We lost someone great this week...

I have some sad news to share - Jack Miller, educator & investor, died on Friday. Jack presented at the SJREI last year, and I am so glad that we had the opportunity to host him. Jack was one of the old timers who was self-made, and then helped multiple others on the path to successful investing. He was funny, entertaining, interesting, and very creative financially - rarely using banks to acquire property. Nobody lived life as large as Jack. He was known for his Friday night open house parties in Florida in the winter, and in Reno in the summer, where anyone and everyone was invited to come talk real estate and enjoy cheap wine and pizza. Some of our members attended those parties. Jack will be sorely missed by his many friends and the investment community at large.

I Survived Real Estate 2009- The Norris Group

I Survived Real Estate 2009- The Norris Group

Radio Part 1, Part 2

Bruce Norris Visiting SJREI

I am very interested in hearing what Bruce Norris will share regarding the current status of the California market , and what the next 2 years will be like for investors. For the investor who has been looking and waiting to buy here locally, his Saturday, October 3rd workshop should be considered a must attend event. Bruce will be presenting this timely and an incredibly useful day seminar to our members and local investors. Bruce will share the exact blueprint that The Norris Group is using to make money in TODAY'S California market. For those who are not familiar with him, Bruce Norris is a real estate investor who has been operating at a very high level, buying and selling over a thousand properties in his 30 year career. He has been involved in, and understands well, nearly every area of the financially or physically distressed single family home market - either for buying to hold or to flip.

As a precursor to Saturday, Bruce will be providing to the SJREI his annual Northern California Market Update, this year at two locations. We already have 175 people signed up to attend the evening meetings so sign up early to secure your seat. This event will sell out. On Wednesday, September 30th at our debut East Bay meeting at the Four Points by Sheraton in Pleasanton, and on Thursday, October 1st at our San Jose meeting at the Biltmore. His market timing forecasts have been very accurate in the past. As serious investors, we owe it to ourselves not only to know where our local real estate market stands now and where it is heading, but most importantly, we need to know when and how to take action!

Bruce Norris at the SJREI & More

I have included a very interesting article below in the Real Estate in the News section, click on the link below for details specifically the article entitled "30 billion home loan time bomb set for 2010". This article does a great job explaining the status of the approaching potential wave of mortgage defaults, and the likelihood of a second round of foreclosures that may occur in around the Bay Area. I believe that we may begin to see yet another sea-of-change in our local housing market - one that investors should be prepared for and ultimately to be ready to take advantage of.

Real Estate in the News: $30 billion home loan time bomb set for 2010, sfgate.com Homeowners who 'strategically default' on loans a growing problem, latimes.com California Joblessness Reaches 70-Year High, nytimes.com California home sales fall 12 percent in August, sfgate.com

Challenges Facing the Multi-family Housing Industry

The commercial real estate sector is the next shoe waiting to drop, possibly creating another crisis for the US economy. Many of the commercial loans coming due were packaged by Wall Street, and sold as bonds. We saw how this played out in the residential mortgage backed securities market, undoing that sector and ultimately triggering a global recession.

$700 Billion of commercial mortgages are being challenged by the massive downturn, and from what we are seeing so far the outcome is not pretty. Driving this reversal of fortune is the fact that commercial properties are no longer generating enough cash flow to make principal and interest payments, never mind the other expenses that come with owning property. The other issue is the inability of owners to refinance loans as they mature pushing them into foreclosure. This is a segment that we need to keep an eye on, so next week at the Mid-Peninsula meeting we will host Michael D. Pierce who currently serves as President of the California Apartment Association in Sacrament,o and has served as a member of the Board of Directors of the Tri-County Division of the California Apartment Association since 1991. In addition, Michael holds the designation of Certified Property Manager from the Institute of Real Estate Management.

Michael is also a frequent public speaker on the subject of the rental housing market, management, operations and ethics. He will address the economic and political challenges facing the apartment industry locally and throughout the state of California. He will also discuss the opportunities that currently exist in the marketplace as well as potential future issues facing the industry. Michael will wrap up his presentation with a discussion of the current state of the multi-family sales environment and a questions and answer session. Mark your calendars!

Where is the inventory?

In Pittsburg, CA where we purchased a house last year, there were 530 foreclosures and there are 15 Real Estate Owned (REO's) on the market. This does not add up - where are the houses?Here are a couple of interesting perspectives:

1. The banks are holding onto them until the market gets stronger, and they can make a larger profit on the sales.

2. The banks don't need the money - they have the bail-out money and don't need to do anything rash.

3. Banks don't want to flood the market causing further price deterioration.

4. The local governments don't want the property taxes to be completely annihilated, and they have already been impacted by the huge reduction in property tax dollars collected.

