cash flow

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.

Housing Starts Up Sharply

In a Wall Street Journal article from August 19th by Josh Mitchell, it is reported that housing starts are sharply up for the year and have seen a strong uptick in July. Housing starts bode well for a general housing recovery. We have already begun to go back to our old buying style of buying new homes from developers in Oklahoma City.
I am relatively sure in the coming months we will be seeing more attractive opportunities in buying brand new products in other markets as well. It took a long time for the builders to be able to put out a competitive product for real estate investors, as they played a serious “second fiddle” to existing homes, which were priced well below what they could offer.
We are pleased to see the trend as it was always our opinion that a prudent and safe real estate investment certainly includes brand-new homes with a builder’s warranty, with a fixed-rate 30-year loan paid off by the tenant and eroded steadily by inflation (as it is not pegged to the cost of living). This mode of real estate investment serves as the foundation of building a solid financial future and achieving long-term life goals of a solid retirement and sending our kids to college.
Builders have the ability to offer the buyers many “goodies” at a cost to them- that is much lower than the retail cost (an example might be a covered patio which costs $6K but only costs the builder $2K to build). This can create an attractive package for the investor.
We will have builders and new properties available at our upcoming 1-Day Real Estate Expo near SFO on Saturday, September 13th. I am looking forward to seeing you.
I am enclosing the full WSJ article for convenience:
U.S. Housing Starts Up Sharply in July – Renewed Strength in Housing Market Could Boost Economy
By Josh Mitchell
Updated Aug. 19, 2014 11:03 a.m. ET
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WASHINGTON—Home construction surged in July, a sign that renewed strength in the housing market could boost the economy in coming months.

Housing starts climbed almost 16% last month to an annual rate of 1.093 million units, the Commerce Department said Tuesday. That marked the highest level of construction since November, driven by a pronounced rise in new apartments.

Home construction rose 22% in the year through July, and a rise in applications for building permits last month suggests further gains this year. That could ease concerns at the Federal Reserve of a weak housing sector weighing on economic growth this year.

”With housing starts up 22% over the last year, the Fed’s concern about a ‘slow’ recovery in the housing market looks misplaced to us,” Economist John Ryding of RDQ Economics said in a note to clients. But details within Tuesday’s report raised questions about whether the construction gains will be sustained. Last month’s rise appeared to be due partly to a rebound in construction in the South after rainy weather caused delays earlier this summer.
Such rebounds are typically temporary. Also, the bulk of the increase was due to surging apartment construction, a volatile category that can mask underlying strength in the market. And it’s unclear whether the housing market will be able to maintain momentum if mortgages rates rise, as many economists expect them to as the Federal Reserve moves toward raising its benchmark short-term interest rates from near zero.
Amid the prospect of higher costs and weak income growth, Fannie Mae’s economics group downgraded its forecast for home sales and construction on Monday. It now expects construction of 1.43 million single-family units this year and next combined, down from an earlier forecast of 1.61 million units.
A measure of affordability, which takes into account interest rates, home prices and median household income, hit its lowest level in six years in June. That reflects a run-up in home prices.
Interest rates have fallen back to year-ago levels in recent weeks after rising late last year. The average rate on a conventional 30-year mortgage stood at 4.12% last week, down from 4.53% in the first week of the year, according to Freddie Mac.
But overall the report boosted hopes of a stronger housing recovery. In July, applications for building permits, a construction bellwether, climbed 8.1% to a 1.052 million rate. That suggests construction could pick up further in coming months. Sales of previously owned homes have picked up in recent months, buoyed by historically low interest rates, mild weather, and stronger job growth in the U.S. But sales of new homes have moved sideways. The latest pickup in home construction could signal builders are gaining confidence that overall sales will rise as the broader economy gains momentum.
From a year ago, home construction was up 21.7%. The home-construction market has steadily recovered from the depths of the recession but has yet to regain its strength from the levels that preceded the boom years in the 2000s.
At the height of the housing boom in 2005, just over 2 million homes were built. After the crash, housing starts fell to 554,000 in 2009, during the recession. Tuesday’s report showed that starts on single-family homes, which reflects the bulk of the market, climbed 8.3% in July from June.
Construction of multifamily units—mostly condominiums and apartments–rose 33% to a pace of 423,000 units, the highest level since January 2006. That category is more volatile. Other recent signs point to a strengthening housing sector.
A measure of home builder optimism rose two points to a reading of 55 this month, the National Association of Home Builders said Monday. Existing-home sales rose in June to the highest level since October, the National Association of Realtors said last month. The trade group is expected to release July’s data Thursday.
Write to Josh Mitchell at joshua.mitchell@wsj.com

