SJREI Journal Debut Issue

August ‘09

SJREI Journal San Jose Real Estate Investors Association - The Definitive Source for Investors

Debu Issue t !

National Forecast with Fannie Mae’s Chief Economist

Most consumers aren’t aware of how affordable homes have become in today’s market. The variety and quality of homes now within reach of the average American family is greater than most people realize, according to www.Realtor.org. For more information, flip to page 18.

The Inside Scoop on California Real Estate DR. DOUG DUNCAN Chief Economist Fannie Mae Douglas Duncan currently serves as Vice President and Chief Economist for Fannie Mae, coming from the Mortgage Bankers Association (MBA), where he served as Senior Vice President and Chief Economist since 2000.

In that senior leadership role, Duncan served as a primary spokesperson on economic and mortgage market developments and

Continued on page 3

BRUCE NORRIS President The Norris Group

Bruce Norris is an active investor, hard money lender and real estate educator with more than 28 years experience.

He has been involved in more than 2,000 real estate transactions as a buyer, seller, builder and money partner.

Renowned for his ability to forecast longterm real estate market trends, the release of his book “The California Comeback” in 1997 gained him much notoriety and the accuracy of this extensive report led many California investors to financial freedom.

His 2006 release, “The Cali-

fornia Crash,” is an indepth look into the California market correction and the statistics behind Bruce’s predictions.

His latest, award-winning report, “Category 5,” goes into great detail why Bruce isn’t ready to write “California Comeback 2” and what the real estate community should expect in the coming years as the market continues its correction.

Geraldine Barry, President of the SJREI Association, chatted with Bruce regarding his

Continued on page 4

AUGUST 2009 • SJREI JOURNAL 2

SJREI Today Notes from Geraldine’s desk

W

Our mission at SJREI is to provide a venue where all levels of investors can become educated, build solid relationships with other investors and expand their knowledge on real estate investing and to facilitate them making wise, profitable investment decisions.

SJREI Journal Staff: Geraldine Barry Publishing Director Belle Li Production Manager Andrea Frainier Editor-in-Chief

408.264.3198 www.SJREI.net GeraldineSJREI.blogspot.com

elcome to the SJREI Journal. Our new publication is filled with great insight and practical information for all level investors. This issue includes interviews, howto’s and practical information from attorneys, investors, realtors and economists that will assist you with acquiring a property in order to facilitate your retirement or assist with creating cash flow to supplement your current income.

We frequently host speakers who address a myriad of topics, including market timing; a presentation in 2005 gave SJREI members advanced warning of the impending financial crisis and the housing crash. My husband and I took this warning to heart and liquidated our own California holdings, including our primary residence at that time. Other members followed suit and benefited financially from advanced notice of this timely information.

The stock market can be financially rewarding, if not tumultuous, but we at the SJREI believe that diversification is vital for your financial security – don’t put all your eggs in one basket!

Buying real estate because your brother-in-law recommends it is not a good strategy. Exploring the details and understanding the financing options, economic drivers for the neighborhood, completing a cash flow analysis and exploring your exit strategies are all critical components to successful investing.

My husband, Stuart, and I started this organization seven years ago. Having purchased two small apartment buildings in Stockton, Calif., we wanted to connect with other investors to decipher what they were doing to be successful. We were surprised to discover that no such group existed in the area, and we decided to start our own, hence SJREI was born.

We started in a local cafe with 10 people, and now, we currently host 300 to 400 people at our monthly meetings. Friendships and alliances have been forged, which have proven to be an incredibly valuable asset to all concerned. We have cautioned investors about certain investments and encourage complete due diligence, one of the foundational pieces of effective investing. See Jeffery Hare’s article (included on page 5).

At SJREI, we focus on providing a venue where investors can network, collaborate and share insight on their investment strategies and become educated through the informative speakers we host each month. Over the past several years, we have evolved and grown as an organization providing content rich programs that have not only benefited us greatly, but also our community of investors.

We have one of the best buying opportunities of our lifetime on the horizon. We have the opportunity to buy property in California that can cash-flow and yield a greater return over time, more than other investments and with less risk.

Running the numbers and buying right – essentially making smart investments are keys for the buy and hold investor, and this is not the market to flip in especially for the faint of heart.

In this premier edition, we have lots of articles that will educate you as your explore this path and assist you so you can invest prudently. Enjoy the read, and we look forward to your feedback so we can continue to provide you the information you need to become a confident, selfsufficient investor. Happy investing!

Geraldine Barry

Geraldine

President SJREI

AUGUST 2009 • SJREI JOURNAL 3

>> Interview with Chief Economist of Fannie Mae (continued from front cover) performance for the MBA, a trade group that make the majority of all residential, multifamily and commercial real estate loans in the United States.

Duncan has been elected to the Board of Directors for the National Association of Business Economists and has been listed in the “Top 100 Most Influential People in Real Estate” by Inman News. Duncan received his Ph. D. in Agricultural Economics from Texas A&M University and his B.S. and M.S. in Agricultural Economics from North Dakota State University.

Here is a summary of an interview Geraldine Barry, SJREI President, conducted with Dr. Duncan recently.

includes credit card problems and commercial real estate problems.

Second, holders of private capital have to believe that the government has stopped changing the rules in markets so private property represented in the terms of financial market contracts are secure.

Third, house prices must reach a floor. This will assure investors of collateral values generally.

Fourth, consumer credit quality must stabilize. Household balance sheets have a significant distance to go to be stable.

What is your opinion on loan modifications and its effectiveness?

69.3%. Currently, it is at 67.5%, housing in the United States has and that number continues to fallen for extended time periods decline. in the past.

This is the deepest recession What is a sustainable rate that most employees have ever of home ownership? been through – most businesses do not have a knowledgeable Analysis of the data going back workforce on how to navigate to the 1960s suggests that 65% this. We have a lot of underemis a sustainable rate. That means ployed people, and job losses we have 2.5% decline to reach will continue until the middle of that rate - for every one percent next year, and it will take more decrease, 1.1 million families time to experience any kind of lose their homes. significant growth.

They rent or recombine causing household formation rates to You mentioned that 2010 slow dramatically. This is more would be the bottom of typical during a recession where the real estate market?

When do you think we will unemployment is high. start to see appreciation?

What are your thoughts on the current economic crisis? This is bigger than The recidivism rate broadly most of us have experienced. Will it take longer measured is more than 50%. to turn around?

The housing price declines

How do you like your job at Fannie Mae – you came on board around the time that the financial crisis was are unprecedented, and people Housing would seem to be apbeginning to escalate? have homes that are worth dra- proaching a bottom as defined I joined Fannie Mae four months before it went into conservatorship, about 14 months ago.

It has been a very educational and challenging time. We had an untenable underwriting environment, and now, we, at Fannie Mae, are taking this opportunity to take a fresh look at what has happened, re-evaluate and implement changes to help with the recovery and move forward.

What are the political and free market factors that affect when loans will loosen up for investors?

Several things must happen: First, investors must be confident that banks have accurately accounted for and reported the quality of their assets so their balance sheets are sound. This

matically less than they paid for them, which is discouraging.

