Investment or Speculation?

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CALIFORNIA HOUSING STARTS DOWN 45 PERCENT

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This headline was recently seen from the California Home Builders and it's is interesting to me because it reminds me of all the people that jump in. They see others doing something, emulate it too late, and "miss" the market. I know I am guilty of this in the stock market. Everyone was making money in tech stocks in the late 80s early 90s. Being a finance undergrad, I felt like I should be showing them how to do it. I watched the market for over a year and nothing made sense. The P/E rations were insane but, everyone else was doing it so, I jumped in. And lost 42% of my portfolio. Ouch!!

Now, when I look at investments, it needs to be an investment. Not just some rumor or wish that it'll continue to climb. I believe this last real estate wave was fueled by folks that wanted to be "investors" but had never analyzed an investment much less balanced their checkbooks. It's my assertion that they never entered their purchases into a spreadsheet and considered the true cost of the investment or the long term gain or loss.

I think they did just what I did in the 80s; they closed their eyes and jumped.

Why I LOVE the San Francisco Bay Area

Just like a long term relationship, when you've lived somewhere for a long time, it's easy to forget all that you love about it. At least it is for me.

I've been working on investments in Dallas for a few years now and, although I love Dallas, I have a new appreciation for San Jose.

1) The hills are gorgeous. I was out in Almaden Valley this week. I lived there from 72 to 76 and it's been built up a lot since then but, the hills are still gorgeous.

2) The light here is bright and beautiful without washing everything out.

3) I went running at Rancho San Antonio. This is my favorite running trail. It starts out along a huge meadow with a large basil tree and tennis courts at the end. Then up along the base of the hills until you get to a small farm. There are patches of basil and corn and lettuce. There are pens of goats and sheep. There is a covered area with picnic tables underneath that's framed to look like a barn. It's very charming and brings a lot of families. It's about a mile to the farm. Once I pass throught the fence and head up the hill, the families disappear. The forest gets quiet and I can hear my breath and an occasional bird. The deer sometimes peak out from the underbrush. As do wild turkey, quail, bobcats and snakes. It's about two more miles to the top of the hill. When I hit the top I can see Moffatt field and Shoreline straight out. It's a beautiful clear day so I can see all the way up to the low rolling hills of South San Francisco. I run along the ridge here, along the back side, until I get to another ridge where I can see the wide lanes of 280 heading into San Jose and the skyscrapers of downtown and the rolling hills of east San Jose in the distance. I take the long way back, winding down the side of the hill and along a long rolling path along the valley floor. I hit the farm and settle into the last mile of my run. It's about a six mile run all together. It takes me about and hour and 20 minutes but, it feels like a mini-vacation, a little rest, my time with god.

4) I have shopping within 5 minutes of my house. I have strip malls of restaurants and groceries and drugstores and Starbucks. Then I have Westgate Mall - which is at the interesection of Prospect and Saratoga and each corner has something. From the big boxes of Target and Office Max and Barnes and Noble to the medium sized REI, Nordstrom Rack and Ross to Amarin Thai Restaurant, Pier One, Red Robin, Mimi's, Pete's coffee, Trader Joe's, etc.

Five minutes in the other direction takes me to Valley Fair & Santana Row - Macy's, Nordies, Gap, Pottery Barn, Cheesecake Factory at Valley Fair. Santana Row houses some great restaurants like Left Bank, Blowfish Sushi, Sino, Yankee Pier, Consuelo's, Maggiano's even Pasta Pomodoro.

So there you go - it's about balance. Lots of eating and lots of running :-)
Welcome to the Bay Area.

Declining California Markets

Interesting info I got this morning:



This lender has reduced it's max LTV by 5% for these areas. That means that if you used to be able to borrow $90,000 on a $100,000 purchase, you now need to come up with another $5,000 because they'll only loan you $85,000.

I wonder if 5% is a reasonable expectation, some areas are expecting double digit declines. hmmm.

More About Short Sales

I have a friend, in the middle of a divorce, that's liquidating everything. Unfortunately, his investment property, that he bought for appreciation, was underwater and he asked me to help him sell it.

It started off like any listing; here's where we should price it, I'll put a sign out front, is there a tenant there now? This is where it starts to get interesting. His soon-to-be-ex has been living in the property with her new boyfriend and oh-by-the-way she hasn't paid the mortgage for six months! Crap!

I took the information and started getting in touch with everyone; the almost-ex, the lenders, the Home Owner's Association. The ex was civil to me. The lenders passed me back and forth and the HOA never called back.

