on the investment trip. I learned that the hotel has no internet. He said there was dail-up.
The next morning I woke up and met the group for breakfast, at the restaurant on the beach. It was cloudy yet very humid. The beach had no people on it, and was a black sand/mud beach. I met the other couples, the investor guides (Ted and Jorge), and a woman named Helga , an American from the South. She was the head managing member of the syndicate that had purchased this land. I met the other investors on the trip. There were 3 couples. 1 older couple from Orlando, one younger couple (my age) from Toronto, and another couple from my back yard here (also around my age). The couples each had 1 child.
After breakfast we were taken on a zip line tour through the canopy of the rainforest. That was great fun. We were strapped into harnesses and could traverse the canopy via metal lines that were tied tree to tree, and connected on platforms. Supposedly on the better zipline tours you can see animals and wildlife. No such luck on our zipline, however there were some nice panoramas of the ocean.
Then we had lunch and were taken to a neighboring development under construction.
This condo/house project had a condo that Helga claimed she purchased for $410K a year ago, that was now worth $525K supposedly. It was a nice condo, well furnished. Had the amenities we expect from high-end homes like granite, tile, wood floors, nice bathrooms. The more experienced people in the group noticed poor workmanship in the bathrooms (tile and grout). The woods used were very rich and dark throughout. The doors were tall and elegant. But for $525K? I could find a place like that in S. Cal pretty easy, for that price. The views were of green valleys.
After viewing the condo, we got on the bus and viewed some empty plots of land. We weren't told any prices of actual plots or houses yet. When I asked, they said that construction labor was paid $15/day, and the average Costa Rican's salary was $500/month.
We later came back to the hotel & got ready for dinner. Dinner was in Jaco, about a 45 minute bus ride away. Dinner was at a nice place, but with pretty much "American" food. After dinner we explored the town for about 1/2 an hour. On the way to dinner, I asked Ted, one of the investor guides, about the population of Costa Rica, of Jaco, and some other facts regarding the economy of CR. He just laughed and said he had "no idea" and made it sound incredulous that I would ask such a question.
The investors, amongst themselves, were trying to piece the deal together. Whether we would be investing or not. The couple from Orlando was looking more for a second home than an investment. The couple from Cupertino (near me) was looking strictly for investment purposes, as was I. The couple from Toronto was looking for investment, as well as to recommend listing this developer for off-shore investment to their investors (as part of investment club).
After dinner, J, the wife of the couple from Orlando, suggested we all talk and get together after dinner. The hosts weren't too thrilled by the idea, but they couldn't really stop us.
I had started asking questions during the day about the issues I had warned of. When we were at lunch, the developer M, showed up to the same restaurant, with some local government officials. The host Helga became extremely nervous and lost focus on our group. She was watching the meeting with her developer M, and the local officials very carefully. J and I noticed the drastic change in body language (and her nervousness).
After dinner, when we all chatted, we agreed that many things were not adding up. We were told that labor was so cheap -- like $15/day, yet the cost of the home was going to be $125/foot to construct. In Texas, I pointed out, I can get a brand new house for $70/foot with marble/granite/nice upgrades. This is in Houston, by the way, a major metro city. Helga and Ted just bristled that I brought this up (not happy). So an average 2000 sq ft. home there would cost about $250K to construct, together with $125K for a plot of land = $375K. Plus there would be large home-owners dues to take care of the pools and grounds. By the way, the couple I met on the first day at breakfast pointed out that there was a common HOA dues scam too -- the developer will tell you that HOA will be really high at first -- like $500 or $700/month, but that they will go down as more people buy into the project. Of course when more people don't buy in, you are stuck with the high HOA's.
I was thinking that something doesn't add up -- I'm in a place where the nearest restaurant, grocery store, or any sort of supplies are 45 minutes drive away (and by the way gas is not cheap!), the closest medical facilities or airport is 2.5 hrs drive via mountain roads, and the ocean is not even anywhere near the property. So how could a house there cost as much as something would cost in California? Not to mention that the weather is no where as nice -- very humid and hot. The summers in Cali are gorgeous - clear and no humidity. Plus there is a driving economy in the state, ample transportation, and facilities.