As an economist, I would say modifications are not helpful, with increasing losses to people two years into this disruption.

by sales levels and starts the last few months. That is, however, not a precursors to some dramatic rise nor is it necessarily a sign prices will stop falling.

More realistically, housing is starting a transition back to its Do you believe moratorinormal state wherein local marums on foreclosures are kets are differentiable. useful, or are they just prolonging the inevitable?

The reason people were shocked by the decline in house We have no current data on prices was that their intuition the moratoriums and their ef- was damaged by hearing only fectiveness. We are beginning about national averages. The to explore data in California for fact that there had never been a that. national average annual house Practical considerations, such decline since World War II lulled as temporary loss of unemploy- them into thinking it could not ment, carry a borrower through happen. this difficult period, and in some In fact, at almost all times, cases, can be useful. there are some markets in which prices are declining, but more When did home ownership have rising prices, so the averpeak in the United States? age across all markets is rising.

Additionally, if you adjust for Home ownership peaked at inflation, the average price of

I believe a housing recovery is a long time off, but we should see a slower pace of declines in the third quarter and stability in sales volume, but we could be five to seven years from a recovery depending on what employment does in the meantime.

What are important economic statistics that are a reference point to determine where the economy is headed?

I look at private sector payroll – this is a great indicator of business confidence. Public payroll must be supported by taxes from the private sector – if private sector revenues start to fall, overall revenues decline.

Any optimistic thoughts to share on the economy?

Long run demographics are very positive. People think the baby boomers will leave a big gap in demand as we hear so much talk about the boomer generation and meeting their needs, but our population growth statistics are very strong, so this is not going to be an issue.

AUGUST 2009 • SJREI JOURNAL 4

>> Interview with Bruce Norris (continued from front cover) ‘I feel we have such an incredible opportunity to get real estate while it’s on sale. The 2010 and 2011 prices will be comparable to a liquidation sale,’ Norris says. thoughts on the current market in California.

What are you currently seeing in the marketplace, and are you still buying bank-owned real estate?

Are you buoyant about being able to find great cash-flowing income rentals – to buy and hold?

Regarding buying and holding, it is one of my new passions!

I feel we have such an incredible opportunity to get real estate while it’s on sale.

The 2010 and 2011 prices will be comparable to a liquidation sale.

In 2008, we averaged paying about 28.8% of what someone owed on the property.

I have never seen opportunities like this in California. We are currently dealing with a historic opportunity and a rare occurrence in California.

We are still buying REOs, which are properties reprocessed after foreclosure, and also trustee sales. Due to the moratoriums, California has an artificial shortage of inventory.

The lender inventory should increase dramatically in the next six months, allowing for many more wholesale deals. We buy only vacant properties.

Since there’s no escrow for this transaction, we close our purchase the same day What do you think the price bottom we evaluate the property. Generally, price of the market will look like in it right and get it turned around quickly California and in the Bay Area? with minimal repairs.

I think the price bottom will depend on Are you pursuing auctions to some things that are a bit unpredictable purchase?

Will the moratoriums continue?

Will they keep changing the rules until We are not pursuing auctions at this people who are over encumbered take the time. Right now, the Multiple Listing Ser- bait? vice (MLS) is leading in wholesale deals I’m referring to the new 125% refinance produced. of an over-encumbered mortgage.

The trustee sale buys have started to beWill that help prevent some foreclosures? come profitable because of the lenders Yes. willingness to lower the opening bids. That Will it reverse the trend to such an extent inventory is generally cleaner and more ex- we head back up in price? No way! pensive.

The price bottom will be reached when I’ll be very excited about auctions when five factors we follow give us signals the “absolute” (when one buys and is guaran- worst is over. teed acceptance) becomes a more permaA bottom and the first year of improvenent feature in the auction world. ment look virtually the same. You can only tell the difference after the fact.

home is currently worth, want to keep it, that will surprise me. Many homes can be foreclosed on despite the new moratorium.

It was politically motivated and should have little long-term effect on the way they are approaching the over-encumbered owner. Most of the effort is focused on reducing the payment, not the loan balance.

If they reduce the loan balance, they create an even bigger problem. You can’t make the system appear unfair or you will create an avalanche of foreclosures.

You have studied how appraisal procedures have changed? How negatively will this impact flipping in California in the coming months and the next few years?

I think the changes in the appraisal code will be detrimental as long as bank-owned properties dominate and a buyer made a reasonable decision to pay more than the median price for a property.

Once the number of lender-owned properties diminish, the median sale will be owned by an occupant.

The price differences will be small, or at least minimal enough to be explained by the appraiser and accepted by a lender.

Solve that problem and it will be back to business as usual. Form 1004 MC asks the appraiser to consider median value.

The median comparable sale (the one exactly in the middle of all comps) in Sacramento County and Riverside County would have to be a vacant REO.

What are your thoughts on commercial real estate?

How do you think past and future California foreclosure moratoriums Commercial real estate will be the next will affect REO availability and shoe to fall. I would expect prices to tum- pricing this year?

ble next year, which will create great buying opportunities for apartments and other Just recently, prices have been propped commercial properties. up due to lack of inventory. I believe it is As you know, I auctioned off my office temporary, so it doesn’t worry me at all. building in Riverside, Calif. in 2007 in anIf someone can figure out how to make a ticipation of this market. homeowner, who owes 250% of what the

Want to meet Bruce in person and listen to his most updated market insights?

Come to SJREI’s Oct. 1 meeting and his Oct. 3 seminar. For additional information and to register for the event, visit www.sjrei.net.

AUGUST 2009 • SJREI JOURNAL 5

DUE DILIGENCE| By Jeffrey B. Hare

Due Diligence for Real Estate Investors How to uncover potential deal breakers when investing in property

A

JEFFREY B. HARE Attorney

Jeffrey B. Hare, Attorney at Law, provides clientfocused outcome-oriented legal services to his clients.

Specializing in real estate and land use law, Jeffrey combines legal expertise with practical experience as a real estate investor and entrepreneur to help his clients develop a clear and comprehensive strategy designed for a successful outcome.

He is the author of the web log “The Legal Dirt on Real Estate Investing.”

Reach Jeffrey at: Phone: 408.279.3555 Jeff@Jeffreyhare.com www.jeffreyhare.com Blog: JeffreyHare.wordpress.com

n investor found a great deal on a trailer park with the intent to build a self-storage facility. After he purchased the trailer park, he found out the city wasn’t issuing any new development permits.

Another investor discovered shortly after closing escrow that a commercial property he had already purchased was not zoned for the intended use, and it would take a year and thousands of dollars to get approved.

A 30-minute conference with a land use attorney might have cost $200, but it could easily have saved these investors 100 times that amount.

These costly mistakes could have been avoided if the investors did their due diligence.

But what exactly does due diligence really mean, and what is required? How will I know when I’ve done enough?

What happens if I don’t?

Simply put, due diligence is the process of investigating an investment you’re interested in, inside and out.

Real estate investing can be very profitable, but it involves risks.

The amount and type of due diligence required will depend on your tolerance for risk, the amount of your investment and the cost.

You cannot eliminate risk, but you can take steps to reduce it. Due diligence also helps reduce the probability of costly legal problems.

The three key steps to a successful investment strategy are: plan, research and act.