5. Someone I spoke with in Sth. CA who is an investor says that the banks are hiring people to manage the properties which means that they are in the real estate business! Essentially, they have choices - they got our tax dollars and can now react as rationally as they like to protect their business models even if it means exploring other areas they previously have not.

6. Another insider shared that the wholesale packages being sold are requesting the wholesaler to sell for .80 cents on the dollar or more, and they have to sign a contract to that effect.

It is all very interesting stuff. Foreclosures are on the increase and at some point things will change. Hopefully at that point investors will have a chance to participate fully in this recovery.

SJREI Journal - Debut Issue

Open publication - Free publishing - More real estate investing

California Foreclosure Update & more

In California, 10.8% of all mortgages were 90 days or more past due or in foreclosure. While the Golden State accounts for 13.3% of U.S. mortgages, it is the also the site of almost 20% of foreclosure starts from April to June. More troublesome is a trend emerging deeper in the numbers - subprime loans given to the weakest borrowers are now a declining portion of delinquency and foreclosure rates, while prime loans, given to the most highly qualified borrowers, are a rising share. Unemployment is a contributing factor at over 11% - unemployed home owners eventually fall behind on their mortgages. Locally, we are seeing more higher priced homes entering the market, and this may be why.

Over the past year or so we have watched our 401k’s fluctuate wildly; our financial panel on September 3rd at the SJREI will address what we need to do to re-tool our plans in order to be effective long-term. We have an expert on Individual Retirement Account (IRA) investing, Eric Wikstrom is flying in from Seattle to share his thoughts on this topic. Investing in real estate in your IRA is a great strategy to put your kids through college, and with the opportunities that will be presenting themselves in the next couple of years locally – now is the time to get ready to capitalize on this opportunity. That is just one of several speakers – we will also host a financial planner, an attorney and an accountant, see below for details.

Panelists:

Eric Wikstrom, CPA, CFP has over 25 years of tax, accounting and corporate finance experience, who is flying in from Seattle to participate in this discussion.

“Making sure investors know what they can and can't invest in with their retirement accounts - what is working for investors right now and how to maximize your returns safely and effectively.”

Dave Beck, Fee-Only Financial Planner

“The best way to select and utilize a savvy Financial Planner - what this Real Estate Investor/Financial Planner recommends to diversify and protect your investments for the long-term."

Richard Smith, Enrolled Agent, and Investor with over 300 units who has prepared taxes for individuals and corporations for more than 30 years.

"Successful investors re-evaluate and modify their strategies as the environment changes - what is working currently for this investor who owns over 100 properties."

Tony Earle, is an Attorney, Real Estate Broker, and Investor.

”Tony will discuss why it is important to have and maintain an estate plan. He will discuss common estate planning options which are utilized by real estate investors, such as living trusts and wills, as well as the “pros” and “cons” of each option."

Have we reached a bottom?

There is finally some good news this week on the economy with Gross Domestic Product (GDP) showing some positive signs, and the Case-Shiller Index, one of the most widely watched source of price information about the housing market, is equally optimistic. This index tracks large urban markets, and has been very negative for the last couple of years. I heard Case interviewed this week and he was very positive recommending that people buy given the great interest rates, and the fact that prices in a lot of cases are down 50% from the peak. Their recent numbers showed May prices down 17.1 % compared with May 2008 - as bad as that appears, this was the fourth consecutive month that price declines slowed which at least shows that they are declines are slowing.

Another interesting factor to note is that when May was compared with April the price index for 20 major cities showed a one half per cent gain - this is the first increase in the index in 34 months. The fact that affordability is at historic rates - according to Realtor.com "Most consumers aren't aware of how affordable homes have become today".

We have local economist Howard Blum speaking at the SJREI on Thursday night and he has some interesting insights on the market to share, and where it is headed from his perspective. As a very successful investor himself Howard is more than eminently qualified to address our group. We look forward to seeing you there!

Come join us next week for another great program.

The Current Real Estate Economic Situation in Plain English - by Howard Blum

We have another coup this month - economist Howard Blum is our guest speaker at the SJREI meeting next week. Howard is located here in the Bay area and has some great insights on our local market . I had the pleasure of having dinner with him recently, and as an economist he is multi-faceted and very interesting. Howard is also an award winning public speaker, speaking to audiences, large and small, about the relationship of the Federal Reserve and the economy, the 'Whys' behind Fed monetary policy and the direction of the economy and interest rates. Come join us next week for another great program

SJREI New Publication

Summer is finally here and we have a ton of interesting things going on at the SJRE. Inventories are low, so we are currently focused on a couple of new projects - we are bringing an SJREI publication to market for our August meeting. It is a full color editorial type tabloid, and we will be printing 10,000 copies for distribution locally. We have hired a great editor/journalist to spear head this project, and are establishing some new channels of distribution for this free publication.