This went on for a few months before the mortgage meltdown hit. The few buyers that were in the market couldn't get financing now and the number of sales dropped 75%. The Seller and I sat down to have a heart to heart. The only people buying right now are sharks looking for blood in the water, you aren't getting any money out of this property anyway, let's get this thing sold before it's a REO. He agreed to a DRASTIC price reduction and we got an offer within two weeks.

This is where the real work begins. We had submitted short sale packages to the lenders showing the Sellers insolvency and the market conditions for the subject property. The lenders had done their own valuations and their appraisal came in 10% higher than our sales price. I worked and negotiated and reasoned with both lenders for a month before lender #1 refused to take a short payoff.

Then the Notice of Sale was posted. Now I had great ammunition for lender #2; if you work with me you'll get some money back, if you don't you'll lose it all.

They finally saw my point and agreed to the shortsale - after reducing my commission and if you can get it done in 10 days - including the holiday.

I was pissed about the commission. I feel like I have been working twice as hard on this as any other listing and now my paycheck is a revenue source! When I calmed down I realized the truth is I have been blessed with lots of great clients that have gone overboard to get me a commission. Now, here is a buddy that needs my help, so I conceeded.

We got the Seller signed off, loan docs in title and then the payoff came in. We were $1500 short to close - and we were 4 days from sale.

I went back to the second lender, begged for their help, and got them to take care of the shortage. The new lien recorded, the payoffs were sent and my client won't have a foreclosure showing up on his credit report for the next 15 years.

It's a lot of work, you never know if it's going to fall into place or not and you don't get paid well. Welcome to real estate.

How to Buy a Short Sale

Being in California, I have had very little exposure to foreclosures - until the last few months. Now it seems like everyone I run into needs help selling the home that they owe too much on.

I remember the pyramid schemes of the 70s, if you were in first you got your money back. If you were a late adopter, you got the privelege of paying the early adopters. This translates over to real estate of these last few years as the stragglers finally jumped on the bandwagon just as it was going off the cliff.

So, in a short sale, the owner owes more than s/he can sell it for.

As the Realtor®, I get to market and sell the property as usual, then I get to negotiate with the overwhelmed bank for 2-4 weeks only to get a proposal back from the bank either accepting or rejecting the offer. And, oh by the way, the bank often thinks the realtor commissions are a profit center for them so, I get paid poorly or not at all.

Why would any business person deal with this kind of sale? Simple, I do it for my clients. As the buyer agent, we can negotiate some rockin deals. As the Selling agent, I have a client that is in trouble and I am much more skilled at negotiating a decent resolution that the client/owner.

California Wildfires and Lending Delays

This morning I woke up to this notice:

Effective immediately due to current fire activity in California, XXXXXXX Bank will temporarily cease funding loans in the following California counties until further notice: San Diego, Los Angeles, San Bernardino and Orange.

Wow!

When the earthquake happened in '89, lenders reacted by requiring additional inspections and limiting lending in certain affected areas. So, how does a lender mitigate their liability while still serving their clients?

Unlike the earthquake, which was a relatively measurable, one time thing, raging wildfire liability is literally changing with each tick of the clock.

While the above lender reaction is an attempt at mitigating lender liability, think about all the people poised to close on their home loan - lives packed into boxes in the back of moving vans - who are now unable to close their home purchase.

For me, this notice reinforces the sheer magnitude of the damage. Not four cities, or neighborhoods or four areas. Four counties! Millions of people, their lives and their homes.

We have you in our prayers.

Trees and The Socialist Republic of San Jose

My neighbor has a huge tree in her back yard. It's a gorgeous tree and she has tried to save it but, the trunk is hollow and is a huge liability because it could fall on her or her neighbors at any time.

Welcome to the land of fruits and nuts. The city of San Jose made her post a sign in the front of the house to "alert" anyone driving by that she was going to cut this unsafe tree down. She's had this eyesore in her front yard for six weeks. There was a public hearing, in case anyone wanted to dispute the tree removal, and now they are going to be removing the tree.

I am a tree lover. I enjoy their shade and beauty and peacefulness. However, I value a person's safety over a tree. To me, this latest tree fervor is just craziness and as a property owner it puts me at risk. If something happened and this tree fell on my neighbors 3 year old cutie pie of a daughter, the property owner could be sued. But, if the property owner cuts the tree down without the proper red tape, the city could severely fine the owner.

How do I do the right thing while living in the land of catch 22?