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Posts Tagged ‘best investment markets’

Some Markets Starting to Shift from Seller’s Markets to Buyer’s Market

Culdesac Single-Family Homes Shifting from Seller's Markets to Buyer's MarketIn a Fortune Magazine article by Chris Morris, published in February,  it is reported that in January 2019, there was more inventory available and houses sat on the market about a week longer than in January 2018.

As of January, there was an available inventory of 1.59 million homes overall, versus 1.53 million in December 2018.  Of course, the article is lacking by treating the entire country as one monolithic real estate market. Needless to say, there are hundreds of markets, and they don’t always perform in lockstep.

Nevertheless, there is a subtle shift, even in mentality, that is more favorable to buyers as opposed to sellers, who until recently reigned supreme. Since we are primarily buyers  (and then we hold for the long term), a buyer’s market is a positive for us.

Adjusting expectations

It is interesting to note, and one of the reasons I am posting this blog based on an article several weeks old is that while in January 2019 sales were flat, in February 2019 sales surged up, but then dropped only slightly. This is likely to continue to lower rates and sellers having to adjust expectations. Overall, we can see that while there is a shift towards buyers in many markets, the market is still hovering near a relatively stable point. With the low-interest rates and more friendly sellers, this becomes a positive for the investor.

We like to buy brand-new homes. Clearly, the sellers for us are builders. Some builders don’t want to sell to investors. Our market teams successfully convince the builders that it pays to work with our investors, as they get good volume from us. As the mood changes, these very builders may become more receptive to working with buyers, and perhaps even offer more incentives.

This will be discussed in more depth in a podcast on our Premier Members area soon. We will also talk about this during our next ICG Real Estate 1-Day Expo on May 18, 2019

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Is a Downturn in the Air?

Downsize and Downturn image blogAs we head into spring, there is a saying, “…spring is in the air.” And that is not the only thing being felt in the air. There seems to be a persistent notion that the “real estate market” has been going up for too long and is due for a correction. People also point out that the last big recession started in 2008, and perhaps the “cycle” is indicating that the new one may be upon us.

 

Of course, there really is no “real estate market” in the United States. There is the Phoenix market, the Dallas market, the Kansas City market, and the markets in every other metro area, such as Los Angeles, San Francisco, and so on. Not every local real estate market behaves in the same way others.

 

All markets do not experience a boom

 

Even during the major boom of 2004 to 2006, not all markets went through the boom. Some entire states “sat out” that of that one.  Similarly during the big recession, between 2008 and 2011, not all markets tanked. In fact, most of the markets that tanked were the ones which had boomed before.

 

Some states did not move down very much, even during the recession. This is an important point. If the San Francisco Bay Area (for example) does go down and corrects for its fast rise over the past few years, it is not “an automatic” that affordable markets like the Sun Belt states, (like the markets in which we invest) will do the same.

 

During past recessions, the rentals actually were better than usual. The reason is likely that if a tenant had been saving up to buy their own home, during a recession they are likely to shelve those plans till better times. Thus, even more, people rent than during stable conditions. Even if a downturn hits, the investor would likely benefit by just sitting and doing nothing, letting the loan balance pay down and get eroded by inflation, while enjoying lower vacancies.

 

How the Dodd-Frank bill helps

 

In addition, measures taken by congress after the last recession, like the Dodd-Frank bill, have mitigated the unbridled risk in lending that existed prior to the 2008 recession. My belief is if and when a downturn occurs, its magnitude is likely to be lesser than the last time.

 

One of the riskiest things, ironically, is that people delay buying solid investment homes, especially with today’s fantastic interest rates. I have met people from my past who never got started because there was always a recession around the corner, or a boom, or some other news item. Some of these people can be quite regretful 14 years later, realizing they could have changed their financial future but didn’t.

 

We will discuss this and many other issues at our 1-Day Expo on May 18th. I will also address this topic during our first webinar tomorrow–our official launch of the Members area on our website! Learn all about it and get on board at icgre.com/MEMBERS. Join us and stay informed!