It just didn't make sense.
The couple from Toronto was also shocked at the high prices. They were heavy investors in the Caribbean, and talked of deals on islands like St. Lucia and St. Vincent, and the Dominican Republic (beachfront). They said properties were much cheaper, and the waters were turquoise blue with white sand. The water here was muddy and there is no snorkeling, and the sand is black. Or is it mud?
After the evening discussions all the couples and me seemed convinced that it was not a good deal. And until then, we had not been given any price sheets or numbers. In a typical investment deal, you are given a pro-forma well ahead of time. Long before you even travel to the place. It details the rents, the expected prices, all expenses, taxes, etc.
During the day I had asked several times how much they paid for the land. Ted, the sales guy, told me $12,000 an acre. They were bringing in facilities and roads into the property and greatly improving it. The cheapest plot of land (no view) was $75K for 1/4 acre. So, what they bought for $12,000 an acre, they were now selling for $300,000 an acres, at the lowest end, up to $500K high end. Add the cost of the house on top...
We had toured the grounds/land of the property via 4 wheel drive vehicles just before dinner. We were shown a beautiful waterfall that the developer M had uncovered.
I was convinced there was no way I would buy into this. I figured that they were charging about double of what was reasonable.
The next day we woke up and had breakfast at 7:00. By 8:00 we were on the grounds of the property. The developer M talked for a while. I asked him the questions I had about projects that had been started that never finished up. I asked about the permitting process, and that I had heard that permits could be granted and revoked. I asked him where he would invest if it weren't Costa Rica right now. Asked him how many past projects he had done, and were there any that didn't complete. J, Orlando wife, also asked him questions that we as a group had put together the night before.
The architects then came into the picture. They showed us the plans, a Balsa wood model of the sales office (to be built first), and soil study reports, the surveys, etc. They were very professional and nice. A woman-man team.
Then we got on ATV's and drove all over the property for the next 3 hours. It was a lot of fun! We went to the top views on the property, the rivers, the waterfalls. It was really great. However, to be honest, the views were not too unique. Similar views could be available in so many parts of the world, even California.
We stopped & got pictures. The investors had a blast riding around.
After the ATV rides, we had 3.5 hours of rest time. Since I had the car, I wanted to get out and drive to the next town, Quepos, and perhaps Manuel Antonio, which is the main attraction that tourists come to CR for. It was about 25 miles away. I figured it wouldn't be too hard to get there and back in 3 hours. The couple from Canada wanted to explore too.
When we told Ted, the sales guy, that we would be doing this, he became very annoyed. He did not want us leaving the property it seemed. He sounded warning bells of traffic, and made it pretty clear he didn't think it was a good idea.
I was thinking to myself: so you want me to invest in your property, but you don't want me to even see what the next town over looks like? Or what the main attraction in CR is? M&S became very suspicious and we started to ponder that the reason they didn't want us to leave the property was that there was a neighboring development they didn't want us to see. We became even more curious and and intent on going. Also, I wanted to talk to a local real estate agent, to get another p.o.v. Ted had tried to warn us that Century 21 and Remax and other companies there were not really affiliated with the real American companies. S, didn't believe this, as she's an agent herself.
So off we were.
We drove to the town of Quepos. There we went straight to a local Real Estate Company's office. Talked to an experienced guy who has been in CR for 14 plus years. He is the head of that Real Estate office, and knows many of the local developers and deals.
I asked all kinds of questions about title, public records (such as MLS), land prices. These were all issues that the couple at Hampton Inn had warned me about. Recall that other investors were simply put on a bus and brought straight to the property -- they didn't have the advantage of local intelligence.
After viewing the condo, we got on the bus and viewed some empty plots of land. We weren't told any prices of actual plots or houses yet. When I asked, they said that construction labor was paid $15/day, and the average Costa Rican's salary was $500/month.