Our goal is to provide a content rich investor resource, and we already have a compelling line-up of contributors. I will be interviewing Bruce Norris, investor and market timing expert, and he is also contributing an editorial piece for us. Additionally, Doug Duncan, Chief Economist for Fannie Mae, is going to be featured also. These are just a few of the interesting perspectives that you will be privy to with this publication. If you have an interest in advertising with us please call my office directly at 408.264.3198.

Dr. Doug Duncan Update

I have had several communications in person and via email regarding our speaker on Thursday night - Dr. Doug Duncan, and the appropriateness of "hosting someone who contributed to the financial predicament " that we now find ourselves in as a country. I would like to share with you today the most articulate, and appropriate response on that questions from local economist Howard Blum, who happens to be our speaker next month. He certainly provides straight up food for thought.

"In the final analysis there is more than enough blame to go around for the Fannie and Freddie demise. Perhaps the only person that does not have dirty hands at Fannie Mae is Doug Duncan. FACT: Angelo Mozilo at Countrywide made the CEO of Fannie go to Calabasas, CA and told him that if they did not play ball they would be made irrelevant in the mortgage industry. Countrywide was going directly to Wall Street to securitize mortgage-backed securities (MBS) and Countrywide threatened to bypass them and put them out of business. That was not the only intense pressure brought to bear on Fannie & Freddie.

Members of Congress from urban centers were pressuring Fannie and Freddie to increase minority home ownership without regard for qualifications. Essentially Fannie and Freddie were squeezed by both the government and Wall Street.

Fannie Mae did not create sub-prime loans. Fannie Mae did not create a secondary market for sub-prime loans. Fannie Mae did not create the "blending" of sub-prime and prime mortgages into AAA rated MBS. Fannie Mae did not twist the arms of global banks to buy those wrongly AAA rated MBS.

To place the blame for the housing meltdown on Fannie Mae is to ignore the dozens of fingers in the pie that created the mess. As an economist I can say point blank that there are very few people in this country that truly understand all the contributing factors the the housing sector demise and Doug Duncan is one of them.

People can either come listen to what knowledge and expertise that Doug is willing to share with us or they can keep their head in the sand and point fingers in the wrong direction."

This gives some good insights as to why Dr. Doug Chief Economist for Fannie Mai has been listed in the "Top 100 Most Influential People In Real Estate ," according to Inman News.

Jack Miller Options Seminar, Reno, July 11-13th

Jack Miller's options program is one of the best out there - that is why several of us are attending. It is on in Reno and will be well worth the time. Options are a great way to build your IRA and this seminar will give you all the specifics.

Click on the link to get the details on the Jack Miller Option Seminar scheduled for July 11-13. The SJREI pricing is $330 (as opposed to $495) but you have to fax in your registration with the SJREI written on it to get the special pricing. Learn how to utilize options to maximize your profits and minimize your risk.


This is one of the more complete options classes out there and the price is right. "You will learn the nitty-gritty legal limits of what can and cannot be don't to implement the techniques and concepts taught including Pure Options, Sandwich Leases, Contract for Options, Paper Options, Business Options and more." We hope to see you there.

Susan G.Koman Foundation Fundraiser with The Norris Group

We are partnering with the Norris Group for this worthy fund raiser which is scheduled for September 11th, at the Nixon Library located in Yorba Linda in Southern CA. There is a fabulous line-up of experts that will be presenting on the real estate market, at the beautiful Nixon library over a wonderful meal.

The Norris Group underwrites this event which costs approximately $60,000 to put on! All of the money raised goes to the Susan G. Koman foundation, Orange County Affiliate. You can make a donation - any donation over $200 qualifies for a free ticket to the live event/dinner. There is a group of us planning to attend to support this worthy cause, so let us know if you would like to join us. If you would like to simply make a contributution also that would be great. Click on the link for details of this event and email us if you would like to attend.

Santa Clara Valley Update

Homes are selling briskly again in the lower end market here in Santa Clara County with prospective buyers making multiple offers. The median price of a single family home (SFH) in May was $445,000 in the county, up 5.7% from February when prices stopped dropping. The significant drop in prices has lured first time buyers into the market . This segment dominates right now, and they do not have to sell a house to buy. Additionally, they have some great incentives to make the leap including government assistance, and interest rates are still at very attractive rates. The move-up buyer is missing from the equation with little equity in a lot of cases, and difficulty qualifying for a new loan.

I spoke with someone recently whose daughter had purchased a 2 bed/2 bath condo in 2005 in South San Jose for $400,000, and her son just bought the identical unit for $180,000. Does this signal the bottom? I don't think so. CA unemployment rate was 11.5% in May - this could push additional home owners into foreclosure. The banks at some point will have to liquidate those inventories which would put downward pressure on the market and create a buying opportunity.