New Markets Join the Fray as Pricing Changes

Up until the beginning of 2012 there were some states that lead the way as far as investor interest: California, Nevada, Arizona and Florida. That interest on the part of investors was justified, as these four states were the most clearly noticeable examples of recession housing prices. These four states were the “poster children” for extreme housing price collapse.

During 2012 and 2013 all four states exhibited strong housing price appreciation. Phoenix led everyone with a 70% jump. Las Vegas wasn’t far behind and California process improved rapidly. Florida prices went up but the uptick was tempered by far slower judicial foreclosure processes in Florida, as opposed to the quick and efficient trustee sale in the other three states.

Now, in the middle of 2014, Florida prices have improved quite a bit and yet, due to the slow foreclosure process, which creates a steady trickle of supply into the marketplace, Florida is still a place where investors look to buy. However buying in Arizona, Nevada and California has slowed significantly for now.Other states, which have not experienced such extreme price swings, are now becoming attractive investor destinations.

A prime example is Oklahoma City, with low unemployment and the benefit of the oil & gas industries. Rents are high and property taxes are low. Similarly, other “middle of the country” markets in states like Kansas and Missouri are starting to attract more buyers, as is the state of Texas (with a strong economy, high rents, but also very high property taxes and insurance rates) and states like Ohio.Overall it is possible that soon the effects of the recession will no longer be dominant and marketplace demand by investor will revert to parameters before 2008.

Some of these new markets will be present at our Real Estate 1-Day Expo this Saturday near the San Francisco Airport (see details at www.icgre.com). Call us (415-927-7504) or email us (info@icgre.com) and mention this blog entry and receive my book, for free, with registration at www.icgre.com.

How to Create Multiple Income Steams to Secure a Strong Financial Future

Exploring this and other avenues for finding financial real estate success during our 1-Day Expo. 
As many of you know, we are holding our 1-Day Expo on Saturday, June 14th from 10:00-6:30 p.m. Even though we have been holding these events for over 20 years, I am always excited before we hold them. I know I will learn so much from the expert lecturers, the market teams who bring information straight “from the trenches” and from all of YOU who attend.
Just the Q&A sessions are so informative, I have yet to partake in one of our events and not learn a tremendous amount of valuable information during these sessions.
The networking is also so valuable, bringing new connections and new synergy.
This time we have three expert lecturers:
Attorney Brett Lytle on Asset Preservation & Protection. Brett always sees the smallest details, which stay hidden from most observers. He has led countless people to create a safer, more secure way to hold assets and will teach all of us how to do this.
Lucian Ioja uses his vast experience and knowledge to show us how we can create multiple streams of income and plan our financial life in a proactive, fruitful way. He also teaches us to utilize many different avenues to create these income streams; from using insurance in a sophisticated manner to real estate and other vehicles that we will explore.
Roger St. Pierre will teach us about getting non-recourse mortgages to buy real estate, with financing,  from our IRA accounts. A lot goes into this and that is why we invited Roger to instruct us.
There will be lenders with new types of investor (and homeowners) loans to tell us about.
We are bringing in three new markets with exciting deals at attractive price points, including brand new homes, as well as low-cost turn-key homes with tenants AND easy special financing even to investors who had been spurned by the banks.
Updates from the existing markets are always so fascinating. The work and preparation that goes into these refresher points from the markets always amaze me. There is so much to learn and so much to feel the pulse of what goes on nationally.
I’ve been asked to do something special for the blog readers, and we will give everyone who registers and mentions this blog, a free copy of my book Remote Controlled Real Estate Investing which goes into the details of buying properties far from home. So, register today to secure your spot and as an added bonus receive my book. For free.
I am excited and very much looking forward to seeing you at our event. The 1-Day Expo will take place near the San Francisco Airport, at the South San Francisco Conference Center. We set the Expo time so people can fly in and fly out on the same day if they are not from the San Francisco Bay Area – the day starts at 10:00 AM and ends at 6:30 PM, providing attendees from Los Angeles, San Diego, Portland, Seattle, Phoenix and wherever it is that you call home to arrive and leave on the same day.
Of course, for Bay Area residents it is an easy drive and everyone appreciates the ample free parking at the conference center.
To register online through Eventbrite: http://bit.ly/1kk2she  and use the code: BLOGBOOK
or
Email us at info@icgre.com or call us at 415-927-7504 and mention you read about the expo on my blog.
Best,
Adiel

