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