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