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Sales for existing homes rose again in July by 7.2% from a month earlier.  The US is on track to transact on 5.2million homes.  This single monthly increase was the larges since 1999 and marked the fourth monthly rise IN A ROW.  This last stat is one I find particularly interesting.  With home prices in the Northeast (15% decline) leading last year’s decline…our market here in the South (only 7% decline last year) with a 4 month rise in the number of units shows definite signs of a comeback. 

***remember….”value is subjective” and is ONLY relevant to those transacting (buying or selling).  It has NO relevance on a buy hold strategy.  The focus of which is strictly CASH FLOW.  ***

To learn more about our turn-key system for getting first-time and experienced investors cash flow rentals…call us at 1-800-886-6090

Or visit us at www.yorkstreetproperties.com

FUNDAMENTALS  One question I always ask myself when I am purchasing a piece of property is “would I be happy (cash flow) owning this property over the next 30 years? ”.  I get the question all the time (particularly in this environment) about value.  Specifically the movement or variance in real estate values.  The first thing I always ask the person asking me the question is “well…that depends on your definition of value”.  “Value” could mean the sales price you derived from an end user (on a SFH for example) in a seller-distress scenario.  “Value” could also mean the sum of all annual cash flows minus operating expenses and debt service plus tax advantages.  It could also mean the “worth” of the property after 30 years when the tenant(s) have effectively purchased the property for the owner.  Bottom line…if you have the ability to make a property cash flow and you protract the exit…then value takes on an entirely different meaning.

I think Mr. Buffets quote supports my thinking: 

“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”

I’ll be on the airwaves again this coming Sunday, January 25 at 6:00PM CST and I must admit I’m rather excited about it. This time around I’ll be a talking with Juli Doty who, through her amazing thirst for knowledge and self improvement, made herself into one of the foremost experts in real estate. She shares her experience and expertise through speaking engagements and powerful seminars held all across the country and since 2003, through her widely popular radio show, Real Estate, Real Advice, which is syndicated through the Business TalkRadio Network and is heard in 46 major US Stations and in 160 countries around the world. Her goal on the show is positive training for the public. She covers everything real estate including how to buy, how to sell and how to manage real estate holdings in a way that improves the lives of her listeners. Juli is also an accomplished author and her book The Secrets of Exactly How To FSBO - For Sale By Owner, is both a critical and commercial success.

Last Wednesday  I was fortunate enough to be featured on The Maxon Show over at Utah’s KTALK AM 630. Host, Mark Maxon was an absolute pleasure to speak with. The man is as passionately idealistic as he is straightforwardly realistic. Add that to an over 3 decade long sales career for Fortune 500 and Fortune 50 companies and it is no wonder that Mr. Maxon is one of the most insightful, inspiring and sought after speakers in the motivational and sales training industry.  His book, Achieving Excellence in Life is a definite must read for anyone serious about making the most out of themselves.

Then, just last Sunday, I was on air again. This time I got to discuss things with  Kevin O’Connel for his show, Real People Real Issues which is  broadcast over at NewsRadio WLAC 1510. Kevin has been involved in the real estate industry since 1976. His experiences include developing various financing options and credit underwriting, property management, property acquisitions and sales, and appraising. He also served as Director of Single Family Homeownership Programs for the Tennessee Housing Development Agency from May 1998 until October 2001. Since June 2004, he has also been the owner and CEO of the Nashville School of Real Estate. To say that this man knows real estate would be a gross understatement.

I thought both interviews went particularly well. You can expect to catch me on more radio guestings in the future. The reason for this is because I am taking every opportunity to spread some genuinely positive vibe in an industry that’s admittedly had more than it’s fair share of bad news. True, the housing market has seen better days but as I keep stressing, it’s times like these that can result in amazing opportunities for people. I believe that it is very important for us to inspire people who are in a position to invest to actually take advantage of these opportunities. Not only will they be getting some of the best deals in decades, they’re actually helping the housing market become more stable by helping lower the surplus in inventory. According to David Rosenberg , Merril Lynch chief North American economist, “Lowering housing inventory is key to solving the ailing real estate market and broader economy.”

