condominium

February 12, 2014

Real Estate News 2.12.14

Commercial Real Estate Investors “Cautiously Optimistic” As the Future Unfolds, According to New Outlook Report
“WASHINGTON (February 12, 2014): Commercial real estate investments are expected to produce generally solid returns in 2014, according to the authors of Expectations & Market Realities in Real Estate 2014—The Future Unfolds, an annual forecast report released by Real Estate Research Corporation (RERC), Deloitte, and the National Association of Realtors®(NAR).”

House approves ‘clean’ debt limit after Republicans drop demands
“(Reuters) – The House of Representatives narrowly approved a one-year extension of federal borrowing authority on Tuesday after Republicans caved into President Barack Obama’s demands to allow a debt limit increase without any conditions.”

SPECIAL REPORT: MBA Delivers Cautious Economic Outlook for 2014; Financing Hits Highest Level Since ’07
“Mortgage originations for multi-family and commercial real estate in the last quarter of 2014 reached the highest volume achieved since 2007, according to the Mortgage Bankers Association (MBA). Multi-family financing, in particular, has returned to levels last witnessed at the peak of the market.”

MBA: Credit loosens as lenders adjust to QM
“The mortgage credit availability index ticked slightly higher in January and increased 1.85% from 110.9 in December to 113.0 in January, the latest Mortgage Bankers Association report said.”

Homebuyers Get Break as Loan Rates Defy Fed Tapering: Mortgages
“Ashley Underwood is taking advantage of the unexpected drop in mortgage rates by rushing to buy her first home before they go up again.”

Jumbo Loans Loom Large in Luxury Housing Market
“The view of the Pacific Ocean from the San Joaquin Hills in the California community of Newport Coast is extraordinary. So, when Mohammad Taghavian started looking for a new home four years ago, he knew exactly where he wanted to be. The housing market, however, wasn’t so cooperative.”

Late-Payment Rate on Mortgages Falls in 4Q
“U.S. homeowners are doing a better job of keeping up with mortgage payments, a trend that has reduced the rate of late payment on home loans to the lowest level in more than five years.”

Insurers’ Appetite for CRE Lending Spans Booms and Busts
“Life insurers got burned in the big commercial real estate bust of the 1990s. But as the sector emerges from a smaller Great Recession-era bust, insurers are showing no indication of ‘once bitten, twice shy.'”

Manhattan’s Big Banks Resist Lure of New Office Towers
“As Manhattan developers plan millions of square feet of office towers featuring the most modern amenities, some of their biggest potential tenants have decided they’re better off staying in their current homes.”

Mortgage REITs See Bargains in Competitors’ Shares
“Of all the real-estate investment trusts slammed by the stock market since interest rates began rising last year, few were hit as hard as REITs that invest in government-backed mortgage bonds.”

Zillow: Bulk home sales will boost housing
“The Zillow Home Price Expectations Survey, a pool of opinion from 110 economists, predicts housing market demand will gently ease through the next few years.”

Inspector General: Fannie Mae should implement repurchase late fees
“The Federal Housing Finance Agency’s office of inspector general found in its audit of how the government-sponsored enterprises (GSEs) handled aged repurchase demands that FHFA did not sufficiently evaluate whether to implement a repurchase late fee program at Fannie Mae.”

5 tips to help sell a home on Instagram
“There is a fair number of social media platforms out there, from Facebook to Twitter to Vine.”

Strike three for flood insurance premium hike delay
“Republicans stopped an effort to force a vote on H.R. 3370, which would delay pending flood insurance premium hikes under the National Flood Insurance Program.”

Mortgage apps reverse course, decrease 2%
“Mortgage applications slightly dropped after a light uptick last week and decreased 2% from a week prior, the latest Mortgage Bankers Association said.”

BofA, Goldman among banks facing $16 billion in fines
“NEW YORK (MarketWatch) — The settlements of lawsuits so far with major banks pave the way for some $16 billion in additional penalties to be paid by banks including Bank of America and Goldman Sachs Group over mortgage securities sold to government-seized housing giants Fannie Mae and Freddie Mac.”