 

 

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Buying a Home to Live in Versus Renting

Buying a Home to Live in Versus Renting

 

A classic question I get when talking to a would-be real estate investor is: “Shouldn’t we buy a home to live in first before buying investment homes?”

The answer is – it depends on where you live.

When considering owning your own residence, there are various layers of reasoning.  Some are logic and numbers-based.  Some are emotional, traditional and familial.

Owning your own home can be associated with safety, security, having “arrived”, satisfying family members’ aspirations, the stability of having a (hopefully) permanent place to live, and so on.

Of course, everyone has a different set of emotional considerations when it comes to owning a home.  These vary from person to person and, needless to say, are hard to quantify.

In this post, I will address the logical, numbers-based approach to the question of whether to buy your own home as your first real estate move, or rent and buy investment homes instead.

The numbers tell the story when considering buying a home

If you are considering buying your own home, the price of the home matters, the rent required to rent that same home matters, the local property taxes matter, the mortgage interest rates matter, dwelling insurance rates matter, and even the new 2018 tax law weighs in.

If you live in a market where property taxes are relatively low (say, between 1 and 1.7 percent of the home price per year), and insurance rates are reasonable, then if you are considering buying a home under about $400,000, that should be a “no-brainer” as your first step.  Between $400,000 and $500,000 would still be a reasonable range to consider buying the home.  In such a market, once you step up to the $500,000 range and above, the math may well start to turn as you climb higher in price, in favor of renting a home in the area in which you live.  Following that, owning rental homes in more optimal markets makes sense.

Watch out for high property tax and high insurance rates

In markets where the property taxes are high (like in Texas and Oregon), and insurance rates are high (Texas again, for example), the “no-brainer” number may shrink to $300,000 or so, while the range above which you may consider renting your own home while buying affordable investment homes in other markets, will likely be $400,000 or above. This is because with high expenses for property tax and insurance, (which as a homeowner you would be paying) the overall numbers and logic “turn the corner” faster.

Certainly, in expensive areas like the San Francisco Bay Area, Los Angeles, San Diego, New York City and others such markets, it is usually far more logical to be a renter, while owning rental properties in affordable markets, where rents are actually quite high as a percentage of the home purchase prices.

Our next quarterly expo is December 1st near San Francisco Airport. Email us at info@icgre.com and add “Read your blog post” in the subject line and come as my guest. We will get back to you with registration information. Learn more about the event at icgre.com/events.

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Where to Buy Rental Homes in the United States

We have discussed, in a previous article, why investing in Single Family Homes is a superior investment, especially for the busy professional (which most of us are).
We discussed the benefits of buying single-family homes using the unique 30-year fixed rate financing available ONLY in the United States (foreigners are amazed that we can get loans where nothing keeps up with inflation for as long as 30 years, meaning inflation keeps eroding the real value of our debt while the tenant is gradually paying it off for us). The 30-year fixed-rate mortgage is only available on 1-4 residential units, making single-family home rental investments even more attractive.
We also discussed how owning a portfolio of single-family rental homes can change everyone’s financial future. It can facilitate sending your kids to a great university, it can retire you sooner and more powerfully, and overall it can create a financial safety net for your future.
Single-family homes are easier to manage than other property and are usually occupied by families with kids, who go to local schools and serve as an anchor of stability to keep the family renting for a longer time. Single Family Homes are also possibly the most liquid real estate since when you put it up for sale your potential buyer pool is essentially everyone in the marketplace. It is still considered the “American Dream”, a dream which is attainable in many markets in the United States.
Where should we buy our single-family home rentals? To begin with, we can focus on large metropolitan areas. Large metropolitan areas are usually comprised of a number of cities (for example the Phoenix metro area includes cities such as Chandler, Mesa, Gilbert, Scottsdale, Avondale, Peoria, Glendale, and others). A large metropolitan area usually has good economic and employment diversity and a large pool of industries and employers. This is likely to create employment opportunities and economic stability. A large metro area also is likely to have a diversity of education, culture, culinary and many other facets of life, which can be attractive to a larger pool of residents and create a stable place in which to live.
Next, it is always instructive to study the demographic trends in the United States. Even before we had the World Wide Web and search engines to facilitate research, demographic information was available through multiple sources, including the US Census. It is evident that as far as overall demographic movements, the Sun Belt States are the states which usually experience net growth in population on an ongoing basis (those states in the sunny, southern part of the US, such as Nevada, Arizona, Texas, Oklahoma, Utah, Colorado, Florida, and other southern states.) Not all Sunbelt states keep growing on a net basis, but many of the big ones do, and that would be one criterion on which to base our geographic choice.
We will continue on “Where to Buy Rental Homes” in part 2 of 4 of this article. We will also discuss these subjects and much more during our ICG Quarterly 1-Day Expo on Saturday, December 2nd, 2017 near SFO. We will have experts discuss Asset Protection, Tax planning for year-end, 1031 Exchanges, special loans for investors (including foreign investors and investors who own over 10 properties), and a lot more. To register, please email us at info@icgre.com and mention this blog. You can attend for free with a guest.
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A Real Life Real Estate Investor Story