Here is another interesting statistic - in Silicon Valley the median price of a previously owned home fell 48% to $420,000 in January, down from a high of $805,000 in 2007. This is another reason why people are buying now. The number of pending sales in the county has nearly double to 3882 as of last week up from 2096 a year ago according to the Santa Clara County Association of Realtors.

Loan mods, short sales etc

At our Mid-Peninsula meeting we hosted a panel to address options for people who were in trouble with their homes or investment properties. The information shared was very relevant and we got a lot of great feedback on it.

Here is the contract information for the panel members.

Jeffrey B. Hare

Jeffrey B. Hare APC

jeff@jeffreyhare.com

www.jeffreyhare.com

501 Stockton Ave

San Jose, CA 95126

408-279-3555

David B. Rao

Binder & Malter, LLP

david@bindermalter.com

2775 Park Ave

Santa Clara, CA 95050

408-295-1700

fax 408-295-1531

Natalie Knowlton

Short Sale Results Team

2053 Grant Rd #133

Los Altos, CA 94024

650-900-4608

fax 866-614-9322

HR1728 Mortgage Reform and Predatory Lending Act

In my last communication I neglected to mention one important detail neither the President or Congress have approved this bill at this time. When I get close to 100 emails in one day on a new piece of legislation, I generally don't jump on the band wagon and respond impulsively, as what normally happens is that when the hype is eliminated the truth is revealed. As Attorney Jeffrey Hare commented "the sky is not falling".

Jeffrey also shared the following insights:

HR1728 (not 1787 as reported frequently by some) is a very lengthy and overstuffed piece of legislation that aims to tackle a wide range of perceived, alleged and real problems associated with mortgages, predatory lending. The National Association of Realtors has taken what appears to be a position of qualified support on this legislation, but notes that restrictions that require sellers providing seller financing – which they point out plays an important and necessary part of the financing of home purchases – to comply with the range of complex regulations is probably not in the best interests of the legislation, and has asked Congress to clarify this section.

For a short summary, click here and just spend a minute reviewing what the legislation covers.

Attorney Bill Bronchick had this to share:

This bill aims to include owner financed deals within the definition of "Truth in Lending" law. I've always instructed in my courses and seminars that you should comply with Truth in Lending, which requires just a few simple disclosures.

The bill also would, in theory, make a person who sells a home a "mortgage originator". This would require compliance with RESPA, which I've always instructed in my courses and seminars that you should comply with anyway.

Finally, the bill would require that you actually qualify your buyer. It prohibits, "lending without due regard of the mortgagor's ability to repay". Duh! Only a fool would put someone in an owner financed house deal without checking their income, debt and credit.

All in all, there's nothing to worry about here for investors, it's just a matter of compliance with some federal rules and a couple of disclosures.

Creative Financing.

I attended the Jack Miller, John Schaub, and Pete Fortunato event in San Francisco last week and it was very informative.

Just to give you a perspective John Schaub is a serious investor of forty years - during the run-up in prices from 2003-2006 he bought one house - he knew what was coming and elected not to play. Since last summer he has bought six houses and is still buying aggressively.

There are good buys for the savvy investor and creatively financing them is the way to go especially with the lack of financing available to investors. One needs to become educated, sometimes it take time, money, and energy to learn how to structure deals and do things right. With changing business cycles, changing laws, and new technologies the savvy investor stays plugged in. Bill Tan, private money investor, will share his 25 plus years of experience with us at the SJREI this month, so mark your calendar and join us for an informative, provocative perspective.

Market Update...

Recently we had to postpone our tour to Antioch as the inventory is just not available. This time last year for that area there was 1200 SFH (single famiy homes) available, now it is under 300! Remember only a small portion of those fit the criteria for investors. So the big question is have we hit the bottom? Let's look at that - the foreclosure moratoriums have impacted inventory, even though it has been lifted there is a lagging effect which we are seeing now. Additionally, there are so many short sales on the market - it seems the banks are holding onto those - over the next year of two we will see those released slowly into the market increasing REO (bank owned properties) inventories, and opportunities for investors. Banks appear to be very strategic with not releasing too many REO's thereby helping prices not to tank completely. Antioch has seen great declines over the last couple of years, and it is further along in the cycle, than San Jose and the Bay area.  