Start by taking a good look at your plan. What are your personal and your financial objectives?

Your financial objectives should support your personal objectives. Develop a backup plan and an exit strategy.

Consider meeting with a financial planner, a tax advisor, an attorney and a realtor.

Determine what your options are; fine-tune your goals, and evaluate what is realistic and achievable. Include your spouse in the process.

• Evaluate your investment options in light of your personal and financial goals.

• When do you need to see a return on the investment?

• Do you want to focus on residential or commercial property?

• Do you prefer a certain geographical area?

• Do you want to buy trust deeds, tax liens or provide hard money loans for other investors?

• Do you want invest by yourself or combine resources with an investment group?

• What will be your source of funds: savings, equity line of credit or self-directed IRA? The most effective way to learn more about your options is to join and attend a real estate investment group, talk to other investors, ask lots of questions and listen carefully.

Once you find an investment

opportunity that is consistent with your plan, you need to do your research.

Find out who is behind the investment, what are the risks, where it is located, when you will get a return on your investment and why you should proceed.

You need to learn about local conditions, zoning regulations, local economic factors and neighborhood demographics.

Contact the local planning department; consult with a land use attorney; talk with local real estate professionals.

Don’t forget local weather conditions – finding out about floods, wildfires, windstorms and tornados after the fact are not good.

Now, it’s time to act. If the investment is consistent with your plan and you are comfortable with the risks, proceed, but get everything in writing.

Have an attorney review the documents and help you spot potential red flags or missing information.

Consider the legal expenses in terms of helping you to avoid a total loss of your investment, or worse, getting caught in unexpected and costly litigation.

Investing in sound financial planning, professional tax advice and qualified legal counsel as part of your due diligence may yield the biggest return on your investment.

Plan, research and act. It’s all due diligence.

AUGUST 2009 • SJREI JOURNAL 6

TAX LAWS | By Richard Smith

New Tax Laws Can Put Thousands in Your Pocket T

here’s no debate that times are tough. No one is immune from the current economic meltdown, which has left many people scrambling to pinch their pennies. The news is full of stories about bailouts, the recession and unemployment.

In order to get the economy going again, the government has implemented new tax laws to put a little extra cash in your wallet.

Now is the time to prepare for next year’s taxes, and check out these new tax laws as they may be applicable for your circumstance.

Working credit This law is designed to give

RICHARD SMITH Accountant Richard Smith & Associates

Richard, who is an Enrolled Agent and licensed by the IRS, and his team have prepared taxes for individuals and coporations for more than 30 years.

Richard is an active real estate investor who has more than 100 houses in his portfolio plus a large multi-family building.

Reach Richard at: 10050 N. Wolfe Rd. SW2-140 Cupertino, CA 95014 Phone: 408.446.5551 rsmithtax@aol.com www.richardsmithtax.com

improvements to the home. It included credits for insulation, exterior doors, windows, skylights, insulated roofing material, non-electric furnaces and water heaters. Currently, the credit return has tripled to 30%, and investors can get up to a $1,500 credit for 2009 and 2010.

Education credits Hope Credit was designed to reduce the cost of the first two years of college. For 2009 and 2010, the credit is more liberal. The maximum credit amount has increased from $1,800 to $2,500, and it now covers four years of post-secondary education. The new credit has been amended to include books and course materials.

a $400 tax cut to most working people, while working couples receive a $800 tax cut. This rebate is handled by reduced withholding at Depreciation issues Two provisions were work. extended to 2009. First, businesses may elect to expense up to $250,000 of equipment that is Social Security Recipients get a “one-time” normally depreciated. Second, “bonus” depre$250 payment in May or June. The extra pay- ciation, which allows a write off for 50% of the ment goes to anyone collecting social security, cost of an asset, then depreciation for the balsupplemental security income, railroad retire- ance. ment, veteran’s disability or pensions.

Business losses generate a “net operating Sales tax from new cars. Taxpayers can deduct loss,” which can be used to recover taxes paid the sales tax of automobile purchases made on up to three years in the past. A new law allows or after Feb. 17, 2009, but there are limita- carrying such losses back to the fourth or fifth tions. Only 2009 automobile purchases count, prior year. and only the first $49,500 of the cost counts.

The deduction also phases out if your income Alternative Minimum Tax (AMT) Patch was ranges from $125,000 to $135,000 ($250,000 designed to make wealthier people pay their fair to $260,000 for a couple). Bonus depreciation share of taxes, but it has begun to affect ordinary was increased to $8000 for new automobiles citizens. A new law gives a one-year patch to keep purchased for business during 2009. the tax from affecting nearly 23 million returns.

It also protects several personal tax credits from Lost your job? When you collect unemploy- being erased by the AMT. ment, you are taxed on the income. For 2009 only, each person avoids tax on the first $2,400 Bonus depreciation can be taken on new cars in addition to regular depreciation. The of unemployment insurance collected. maximum regular depreciation is $2960 if car Homebuyer credit The new credit affects any is purchased for 100% business use, or $2368 if 2009 purchase before Dec. 1, and a tax credit of 80% business use. $8,000 applies. Best of all, there’s no repayment veryone can reduce income taxes by makunless it ceases to be your main home within ing it a priority. Many taxpayers make the three years, but there is a phase-out as income mistake of waiting too close to yearend reaches $75,000 ($150,000 for couples). There is an election to treat any qualified home as if it before they even think about their taxes. With a sleuth of new tax laws, the time is now to create were bought Dec. 31,2008. a new tax strategy that may save you thousands Energy credits return The popular energy of dollars in deductions.

Don’t wait too long, because by planning earcredits in ’06 and ’07 were designed to give ly you can create your own stimulus package! homeowners an incentive to make eco-friendly

E

AUGUST 2009 • SJREI JOURNAL 7

LENDING | By Mike Ryan

Lending for Investment Property Owners L

ending to investors in mid-2009 is rife with changes. From a macro level, lending criteria has moved to standards that were seen in the ’90s. Today, and for the foreseeable future, investors can count on simplified, yet rigid, underwriting standards.

Here are some specifics on what we are currently seeing.

MIKE RYAN Mortgage Broker Michael Ryan & Associates Phone: 408.986.1798 mike@michael-ryan.com

income documentation standards. This primarily affects real estate speculators, not real estate investors.

Assets: It takes money to make money. The dust has been brushed off this line of thought, and it has been reinstituted into underwriting criteria.

For example, down payments reflect guidelines of the early 1990s, which rewards higher down payments with better interest rates.

Appraisals: All appraisal values appear to be suspect, so oversight continues to be heavy. Pro- Loan classes: The Federal Home Loan Morttect yourself with strong contingencies in the con- gage Corporation continues with a maximum of tracts you write. four mortgaged properties. The Federal National Mortgage Association’s relaxed their ruling earCredit: Default rates for loans to investors whose lier this year to a maximum of 10. Most clients are credit score is more than 740 is considered to be challenged with finding lending sources willing to over the market threshold. The result is missed package a loan with the restriction of only being opportunity for investors who have poor credit able to resell to one investor. However, lenders do and minimum score standards as the market col- exist in the market that will do this. Public outcry lects new data to determine what does work. and political pressure has trimmed the palette of loan options to 30- or 15-year fixed rate and fiveIncome: Without any exceptions, both the pub- year fixed rate, and interest rates continue to stay lic and the lending industry breathe easier with low despite weak financial news and speculation around deficit spending.