We later came back to the hotel & got ready for dinner. Dinner was in Jaco, about a 45 minute bus ride away. Dinner was at a nice place, but with pretty much "American" food. After dinner we explored the town for about 1/2 an hour. On the way to dinner, I asked Ted, one of the investor guides, about the population of Costa Rica, of Jaco, and some other facts regarding the economy of CR. He just laughed and said he had "no idea" and made it sound incredulous that I would ask such a question.
The investors, amongst themselves, were trying to piece the deal together. Whether we would be investing or not. The couple from Orlando was looking more for a second home than an investment. The couple from Cupertino (near me) was looking strictly for investment purposes, as was I. The couple from Toronto was looking for investment, as well as to recommend listing this developer for off-shore investment to their investors (as part of investment club).
After dinner, J, the wife of the couple from Orlando, suggested we all talk and get together after dinner. The hosts weren't too thrilled by the idea, but they couldn't really stop us.
I had started asking questions during the day about the issues I had warned of. When we were at lunch, the developer M, showed up to the same restaurant, with some local government officials. The host Helga became extremely nervous and lost focus on our group. She was watching the meeting with her developer M, and the local officials very carefully. J and I noticed the drastic change in body language (and her nervousness).
After dinner, when we all chatted, we agreed that many things were not adding up. We were told that labor was so cheap -- like $15/day, yet the cost of the home was going to be $125/foot to construct. In Texas, I pointed out, I can get a brand new house for $70/foot with marble/granite/nice upgrades. This is in Houston, by the way, a major metro city. Helga and Ted just bristled that I brought this up (not happy). So an average 2000 sq ft. home there would cost about $250K to construct, together with $125K for a plot of land = $375K. Plus there would be large home-owners dues to take care of the pools and grounds. By the way, the couple I met on the first day at breakfast pointed out that there was a common HOA dues scam too -- the developer will tell you that HOA will be really high at first -- like $500 or $700/month, but that they will go down as more people buy into the project. Of course when more people don't buy in, you are stuck with the high HOA's.
I was thinking that something doesn't add up -- I'm in a place where the nearest restaurant, grocery store, or any sort of supplies are 45 minutes drive away (and by the way gas is not cheap!), the closest medical facilities or airport is 2.5 hrs drive via mountain roads, and the ocean is not even anywhere near the property. So how could a house there cost as much as something would cost in California? Not to mention that the weather is no where as nice -- very humid and hot. The summers in Cali are gorgeous - clear and no humidity. Plus there is a driving economy in the state, ample transportation, and facilities.
It just didn't make sense.
The couple from Toronto was also shocked at the high prices. They were heavy investors in the Caribbean, and talked of deals on islands like St. Lucia and St. Vincent, and the Dominican Republic (beachfront). They said properties were much cheaper, and the waters were turquoise blue with white sand. The water here was muddy and there is no snorkeling, and the sand is black. Or is it mud?
After the evening discussions all the couples and me seemed convinced that it was not a good deal. And until then, we had not been given any price sheets or numbers. In a typical investment deal, you are given a pro-forma well ahead of time. Long before you even travel to the place. It details the rents, the expected prices, all expenses, taxes, etc.
During the day I had asked several times how much they paid for the land. Ted, the sales guy, told me $12,000 an acre. They were bringing in facilities and roads into the property and greatly improving it. The cheapest plot of land (no view) was $75K for 1/4 acre. So, what they bought for $12,000 an acre, they were now selling for $300,000 an acres, at the lowest end, up to $500K high end. Add the cost of the house on top...
We had toured the grounds/land of the property via 4 wheel drive vehicles just before dinner. We were shown a beautiful waterfall that the developer M had uncovered.
I was convinced there was no way I would buy into this. I figured that they were charging about double of what was reasonable.