If you are buying - buy based on the numbers - there is no guarantee of any appreciation for the next couple of years at a minimum - so now is a great opportunity to buy for cash-flow. We are seeing prices in some areas as low as they were in the late 1990's. Real estate is not liquid like the stock market, (and you know what can happen there), but if you buy right, you will do well over the long haul. Don't over-leverage, which is hard to do anyway right now as banks are not looking kindly on investors. We were told recently that investors could get up to ten loans, with certain conditions. However, this has not been our experience. It is a good time to buy if you can cash-flow - this is CA after-all and people want to live here and that will not change. When CA prices match prices in other states we will see an increase in migration to CA. That is another reason to buy real estate locally. Just make sure the numbers make sense...

Robert Campbell Presentation at the SJREI

I had lots of feedback on the Robert Campbell's predictions on how the market is expected to continue to deteriorate 10 -15%, and that now is not a good time to buy. Robert is a number cruncher and definitely on the more conservative side. I agree that the market is likey to decline more, but it is contingent on what will happen with REO inventories. I believe there are some sound investments in this current market place also. I like Robert's statistical analysis where he says everything reverts back to the standard deviation of the mean.

The thing to remember is that Robert has one opinion. We strive at the SJREI is to provide a myriad of opinions for you as investors, so you become educated and make your own decisions. If interest rates move up 2-3 points in the next couple of years, even if prices continue to go down, the savings will evaporate with the increase in interest rates.

Affordability has never in the history of CA been this HIGH and if you currently rent, and you can live in a house for less than your rent - with low intereste rates, and the $8000 incentive from the government, you will do fine. Further, there is a lot to be said for dollar cost averaging into the market. If everyone waits until the bottom has been advertised, then it will be too late to get a couple of houses and benefit from this cycle.

We have some great speakers scheduled for the next several months including the Chief Economist for Fannie May, Doug Douncan, and of course market timer and investor Bruce Norris. Who knows what they will say - at least you will get several perspectives. At the Mid-Peninsula meeting next week, we are hosting our own Reggie Lal who will present his insights on the Sacramento market - below I included an article from the Sacramento Bee that Reggie featured prominently in. Don;t miss this meeting - Reggie purchased over 50 homes last year.

Remember one person's opinion should not dictate your investing strategy - what this is about is becoming your own best advocate. Having said that - don't aim for perfection - buy based on the numbers; if you get a solid cash-on-cash return, and the replacement value is twice the cost - trust me you will be fine. Oh, and one last thing, don't over-leverage - that way you have lots of flexibility if rents deteriorate. I am very happy with the houses that we have purchased, and will continue to buy houses that make sense to add to our portfolio. That is it for today - make it a great week!

Some houses in Sacramento area now cost less than $25,000, sacbee.com

A New Plan to Modify 2nd Mortgages

This explains very well what is going on with second mortgages and should be helpful to those who may need some assistant with over-encumbered property. Here is the link, and the article in its entirety.

http://www.nytimes.com/2009/04/29/business/economy/29housing.html?_r=1

Published New York Times April 28, 2009

By Edmund L. Andrews

WASHINGTON — The Obama administration sought to expand its $50 billion plan to reduce home foreclosures, announcing a new program on Tuesday to help troubled homeowners modify second mortgages or piggyback loans.

Under the new plan, the Treasury Department will offer cash incentives and subsidies to lenders who agree to substantially reduce the monthly payments on second mortgages or forgive those loans entirely.

The goal of the plan is to plug a hole in the administration’s original program, which offered subsidies to lenders who agreed to modify the primary or first mortgages of homeowners who had fallen delinquent or were in danger of doing so.

But millions of homebuyers took out second mortgages to buy houses with little or no down payment or to finance home improvements and other purchases. Those second-lien mortgages have to be renegotiated separately, a step that often complicates efforts to modify the primary loans.

Analysts predict that at least 4 million homeowners will face foreclosure proceedings this year, up from about 2.2 million in 2008. Administration officials said about half of those people had second mortgages.

Under the new plan, which will be financed out of the same $50 billion set aside in March from the Troubled Asset Relief Program for homeowner bailouts, mortgage lenders that sign up for the program will agree to an automatic formula for sharply reducing payments on the second mortgage for any customers who have modified their first mortgage.

Under the original program, the Treasury offers cash incentives to lenders to reduce a borrower’s monthly payments to 38 percent of monthly income. The Treasury then shares half the cost of further reducing the payments to as low as 31 percent of the borrower’s monthly income.

Under the new program, which officials said would not get under way for at least several weeks, participating mortgage lenders would agree in advance to automatically reduce the interest rates and possibly the outstanding loan amounts for a second mortgage as soon as the first mortgage had been modified.

Lenders would be required to lower the interest rate to just 1 percent for any second mortgage in which the borrower was repaying principal as well as interest. On interest-only loans, the lender would have to reduce the rate to 2 percent. If the lender on the first mortgage agreed to forgive some of the principal loan amount, the second-tier lender would have to forgive the same share of its loan as well.