Rodrigues Tile Company •Family business, established 1972.

•Reliable, seasoned, dedicated, professional workers •Install ceramic, porcelain, granite, marble, travertine, limestone, saltillo tiles •Commercial or residential, new or remodels •Honest, professional and guaranteed work

Call today for your FREE estimate 41060 High Street Unit F. Fremont, CA 94538-4366 (510)490-6995 * Fax (510)490-7076

P

urchase closing timeframes are staying on the longer side due to the additional diligence being performed at the lenders and underwriters desks.

Thirty-to 45-day timeframes are currently the safest, because strong usage of safeguards and contingencies in purchase contracts is the best defense against loss of deposit.

Nonperformance by the borrower is seen as the primary contribution to our extremely high contract cancellation numbers, which is estimated to be close to 50% (this number does count short sale contracts).

One of the most beleaguered areas of finance is lending for investors with more than 10 mortgaged properties.

Lending does exist, and pricing is higher and qualifying is easier. These loans are not packaged to be sold on the national and international market, resulting in more sensible decisions.

Documentation standards are still fully in place as these institutions are overseen and audited by federal regulators.

AUGUST 2009 • SJREI JOURNAL 8

IRA INVESTING| By Tom Anderson

Self-directed IRAs are Buying Lots of Real Estate Poor credit and limited finances don’t have to stand in the way of investing Florida that he was able to purchase a 2,800 square ft. home on a golf course in a gated-community (and needing no repair) for $100,000.

time for the next upswing in the real estate development sector.

In some cases, they are buying at 10 cents on the dollar. These deals are not for the faint of heart and may require a longer holding period, so they are not suitable for anyone with liquidity needs.

to understand the rules and the process, easing your entry to self-direction.

In addition, it is very important that your custodian is geared to It was listed by the bank that execute in a timely and accurate foreclosed on it at its appraised manner, as real estate transacvalue of $200,000, and it sold tions can close very quickly and two years ago for $440,000! earnest money deposits frequently have to be made from Although we may not yet have Another avenue self-directed your IRA on the same day to sereached the bottom of the IRA investors are pursuing is to cure the best opportunities. market for residential real es- provide credit to others for the tate, and the window of oppor- purpose of buying real estate.

PENSCO Trust is proud of the tunity will likely stay open until fact that we generally get all real the third or fourth quarter of With traditional credit markets estate transactions funded on 2010, the opportunities today almost nonexistent, borrowers the same day they are authoTOM ANDERSON have the dual potential for sig- are getting needed funds from rized by our clients, and, in alCEO/President nificant appreciation in the five IRA investors looking to in- most all cases, within 48 hours.

PENSCO Trust to 10 year timeframe and the crease their investment yield on production of positive cash flow their retirement accounts.

Certainly, investing today is hile today’s residential during the holding period at tomore challenging than in a bull market is flooded with day’s prices.

Such investors may offer the market, but some things are foreclosed properties, down payment, first mortgage certain. the resulting devaluations in Experienced real estate inves- or second mortgage or even bemany parts of the country are tors, brokers and realtors are come a co-tenant on a purchase Real estate values are down creating unique opportunities taking action now, recogniz- when the buyer does not have in most areas of the country, for long-term investment buy- ing that more foreclosures will the necessary funds. building has almost come to a ers. follow early next year as adscreeching halt and demand will justable rate mortgages (ARM For example, one investor may eventually catch up to supply, at With many consumers in-creas- mortgages) sold in 2007 kick locate a great investment prop- which time prices will rise. ingly concerned about liquid- in with a vengeance in the first erty, but not have sufficient ity as a result of the reeling quarter of next year. funds to buy the property.

How long that takes is anyone’s economy, investors are turning guess, but some like those odds to their retirement accounts to At PENSCO Trust, we have seen By combining forces and funds better than investing in the take advantage of an incredible a 26% increase in IRA real es- with an IRA investor, who may stock market. buyer’s market. tate purchases (to $26 million) participate through an equity between the first and second investment or an extension Choose your own poison, but Since the credit market is effec- quarters of this year. of credit, they can acquire the eventually you have to take actively in neutral, investors are property. tion to keep your wealth growscooping up properties in some Most of this increase was assoing. areas for less than 50% of ap- ciated with foreclosures in the It is important when investpraised value, with all cash pur- residential market, however, we ing in real estate with a selfchases with their self-directed have also seen quite a few real directed IRA, that you choose a Contact: IRAs. estate syndicators buying up competent IRA custodian with a www.PenscoTrust.com unimproved land (undeveloped strong track record.

For example, on July 6, I heard lots), with the idea of conditionPhone: 415.274.5608 from a real estate broker in ing it through entitlement in Good custodians will help you

W

AUGUST 2009 • SJREI JOURNAL 9

RENT TO OWN| By Caroline Hegarty

Rent to Own: Your Ticket to the ‘American Dream’ W

CAROLINE HEGARTY Investor

hile most Americans still tend to view home ownership as part of the American Dream, the current real estate cycle encouraged people pursuing this dream to make emotional, rather than prudent financial decisions, which led to a huge increase in the volume of foreclosures.

As everyone needs a place to live, most people will consider renting until they can recover their credit score and financial health in order to qualify to own a home again.

The opportunity to rent to own, especially when the monthly payment is close to market rent and

the option price is greatly below what they paid for the same house five years ago, provides an attractive alternative.

As an investor, I love the rent to own option as an exit strategy, because it provides great advantages to buyers and sellers alike, in addition to contributing to the community by maintaining a higher percentage of homeowners versus renters.

A typical rent to own arrangement involves a preset purchase price and term, a set monthly payment (a portion of which is usually applied towards a down payment) and a nonrefundable option payment (which is also

applied towards down-payment upon execution of actual purchase at the end of the term).

The market conditions for rent to own exit strategy for investors are perfect right now in many Bay Area markets because of the high amounts of foreclosures, prices that are frequently below the cost to rebuild and a large pool of buyers.

Caroline Hegarty is a real estate investor based in Vallejo and specializes in rent to own exit strategies along with flipping houses. She can be reached at 707.704.4904 or at caroline@reiinformation.com.

Considering a rent-to-own plan?

Market conditions are ripe, and there’s plenty of perks for both buyers and sellers

Buyer Benefits • Ability to get into home ownership with less out-of-pocket expenses compared to the usual costs associated with getting a conventional loan • Option money applied towards down payment of house • Monthly rent credits accumulating towards down payment instead of buyers having to come with lump sum and closing costs all at once • Opportunity is not driven by credit score • Working with an individual as opposed to a bank creates a better platform for mutually beneficial negotiations due to less “red tapeâ€?