Real Estate Matters | Condo boards should think twice about limiting rentals
“I have a condo that I purchased in 2007 when my daughters were going to college. They have both graduated and moved on. Unfortunately, the property values have fallen and there have been a lot of foreclosures in the complex.”

How To Manage The Stress Of A Real Estate Transaction And Not Kill Your Deal
“We always hear from clients that this real estate closing will be simple. When I hear that, I cringe because even under the best of circumstances I know that clients will experience a bit of stress as they move from contract to closing. Change produces stress. To be sure, some handle the process better than others and it is difficult to predict who will hold up better – but stress always exists.”

If investors bail on housing, what then?
“Investor demand, large and small, put a floor on home prices after the housing crash and ignited a recovery. While institutional investors made up a small percentage of those home buyers, they have garnered the most attention because of the bulk purchases they made and because they are a new entrant to the housing market. The concern now is what will happen if and when they decide to pull out?”

Why hedge funds lack women in charge
“Whitney Tilson is the managing partner of the hedge fund firm Kase Capital Management, which he founded more than 15 years ago. Mr. Tilson is also the co-founder of Value Investor Insight, an investment newsletter, and the Value Investing Congress, a biannual investment conference.”

Chanos up as many shorts stumble
“In November, a small band of battered short sellers couldn’t have been more excited about the opportunity to make money from what they saw as wildly overvalued stocks. One, John Fichthorn of Dialectic Capital Management, said it was the ‘best opportunity I will see in my life.'”

Housing plans piling up: Which will get built?
“Sacramento’s new home market has yet to fully revive from its recession-induced coma, but that hasn’t stopped developers around the region from jostling to get new housing projects approved so they can be first in line to tap pent-up buyer demand.”

Big spending, fewer results for homeless
“If you want to be depressed about government spending, look no further than the $127.5 million San Diego County’s government funnels to programs that are supposed to help homeless people stay off the streets.”

November 14, 2013

Precautions/Concerns with Condos

Question:

Do you write offers on condos and apartments? And what precautions/concerns does one have to take if you do?

-W.G.

Answer:

At this point in the market, I’m not making offers on condos because it doesn’t make sense in my market. I’m buying houses way too cheap.

Some of the things you want to watch out for when you are buying condos:

1. First and foremost is the percentage of owner-occupied units to rental units in the complex. In other words, how many units are occupied by owner-occupants and how many are rentals. You need to know if you’re buying a unit located within a nice, quiet, well-maintained building that reflects pride of ownership or whether you’re about to buy a unit within a building full of low income subsidized tenants which is the equivalent of a zoo. This also affects your financing, whether you’re going to keep it and refinance it or flip it.

2. Homeowner’s Association dues may be excessive. HOA dues are tied to expenses and reserves for major repairs such as replacing the roof in the future and will only increase over time.

3. Location of the unit within the complex. For example, in high rise buildings, the higher the unit’s location, meaning the higher floor the unit is located on such as a penthouse, the higher the value. In smaller buildings and townhouse type units, end units with one common wall are typically valued higher than interior units with more common walls. Whether they have views of the ocean or whether they have views of the back of the building parking area affect the value. Everything affects the value. You’re basically buying an apartment.

4. Whether utilities are master metered, or if they’re individually metered to each unit and whether you have electric as well as gas or if it’s just electric.

5. Type of parking facilities that come with the unit whether it’s an actual garage or a subterranean parking structure, how many parking spots come with the unit (one or two), whether they’re side by side or tandem – all of these factors affect the desirability and ultimate marketability.

6. Whether the building is actually converted as a condo or co-op ownership type.

As far as apartments go, I assume you mean apartment buildings and this is considered a whole other animal than single family’s individual condo units. And if that’s correct, depending on the size of the apartment building (meaning the number of units) they are typically valued on either net income and Cap Rates (capitalization rates) or Gross Rent Multipliers (GRM), or a combination of both. There are many factors that go into calculating these values and they include but not limited to:
• Unit mix (as in number of bedrooms & baths)
• Square footage
• Year built of the building
• Quality of construction
• Desirability of location
• Amenities (pool, Jacuzzi, laundry facilities, etc.)
• Master or individually metered buildings
• Gated and security building

November 12, 2013

Best areas to invest in multi-family units

Question:

Hi Tony,
Your presentation at SDCIA on Tuesday was great! Thank you for sharing your insight.
I have a question. I am currently in the process of building my real estate investment biz (I am using your free starter kit to help me). My plan is to form an entity, (my atty recommnds C corp) and start acquiring 4 to 8 unit apartment buildings to build residual positive cash flow. My next phase will be to invest in Fix and Flips.

