Commercial Real Estate Lapse, Rebound, Relapse: Sunday Morning Thoughts 02 June 2013

What caused the lapse in the commercial real estate market?   

Many would think sub-prime lending, but that is not the cause.  Commercial lending is based on the income of the property.  The lapse has been caused by easy lending.  Similar to sub-prime lending in that it was easier to get a loan and purchase a commercial property, without regard for knowing how to manage a commercial property.

Many people had never learned about managing commercial real estate but entered into the arena believing they could handle the demands of commercial property.  Many of the properties were multifamily apartments.  Although many of the investors sold off items from the apartments, such as , microwaves, refrigerators, washing machines, dyers, etc. and then skipped out on their loans, and leaving in their wake the rubble of what was once a viable housing community.

Many of these properties were left in a horrible state, but was it really that horrible?

Not necessarily so.

It had been noticed that many once viable properties, in thriving rental areas, had fallen into low occupancy, disrepair, and higher than normal expenses due to mismanagement; with many units in a community becoming uninhabitable from some type of damage such as fire, or property destruction such as knocking holes in the walls.

The lapse was a time of finding a plethora of value-add properties, which are still present at this time and many more like type properties entering the commercial market weekly, if not daily for lucrative rental areas.

Next Sunday’s post the Rebound part II.

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Investor Driven Real Estate Recovery: Sunday Morning Thoughts 13 January 2013

The housing recovery is well underway in some areas, and stagnant in some of the most desirable areas.  So what is driving the housing recovery in those markets?

Cash brought in by investors and home buyers who have great credit, and the ability to acquire a quick home loan.

Markets such as Orange County actually had a slight decrease in property values overall but for the more wealthy areas the home values decreased slightly when compared with the rest of the country: Mainly because many of the property auctions were driven by investors.

In the Inland Empire areas such as Temecula, Lake Elsinore and Hemet are starting to have growth of 30% or better; Investors again bringing all cash to the closing.

So what does this mean for the housing market?  The recovery is investor driven but to have a healthier recovery, it does need to be driven by home owners.  This will come later in the real estate market as credit makes a bigger return to the economy.

As a lender to investors, this is the time to capitalize on the market showing signs of movement and the need for money to purchase homes.  Here’s a possible strategy:   If you invest in a property with a current worth of $188,000 purchased by an investor for $90,000 with a small amount of necessary rehab of $30,000 or less, then the rounded up LTV is 64%; Which gives a lot of room to resell for a profit and still leave equity in the property for the buyer.  Now what if the buyer is a solid credit risk, but cannot get a loan?

Well take a closer look.  The investor is using private money in the amount of $120,000 at 5% for 5 years.  Then decides to sell the property at $160,000 and holds a note for the buyer at 5% for 3 years.  Same interest but a $40,000 dollar profit which will be realized later.  With this formula the investor driven housing recovery will lead to a home owner driven recovery.

Keep in mind the aforementioned is an example.  It does not mean that you will find the property, or even the buyer.  But it is possible and being done by many real estate investors of SFR’s, multi-family, other commercial types of property, and even raw land.

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Is the U.S. Housing Market Bottoming out?

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According to Mark Zandi, Moody’s economist the current data is showing that the housing market has not hit bottom yet.  As stated in our last post, the housing market in the more desirable areas will experience leveling out after hitting the bottom, then a gradual increase which will pick up momentum.

We have not hit bottom yet but we are a little closer.  New construction of homes dropped in December, coupled with the existing homes sales rising and eminent foreclosures stalling, all this can equal home prices increasing moderately.  This is actually a false positive of a housing market recovery.

The more stable recovery is to come.

Once all the foreclosure robo-signing is sorted out and no longer favoring lender nor homeowner then the market will finally be back on track for a recovery.  Remember we spiraled into our current real estate slump with the subprime lending now it’s time to right the wrongs. 

If you are thinking about investing in the real estate market visit our website.

The DOW 12,000 Get Set Go: Sunday Morning Thoughts 17 October 2010

With the DOW falling by 31.79 points one would wonder, how will we see a 12,000 DOW by the end of the year?

The DOW only took a decrease towards the end of the trade day, when the consumerism reports came in weaker than expected.  The belief, if people are spending less money will it equal the economy backsliding?

Granted we have a teeter totter economy but stability will happen, but only when money becomes more readily available.  Currently, people have been using cash instead of credit to make purchases.  This means people are not spending money like water any longer, but are holding onto their incomes tighter than before; disposable income no longer has meaning.

People are bracing themselves for the next down turn; which could happen if China decides to call our loan.  If President Obama can persuade China to reevaluate the yuan (covered in a previous post originally titled The Yuan, The Yen, The Dollar and the Euro now titled What is the value of money), then this will allow us to become a competitor in exporting, or at the least, manufacturing things here as cheap as sending it to China.

As long as China keeps the yuan devalued then the U.S. and the countries using the euro will suffer the loss of exporting, and possibly lose ground in our perspective domestic markets.

On November 11, 2010 there will be another G20 meeting.  Maybe persuasion will work when all leaders are together.  But, at this point China will dominate in exportation as long as the yuan stays undervalued.



Buy Low and Hold: Sunday Morning Thoughts 03 October 2010

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If you were offered an apartment property with a few issues, such as high vacancy, deferred maintenance, and lousy management, would you buy or pass?

Many people would pass stating it would be too much trouble to fix the errors, and there is so much on the market with fewer issues.  Others would ask, “What is the lowest price you would accept for this property?”

Both answers are legitimate depending on your investment desires.  Maybe you would like something that has stable cash flow, and has been kept up.  This type of property will cost more to purchase and the rate of return would be lower than if you considered something else.

The something else property, the “problem” property could potentially yield higher rate of return than the property without flaws.

With the “problem” property you could negotiate a much lower price due to the high vacancy and deferred maintenance.  This lowering of purchase price could give the advantage of a higher rate of return when making the improvements and leasing to new tenants, netting more cash flow.

But remember when picking a “problem” property, the area is the key to success.  If you pick a “problem” property in an area which is also a problem, you may want to reconsider the purchase, only because it would take more time to straighten out an area versus straightening a “problem” property in a descent area.

Once the problems are corrected in your flawed property, the rate of return could potentially sky-rocket past the property without flaws.

Many people find that being a private lender erases most of all the risks, and yields high rate of return for minimal effort.  If you need more information please visit our website or call 323 988 7205 x 106