Seller Benefits • The ability to get a higher price for a house based on a future sale date

h%XCELLENCE )N 2OOlNGv

• Sellers can, if they choose, charge higher than average rent. It is important not to be greedy as it may lead to disputes down the line if a buyer fails to execute for some reason that is not necessarily their fault • A nonrefundable option fee, which is a consideration from the future buyer for the rent-to-own opportunity • A rent-to-own agreement reduces the likelihood of maintenance and excess landlording activities as tenant buyers treat the home as though it is their own • By offering a rent to own option, you have an increased market of: – Renters who realize they can own for the same monthly payment as rent – Homeowners who lost their homes and have credit issues but want to own again – Investors with credit or cash issues but want to take advantage of historically low prices

/UR %STIMATES ARE &REE /UR !DVICE IS 0RICELESS

WWW LOSGATOSROOlNG COM

TEXAS INVESTING | By Tom Wilson

AUGUST 2009 • SJREI JOURNAL 10

Selecting the Best Investments in a Perfect Storm Economic drivers, strong employment, cash flow and more

I

don’t recommend being a real estate inves- The primary parameters for selecting tor, unless you have a well-defined strat- the best investment markets are: egy, quantitative goals and are dedicated to go by the numbers and not by unsupported • Rent to purchase price ratio advice or emotions.

• Population growth and inward migration My engineering training and 30 years of ex• Employment and business climate perience managing high tech profit centers in • Housing affordability Silicon Valley taught me how to analyze for the • Location best return on investment in any market.

• Cost of living Today, the principles remain the same. Any• Rental market one can do it, however, one needs to be very • Current and projected market conditions disciplined and educated about the submarkets and products, or ride the coattails of someone Now that speculative investing for fast profit who is. has gone the way of the last supermodel, the

TOM WILSON Owner/Investor Wilson Properties

Tom Wilson has bought and sold more than 1300 units, mostly in DFW, including three condo conversion projects, two syndications and seven multi-family properties.

Currently, he is focusing on a program of reselling rehabbed and leased DFW foreclosures to investors.

He is active in real estate investment clubs and provides mentoring to new investors.

Reach Tom at: tomkwilson@earthlink.net www.tomwilsonproperties.com Phone: 408.867.1867

This graph illustrates the tremendous migrations to Texas that continue in 2009.

AUGUST 2009 • SJREI JOURNAL 11

‘Right now, I prefer to invest in homes over commercial and multifamily products because homes have more liquidity, are generally lower risk and appreciate faster,’ Wilson says. wise investor is focused on cash flowing assets and safe harbors in this perfect storm.

Are there markets that have weathered the storm well, are superior in many of the parameters above and have had relatively calmer waters during these past few tumulus years?

Indeed, my experience in more than 1300 investment unit transactions in the past 10 years has revealed that that DFW is one is the best in the United States.

The strengths of DFW are: • Fourth largest and fastest growing MSA (Metropolitan Statistical Area) in the United States • The highest rent per invested dollar for a major economic center in the United States, and therefore the highest cash flow • Broad-based economy that has outperformed the United States’ average by two times during the past decade • No. 1 ranked business climate in the United States; no state income tax • Leading MSA for corporate headquarter relocations and expansions • Most affordable housing of top 20 cities ($129,000 median July ’09) • Central location in the United States attracts companies desiring time zone and distribution competitive advantages • DFW airport is the second largest in the United States and fourth largest world • One of lowest cost of living major MSAs, yet above average household income • Highest millionaire growth rate in the United States • Strong rental market (95% July ’09 for single family homes) • Very landlord friendly.

• One of safest harbors in the United States for real estate and economy, especially in past few years • Excellent long term growth projections.

Yes, the national economy crisis has affected even DFW, but not significantly compared to other MSAs. Texas is the second most populous state, so there are indeed many home foreclosures, especially since there is such low cost housing and consequently a high percentage of subprime loans, but in spite of this, Texas foreclosure rate is only 17th in the country.

Historically, the last economies to slow down, are the first to go back up. I don’t know when DFW will start appreciating again,

but I believe it will be before many other areas, and our window of opportunity to invest optimally in any leading area may be shorter than we think.

Right now, I prefer to invest in homes over commercial and multifamily products because homes have more liquidity, are generally lower risk and appreciate faster.

Even in a good region, one must be very careful though in selecting the right product, neighborhood and professional service and management team.

Make sure you rely on resources that have a lot of investment experience in that region.

If I’ve learned anything in investing, it is that variations in performance from the median can vary tremendously in any general geographical area, and only experienced professionals can help you minimize that risk. I believe that the wise will not wait and see, but act to grasp the best opportunities of our lifetime when everyone else is hiding from this perfect storm.

We are a full-service Real Estate and Property Management Company that caters to the out of town investors with the highest level of professionalism and competence.

We have created a model which will assist each investor with all their needs during every Pam Blanco, stage of their investment. Our Team is standOwner/Realtor ® 2000 E. Lamar Blvd., Suite 600 ing by and ready to assist. We understand the Arlington, TX 76006 fact that property management is an impor817-907-7347 Cell tant part of the equation. We place a high 817-549-0013 Fax pam@pamtexas.com emphasis on knowledge of each market area.

PROFESSIONAL MANAGEMENT

PROFESSIONAL SALES        

Advertising and Marketing



Licensed Leasing Agents

Area Knowledge



Marketing/Advertising

Property Selection



Competitive Management Fees

Competitive Market Analysis



Comprehensive Market Study



Individual Property Accounting



Maintenance/ Make Ready



Delinquent and Eviction Procedures

Negotiations Closing Coordination Updated communication Due diligence

BANK-OWNED PROPERTIES | By Howard Bloom

AUGUST 2009 • SJREI JOURNAL 12

How to find Bargains on Bank-owned Homes Bank-owned properties offer good deals, but buyers beware

T

oday’s dramatic growth in the number of bank-owned properties, or real estateowned properties (REOs), have offered exceptional opportunities within our own Bay Area and around the country.

Whether you’re looking to upgrade your personal residence or purchase investment property for cash flow, appreciation or tax benefits, REO may be the way to go.

Location, location, location!

HOWARD BLOOM Realtor Intero Real Estate Services

Howard specializes in the purchase and sale of bank-owned properties .

Believing in what he sells, Bloom has purchased more than 50 bank-owned properties for himself.

Reach Howard at: Phone: 650.947.4780 hbloom@interorealestate.com www.HowardBloom.com

While REOs offer great opportunity, purchasers need to conduct the same due diligence used in any home purchase.

First of all, buyers need to be educated in the neighborhood they are purchasing: What are the market trends? What are current rents? Is it a high-crime area? How are the schools? What is the tenant profile?

Negotiation is key Everyone wants a deal, and banks want to sell properties they have on their books, but they’re not giving them away.

Banks have a responsibility to their shareholders to get the best price they can and sell the property within a reasonable period of time.

• Do your homework • Know what the other houses in the area have closed for • Factor in what type of repairs are needed in order to make

the property a solid rental ject the buyer to other losses.

• Don’t get emotional about the property Professionals can help get • Determine a maximum price the job done that you’re willing to pay • Be prepared to walk away Always retain qualified professionals to determine the condiIf you don’t get your property, tion of the property. Be a smart many banks will do a price re- investor. duction every 30 days, so conDoes it make sense to spend tinue to track your property. $500 on inspections to ensure that you are making the right deAlways read the fine print cision on a $100,000, $300,000 or $500,000 investment?