Why Americans Are Heading Back to the Suburbs

The trend towards moving out to the suburbs seems to be increasing as people seek more room for kids to play, a bit more privacy, and the usual amenities associated with suburban living, says Neil Shah in an article from last week in the Wall Street Journal.
For us as investors, this is an interesting trend as we have focused on investing over the entire metropolitan area with an emphasis on the suburbs since homes in the suburbs usually mean a rental family, likely with kids, which translates to greater rental stability.

This movement plays right into our investment emphasis and is encouraging to see. We will discuss this trend and many more pertinent issues during our 1-Day Expo Saturday, June 14th near the San Francisco Airport (click here to register.) We will have expert lectures on asset preservation, general financial planning and non-recourse IRA loans for houses. Our ICG Real Estate Investors team from the top real estate markets in the nation will be present all day providing learning tools and networking opportunities.

Below is the entire Wall Street Journal article:

Signs of a Suburban Comeback
More Americans Returning to the Land of Lawns and Malls, Census Data Show
By Neil Shah
May 22, 2014 12:00 a.m. ET
America’s big cities have grown faster than their suburbs in recent years, due in part to a slow economy that froze people in place and stunted the suburban swell. Though, a new Census report suggests this trend is starting to reverse. WSJ’s Neil Shah joins MoneyBeat with the statistics and what they mean. 
The long tug of war between big cities and suburbs is tilting ever so slightly back to the land of lawns and malls. After two years of solid urban growth, more Americans are moving again to suburbs and beyond.
Fourteen of the nation’s 20 biggest cities saw their growth slow or their populations fall outright in 2012-2013 compared with 2011-2012, led by cities such as Detroit and Philadelphia, according to data released Thursday by the U.S. Census Bureau.
A housing subdivision outside of Chicago. Suburbs are seeing a recent increase in growth. Flickr Editorial/Getty Images
In some cases, fast-growing cities are slowing down: Austin’s growth rate decreased from 3.1% to 2.4%. In other instances, slower-growing cities grew at an even more diminished pace: New York’s rate decreased to 0.7% from 0.9%. A year earlier, 17 of the nation’s 20 largest cities showed faster population growth than the previous year. Suburbs and areas beyond suburbs within the same metro known as exurbs, meanwhile, are seeing an uptick in growth after expanding more slowly during the recession and its aftermath.
All told, just 18 of America’s 51 metropolitan areas with more than 1 million people had cities growing faster than their suburbs last year, down from 25 in 2012, according to an analysis of census data by William H. Frey, a demographer at the Brookings Institution.“City growth may be bottoming out, as well as the downsizing of the outer suburbs,” Mr. Frey said. He said it remains unclear “whether the city slowdown signals a return to renewed suburban growth.”
Natalie Dorr and her husband Jon are among those who made the shift to the suburbs last year. The couple wanted to sell their condominium in Chicago and move out of the city much earlier, but the sluggish economy delayed their plans. Ms. Dorr, 29 years old, was pregnant with their second child and the couple wanted more space. Yet they waited, hoping the selling price of their condo would increase.
In April last year, the couple rented out the condo and moved to Deerfield, a Chicago suburb. Having sold the condo a week ago, they plan to buy a home later this year. They got $14,000 more for the condo than they would have if they had sold earlier, Ms. Dorr said. “It made sense to wait,” she added.