The next day we woke up and had breakfast at 7:00. By 8:00 we were on the grounds of the property. The developer M talked for a while. I asked him the questions I had about projects that had been started that never finished up. I asked about the permitting process, and that I had heard that permits could be granted and revoked. I asked him where he would invest if it weren't Costa Rica right now. Asked him how many past projects he had done, and were there any that didn't complete. J, Orlando wife, also asked him questions that we as a group had put together the night before.
The architects then came into the picture. They showed us the plans, a Balsa wood model of the sales office (to be built first), and soil study reports, the surveys, etc. They were very professional and nice. A woman-man team.
Then we got on ATV's and drove all over the property for the next 3 hours. It was a lot of fun! We went to the top views on the property, the rivers, the waterfalls. It was really great. However, to be honest, the views were not too unique. Similar views could be available in so many parts of the world, even California.
We stopped & got pictures. The investors had a blast riding around.
After the ATV rides, we had 3.5 hours of rest time. Since I had the car, I wanted to get out and drive to the next town, Quepos, and perhaps Manuel Antonio, which is the main attraction that tourists come to CR for. It was about 25 miles away. I figured it wouldn't be too hard to get there and back in 3 hours. The couple from Canada wanted to explore too.
When we told Ted, the sales guy, that we would be doing this, he became very annoyed. He did not want us leaving the property it seemed. He sounded warning bells of traffic, and made it pretty clear he didn't think it was a good idea.
I was thinking to myself: so you want me to invest in your property, but you don't want me to even see what the next town over looks like? Or what the main attraction in CR is? M&S became very suspicious and we started to ponder that the reason they didn't want us to leave the property was that there was a neighboring development they didn't want us to see. We became even more curious and and intent on going. Also, I wanted to talk to a local real estate agent, to get another p.o.v. Ted had tried to warn us that Century 21 and Remax and other companies there were not really affiliated with the real American companies. S, didn't believe this, as she's an agent herself.
So off we were.
We drove to the town of Quepos. There we went straight to a local Real Estate Company's office. Talked to an experienced guy who has been in CR for 14 plus years. He is the head of that Real Estate office, and knows many of the local developers and deals.
I asked all kinds of questions about title, public records (such as MLS), land prices. These were all issues that the couple at Hampton Inn had warned me about. Recall that other investors were simply put on a bus and brought straight to the property -- they didn't have the advantage of local intelligence.
I also asked him specifically about the project that I was visiting. I asked him if he knew how much the land had been bought for... He said he did. He knew. He also said there are no public records for stuff like this in CR. He wouldn't give an exact number, but I asked him if it had been bought for $12,000/acre...he just laughed! Then I asked it was much less, he said yes. Less than $1K/acre...he again said 'much less'. He said "basically that land was stolen." (!!)
He also told us about a case where a TICO (local) had sold land to a big American developer. He then went and sold the land again to a 76 other investors. The case was in court for years. Finally the investors did get their money back, but it was after years of strife.
M&S and I were all alarmed, but it wasn't anything completely unexpected. I had known all along that the deal was way overpriced. It was made for Floridians and Californians, who wouldn't have sticker shock at such prices. "Gringos" as we are known there.
Then I started to get really suspicious of the people in the deal. After our return we went into a 2.5 hour presentation in which Helga gave us a few prices and asked us to pick out lots, and talked about asset protection and how to form a corporation in Costa Rica. We were told that the syndicate would be selling us shares, not actually transferring title. It was something so complex that even I couldn't understand it. And I have even done international investing before!
I got really bored in the middle of the presentation. Helga was talking about how to strip equity out of your primary home and use it to make a down payment on property (yeah, like what amateur investor doesn't know that?!?).
I was not interested at all in the property, and I felt like the deal and the people were misrepresenting facts (such as purchase price of land).
Now that I have been scammed a few times in Real Estate, I've learned my lesson: FOLLOW THE MONEY TRAIL.
Know who has the money, where it came from, where it's going, who has been promised what.