Poppoff with Mary Jane Popp is a fast-paced, magazine radio show heard on KAHI AM 950. It is dedicated to keeping their listeners on the cutting edge of today’s hot button issues. Poppoff says what it does and does what it says. The show, much like its charming host, is energetic, upbeat, entertaining and motivational. This coming Tuesday, Dec. 23, at 11:30AM PST, the topic on the table will be real estate and I feel honored to have been invited as a guest on the program.While the show is only half an hour long, I am hoping we can discuss some issues which I really think need to be addressed. The housing market is experiencing one of it’s periodical downturns and while that might pose difficulties for some people, I honestly believe that it’s not hopeless. In fact, as I’ve been saying time and again, there are very real opportunities here. I know I’ve been accused of being overly optimistic about things before but I can assure you that this is more than just positive thinking at work here. I’m hoping I get to share some viable and effective strategies both for people who might be in danger of losing their houses and for someone who is in a position to take advantage of the opportunities coming from the current economical situation. These strategies have been developed over time, based on my and my family’s long experience in the industry, as well as the ongoing systematic studies being done in our Real Estate Lab.

If you have any real estate related questions that you would like us to tackle during the program, please leave us a comment here and I’ll do my best to bring it up on the show. If I do not get a chance to do so, I promise that I’ll be devoting some time and space for it here on this site.  You all have a great weekend!

Last Saturday, I had the pleasure of talking with Sam Bushman on his new radio show, Real Estate in Focus. Sam grew up in the real estate industry, pretty much like I did.  His father was a general contractor and Sam spent his childhood summers hauling plywood to the rooftops.  He’s been a real estate investor for 20 years.  He and his wife are loan consultants with Benchmark Home Loan and Commercial Funding in Pleasant Grove , UT.   He also enjoys assisting families with real estate financing and he’s gotten damn good at it too.  Sam is a veteran radio broadcaster as well.  He owned a radio station for ten years and has been an on air talent for even longer.  He has now combined the fields of real estate and radio broadcasting to create, Real Estate in Focus.

We had a really good discussion about the explosion of opportunities for investors in real estate, something I really can’t talk enough about. These days there is, as I’ve noted a few posts back, a certain pessimism about the real estate market in general and perhaps there’s good reason for that. The news as of late is filled with a lot of negativity and there really is no denying the negative circumstances in our economy. I believe it is not enough to just counter that negativity with peppy optimism, thinking that things will eventually get better because it just has to. The key is in looking at the negative information and figuring out how you can use it differently. Then you can actually see the opportunities. Then you can actually start doing something about it!

We discuss all of this in detail during the interview and and if you have the time, you can catch it on Sam Bushman’s site. You can also listen to it here.

Let’s face it folks, times are tough and we can definitely do better than simply putting on a smile and hoping things turn around before all our savings go down the drain. Optimism can only buoy us up for so long but seizing the opportunities that naturally arise from difficult situations takes more than just having a positive outlook. You need to have the will to actually take action as well as the know how to ascertain which actions to take. Once you start taking personal control of your financial situation, then you’ll definitely have something to smile about.

The latest report on new residential construction was released by the Commerce Department yesterday and it that housing starts and permits dropped 4.5% bringing new construction to it’s lowest level since 1959. Building permits, an indicator of future construction, also fell sharply, by 12%, to a record low of 708,000 annualized units. Permits for single-family homes, considered by many analysts as the most important figure in the report, fell 14.5% to 460,000, the slowest in 26 years. Over all building permits are down 40% in the past year.

So is this good new or bad news? The quick answer would be yes and no. It really depends on what your position is in the market. This is undoubtedly terrible news for the homebuilders. I’m actually a little surprised that none of the big publicly traded homebuilders like D.R. Horton, Inc. (DHI: 4.17 -0.35-7.74%), Standard Pacific Corp. (SPF: 1.26 -0.19-13.10%) or Beazer Homes USA Inc. (BZH: 1.28 -0.05-3.76%) have filed for chapter 11 yet. That said, this is also really bad knews for anyone who have significant investments in any these corporations.