To induce mortgage lenders to participate, the Treasury is offering lenders a $500 cash incentive for each second loan they modify and additional payments of $250 a year for three years if the borrower stays current. The Treasury will also share the lenders’ cost of reducing the monthly payments.

It remains unclear whether mortgage companies will be attracted to the new offer. The second-tier lenders would be making much deeper concessions to borrowers than the first-tier lenders.

But holders of second mortgages are already junior to holders of first mortgages. In foreclosures and distressed sales of homes that have dropped in value, many holders of second mortgages recoup little or none of their money.

A version of this article appeared in print on April 29, 2009, on page B7 of the New York edition.

Press Release - SJREI 7th Anniversary

Popular Real Estate Market Timing Expert to Speak at the 7th Anniversary of Highly Regarded Investor Group.

On Thursday, May 7th, at 6:30pm, economist and real estate timing expert Robert Campbell, will be the Guest Speaker at the 7th Anniversary meeting of the San Jose Real Estate Investors Association (SJREI). For over 25 years, Mr. Campbell has examined which market factors play a significant role in moving property values, providing the real estate investor a reliable 6 month pricing forecast, and most importantly, he says, helping them "avoiding disaster".

SJREI Association founder and president, Geraldine Barry, established this organization seven years ago with the goal of creating an organization to help others become more effective investors. The monthly meetings are atypical in that they specifically focus on the business of real estate investing - rather than selling expensive books and programs. SJREI provides current information, cutting edge market analysis, trend identification and opportunities so that the average investor can benefit from this critical information to minimize risk and maximize profit. This is a very active Association with all levels of investors participating which makes it interesting and informative for those who attend.

Prior to the meeting a wine reception is planned at 6:30pm, providing an opportunity for attendees to network, with one of SJREI's most popular speakers on a very timely topic. Tickets are $20 and are available on-line by visiting the web site: www.sjrei.net.

Foreclosure Radar

Sean O'Toole from Foreclosure Radar presented to the SJREI Association last night in Foster City. He shared some facinating data surprising us with the news that we should not expect an avalanche of foreclosures, ultimately turning into REO properties. That does not mean there will be very few, just a continual stream over several years. His thoughts were that banks would rather hold on to defaulted loans than defaulted properties as government intervention is assisting to keep them afloat. If they hold on to these inventories they can get more assistance long-term (at tax payer expense!) and have no reason to panic, and release large inventories fueling further declines in prices.

His suggestion that all loans should be modified thereby eliminating the need for people to walk away because they are upside down, or because they could not afford the payment. This would simply wipe out a ton of equity, but would leave the market open for a recovery without having so many home owners displaced. Additionally, no more tax dollars would have to be spent and we could move forward to recovery. Interesting but banks could never feel safe again with loaning money and capitalism is not allowed to thrive...food for thought.

Here is a link for the Power Point that Sean used last night. Enjoy!

Motivation Test

Take this motivational test to determine in a couple of minutes what drives you, or the people that work for you, or even those in your family.  If you have ever taken the Myers-Briggs personality test it is time consuming, and really requires interpretation by an expert. That is not the case with this test.  It was developed by Tamara Lowe who puts on the very popular Success Seminars in cities throughout the country, with her husband Peter Lowe.  She recently hosted one here  in San Jose.  This test is featured in her newly released book Get Motivated!

I will not hire anyone again without having them take this so I can have a impartial party tell me the strengths of the individual.  People can do a great job interviewing - this is a second opinion a little insurance policy. Some people are motivated by money,  other flexibility, still others want to freedom to manage their own projects, some value time off.  It is important to understand what motivates people if you manage teams, work mates, family members etc.  I found it interesting and informative, I hope you do also.

http://www.getmotivatedbook.com/bookbonuses/

SJREI 7th Anniversary in May

We are celebrating our 7th anniversary next month. Given that so many real estate investment organizations have gone belly up, we are happy to be, not only alive, but thriving during this time. Our members have continued to support us despite the current turbulent market. Fortunately, we have affiliated with an incredible line-up of speakers and have focused on hosting locals that know our market, and our members have responded well to this. Our speaker will be Robert Campbell, investor, author, and market timing expert who will share some insights on where the market is headed and where the opportunities are.

The SJREI has provided a wonderful opportunity for investors to connect with like-minded people and to share insights and information that is current and relevant to investors. We have developed friendships and a comraderie between our attendees, and we watch out for one another. I would never have anticipated when we started this orgaization seven years ago that we would grow this way or touch so many lives in a positive way.

What I have learned during the last seven years from investing and interacting with hundreds of investors.

