Thursday, December 4, 2008
A new Real Estate Investment Era is upon us
It is here. After 6+ long years there is an extremely profitable buyers market out there! Although Real Estate is highly localized, almost every market across this great country of ours is for sale for a very nice price. This will benefit real estate investors and primary home buyers a like. I have had multiple mortgage brokers e-mailing me over the last few days just going crazy about home buyer rates. In fact I have been told owner occupied loans will drop to around the 4.5% mark in the very new future. 4.5%? Are you kidding me? That means the home buyer who was stuck looking in the $170,000 range a month ago can now bump him or her self up to around the $200,000 range! Pretty sweet. While rates are not quite as exciting for investment loans, the deals are! I just did a short sale in a high end PUD in Liberty Lake WA. Property value was around $475,000-$500,00 even in this market. The two notes on it totaled $475,000. We closed it this morning at $345,000. Home is in perfect shape, needs no work. You should see the smile on the end buyers face:) My fellow investors, foreclosures is just flat where it is at right now. The banks don't want anymore properties. Their portfolios are chalk full. Short sales is a very profitable game right now. Ideally you take these deals down with cash buyers, but we are buying them with mortgages right now! The residential window of opportunity is open. Yes it will stay open through 2009 and probably even leak into 2010 a little bit. But with the rates and the deals, inventories are going to drop! The window will shut. Did you ever here anyone in 2005 say "boy I wish I would have bought some properties 10 years ago"? Yeah me too, and guess what? It's time. A 3-5 year hold or maybe even a little longer is looking really good right now. So what will 2009 bring for real estate investors? The rest of the residential opportunity and the start of commercial real estate market drops and foreclosures! You heard it here. The way the real estate market cycles, commercial is the next melt down. In fact it is already starting. Will it be as bad as the housing debacle? No. Not a major sub prime lending market for commercial. However, there were sub prime commercial loans made. Loans that had a very high LTV (loan to Value) as well. Also, even though most commercial loans are amortized over 20-30 years, they have short balloons on them. Typically 5 years. Well if the banks are not doing a lot of big loans, and retail and office buildings are seeing higher vacancy rates, guess what? Yep, default or motivated sellers. As unemployment hits it's peak and companies go out of business in the next 6 months, their housing needs will change as well. And the cycle goes on. So the moral of the blog? Get up, get out and get investing. Help off set all that money you lost in the stock market. Build a real estate portfolio that will bring you cash flow! Cash flow is king and it will set you free. I am currently putting together a couple multi-family commercial real estate investments. If you are interested in qualifying as one of our investors send me an e-mail and I will send you out our qualification questionnaire. If you need to build some "chunker" capital as David Lindhal would say (chunks of capital to invest later in bigger projects) foreclosures are a great place to start. Give me a call and I will help you get started. Happy Holidays!
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Take a look at this article fromthe Associated Press today about the future of commercial real estate!
Meltdown far from over, new mortgage crisis looms
Malls, hotels next victims in mortgage crisis as signs show meltdown far from over
Matt Apuzzo, Associated Press Writer
Friday November 28, 2008, 4:45 am EST
Yahoo! Buzz Print WASHINGTON (AP) -- Black Friday's retail shoppers hunting for holiday bargains won't be enough to stave off what's likely to become the next economic crisis. Malls from Michigan to Georgia are entering foreclosure, commercial victims of the same events poisoning the housing market.
The Vanity Fair Outlet stores opened at 12:01 a.m. EST for Black Friday sales has shoppers seeking bargins and discounts Nov. 28, 2008 in Reading, Pa. (AP Photos/Bradley C Bower)
Hotels in Tucson, Ariz., and Hilton Head, S.C., also are about to default on their mortgages.
That pace is expected to quicken. The number of late payments and defaults will double, if not triple, by the end of next year, according to analysts from Fitch Ratings Ltd., which evaluates companies' credit.
"We're probably in the first inning of the commercial mortgage problem," said Scott Tross, a real estate lawyer with Herrick Feinstein in New Jersey.
That's bad news for more than just property owners. When businesses go dark, employees lose jobs. Towns lose tax revenue. School budgets and social services feel the pinch.
Companies have survived plenty of downturns, but economists see this one playing out like never before. In the past, when businesses hit rough patches, owners negotiated with banks or refinanced their loans.
But many banks no longer hold the loans they made. Over the past decade, banks have increasingly bundled mortgages and sold them to investors. Pension funds, insurance companies, and hedge funds bought the seemingly safe securities and are now bracing for losses that could ripple through the financial system.
"It's a toxic drug and nobody knows how bad it's going to be," said Paul Miller, an analyst with Friedman, Billings, Ramsey, who was among the first to sound alarm bells in the residential market.
Unlike home mortgages, businesses don't pay their loans over 30 years. Commercial mortgages are usually written for five, seven or 10 years with big payments due at the end. About $20 billion will be due next year, covering everything from office and condo complexes to hotels and malls.
The retail outlook is particularly bad. Circuit City and Linens 'n Things have sought bankruptcy protection. Home Depot, Sears, Ann Taylor and Foot Locker are closing stores.
Those retailers typically were paying rent that was expected to cover mortgage payments. When those $20 billion in mortgages come due next year -- 2010 and 2011 totals are projected to be even higher -- many property owners won't have the money.
Some will survive, but those property owners whose loans required little money up front will have less incentive to weather the storm.
Refinancing formerly was an option, but many properties are worth less than when they were purchased. And since investors no longer want to buy commercial mortgages, banks are reluctant to write new loans to refinance those facing foreclosure.
California, New York, Texas and Florida -- states with a high concentration of mortgages in the securities market, according to Fitch -- are particularly vulnerable. Texas and Florida are already seeing increased delinquencies and defaults, as are Michigan, Tennessee and Georgia.
The worst-case scenario goes something like this: With banks unwilling to refinance, a shopping center goes into foreclosure. Nobody can buy the mall because banks won't write mortgages as long as investors won't purchase them.
"Credit markets have seized up," corporate securities lawyer Michael Gambro said. "People are not willing to take risks. They're not buying anything."
That drives down investments already on the books. Insurance companies are seeing their stock prices fall on fears they are too invested in commercial mortgages.
"The system has never been tested for a deep recession," said Ken Rosen, a real estate hedge fund manager and University of California at Berkeley professor of real estate economics.
One hope was that the U.S. would use some of the $700 billion financial bailout to buy shaky investments from banks and insurance companies. That was the original plan. But Treasury Secretary Henry Paulson has issued a stunning turnabout, saying the U.S. no longer planned to buy troubled securities. For those watching the wave of commercial defaults about to crest, the announcement was poorly received.
"He's created havoc in the marketplace by changing the rules," Rosen said. "It was the stupidest statement on Earth."
The Securities and Exchange Commission is considering another option that might ease the crisis, one that would change accounting rules so banks don't have to declare huge losses whenever the market declines.
But the only surefire remedy is for the economy to stabilize, for businesses to start expanding and for investors to trust the market again. Until then, Tross said, "There's going to be a lot of pain going forward."
Tyler, nice inaugural post! Looking forward to more of your investment pearls of wisdom.
Mike
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