On the flip side however, this could spell great news if you’re a real estate investor. The simple fact of the matter is this, there is not enough demand for the number of houses that are currently on the market. This of course goes beyond the mere fact that the prices of properties are down and that it is therefore likely to acquire them at a good discount. Here’s another way you might want to look at it. According to the Mortgage Bankers Association, home mortgage applications dropped last week by a seasonally adjusted 6.2% compared to the previous week,  and the application volume was down 41.3% compared to the same week in 2007. Now factor in the reported decline in new housing starts. These developments imply a decrease in the demand for houses. Many people who are first time homebuyers, who would have qualified to buy when high LTV loans were available, are not able to qualify until they can come up with a larger down payment. As things are, prospective first home buyers are holding off purchasing new property and will be opting to rent in the meantime, or at least until the market becomes more stable. Then there are those who had become homeowners over the past 2 years by obtaining high-cost, subprime mortgages that they may not have truly qualified for who will now become renters again. Simply put, this is a fantastic time for anyone with the financial wherewithal to invest in building a good quality rental portfolio as there is a growing market for such units.

The greatest success stories were created by people who recognized a problem and turned it into an opportunity.

-Max Steingart

When most people think of making money through real estate investments, they usually think of purchasing property under market value, slapping on a new coat of paint, adding a picket fence and then selling it above market value as quickly as possible or simply put, the fix and flip. The primason why the fix and flip is so popular is hinged on being able to make a significant amount of profit in a short amount of time, with what seems like a reasonable amount of effort. And then I suppose, the excitement of having to flip a house quickly and for maximum profit has a lot of appeal. Anyone who’s watched Jeff Lewis on Bravo TV’s reality show Flipping Out would attest to this.

Now while some people manage to do very well using this strategy, things don’t always work out as planned. The repairs could take too long or they could go over budget or the property just isn’t sold quickly enough. Unfortunately there are those who got stuck with properties when the market turned. These fix and flippers were forced to either sell at a loss or suddenly turn them into a rental unit which, quite frankly, is a really bad way to acquire one. Flipping by it’s nature is best done in a fairly stable and more or less predictable market situation. That said, I don’t believe that the fix and flip strategy is the best strategy to employ at the moment. In fact, even the aforementioned Jeff Lewis is having a tough time. From an interview from Businessweek:

But as the cameras stopped shooting seven months ago, the housing market went from slowed to stalled, leaving the 38-year-old speculator, as he says, “paralyzed.” Lewis has been mired for months in a dispute over the boundaries of a $2.5 million property. A deal to buy a house fell apart when Countrywide Financial (CFC) foreclosed on the seller. Until recently, Lewis lived in a 700-square-foot home, tight quarters for an entourage that includes two cats, three dogs, and, during working hours, a housekeeper and two assistants. “These are not great times, and people are suffering,” says Lewis, a self-professed “working millionaire” who has flipped more than 40 homes.

On the other hand, employing a buy and hold strategy won’t make you a profit of let’s say $35,000 in a few months time. And it is definitely nowhere near as exciting as the adrenaline rush involved in flipping. But then again, perhaps that in itself is a good thing. Not everyone thrives on pressure after all.

That aside, the buy and hold strategy also has a lot of inherent advantages. The first being that finding, buying and holding the right kind of property automatically increases your equity. Getting it on a loan means that your principal balance goes down every month. It also provides you with significant tax deductions at the end of the year. More importantly, managed properly, your property is guaranteed to be a source of passive monthly cash flow, for years and years to come. Simply put, it may not make as much money upfront as flipping, but it is safer and more long term. The buy and hold strategy goes beyond merely making you a profit, it works to build wealth over time.