Overall, cities are still growing slightly faster than the suburbs—a historical anomaly after decades of American migration to the burbs. Some of the growth has been fueled by younger Americans and retirees preferring city life, either for lifestyle reasons or to downsize their living arrangements.
Anything resembling the post-World War II trend of Americans streaming to the suburbs appears unlikely given the difficulties many debt-strapped young Americans face in buying a home. Still, the Census numbers show a cooling off in the growth rate of urban dwellers.
Cities in metro areas greater than 1 million people grew at a 1.02% annual rate in 2012-2013, down from 1.13% in 2011-12, according to Mr. Frey’s analysis. Suburban areas, by contrast, grew at a rate of 0.96%, roughly on par with the 0.95% the prior year, Mr. Frey’s analysis shows.
At the same time, exurbs are seeing an increase in growth. When taken together, suburbs and exurbs grew at a 1.04% annual rate in 2012-13, up from 0.99% in 2011-2012, according to a separate analysis by Mr. Frey. Urban core areas saw growth fall to 0.81% from 0.91%.
The slowing growth in these urban cores and the increasing gains in the suburbs may be the first indication of a return to more traditional patterns of city-suburban growth,” said Ken Johnson, a demographer at the University of New Hampshire.
Write to 
Neil Shah at neil.shah@wsj.com

Where to buy now?

Some of the markets that had gone down significantly have registered great price improvements, especially between Q1 2012 to Q3 2013. Phoenix led the pack followed closely by Las Vegas and many California cities. Florida has provided steady appreciation but did not go crazy (most likely due to the slow judicial foreclosure process which modulates home supply into the market and helps avoid spikes).

It is important to bear in mind though, that even in Phoenix and Las Vegas the prices, even after appreciation, are still low. In most cases, the prices reflect just a small premium to construction costs and are certainly very far from the peak (although that is a somewhat nebulous standard). This would be the time to remember that real estate is a classic investment, especially when powered by a 30-year fixed-rate loan.

It is now almost a consensus that interest rates will rise (most say significantly) in the next few years. Needless to say, anyone who has the ability to qualify for a good low-interest-rate 30-year fixed rate loan should get one! These are 100% inflation-proof. In fact, once you have these loans inflation becomes your “best friend” by eroding the loan since the loan is not inflation-adjusted.

Florida still supplies a steady diet of below-construction-cost homes. That would be a place to explore purchasing. However, the power of getting a fixed low rate becomes such that as long as you buy in a decent market with decent demographics, it is not bad to “get moving” and do it. 

New homes by builders are still not that popular among investors but in some markets, they are not that much above the used-home fray AND they provide a certain peace of mind related to their very newness, warranties and so on. Many builders help out with the loan in some way (buy down the rate for example) so that may add to the attractiveness.

All in all 2014 should be a year to be active and purchase, especially if a 30-year loan can be had.
Should you go for a somewhat lower rate on a 15-year loan? I believe the 30-year loan provides important extra flexibility. You can always choose to pay a 30-year loan in 15 (or 14 or any other number you choose), but you cannot go the other way. You also retain the flexibility to revert back to the 30-year amortization schedule if cash flow becomes tight.

Happy buying!
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