Real Estate Network

Posts Tagged ‘Five’

When I talk to people about California real estate prices and what their opinion is of the market I get a few typical answers.

– The California market is going to be great in the long run.  It always goes up in value.

– California real estate is going to be great again, people will move here because it’s sunny.

– California is at the bottom of the market so it’s time to get in now!

The problem is that most people in California, heck, most people around the world obtain these types of opinions based on what someone else tells them or they are strictly emotionally based.  We all get information like that in one way shape or form but how do you know what is really going on and what is brainwashing.  You look at the data!  Well here is some of the information I see coming down the funnel to make California real estate prices drop once again.

(1) I speak to multiple real estate investors in California daily and they are telling me they can “feel” the pricing in the market declining.  The reason they feel this is because it is taking them 2.5 buyers to actually get a property closed, the comparable sales when they bought the property are different 3 – 6 months later when they are going to sell the property to the end buyer and appraisals are not coming back from the banks accurately. 

(2) In California we see the most option arm loans coming due through 2012.  Option arm loans are those loans that adjust after 3 – 5 years to the current market rate and continue to adjust going forward.  Things are great right now when the rates adjust lower than the 3 – 5 year fixed rates.  People will have lower rates and their payments will be lower.  However, when the U.S. government loses control over rates and the option arm loan rates rise, homeowner’s payments are going to skyrocket.  When that happens and the homeowners are already under water by $ 200,000 because their loan is greater than the market value of the home there are going to be massive strategic defaults.   That coupled with knowledge that the banks are stealing from the public, fraudulently signing foreclosure documents can be a receipt for disaster.

(3) Median income levels across the U.S. are not rising with inflation but are staying steady if not declining.  That means that people will have much less disposable income, and can afford less, as the middle class and poor are squeezed by the rising cost of living.  In states like California, the historical median house price to historical median income is 200%.  Right now the historical median house price is 300% of income which means prices have to come down to historical standards (a 30% drop) in order for them to become affordable.  The only reason the prices are still as high as they are is because of the governments’ quantitative easing programs and artificially keeping the rates low making them more affordable.  This is just another way to bail out the banks and have Americans pay more for a property than they are worth.

(4) 40% of the GDP comes from California, Texas, New York, Florida, and Illinois.  California accounts for 12% of GDP and has an unemployment rate above 12%, the third highest in the nation.  If these states lose more jobs, which is almost inevitable given how much financial trouble those states Municipalities are in, then the U.S. income will go down significantly hurting growth even further. 

(5) If you look at the California economy you will see major economic challenges.  The California municipality is way over leveraged and is close to going under.  There is over a $ 20 Billion dollar gap in the California budget, it’s an unfriendly business state, tax rates are rising, it’s a hugely volatile real estate market and it’s still over valued compared to the median income.

The point is to invest in markets that are undervalued, not overvalued if you plan on investing for the long run.  If you are flipping in California you had better get something at 65% of the market value in order to have the proper downside protection.  And unless you are a professional real estate investor with multiple contacts and can act extremely quickly (within hours) you will not be able to pick a property up in California for that type of price.  I personally invest in Memphis, Tennessee one of the most undervalued and affordable places to buy in the U.S.  It has great economic indicators and cash flows like crazy based on the amazing rent to price ratios there.

Invest where it makes financial and economic sense, not based on emotion.

When it comes to real estate, the topic of the day is the downturn in the market, the number of people losing their homes, and how much this is going to hurt the economy. In the seventeen years I have been in the real estate business, I have witnessed every fluctuation the market has to offer. While it is true that many property owners are enduring trying times, rarely does the same happen to knowledgeable real estate investors.

There are those individuals who remain emotionally unattached and invest wisely in real estate. As a result, they live a very comfortable, if not lavish, lifestyle. Investing in real estate, especially during a downturn, can widen an investor’s opportunities and bring about lucrative returns. This is a truth. If you are thinking about becoming a real estate investor or have already made the decision to start, the following information is priceless.