So, on the way to dinner I started asking extensive questions about the syndicate that had been formed to purchase this property. What Ted told me is that each person in the syndicate had put in $100K. I asked what the return on investment would be, and he said they would $1M over 5-7 years. WOW! Put in 100K and make $1,000,000 5 years later?! I also asked if the syndicate members would be paid in between and at what rate. He said they would be, but wouldn't provide a clear answer when (he is part of the syndicate). This again made me very suspicious. What I pieced together was that they desperately needed to make these sales because the investors were waiting for such big returns, fast. Helga was the managing member of the syndicate responsible for this.
He also told us about a case where a TICO (local) had sold land to a big American developer. He then went and sold the land again to a 76 other investors. The case was in court for years. Finally the investors did get their money back, but it was after years of strife.
M&S and I were all alarmed, but it wasn't anything completely unexpected. I had known all along that the deal was way overpriced. It was made for Floridians and Californians, who wouldn't have sticker shock at such prices. "Gringos" as we are known there.
Then I started to get really suspicious of the people in the deal. After our return we went into a 2.5 hour presentation in which Helga gave us a few prices and asked us to pick out lots, and talked about asset protection and how to form a corporation in Costa Rica. We were told that the syndicate would be selling us shares, not actually transferring title. It was something so complex that even I couldn't understand it. And I have even done international investing before!
I got really bored in the middle of the presentation. Helga was talking about how to strip equity out of your primary home and use it to make a down payment on property (yeah, like what amateur investor doesn't know that?!?).
I was not interested at all in the property, and I felt like the deal and the people were misrepresenting facts (such as purchase price of land).
Now that I have been scammed a few times in Real Estate, I've learned my lesson: FOLLOW THE MONEY TRAIL.
Know who has the money, where it came from, where it's going, who has been promised what.
So, on the way to dinner I started asking extensive questions about the syndicate that had been formed to purchase this property. What Ted told me is that each person in the syndicate had put in $100K. I asked what the return on investment would be, and he said they would $1M over 5-7 years. WOW! Put in 100K and make $1,000,000 5 years later?! I also asked if the syndicate members would be paid in between and at what rate. He said they would be, but wouldn't provide a clear answer when (he is part of the syndicate). This again made me very suspicious. What I pieced together was that they desperately needed to make these sales because the investors were waiting for such big returns, fast. Helga was the managing member of the syndicate responsible for this.
Later when the investors got together at night I pointed this out. The couple from Cupertino had somehow been convinced to buy 3 plots of their land! Notice that they had never left the property and had never been to CR before. The sales pitch worked!
M&S had figured out that the 76 investors they had who formed the syndicate were students from a class. The class was run by Helga and everyone paid $26K to get into a class on "International Investing." At the end of it, they were offered membership into this syndicate. (To me they were all amateurs to begin with to pay someone $26K!)
M&S had figured out that the 76 investors they had who formed the syndicate were students from a class. The class was run by Helga and everyone paid $26K to get into a class on "International Investing." At the end of it, they were offered membership into this syndicate. (To me they were all amateurs to begin with to pay someone $26K!)
After an hours worth of discussion, the wife started to have second thoughts. She said "Honey, listen to Reenu."
I think I was the most outspoken about the inconsistencies and apparent misrepresenations. S&M and I told this couple about what the older real estate agent had told us. The couple from Orlando agreed with us. When asked my opinion I said "they should be charging about half of what they are. This is not a property for investors, that's more appropriate for a second home, and that it was priced at retail." I also said that it's hard to verify information, and we have no idea what it was really purchased for. I also told them my philosophy about following the money trail in any investment.
M&S and I were obviously on the same page with everything, and we tried to convince this other couple to investigate more, by sharing our experiences. The country being poor, the property not being rentable, about no facilities being around, about the labor cost not adding up to what they were selling the houses for, about how they hadn't left the grounds and seen other parts of the country. S&M shared about a property their friend had purchased...it was $25K for 40 acres of land! And it was on the Caribbean side, where cruise ships come in. We encouraged them to see other developers before investing. M also talked about the deals he was into in the Carribean, and I talked about my French property deals. Both were much better priced
The next morning I woke up and went to breakfast. Before I could get to the breakfast table, Helga walked up to me and said "I need to talk to you." I said "ok" and she said "we need you to not join us for breakfast. You have been a very negative influence, have been playing devils advocate. You're asking questions about the synidcate, and that closed 8 months ago. That has nothing to do with you. You lost money on 3 properties, and you don't know how to invest. You need to leave the property." (!!!)