My question is; In what area should I start acquiring apartment buildings?

I currently have my eye on San Diego, Las Vegas, Pheonix, Orlando and Tampa based on research that suggests that these are strong rental markets.

Would you advise against any of these areas and are there other areas that should also consider?

Thank you in advance for your input.
-GT

Answer:

Hi GT, and thank you for your question.

The fast answer is… I don’t have a clue. The obvious reason is presently I’m not investing in multi-residential income properties in those markets. Therefore, I simply have no need to know. Any “opinion” I would share would be just that, an “opinion” — hardly worth your time to hear.

Presently I’m focused on buying 1 to 4 residential properties and whenever possible I prefer them to ALL be detached single family dwellings with their own small private yard areas.

Also, since we handle our own property management, I am presently only buying within an hour drive from my office (located in the Antelope Valley), so my opinion of any of your preliminary markets is really not valid.

However, if you started completing the Free Starter Kit, then you already know the first thing you must deal with is Choosing a Target Market (and knowing it better than anyone else.)

The choosing of a specific place (or geographical location) to start buying apartments (or anything for that matter) is very strategic and unfortunately ALWAYS entirely up to YOU to decide. The reason for this should be obvious — it’s simply YOUR money, credit, time and effort.

You have to go through the process (learning curve) of HOW TO identify a location that is going to feed you the type of property, tenants and cash flow at the prices you think you will need to be profitable.

As far as my or anybody’s “opinion” as to whether one state or city is better or worse than another… well, honestly I would have to go through exactly the same steps I suggest that you take in the Free Started Kit to arrive at the same conclusion, so why repeat the effort?

Seek information and advice from investors who already own the same type of property you are interested in, and other real estate professionals (i.e. appraisers, insurance agents, etc. — not just the brokers and agents who specialize in that type of property who stand to get paid when you buy and not when you don’t — although honestly, they are an important part of your initial investigation.) The key is that you consult MANY individuals who have first hand experience of that market not just opinions they’ve read or heard from somebody else.)

In the past, I have purchased apartments of all sizes, shapes, types and locations in many Target Markets. I have used both a buy, fix & flip to other long-term hold investors model, and a buy, fix & hold long-term model as well.

Since I do not know your level of experience in the business I will caution you about a few things (if I may…)

1. Try to stick with properties as close to where you are physically at the beginning as this will help you to manage your tenants and/or your managers more effectively and with minimal stress and expense. (NO ONE WILL EVER MAKE DECISIONS IN YOUR BEST INTEREST AS WELL AS YOU WILL.)

2. Do all your research about the area and such, but remember you do not have to know EVERYTHING before starting to make offers. Use your contingencies effectively to both buy yourself appropriate time to fully investigate the properties, and to also withdraw from the deal should you discover it’s not what you want.

3. If you will need financing, make it an integral part of your initial research to personally visit with lenders LOCAL to the Target Market you choose. Prior to placing offers, make sure you have ALL the elements of accomplishing your goal firmly in hand.

4. Remember, properties for sale are everywhere, but a “Great Deal” is seldom found just by looking. More times than not, it’s created by your efforts, your understanding of your Target Market, as well as, the elements of doing whatever you decide to do as an investor (and the depth and breadth of your relationships within the business community you select as your Target Market.)

5. Should you decide to invest out of state, please do your due diligence slowly, carefully and deliberately. Be clearly aware of all the Pros and Cons (especially the CONS!) 😉

On the other hand, if you are an experienced investor and are already aware of the specific things I’ve mentioned above, I can tell you this – I would personally stay clear of the Vegas market since I have done research and find it very transient. I personally like the Orlando market (and Florida in general) if you can deal with the gun toting citizens (tenants), senior drivers and the occasional hurricane.

We hope we have been of good service.

Thank you for your question.

Your friend always,
Tony