As you know we always preach the gospel of buying single-family homes, renting them, financing them with 30-year fixed-rate loans and then just holding them long term. We have discussed the benefits of having a 30-year loan which never keeps up with the cost of living (while everything else does!) Thus your loan gets constantly eroded by inflation (and don’t let anyone tell you the United States will have no or negative inflation in the face of the massive fixed debt it is on the hook for), while the tenant makes the payments for you (of course the RENT does change with inflation which makes it all the sweeter).

In the past month, I got a call from a financial planner handling the affairs of one of my investors. He had purchased nine single-family homes in Phoenix in the mid-’90s. It turns out he did not even live in the United States anymore, hence the financial planner handling his affairs in the U.S. They decided it was time to sell the homes in light of the 2012-2015 run-up in values that Phoenix has experienced in the aftermath of the recession.

Needless to say, his mortgages, while still not completely paid off (they are 30-year loans after all), are essentially as good as paid off after over 20 years. They never kept up with the cost of living and the principal payments whittled them down pretty low – very funny numbers considering the 20+ year inflation which the loan never kept up with.

A few quick CMAs (Comparative Market Analysis) by one of our Phoenix brokers revealed that after selling the nine homes, the investor would NET (after-sales expenses and closing), about $1.7M. Considering he bought the homes for an average of $80K each and using 10% down payments (those were the financing terms back in the mid ’90s), his overall return on investment is not only staggering, but the $1.7M is a real, tangible, powerful enhancement for the rest of his life (he is now in his mid 60’s).

As much as this is a satisfying long term result, I know the investor could have easily bought way more than nine homes. Loans were plentiful back then (no up-to-10 limits) and he had the capacity to easily buy three times as many homes. Nevertheless, even with this investment, he has created a powerful effect on his financial future. Alternatively, he could have just kept the homes and have the net rent from all nine homes contribute to his retirement income.

During our next 1-Day Expo (tomorrow near SFO – see www.icgre.com for details and if you mention this blog entry, you are invited at no cost – just email us at info@icgre.com with the attendees’ names), we will discuss new loans available to investors who own over 10 homes as well. Loans are now also available to foreigners again, and of course, if you own less than 10 homes there are conventional investor loans available to you from most banks.
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Higher Rates Possible by The End of 2015

Janet Yellen, The Federal Reserve Chairwoman, said that if the economy is on track with job market improvement and inflation climbing closer to its target rate, the fed will start raising interest rates by the end of 2015. This is a move most have been expecting.

 

I presume rates will rise very gradually, and it will be a while before it translates to higher mortgage rates, but the process seems closer than its been in many years. Those of us who have been around real estate for a while know that the super-low rates we see today are not the norm. For most of real estate mortgages’ history, rates have been much higher than they are now.