• What goes up must come down.
• Don't follow the crowd
• When everyone wants to buy, it is time to take your chips off the table
• Cashflow is king
• Appreciation is not guaranteed
• Flipping is very risky except for the seasoned investor 
  
• Fundamentals are key to investing and they don't change
• Speculation is a highly risky endeavor
• It is painful to lose money
• There are plenty of opportunities for those who buy logically
• Real estate is still a wonderful investment and is something that is less risky than the stock market...

Jack Shea Seminar

Jack Shea was our guest speaker at the SJREI on Thursday night last, and it was a pleasure to host someone with such vast experience in the real estate field. Attached is the handout from Jack's presentation.

In addition, Jack is the owner of a 1031 Exchange company (a tax code that can be used to defer taxes on the sale of real estate). His company has implemented some excellent measures to ensure that the money is safe during an exchange transaction. This is key to us investors, as a member of the SJREI lost over a $1,000,000 during an exchange when the 1031 Exchange company declared bankruptcy after her funds were deposited with them. As it turned the principals in that company were using tax exchange funds of other people to fund their investments (cars, houses, toys and the like!) Even though our member lost that money through bankruptcy - a taxable event occured she was liable for the taxes on the gain from the funds that were on deposit with the 1031 exchange company. As investors we have to be very carful not to be victimized like this. Jack shared how his company ensures that the money they hold is safe for the client.


1. They have double signature access - client plus Jack's so the money cannot be accessed without the approval of both.


2. The money for the exchange is held in a trust account with a bank - this means that even if the bank fails the money is secure.


Keep this in mind as you do your exchanges - it could save you a lot of heartache and pain.


Lease Option Seminar:


This is a great tool for investors to control property, and to ride out a down turn. Jack is not the smooth, fast-talking speaker, which we do not like anyway; but his experience and knowledge on the topic is immense. As an investor who has done hundreds of these - the kernals of knowledge that he has to share are insightful, and very helpful for all level investors. His book Secrets of Lease Option Profitstalks about the strategies involved with this system and how this type of market we are experiencing right now is very appropriate for this method of controlling real estate. See my previous post for a recorded conversation with Jack on lease options. It was great to spend a day in the company of an investor who has proved time and time again that he can effectively implement the tools that he is promoting. The cost of the book and cd is $55 - Jack is not making money selling books and cd's...

Lease Options

Next Saturday, April 4th, Jack Shea will be presenting a unique and practical class on the topic of Lease Options. Jack speaks nationally on this subject, and has written a New York Times best selling book on the topic, which is included in the price of the workshop. I just completed a lease option on a house we own in Contra Costa County - this is a great way to go for those who want to get a good tenant into a property, and also get a house under contract without using agents. We bought a house for $73,000, and are in it for about $90,000. We lease optioned it for $1,250 rent per month and have it for optioned to the tenant for $120,000.

Read this article by Jack Shea to see how lease options can be of value to you.

This is also a strategic way to tie up properties with very little cash, and is great tool for all level investors to option houses and have tenants pay for them as we wait for the real estate market to come back. This class, "Secrets of Lease Option Profits", will prepare the real estate investor to actually put into practice this timely, creative financing technique.

The workshop is a must for all level investors to participate in this market with this time-tested strategy. At the workshop , I will interview investor Caroline Hegarty who has done several of these very effectively and was featured on KRON 4 for her success with this time-tested technique.  Looking forward to seeing you there.

Due diligence...

It is said that approximately one-third of due diligence investigations, particularly for larger commercial projects, uncover serious problems - potential deal breakers. Of those, approximately 50% fail to complete the transaction. It's crucial that, when conducting due diligence, that it is systematic and complete. We have to look at the fundamentals of the deal, exit strategies, cash-flow, location, not assuming appreciation, and analyze these to ensure success.

Our Antioch Tour last weekend addressed this due diligence process, and how to effectively navigate that. There are people conducting tours in the San Jose area right now, promoting sales and purchases that as investors we know do not make sense. (If you are a retail client that is another matter, favorable interest rates and first time buyer incentives make it very attractive). Investors are looking for specifics - the numbers generally tell the story. If you look at the statistics and data that has been presented at our monthly meetings -- we are so fortunate to be privy to this type of proprietary information with experts on the CA market share compelling, logical cases to hold off buying this year. Of course there are some discounted deals available, but for the general audience that hopes to buy for cash-flow and hold for appreciation now is not the time for the Santa Clara Valley. There are investors making deals right now and building wealth securely by following the due diligence process - it is a system and it works.

The New Tax Laws and more to come...