I came across another good reason why investing in real estate might be a really good idea right now. For the past couple of days an article entitled Dems Target Private Retirement Accounts has been circulating around the web and has actually managed to get quite a few people worried. The title alone is already quite alarming. Unfortunately, the content is no more reassuring.

The article refers to a hearing held on October 7, 2008 by Education and Labor Committee Chairman George Miller (D-CA) to look into the impact of the financial crisis on workers’ retirement security. It focuses primarily on the testimony of Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research in New York who proposed that:

• the government eliminate tax breaks for 401(k) and similar retirement accounts, such as IRAs, and confiscate workers’ retirement plan accounts and convert them to universal Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration.

At present, 401(k) plans allow Americans to invest pretax money and their employers match up to a defined percentage, which not only increases workers’ retirement savings but also reduces their annual income tax. The balances are completely inheritable and are subject to income tax. This allows workers to pass on their wealth to their heirs. Also, should they ever  leave an employer and move to one that does not offer a 401(k) or pension, workers can still transfer their balances to an IRA.

In contrast, Teresa Ghilarducci also proposes that:

• All workers would have 5 percent of their annual pay deducted from their paychecks and deposited to the GRA. They would still be paying Social Security and Medicare taxes, as would the employers. The GRA contribution would be shared equally by the worker and the employee. Employers no longer would be able to write off their contributions. Any capital gains would be taxable year-on-year.

• With a GRA, workers could bequeath only half of their account balances to their heirs, unlike full balances from existing 401(k) and IRA accounts. For workers who die after retiring, they could bequeath just their own contributions plus the interest but minus any benefits received and minus the employer contributions.

Of course this does not exactly indicate that the next administration intends to forcibly confiscate your retirement funds. The thing that bears rumination is that something along those lines have actually been considered. Given present indicators it seems the possibility of such a plan coming to pass is minute. What bothers me personally is that there is that possibility, no matter how small it may be. I’m no alarmist, far from it, and I do actually recognize some merit in Ghilarducci’s proposals. However, if you want to ensure that you maintain personal control of your retirement money, you might want to consider moving it to real estate investments. Moreover, with a sound strategy, you could easily guarantee yourself a steady flow of passive monthly income and at the same time increase your equity.

I think there’s a growing misconception that it’s a bad idea to invest in real estate right now. What happens is people read the newspapers or turn on the television and they get all these numbers, about how foreclosure rates have risen and how property values continue to plummet all around the country. And so it’s very easy for people to think that the whole country is losing value but it’s really not at all. One thing to keep in mind is that these national averages and percentages fail to accurately depict real life market situations. One of my fundamental laws of real estate is that it’s local, not global. Case in point, the latest foreclosure market report from RealtyTrac ® shows that 1 in every 416 U.S. households were foreclosed. That number is far from encouraging but then again, it does not show the great degree of variance in between local markets. California reported a rather dismal foreclosure rate of 1 in 130. Nevada had it even worse at 1 in very 91.  On the other hand, Texas only had 1 in 849. That’s a markedly huge difference.

Astute investors understand that real estate trends will always be highly localized and they are able to make this work in their favor. One of the key things is defining which investment strategy to employ and then, selecting a suitable market for that. For instance, if they employ a long term buy and hold strategy, they go into a robust market with very little fluctuations and shows a steady rate of appreciation over time, sufficiently protecting themselves from unpredictable liquidity events. Ideally, they also get their property to generate passive monthly cash flow in between the time that they purchase it and the time that they decide to sell it.

What more people need to see is that there are very real opportunities in the market right now and they should not be discouraged by these supposed national market trends. By focusing instead on local trends, they’d be surprised to find that now is in fact one of the best times to invest in real estate. For one thing, there’s an abundance of inventory and it’s quite possible to find some really really good deals. Furthermore, like I mentioned in my last post, lenders would likely be more inclined to lend now than they might be in a few months. If certain changes in policy do occur, then these financial institutions may be discouraged to lend as much. As things are, anyone thinking of making an investment in real estate would be smart to do so as soon as possible.