Wanting to secure a comfortable financial future, most of us go to work every day hoping to build a nest egg. Since, it is common knowledge that real estate investors have the capacity to not only build a nest egg but also create a fortune, why aren’t more people joining the ranks of real estate multimillionaires? Why aren’t there more people fighting for a seat on the real estate bandwagon?

Well, the truth behind real estate investing is that it is a business and therefore, must be treated like one for it to prosper. Just like any other promising venture, investing in real estate requires a well-defined vision, a strategic plan, and an entrepreneurial mindset. Even with the overwhelming evidence revealing success, only a microscopic segment of the population is willing to take the risk, do the work and follow through. The rest simply watch and call those of us doing the work “Lucky”.

When I began my career in real estate, I didn’t have a plan. I didn’t invest. I didn’t even see past my next commission check. What kept me hanging on was a desire to live like the people I worked for, most of whom were real estate investors. Years later, I committed to create serious wealth through real estate. As soon as I mindfully committed to my goal, I began to make deals and more money than ever before.

By choice, I am not one of those investors who vacations six months out of the year. I work all the time meeting with clients, looking at properties and refining my strategy. Add to that a growing number of mentoring/coaching clients and my schedule is officially full. Nevertheless, I am continuously increasing my net worth as I am doing something that never feels like work.

Besides creating amazing wealth, being your own boss and having a place or two to call home, owning a real estate investing business has many other advantages. The following five play a special role for the novice investor.

1. Safe Investment

When we use a timeline to compare the real estate market to other investments, such as the stock market, it is easy to see that real estate continues to increase in value over time without any serious instability. Although, there is currently a housing crisis in various parts across the country, every indicator points out that what we are actually experiencing is a readjustment of highly inflated real estate prices. Just as prices may be dropping, in time they will undoubtedly increase. In contrast, the stock market has put investors through a dizzying rollercoaster ride made up of swift highs and abrupt lows throughout history. Regardless of what type of market we are in, it is clear that an investment in real estate guarantees a profit over time.

2. No Cash Necessary

For beginning real estate investors, sometimes the only investment they can make is their time. For every real estate investor, finding a lucrative deal is as good as striking oil. There are plenty of seasoned investors with money in their pockets itching to buy a piece of discounted property. Wholesalers often utilize this method. Therefore, if you are new to the game, consider finding a deal, tying it up and connecting with an investor who can take it off your hands…for a price, of course.

3. Almost Anyone Can Do It

Real estate is such a lucrative field that it opens doors to countless amateur investors everyday. There are how-to books and seminars at every turn teaching would-be investors a myriad of ways to make huge profits in the real estate market. While it is true that overnight success is practically unheard of, anybody with the heart, mind and determination can make it big in real estate. The keys are to continue learning and to monitor market conditions.

4. Leveraging Power

While novice investors can turn a quick profit by wholesaling their deals, Buy-and-Hold investors can yield a profit by borrowing against (leveraging) their properties. Typically, lenders will allow holders of owner-occupied property to borrow up to ninety-five percent of their property’s value and up to eighty-percent of non-owner occupied units. This means that you can either purchase property with a minimal out-of-pocket investment or acquire financing that will allow you to pull cash out of your property’s equity to use for future ventures.

5. Tax Breaks

The popular 1031 exchange and depreciation are just two of them. The United States government has set up multiple tax breaks favoring real estate investors. Owning real estate with the goal of making a profit allows you to deduct interest payments, repairs, and vacancies among other expenses when preparing your tax return. It is important to note that purchasing real estate makes economic sense; it should not be purchased solely for the tax benefits.

Ultimately, owning a real estate business is the way to achieve financial freedom regardless of economic conditions. Whether you quit your job and dive right in or you work at it in your spare time, you can make it happen. Worthwhile benefits are waiting faithfully for the taking.