2009 is going to be a great year for first time home buyers particularly - VA and FHA loans are available with 3% down.  People have asked the questions "is'nt that what got us in trouble in the first place" squeezing people into homes that there could not afford, but no there is a difference now - houses are available at 60% plus off their peak prices.  This means that for eg. the house that we are bringing to market now can be purchased with $3500 down  plus closing costs, and a payment of $800 a month.  The person who buys this home has to prove they can pay this mortgage, and in all honesty that person is probably paying way more in rent right now.  Additional benefits include tax and pride of ownership.  

As this year evolves more screaming deals will become available especially bank owned properties which have mounting inventories.  People who are selling houses this year will take a big hit because of the competition with banks.  I would not sell in this market unless I had a lot of equity and had too. 

The Obama administration will throw more dollars into first time buyer incentives, tax credits, wonderful interest rates.  If you can buy today for cashflow or flip for a profit there is no reason not to get involved right now.  It is pointless getting in at the bottom when you have no skills acquired to navigate the market and get things done.   The media created this monster to some degree, and now they are scaring those who should be buying in away.  

Stay close to your market and become as knowledgable as you can on the dynamics and then go for it.  It is never a perfect time - I urged people to exit the market in late 2005 and we were right on the money with that. In case you did not believe me I brought Bruce Norris, one of the best data oriented CA experts to present at the SJREI at that time also.  Those who acted then are happy.   It may be time to start looking again, we have purchsed three houses in the last four months and are getting down to some serious business now.  

Rehabbing an OLD house

Who ever said this business was easy?  We are rehabbing a house right now, and between additional costs, and disorganized contractors it is proving to be a headache.  It is important to understand the details involved in doing a rehab - the time, effort, energy, and the $$ involved.  

I am on top of this job and fortunately I have done some rehabs before, otherwise this one could have been a doozy!  The issue with rehabbing, especially for the unsuspecting newbie, is that 

costs can be underestimated on a flip and can quickly eat into a margin, and make the job a total disaster financially.  Noone wants to invest in a house, babysit the rehab, and then lose money on the project.  

I will keep you posted and will post photos on the completed project.   We have two exit strategies keep it for cashflow or flip it quickly to increase the pool of money to continue to buy propertiese.   We purchased this through an IRA (Individual Retirement Account), and either way will be fine. 

The skills acquired from actually doing projects cannot be understated.  There is noting like getting into the market and doing deals - if you coordinate and rehab a house you will dramaticallya  increase your skills with each project.  These are skills that cannot be learned from reading a book, or vicariously from someone else, but when one negotiates and manages a job and they will not be easily taken advantage of. 

Here are four things that you should know when you buy a house:

1.  What are the issues with this house? ( If you have foundation issues, major plumbing, and water damage - just move onto the next deal)

2. How much will it cost to complete the repairs?  Get a complete quote prior to the start of the job.
3.  Who will do the work? How reliable are they?

4.  What are the exit strategies for the property in the event that it does not sell.

Pay vendors quickly - I pay a deposit upon starting the job, and give full payment on completion of the job - that is the day the job is finished.  This keeps contractors wanting to do business with you.  This has worked in my contract office furniture company also - we always pay our vendors first.  This creates loyalty and long-term relationships which is one of the goals of any business that wants to have longevity in the market place.

2009 To Buy or Not to Buy

Sue McAllister had an article in the Mercury News this morning outlining the sales that are taking place right now, and the customer profile of those buying.  Essentially first time buyers and investors are buying into the market right now.  This makes sense, first time buyers qualify for some government incentives and are able to get into home ownership with 3% down, and then qualify for FHA and VA loans. Additionally, they do not have to sell a house which may be worth less than they owe on it.  So it makes sense to buy in when prices have fallen quite dramatically, and people who never thought they could buy in CA are qualifying and securing great homes, and locking in solid interest rate loans. 

Investors are also entering the market, but I am surprised at how few are taking advantage of the opportunities available - cash flow properties in CA are not something we see frequently in this area! (This was the reason we went to TX originally - it was a safe haven for our funds and it cash-flowed).  These are the same "nervous nelly" investors who were buying at the top of the market when real estate was truly over priced trying to buy as much as they could not taking into account market conditions.   The thing to remember is that investing is a strategic game and noone can tell the bottom or the top but getting in gradually "dollar cost averaging" into a market helps to minimize the risk.   The main thing is how much can you comfortably afford to pay? does it cashflow?  What is my exit strategy for this property?

Gone are the days when one can get a great return in 3-5 years.  This is a buyers market certainly in many areas, but buyer urgency is really low right now.  Fear is still driving this market; additionally the media is validating all these fears.  The question to ask is "has the maket dropped enought to make this a good time to purchase".  I would say for some areas in our market right now this is a resounding yes - if you can get a 15% or greater return in your investment that is a good return on your money no matter what the market does - if you are in for the long haul you will be fine.  CA is still my favorite state to invest in - I am happy to be able to purchase here in my back yard!