Always read and make sure While the banks don’t want to you understand the purchase re-negotiate the contract, if you contract and any bank adden- find unexpected defects, you dum. can ask for the bank to repair it, Most banks state that the ad- credit the buyer or as a last redendum will supersede the con- sort cancel the contract. tract where they conflict.

If you want to get the best reThe bank has never seen the sults buying bank-owned/REO property, knows nothing about properties, retain the most qualthe property, accepts no respon- ified, experienced, responsible sibility or liability for the condi- REO agent that you can find. It tion of the property and transfers will cost you nothing, because all responsibility to the buyer to the bank pays the realtor’s comconduct a thorough investiga- mission. tion of the property.

This is a once in a lifetime opIt is important to note that portunity to get REO properwhile our local contracts utilize ties at highly discounted prices. an active method of contingency If you have funds available, the removal, many banks utilize a time is now to invest in the real passive method of contingency estate market. removal that places the responsibility on the buyer to notify the seller of their intention not to proceed with a transaction within the timeframe provided.

Otherwise, the contract makes the assumption that the transac- Howard Bloom is a realtor for tion is moving forward.

Intero Real Estate Services.

Failure to act according to the Howard represents several terms of the contract may place major lenders in the disposithe buyer’s deposit at risk or sub- tion of their REO inventory.

CREDIT REPAIR | By Hannah Fliegel

AUGUST 2009 • SJREI JOURNAL 13

Why Maintaining Good Credit Matters The current state of the economy has left investors scrambling to boost their credit scores. Hannah Fliegel, aka the ‘foreclosure fixer,’ explains how you can easily repair a damaged credit score and instantly receive at least a 60-point boost.

HANNAH FLIEGEL Credit Restoration Expert United Credit

What is credit restoration?

Hannah Fliegel is a credit restoration expert, and her company, United Credit, assists clients in navigating the credit repair process efficiently.

United Credit begins with the dispute process in an effort to remove negative trade lines on a consumer’s credit report by challenging, inaccurate, obsolete or unverifiable information.

Once the dispute process is complete, clients are provided with strategies to boost their credit score and teach them how to maintain a good credit rating moving forward.

Hannah is also a real estate investor who maintains a credit score of 819 and services well over $1.2 million of mortgages. Home loans and lines of credit are drying up for investors who have less-than-perfect credit. By maintaining stellar credit, investors have more options for investment opportunities.

Hannah has assisted hundreds of real estate investors in removing their short sales, foreclosures, deed in lieu and bankruptcies from their credit reports.

She also uses credit repair for all her lease-option tenants. She has earned the nickname the “foreclosure fixer” because

her high success rate of removing foreclosures from the record.

Why credit repair after short-sales, foreclosure or deed-in-lieu?

The damage to the credit score itself is caused by the late payments leading up to the short sale, foreclosure, or deed in lieu.

Typically, it’s an 80 point hit.

From a credit stand point, there is little difference between a short sale, a foreclosure or a deed in lieu if the loan is a nonrecourse loan and the lender forecloses by deed of trust.

Through the credit repair process, our clients can expect a 74% chance of removing the foreclosure, short sale or deed in lieu from their credit reports.

negative trade lines that were included in the bankruptcy would be removed causing an immediate 60-point recovery to their score and a huge improvement to their credit rating.

Ironically, 50% of the time the bankruptcy itself will be removed from the consumer’s credit reports.

Hannah Fliegel began investing in real estate in 2004. After having a pre-construction deal in South Florida go south and compromise her credit, Hannah discovered the world of credit restoration.

Hannah is living proof that lemons make great lemonade! A true entrepreneur, Hannah is a mother of two and she is married to a litigation attorney, who is partner at an international law firm.

For SJREI Members, Hannah offers a special pricing of $399 for credit reTypically, a consumer loses 120 points to pair services.

Why credit repair after bankruptcy?

their credit score when they file for bankruptcy. Once the bankruptcy is discharged, a client should sign up for credit repair.

If clients were to pull their credit report, they would see the bankruptcy as well as all the other negative trade lines that were included in the bankruptcy.

By signing up for credit repair, all the

www.HammeredCredit.com Hannah@ForeclosureOptionsNetwork.com

Phone: 415.999.9348

AUGUST 2009 • SJREI JOURNAL 14

FORECLOSURES | By Jason Lee

Debunking the Foreclosure Myth Will a second wave of foreclosures sink the Valley’s real estate market?

Will a second wave of home fire their agents and wait for the couple payments and lenders file a notice of default with the foreclosures hit Santa Clara next big wave of foreclosures. county.

County?

After four to seven months, Crunching the numbers

JASON LEE President Silicon Valley REO

Silicon Valley REO specializes in:

Some experts predict the next wave of home foreclosure will be enormous because a number of new laws have delayed the efforts of lenders to foreclose, according to RealityTrac.com.

When these delays finally expire, this may open a floodgate of foreclosed homes.

It is predicted that Silicon Valley homes prices would drown under this wave!

However, the truth is a countless number of buyers are frustrated by numerous failed attempts to purchase a home amidst fierce competition.

Many investors have opted to

The chart below tracks all bank-owned trustee sales in Santa Clara County since April 2007. (Chart 1). It has had many peaks and valleys in the last 12 months.

At the beginning of May 2009, the trustee sales numbers have hovered around 100 homes per week. Will it move toward 200 or 300 in the near term?

Will the market see more foreclosures?

The foreclosure process begins after the homeowner misses a

• Analyzing of statistics and trends within the local market • Providing a true understanding of the real estate investment process • Putting together difficult deals by thinking outside the box while working with sellers, buyers and investors of all types.

Silicon Valley REO 1143 Story Rd. #250 San Jose, Calif. 95122

Phone: 408.998.1300

Chart 1. Supply of bank owned since April 5, 2007.

the county will conduct a trustee sale with the minimum bid usually at the loan amount owed to the foreclosing lender.

If no one bids at least the minimum price, the property becomes a bank-owned home.

Legally, the lenders may obtain the property via a deed in lieu of foreclosure if the lenders are able to get in touch with the homeowners and, somehow, get the debtor to sign over the deed.

There is no way to account for the number of homeowners that are willing to sign such a deed and to give up their homes voluntarily.

AUGUST 2009 • SJREI JOURNAL 15

However, Silicon Valley REO has tracked the notice of defaults since April 2007.

(Chart 2).

What will happen to home prices when the wave hits?

As of June 4, 2009, there are 349 active bank-owned homes for sale in Santa Clara County. The number of bankowned homes that have closed in the week prior was 168.

Silicon Valley REO has about two week’s worth of inventory today versus 12 months of inventory in December 2008.

Let’s examine the potential fact of the next wave: With 300 notices of default per week (Chart 2), 100 will be lost to short sales, 50 to loan modification, 20 to auction and 130 will become bank owned.

The tsunami of foreclosures experts predicted now looks like a sprinkle of rain upon a dry desert. (Chart 3).

Chart 2. Notice of defaults filed since April 2007.

Silicon Valley REO’s business model Silicon Valley REO is a leading firm with its own research department. We crunch the numbers so clients don’t have to do the work.

We predicted the imbalance of bank-owned homes last November, and we know what will happen in the next six months in Santa Clara County.