 

Thus it seems quite likely that in the coming years we will see rates that could climb back into what we used to see in the past few couple of decades. Mortgages reaching 8%, anyone? It’s possible but will not happen quickly. Of course, some veterans remember mortgage rates being higher than that  – much higher. Assuming mortgage rates will indeed rise in the coming years, it only drives home the tried-and-true message even stronger: buy a good home in a decent area, finance it with a 30-year fixed-rate loan and you have put an excellent “stake in the ground” towards your financial future.

 

A 30-year fixed-rate loan has always been amazing. To foreigners they seem like an impossible miracle: how can the loan payments and remaining balance NOT be pegged to the cost of living? That seems like a fairy tale. How could everything else rise with inflation, on average, except for one and only one item: the mortgage rate on a fixed-rate loan?

 

Once people realize how absurd this is, it becomes crystal-clear:  it’s amazing for the BORROWER.

 

As a borrower – go ahead and get these incredible loans. You don’t have to wait 30 years for the loan to pay off. After some time – perhaps 10 years, perhaps 12, 15 or so – the loan, while still having time remaining on it, will likely look like a joke – VERY low payments and very low balance – as good as paid off in essence. (Down to almost a rounding error as the years advance.)

 

Inflation AND your tenant pay the loan off. Inflation makes it lower in real dollar value and the tenant makes the payments for you (and leaves extra for you in the form of cash flow which increases as the years go by since the loan payments are fixed, but rents are not).  This message is always true – regardless of what interest rates might be.

 

However when interest rates are so incredibly low as they are now – it behooves real estate investors to go out and buy homes, finance them with 30-year fixed-rate loans, rinse and repeat. This is a window in time that may not repeat itself for many decades. Take advantage of it.

 

In our ICG 1-Day Expo coming up NEXT SATURDAY 5/30/2015 near SFO, we will discuss this point and many others. There will be lender guests who will teach us about loans for people with over 10 loans in place, loans for foreigners, and other special loan types. There will be market teams for the best real estate markets in the nation. There will be special real estate deals and special houses that can start the process we discuss above for you.

 

As always, we will also have experts on insurance, credit, financial planning, and other topics, plus a lot of networking. Anyone mentioning this blog can attend free with two guests – please email us at info@icgre.com to register.
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Home Prices Rising and How You Benefit

In a Wall Street Journal article (front-page) by Laura Kusisto, May 12, 2015 titled “Home Prices Start to Heat Up” we learn that home prices rose year-over-year in 148 out of 174 metro areas in the United States, as measured in the first quarter of 2015. Fifty-one of these metro areas increased by double digits.

There is no doubt that most U.S. markets, including essentially all the markets real estate investors are investing in, are on an upwards trajectory. (If you are not a real estate investor… you may want to take advantage of as many opportunities as you can to learn about this market and determine what might work for you as an investment in your future.) The reasons are many, including low interest rates and loans becoming even easier to obtain over the past year (and this trend continues). Buyers (no doubt) know that the low rates will not be there forever, and feel compelled to jump in. And they are doing just that. A better employment picture also helps.

Needless to say, the phenomenon of price appreciation by itself can create upwards price pressure, as buyers prefer jumping in sooner rather than later, to get a better price. As I have always discussed and predicted, retiring baby boomers are starting to be a major force in some of the sunbelt states as they seek homes for retirement in warmer climates and friendly tax situations.

For the investor, new and seasoned, what is happening now is not strong enough not to invest. Learning how to take advantage of all of this is optimal at this time. It is a reminder that buying with a fixed-rate 30-year loan that never changes with inflation – and I cannot emphasize that enough – is one of the best financial moves one can make for their financial future! The tenant and inflation will bring the loan balance down as the years go by. Home prices AND rent are NOT fixed, only the mortgage payments are (the loan balance is also fixed and in fact is paid a bit off each month, even nominally due to the amortization).

