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!