We use the fundamentals of real estate to guide clients on every purchase. The numbers tell the story.

Jason Lee is a realtor and President of Silicon Valley REO.

Chart 3. New bank owned listings vs. close of escrow since Oct. 9, 2008.

UNDERSTANDING THE LAW | By Anthony F. Earle

AUGUST 2009 • SJREI JOURNAL 16

Buying and Selling Foreclosed Homes Anthony Earle examines how California law can impact your investment

T

he current economic downturn in the real estate market has resulted in many California homeowners being in danger of losing their homes through foreclosure.

ANTHONY F. EARLE Attorney

Anthony F. Earle is an attorney licensed to practice law in all California state trial and appellate courts, the United States Supreme Court, the United States Court of Appeals for the Fourth and Ninth Circuits, federal trial courts in the Northern District of California and the United States Tax Court.

He has served as a judge pro tempore for the Santa Clara Superior Court and is also a licensed Real Estate Broker.

Phone: 408.786.1060 800.515.7560 www.earlelaw.com

The California Home Equity Sales Contract Purchase Act (HESCPA), California Civil Code § 1695 et. seq., seeks to protect homeowners from overreaching by real estate investors, through the imposition of certain non-waivable requirements relating to both the form and substance of most contracts for the purchase of California homes in foreclosure.

Criminal and civil penalties can result from violations of HESCPA. Criminal penalties can include a $10,000 fine and one year in jail for each violation. Civil penalties can include an award of actual and punitive damages and attorney fees.

Penalties under HESCPA can be imposed in addition to any other remedies which may be provided for by other provisions of law. The statute of limitation for HESCPA violations is four years.

A recent case, Spencer v. Marshall, 168 C.A.4th 783 (2008), is instructive. In 1998, Alanna Spencer, a first-time home buyer, purchased a condominium in Hayward, Calif.

Several years later, the lender,

Option One Mortgage, filed a notice of default. At the time the notice of default was filed, the condominium appraised for $290,000, some $120,000 more than Spencer then owed on it.

sultants.”

A foreclosure consultant is defined as any person (with certain limited exceptions) who solicits, represents or offers to a homeowner the performance of a service for compensation Ryan Marshall “or assigns” pur- which effectively will save a chased the condominium from homeowner from foreclosure, Spencer for $200,000, about or assists a homeowner in ob$30,000 more than Spen- taining the remaining proceeds cer owed on the property, but from a foreclosure sale (“surplus $90,000 less than the proper- funds”). Civil Code § 2945.1. ty’s appraised value.

The foreclosure consultant The purchase agreement was statute may be enforced either reviewed by Spencer’s attor- criminally or civilly. ney and Spencer understood that the sale price for the con- Criminal penalties may include dominium was less than its ap- a fine of up to $10,000 and/or praised value. one year in jail for each violation. C.C. § 2945.7.

After the sale, Spencer filed a lawsuit against Marshall, seek- Civil lawsuits may result in a ing to rescind the deed which judgment awarding actual and/ transferred title of the condo- or punitive damages, injunctive minium from Spencer to Mar- relief, and attorney fees. shall, to quite title to the condominium and for compensa- The statute of limitation is tory and punitive damages. four years from the date of the alleged violation. C.C. § After a bench trial on Spen- 2956.6(b). cer’s HESCPA claims, the trial court entered judgment against Damage awards, such as remeMarshall, awarding Spencer dies under the HESCPA, do not $70,000 in actual damages and preempt rights and remedies $210,000 in punitive damages, an aggrieved homeowner may for a total award of $280,000. have under other provisions of law. C.C. § 2945.6(b).

Another California statute seeks to protect homeowners in foreclosure by regulating the activities of “foreclosure con-

AUGUST 2009 • SJREI JOURNAL 17

FIRST TIME INVESTORS | By Chuck McCay

Insights for the First-time Investor

How to build an investment model that fits your experience and lifestyle

A

CHUCK McCAY Broker/Investor McCay Homes

McCay Homes 3333 Bowers Ave. #130 Santa Clara, Calif. 95054 Phone: 408.836.1091 www.chuckmccay.com

s a new real estate investor, it is critical that you develop a model for the type of investments that you are going to target – single family homes, or small multi-units. As you prepare to invest consider your specific goals, and create a strategy to reach those.

Seasoned investors have a fairly specific set of criteria for buying property. They are very familiar with the area that they are buying in, the price range they want, rents for the area and how much rehab they are willing to do.

Unnecessary renovations are expensive and impact the return on investment (ROI), so they do the work that will bring in the tenant or assist with getting the property sold. Additionally, they have their financing lined up, and exit strategies formulated prior to the close!

One of the more successful investors I know has been purchasing in one California market at

the trustee sales; he does a very minor rehab and sells to a retail buyer. His purchase price is in the $100,000 range; rehab is less than $10,000 and his bottom line net is $15,000 to $20,000 in about 90 days.

I worked with another investor on the purchase of a San Jose condo. These condos sold for a median price of about $380,000 in 2005-06. In December 2007, the prices had fallen to $275,000, and this year, the price point hit a low of $125,000.

The units are two bedrooms and one bath and rent for $1300 to $1600 per month. These will provide a reasonable cash flow and are positioned for significant appreciation when the market turns around.

In the Greater Bay Area, an investor can find either great cash flow opportunities to purchase at a discount and flip, or find properties that will break even while providing an expectation of solid,

long-term appreciation. Explore those that meet your criteria.

Your investment model will be built out with different types of properties.

Consider the following factors: location, distance from your house, rental rates, vacancy rates, rent up times, access to good property management, schools, safety, age of properties and access to transportation.

Finally, determine the best strategy for acquiring the investment properties that fit your model.

You might be working with a broker, buying at trustee sale or auction, doing mailers or door knocking in specific neighborhoods. Find what works for you, and go for it!

Chuck McCay has been a fulltime real estate agent for more than 11 years and a broker/ owner of his own company for the past five years.

Collaborate with experienced investors to create your own checklist detailing the specific criteria that you want to use. The first part of your checklist will detail factors that will determine the type of property. Keep the following in mind: Your experience:

Your goals:

Your financial situation:

• Buying and selling real estate • Negotiating contracts • Management – projects, people or tenants • Rehab property

• Create cash flow to replace your current income • Create equity to fund your children’s education or your retirement • “Chunk” income to provide cash at irregular intervals

• Are you a high income earner – more cash flow might not help?

• What is your credit score?

• Do you have funds in an IRA or 401K that could be moved into a selfdirected retirement account?

• How much cash do you have?

• Do you have possible partners?

AUGUST 2009 • SJREI JOURNAL 18

MARKET WATCH | By Geraldine Barry

Bay Area Market Watch: Calling the Market Bottom

These charts demonstrate how inventory/supply and demand/price relate.

GERALDINE BARRY President SJREI Association

Geraldine Barry is an active investor and President of the San Jose Real Estate Investors Association (www.sjrei. net) providing timely real estate. SJREI provides information to investors on markets both locally and nationally, and creates a forum for investors to connect with like-minded people.

Reach Geraldine at: sjrei.geraldine@gmail.com www.SJREI.net Phone: 408.264.3198

B

uying at the bottom of the market is the ideal, but not always easy to accomplish.