I will discuss this in greater detail as well as many other factors critical to our real estate investing strategies, during our ICG quarterly 1-Day Expo near SFO airport on Saturday May 30, 2015. We will have market teams from the best markets in the U.S. at the Expo with vendors present for one-on-one discussions. Lenders will tell us about the new loans we can get, including new loans for foreign investors and U.S. investors with over 10 homes. We will also have experts on insurance, credit optimization and repair, and overall financial planning. For more detail on these experts, visit us at ICG Real Estate Investments and click on the button about our upcoming event. To register you may email us at info@icgre.com, and mention where you saw this blog, to attend for free with two guests. If you would rather register through Eventbrite, feel free (although ticket price applies).

See you soon; I look forward to learning from our experts right along with you.

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New Homes Begin to Dominate Investor Purchases

Investors who have been buying older homes from bank foreclosures during the recession are now realizing some of the benefits of buying new homes built this year, in 2015 direct from developers (or minimally a massive renovation – like new). The lower future incidence of repairs, the warranties, the potential developer giveaways–possible only in new home purchases (a builder can give the buyer a covered patio which may be a $6,000 option, but only costs the builder $2,000 to build) and the modern amenities and floor plans are starting to attract more investors.

Since buying homes is in its core a long term investment, starting with new homes is a great send-off with many extra years of performance available. Getting loans on new homes is usually one of the easiest procedures, and with today’s low rates, locking in a 30-year fixed rate loan on a brand-new home is an excellent “stake in the ground” for anyone’s future. Of course, investors should not just blindly buy brand-new homes. The locations have to have the numbers – the right rents for the right prices.

There are some excellent markets providing very good numbers and cash flows in good areas.

For more information, you are invited to attend our quarterly ICG Real Estate 1-Day Expo this Saturday. You will not only meet teams from the most relevant markets and see the possibilities for yourself, but there will be expert speakers on important topics such as the new twists in Asset Protection (you must know about this), buying real estate from your Self-Directed IRA, and getting real estate financing for purchases from within your IRA.

There will be information for new investors and established investors on how to move forward powerfully. There will also be lenders to update us as to the ever-improving loan possibilities for investors (domestic and foreign), and lots of great Q&A and networking. The event is near the San Francisco Airport this Saturday, March 7th, from 10 AM to 6:30 PM. You may also register by emailing us at info@icgre.com or call us at 415-927-7504.

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Price Gains Slowing; Markets May Stabilize

In a Wall Street Journal article from December 31, 2014, by Kathleen Madigan, it is mentioned that overall in the United States (as per the Case-Shiller 20 City Index) prices were up 4.6% from the previous year by the end of October 2014. The pace of growth has slowed from 4.8% in September and 10% in the first quarter. The article goes on to say this could indicate the markets are moving toward stabilization.

Understandably, in Florida, there is likely to be more price appreciation, as the state as a whole reflects the recession effect due to the ultra-slow judicial foreclosure periods. All in all, however, it’s definitely time to look to the stable markets with great economies and low unemployment. It is time for the classic long term hold of houses, where the tenant pays off the (very low) fixed-rate mortgage while inflation keeps eroding it.

No doubt newer homes will figure more prominently in 2015. The classic investment thesis holds strong in 2015 with an extra HUGE bonus: super low interest rates are still here – but many think they will vanish in the coming years.
Happy New Year!
Below is the article in its entirety for your review:

SLOWING PRICE GAINS SUGGEST STABLER MARKET

By Kathleen Madigan (WSJ)
Updated Dec. 31, 2014 12:41 a.m. ET

Yearly growth in home prices across the U.S. continued to moderate early in the fourth quarter, suggesting the housing market may be settling into a more sustainable recovery.

Prices nationwide increased 4.6% in the year ended in October, according to the Standard & Poor’s/Case-Shiller home-price report released Tuesday. That was down from 4.8% in September and a far cry from the 10%-plus gains in the first quarter. A 20-city measure more closely followed by economists increased 4.5% over the year in October, also down sharply from double-digit gains earlier in the year.

Demand for housing has slowed significantly in recent months despite stronger job growth, a rebound in consumer confidence and falling gasoline prices, which puts more money into consumers’ pockets. Sales of both new and existing homes fell in November. Yet the slowing trend is a positive for the 2015 housing outlook, say economists who follow the industry.