I was so shocked and stunned I had no idea what to say. I said "well we are leaving soon anyway, right after breakfast." She said "no, you need to leave now. You have been a very negative influence and offended the developer and the sales guy with your line of questioning."
I said I was hungry and thirsty and wanted to have breakfast. She said "NO." And that she would be calling security!!
I managed to tell S&M what had happened, and just as I was leaving the other couple from Cupertino showed up. I told them I had been asked to leave. They were completely shocked.
M&S came to my room after breakfast. They told me that Helga told them she didn't want them spending the day with me and that they would take them back to the airport later.
After some deliberation, they decided they didn't care what Helga said, since they didn't want to do business with these people anyway.
So we all left, and started our drive to Tamarindo. I was still in shock, pretty much the whole day. S&M were great though...they made lots of jokes about the whole thing. I feel like I made 2 really good friends that day.
I think I was the most outspoken about the inconsistencies and apparent misrepresenations. S&M and I told this couple about what the older real estate agent had told us. The couple from Orlando agreed with us. When asked my opinion I said "they should be charging about half of what they are. This is not a property for investors, that's more appropriate for a second home, and that it was priced at retail." I also said that it's hard to verify information, and we have no idea what it was really purchased for. I also told them my philosophy about following the money trail in any investment.
M&S and I were obviously on the same page with everything, and we tried to convince this other couple to investigate more, by sharing our experiences. The country being poor, the property not being rentable, about no facilities being around, about the labor cost not adding up to what they were selling the houses for, about how they hadn't left the grounds and seen other parts of the country. S&M shared about a property their friend had purchased...it was $25K for 40 acres of land! And it was on the Caribbean side, where cruise ships come in. We encouraged them to see other developers before investing. M also talked about the deals he was into in the Carribean, and I talked about my French property deals. Both were much better priced
The next morning I woke up and went to breakfast. Before I could get to the breakfast table, Helga walked up to me and said "I need to talk to you." I said "ok" and she said "we need you to not join us for breakfast. You have been a very negative influence, have been playing devils advocate. You're asking questions about the synidcate, and that closed 8 months ago. That has nothing to do with you. You lost money on 3 properties, and you don't know how to invest. You need to leave the property." (!!!)
I was so shocked and stunned I had no idea what to say. I said "well we are leaving soon anyway, right after breakfast." She said "no, you need to leave now. You have been a very negative influence and offended the developer and the sales guy with your line of questioning."
I said I was hungry and thirsty and wanted to have breakfast. She said "NO." And that she would be calling security!!
I managed to tell S&M what had happened, and just as I was leaving the other couple from Cupertino showed up. I told them I had been asked to leave. They were completely shocked.
M&S came to my room after breakfast. They told me that Helga told them she didn't want them spending the day with me and that they would take them back to the airport later.
After some deliberation, they decided they didn't care what Helga said, since they didn't want to do business with these people anyway.
So we all left, and started our drive to Tamarindo. I was still in shock, pretty much the whole day. S&M were great though...they made lots of jokes about the whole thing. I feel like I made 2 really good friends that day.
We had a fantastic time riding around, going to the beach. Many of the RE offices were closed on Sunday, so we couldn't talk to any more people. However, smack dab right next to this project was another one. We wrote down the information off the sign. They were selling completed homes starting at $129K, about $200K cheaper than the cheapest house next door. In addition, these were on the beach side of the highway, not the other side.
S&M and I are planning to get together again when they come to Cali (after M finishes his PhD) and I'll also be joining them on a fly and buy to the Caribbean soon!
Below is a picture of Tamarindo Beach, on the Northern Pacific Coast of CR:
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