The big question on every investor’s mind these days is whether a particular real estate market is hitting a bottom.

Experienced market timers who make a living predicting market patterns succeed by identifying trends in the past and current markets and project what is likely to occur. But, even seasoned market timers, such as Bruce Norris or Robert Campbell, who have had years of success in calling pricing trends in California, don’t claim they know exactly when a bottom will occur.

There are a couple of data points that are helpful when determining which direction the market is headed. Inventory levels are a fundamental indicator of expected pricing movement; simple supply and demand.

Exploring past and current inventory levels for specific areas can be very useful. One expects property values to increase or decrease as inventory levels move up or down.

MILES/BARRY CONTRACT FURNITURE is a full service independent furniture dealership providing quality, cost-effective interiors for businesses of all sizes.

We offer creative, flexible solutions tailored to individual space requirements, budget and aesthetic concerns.

Contact: Barbara Miles

– 650-359-5611 –

bnmiles@milesbarryfurniture.com www.MilesBarryFurniture.com • • • • • • •

PRODUCT SALES

Ergonomic Products Workstations-New and Refurbished Casegoods-Veneer & Laminate Filing Systems Conference Rooms Lunch Rooms Training Table

MILES/BARRY CONTRACT FURNITURE’S experience in the industry brings you prompt, professional service for every aspect of your project. You will enjoy the care, accuracy and efficiency of working with just one contact.

• • • • • • • •

PROJECT SERVICES

Consultation on Project Phases Design CAD Drawings Installation Reconfiguration Affordable Pricing Panel Cleaning Leasing Extensive Product lines

PERSONALIZED SERVICE WITH CREATIVE OPTIONS!

AUGUST 2009 • SJREI JOURNAL 19

I have included two charts of one of our markets of interest that demonstrate how inventory/supply and demand/price relate.

Foreclosure numbers that are either increasing or decreasing provide a snapshot into the future of potential price changes.

An increase in foreclosure numbers will generally result in price declines; a decrease usually means that inventories are tightening, and hence prices will likely increase.

The vast majority of foreclosed homes ultimately become real estate owned (REO, or bank owned).

Since banks are not in the real estate business, they are eager to sell.

Thus, an increasing number of foreclosed homes in a given area not only indicates that there will be a future increase in in-

ventory, but also as REOs, the sellers will be motivated.

It should be noted that it may take as long as a year for the process of posted foreclosure levels to work themselves into the market, and then out as completed sales.

Affordability is another factor that drives sales and impacts inventory levels – most people are not aware that affordability as of April 2009 was 73.5%, according to Realtor.com, who also added that in the past year, the Housing Affordability Index maintained by the National Association of Realtors has increased 29% overall and 19% for first-time homebuyers, and is higher now than at any time in the 28 year history of the index. (See graph 1 on the front cover).

Finally, it should be noted that apply-

ing just a couple market timing indicators, such as inventory and foreclosure levels for movement, is not sufficient to get the complete picture of where prices are headed.

There are many other useful market factors that can and should be explored. According to Robert Campbell, economist and author, the following should also be considered to get a more complete picture: • New Home Building Permits (housing starts) • Interest Rates • Loan Defaults However, as an investor, knowing your local foreclosure rates and inventory levels will give you some very important insights in determining the right time to buy.

Tidbits from the Trenches With Broker/Investor Jebb Henley

How are credit market conditions impacting investors?

Davis-Dyer-Max, Inc. is one of the oldest and largest independent agencies in the

Dallas/Fort Worth Metroplex. We are committed to provide clients with the broadest coverage available at the most competitive rates.

Our Scheduled Dwelling Program through an A+ rated insurance carrier is a fantastic way to consolidate your rental dwellings on one manageable policy.

Program Highlights • • • • • • •

Rental or vacant homes Available in most states 1-4 family units No restrictions on age of homes Basic, Broad, or Special Form Loss of Rents up to 6 months Premises liability up to $1,000,000

We offer an Umbrella over the Scheduled Dwelling policy $1,000,000 up to $5,000,000.

We also have competitive rates for home and auto.

Michelle Pepper

michelle.pepper@davis-dyer-max.com 3200 Broadway, Suite 400 Garland, TX 75043 Office 972-864-0400 ext. 243 Fax 972-278-8400 Cell 214-212-6423

PDF created with pdfFactory trial version www.pdffactory.com

The continuing “credit crunch” means investors are experiencing delays and additional costs to obtain required financing to close deals. Conventional cash-out refinancing, previously restricted only by a limit on the total number of transactions and an investor’s credit score, is now subject to varied seasoning periods, higher contribution percentages and inconsistent application of the limits of the number of loans an investor may hold at one time.

What area are you investing in, and why?

I invest in distressed homes at a 40% discount from neighborhood sales. The homes can be renovated while maintaining a low property tax base and create strong income flows. Single family homes are maintaining a high occupancy which is rare compared to multi-family units.

Any recommendations to investors?

Stick to fundamentals: Buy low and stay flexible. Market conditions will continue to evolve in response to the crisis, and the large inventory of properties already in or headed for foreclosure will continue to put downward pressure on housing prices.

What do investors need to be aware of as they invest?

Look for areas with strong and diverse employment, steady housing prices, above average per capita income and educated work force.

��������� ������������� ��������

� ����� �����

���� ���

� ���� �������������� ��� ���� ������� ���� ����������!��� "�#"

$�������$��%����� �&� ����& �&����'���� ���� ( ��� '��������& ����

���� #)�#

*+����'���,!����� - �(�����.��� �

*������ ��������������� ( �� ������� ����

��������

�������������������������������

���� ������������������������������������ #)�0)

��1�2(��'������� ���!��� ��3������

���� ##�/

(� �& ��-4����������� �5 �� �& � ���� �&

�77��� ���8�������� �&��� ����&�����

�������

!�������"�������

���� ��#/

���� ##�#6

9������� �������4��������� �&����� �������������� ����� �&:�����������' �&���� ���� ��������������:� ������������������� �7����� ��:������ &���;�����;�7�������4�-:������� ��!!����&���!��7�������!��!����������������������&�������������� �� �&�������!� ��� ������<1,��&����=��������+���� �� ����������!� �������������:���'������:���������� �����7����� �&� �>

� � � � � �� � ���� �� � � � ����� ��������?���� ������-���� !���@00/�!��� ��� � ����� ���������� ������-���� !���@00/�!��� ��� ���������� ����� ���������� ������-���� !���@A/)�!��� ��� .���B�;!��� ���;��������C/��� ��7���������� � ���� &���!>

� �� � �� � ����� ���7����� ��������� �!��&������ �����������:�� ��� ������� �����!�������� ��� ���� ���� �����& ����� �� �1!!����� � ������������� ���� '��� �����!��!�� ��������� �� ���?��������� ����� �&��2$�� �� �8��������� ��������3 ��!�� ���� ���������!� � �&�7������'���!����������= �+����������5���� ���+�� �������+�� ��D��������:��������7������������ �D ��������!��� ����- �������.�� ��������+����-���� ! �*�����������.�����'�� ������������� ������������������ ����:��5!�� ������������� ���-�� ������ ��=