Price appreciation of about 5% is close to a sweet spot where more buyers are able to purchase a home and current owners accumulate housing wealth, but the market avoids a price bubble that could trigger a financial crisis, as happened in 2007.

“It’s a healthier market because first-time buyers feel more comfortable about coming in,” said Bill Banfield, vice president of capital markets at mortgage lender Quicken Loans, adding that the industry needs more first-time buyers to buy smaller homes that allow existing owners to move up into new construction or to an existing house that better suits their needs.

For 2014, however, first-time buyers accounted for only 29% of existing-home sales, according to data from the National Association of Realtors, much less than the historical norm of 40% for sales of primary residences.

Economists at IHS Global Insight agree slower price appreciation is positive for the housing outlook. “Home appreciation at a reasonable pace makes homeownership an attainable dream,” said Stephanie Karol, a U.S. economist at IHS Global. A repeat of the double-digit growth seen in early 2014 “would risk producing a bubble,” she said.

But just as each real-estate market is local, she pointed out the Case-Shiller price index of 20 cities masks the individual pricing experience going on across the country.

“Prices are rising fastest in cities such as San Francisco where geographic or legal constraints limit new construction,” Ms. Karol said. Cities with fewer zoning laws and more space—such as Charlotte, N.C., and Phoenix—are seeing smaller price gains.

Still, the average home-price gain of about 5% is good, she said, and IHS Global is upbeat about home demand and prices in 2015. The forecasting firm projects home prices, as measured by an index compiled by the Federal Housing Finance Agency, will increase 5% over the course of next year and sales of new and existing homes will average 5.92 million, up from 2014’s current pace of about 5.3 million.

Here is a link to the Wall Street Journal U.S. Housing Market Tracker:

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2016 and the Real Estate Investor

The year is off to a decent start–the fears many investors had that mortgage rates will go up very quickly due to the Fed’s raising the short-term rates recently have not only not materialized, but actually, mortgage rates have gone down twice. I will address it in a separate blog entry but as you can see there is no immediate correlation. Needless to say, mortgage interest rates WILL go up at some point which in part serves to frame the most important aspect of 2016.
During 2016 mortgage interest rates are likely to remain quite low for the entire (or most of the ) year. As single-family homes investors, those of you with decent credit and not a huge portfolio can still qualify and get these coveted 30-year fixed rate loans that you can only get on Single Family Homes (technically 1-4 residential units).

This is the year to focus and be effective in buying solid homes financed by these 30-year fixed rate loans at these incredible interest rates and lock them forever. You will feel like a genius later on after rates have climbed and here you are with an under-5% loan fixed forever, and never changing with the cost of inflation. In a continuous manner, inflation erodes your fixed loan, and the tenant is paying it off one little month at a time.

Do this in 2016. Do this several times. You will be setting up your financial future.

As far as markets, there may not be large appreciation swings in most markets during 2016. In a funny way, the ever-solid Texas is appreciating decently now, but people have some questions about its overall economy.

Oklahoma City with brand-new homes (under 50% of the property tax bite of Texas; it is poised to provide better cash flow on similar rents and home prices – which it has) is a very serious candidate for solid investments.

Jacksonville, Florida is the market least appreciated in the state so far and carries the best appreciation potential. Also in 2016, the Panama Canal project is slated to be finished, potentially generating major large-ship traffic into the Jacksonville port. Will they finish this gargantuan project on time? Will it drift over to 2017? Regardless, it is a dominant event.

Get those good single-family homes and finance them with low 30-year fixed-rate loans. Rinse and repeat. You will very likely be quite happy in the future when you look back at what you have done. We will be discussing this in detail, along with market teams and incredible experts, during our next quarterly 1-Day Expo near SFO on Saturday, March 5th. Everyone citing this blog can attend for free with guests. Just email us at info@icgre.com or call us at 415-927-7504.

Happy New Year!:

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