Residential and Commercial Real Estate Investing: Sunday Morning Thoughts 5 August 2012

Loan (Photo credit: Philip Taylor PT)

In our previous posts we shared an overview of the A, B, C’s of commercial and residential real estate investing, and the pitfalls of alligator investments.

Our next look is residential and commercial real estate investing, not versus each other, which means a real estate holdings portfolio would be more stable in any market, buyer, seller, or flat if both types of investments are included.

Currently residential real estate, in certain markets, is seeing some improvement, but with more foreclosures on the horizon, that may change in the very near future.

Commercial real estate is also seeing fluctuations which will benefit commercial investors.  The factors are, but not limited to:

Maturing loans

Mismanagement of the asset and its negative effects on NOI

Insolvency

An underwater mortgage, owing more than 100% of property value

So how does a private lender take advantage of all these factors?

By investing in purchase loans, bridge loans, rehab loans, construction loans new and completion, and/ or become a second mortgage holder, or investing non-performing and performing notes.

Whichever strategy is your preference being the lender in today’s real estate market is a safe bet to increase the rate of return on your investment.

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Related articles

• Angelo Gordon to Start Mortgage Fund for Property Recovery Bet – Bloomberg (bloomberg.com)
• California Real Estate Professionals Receive Training to Help Investors Take Advantage of Today’s Housing Market (prweb.com)

Inflation of the Dollar and the Effects on Real Estate: Sunday Morning Thoughts 08 January 2012

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When in times of inflation not only does the dollar lose value, but real estate values will almost always go down.  Now factoring in the housing crisis which has created a housing glut plus interest rates staying low to no movement upward, this is possibly one of the best times to invest in real estate.

Times only look bleak, if you chose to place your money in a mattress, instead of having the dollar work for you.  There are many deals and duds in the real estate market of today.  But how can one navigate and discern what would be a good, great or bad investment.

Location, Location, LOCATION.

This really means to know whether or not the real estate investment is in a great location for its specific type.

For example, you would not open a night club in a family oriented neighborhood; business would probably never take off the way you would want it to.  Another example, you would not open a grocery store in a warehouse district where houses were not close by.  Nor would you consider opening a nursery school within 5 miles of a state prison.  Not too many people would build a multi million dollar mansion in an area where the neighboring houses were valued at $100,000 maximum.

The aforementioned are just not sound investments.

Considering the location for the purpose of the real estate, should be the leading factor in evaluating and moving forward with a purchase.

So in our current economy, which may see further devaluation of the dollar and a subsequent falling of real estate values in some areas, where could someone invest their money to have a decent return?

To be able to “play” the stock market, one would have to know a great fund manager, stock broker or be skilled in the nuances of the stock market.  For real estate making creative deals and using creative financing can yield a worthy and profitable return.

Predictions for 2012

The New Year is upon us, what will it hold in store for us?

In short Inflation, Migration, and a steady Housing glut.

2012 will not be as bleak as some economist and the followers of the 2012 countdown/ Aztec Mayan calendar have predicted.

The cycles of the past indicate that there will be a worsening in the stock market after about the first 5 months of the New Year.  This is based on the cycle of the Depression era.  The market is currently acting in the same way as it did during that time.

But of course we all know “this is the time to become a millionaire”; only if you know how to invest.  Investing in an IRA is always a good idea; your money is earning interest tax-free.  You do have to watch the fund that you are invested in, if it is a loser then you will have losses and eventually no retirement cushion.  Most funds follow the S & P so you could stand to earn a very small amount of interest on your money.

With the debt ceiling raised and the debt steadily rising we are headed for more inflation than we may be able to tolerate.  So if you have all your money in the US dollar, such as a savings account or money market account then you are invested in the dollar.  Translation, if you save $50 dollars today that $50 will be worth less in the inflated future.  So having money in investments, such a gold, silver, and yes real estate will help improve your bottom line.

With real estate there are two factors in the coming year which will help to prove an investment sound or unsound.  Migration patterns of our older Americans and increasing foreclosures.

So with inflation and real estate lowering in value, and credit still tight it means people will be trying to gain ground that may feel like it continually slipping away.

It does not have to be bleak.

With correct positioning in profitable markets and having a diverse portfolio the storm may feel like a sunshiny day in a tropical paradise versus a Tsunami.

So remember the New Year will be what you make of it.

The Real Estate Investment Scam

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Yes we were all scammed by predatory lenders; the economy along with the housing market, ruptured horribly.

As we are now trying to steady our feet some are touting out how real estate is not a good investment, this is the new scam, misdirection.

Why invest in real estate now?

Warren Buffett said: when others are greedy be fearful…

People were gobbling up all the real estate they could with the subprime loans, jumping into the deep end of the pool without any basic knowledge of how to float let alone compete in a race they had never trained for.

Many investors as well as home owners bit off much more than they could chew, which resulted in our current housing slump.

So, while others were greedy those in the know stood still, watched, and waited.  What everyone saw in the news “Housing bubble will burst”.

 

The housing and commercial real estate bubbles have both burst.

Warren Buffet:  When others are fearful be greedy.                                               

Many investors have called our current down economy the perfect storm.

Bargains Everywhere, America on Sale!

 

The housing and commercial real estate glut equals much lower prices on once coveted real estate.

Houses people once could not afford are now priced at half or less, but some of those areas are now less appealing due to having more vacant homes than neighbors, the appeal for the areas will return as new owners move into once vacant foreclosed homes.

If the past has taught us nothing, it has shown us things will come around again and again.

After the housing bust of the 90’s, people purchased homes that were bigger for the same price or lower than their current residences–more rooms, more square footage, and more space- for their families.

In this market we have a lot of “sideline” buyers, people who were priced out of their preferred areas, and now can afford to buy.  So just because the housing credit is due to end on 30 September it does not mean people will stop buying real estate.

First we had the rush, now the slow down, after 30 September will be the step up.

People will step-up to buying foreclosures but only in areas were there are jobs.  New housing will also find it’s niche buyers, most people love new, never been used before.

Commercial real estate is one of the best real estate investments at this time.  Many people bought investment real estate such as apartments without understanding the pitfalls of commercial investing.

Many newbies decided to buy multi-unit apartments and would manage it themselves from a few states away.  Not a good idea.  Managing apartments means you are customer service, maintenance, salesperson, and problem solver.

For those with low maintenance apartments and tenants self-maintenance is a good option.  But that’s not the case in a majority of scenarios.

One of our recent ventures is a foreclosure, a 42 unit community in a desirable part of Fort Worth, Texas.

The original owner was an investor from California, two states away, who decided to manage the property himself.  We will call him Buster.

Buster did not check references, nor did he do a credit check, etc. before approving his tenants.  Buster found out the hard way, approving any and all applicants can lead to a negative cash flow.

The better tenants began moving out in the droves due to a lack of management, complaints going unheard; people expect a response and a solution ASAP.  Complaints about leaky sinks, light bulbs blown out, tubs slow to drain, and or problem toilets should be looked at as soon as possible to keep it from becoming a bigger problem in the future.

Without paying tenants, Buster’s investment apartments became a money pit, in short he busted.

Buster was not the only new investor to find it challenging to maintain so many units.  Others have fallen with pretty much this same type of scenario.

Not all commercial foreclosures are lack of maintenance issues; many investors are having issues with the refinancing of their loans.

The credit crunch strikes again.

 

This is why Private Investors are so very important to our economies recovery.  It does not take an extremely large investment to become a private lender.  The returns on investment may out perform the stock market, depending on your current investment strategy.

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