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

In 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?

As 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

 

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

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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The Sun Still Shines in Florida!

Florida has emerged as the “Go To” state in 2014.

While Arizona and Nevada are excellent; Texas, Oklahoma and a slew of other states, are relatively stable. It’s Florida that embodies the post-recession sweet spot.

The home prices in Florida markets are still way below the bare construction costs. Even though there is steady price appreciation, values are still very attractive relative to new homes. We have already touched upon the reason: the foreclosure process in the state of Florida is judicial and has been extremely slow. As a result, the flow of homes into the marketplace is more steady than in Trustee Sale markets.

Despite the great demand, this balancing out of the supply of homes has created a more tampered growth environment for the state of Florida. Many great markets will emerge after the recession effects wear off. For now, the sun shines on Florida!

Don’t forget to visit us at our incredible 1-Day Expo THIS SATURDAY, March 8th, near the San  Francisco Airport. Details are on our website: www.icgre.comWe will have rare speakers, tons of education, lots of Q&A and many experts present. In addition some of the hottest markets in the nation will be represented. A day not to be missed!

Looking forward to seeing you on Saturday!
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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 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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Two Mini Real Estate Investment Expos in Seattle, Wednesday February 5th & Thursday 6th!

We are excited! ICG Real Estate Investments (International Capital Group) are going up to Seattle to put on a mini-version of our quarterly Real Estate 1-Day Expo that is usually held near SFO in South San Francisco. As most of you know, we have been doing these expos for 20 years and there is always so much information. I personally return home more knowledgeable every time, as everything in real estate and real estate investing changes weekly, if not daily it seems. I am putting information about his event in a blog, as I want to share it with many new people as possible, and I know I will be connecting with many new folks on LinkedIn as well.

I have not spoken in the area for about six years, and it is going to be great to re-connect with so many that I used to connect with on a continual basis. Building relationships is what we are about and the excitement is mounting! It will be like a family reunion. (Hopefully that is a pleasant thought to most of you!) Based on demand we are looking forward to two evenings, that will allow folks to attend twice or pick a day that works best for their schedule.

These two evenings will not be easily forgotten, and we are available to talk before or after and even during the events, as well as meeting over the phone, well after the event. The Mini Real Estate Expo (s) are a great way to start out the new year with hard-hitting information you can use to be a better investor. This action packed event will be held from 6-9:30pm on two nights, Wednesday February 5th and Thursday February 6th. This way, busy Seattleites have two options to work the event into their schedule. Many of you requested that I have the event in two different locations for added convenience, so we have provided that. You can also come to both nights if you desire!

Patricia Wangsness and Adiel Gorel will be the expert presenters, and you will hear from expert loan sources and learn from market teams across the country that will be flying in to tell you about the hottest markets and the proven methods to use for success. Here is a taste of what you can expect:

  • How to identify the best markets for investments
  • How to invest when you are “too busy to invest” (step-by-step)
  • Learn how your properties can be rented and managed well from afar
  • Pay for your children’s college education using real estate (or for your own education)
  • Secure a powerful retirement using real estate
  • How to benefit from recession prices in 2014, and where to do it
  • Learn how to acquire loans you did not know you could get
  • How to benefit from special market situations few people know about and how to use it to your advantage
  • There are ways to successfully own multiple properties and manage them–we will show you how
There will be extensive Q & A time. There will also be teams there in person to meet with you one-on-one; they will also be speaking about the hottest markets in the U.S.

This will be one of the premiere networking events in 2014 so far!

Date and location of the mini expos:

  • Wednesday, February 5, 2014 – Redmond Marriott Town Center – 7401 164th Ave. NE, Redmond
    Phone: (425) 498-4000
  • Thursday, February 6, 2014 – Verity Credit Union in Northgate – 11027 Meridian Ave. N Suite 102
    Seattle, Phone: (206) 440-9000

Click here to register! If you have any questions prior to the event, please call Adiel Gorel at (800) 324-3983 or (415) 927-7504.

Any additional questions about the venues or if you have trouble on the day of the event, please call our public relations pro, Lynette Hoy on her cell (415) 694-3004 or at her office in the Seattle area (206) 455-9366. Lynette will be at both events, so please call her cell phone between 4-9:30pm on those nights if you need assistance.

Look forward to seeing you there. I can’t wait!

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5 Things to Watch in Housing in 2014

In an article in the Wall Street Journal by Nick Timiraos on January 7, 2014 an attempt at predicting various scenarios for housing at large in the U.S. for the year is made. Of course, the 5 points are general. I personally believe (and am actually seeing) that markets that are still reflecting post-recession pricing (like Florida) and where houses can easily be bought under bare construction costs AND the future demographics are promising – should show a far more bullish trend this year versus other markets. Here is what
Mr. Timiraos says:

“For housing, it was a tale of two halves in 2013. During the first half, unusually low supplies of homes and low rates spurred bidding wars, pushing prices up sharply. During the second half, the frenzy cooled amid a sudden spike in interest rates. While more markets are now reporting increases in inventory, the number of homes for sale remains quite low.”

The bull case for 2014 goes something like this: those low inventories will support rising prices. Below-average levels of household formation, the argument goes, must ultimately pick up, boosting construction. Mortgage rates, while higher, are still historically low. Credit standards will stop getting tighter, and might loosen as home prices rise. Finally, mortgage delinquencies are dropping. While some states still have elevated foreclosure inventories, the worst of the distressed-housing problem is in the rear-view mirror.

The bear case, meanwhile, says that the recovery is a mirage built on the back of the Federal Reserve’s stimulus that has done little more than inflate asset values, including home prices. Record low interest rates, the argument goes, unleashed demand from both borrowers and all-cash investors seeking returns on something—anything—with a decent return. These investors built large rental-home companies that remain untested at scale. How can first-time buyers take the baton from investors at a time when prices are up almost 20% in two years and when interest rates are rising? 

Other problems loom: Mortgage rates could jump, choking off housing demand and curbing new construction that remains mired at 50-year lows. Investors could unload their homes if the rental-home thing doesn’t pan out. And don’t look for much help from mortgage lenders that face a cocktail of new regulations, which could keep credit standards stiff.

So which view will carry the year? Here are five wild cards to watch this year:

(WSJ: 7 Jan 2014 By Nick Timiraos)
1.  WILL INVENTORY RISE?

Prices have risen largely because of shortages of homes for sale. While there is growing evidence that inventories hit bottom last year and that some markets are moving back in favor of buyers, the number of homes for sale remains relatively tight still. Foreclosure-related listings have plunged, and traditional buyers haven’t flocked to list homes—at least not yet. New construction, meanwhile, won’t be back to normal historical levels for years. The consensus view is that price growth continues at a somewhat slower pace, but that consensus view could be wrong—for the third year in a row—if there aren’t more homes for sale.










2.  WHERE IS THE HOME-CONSTRUCTION RECOVERY?
While home prices have recovered strongly, new construction activity hasn’t. Part of this may have to do with the fact that home prices are still too low to justify construction, particularly given land, labor, and materials costs. For smaller builders, credit may also be harder to come by. Some economists say new-home demand could remain muted because many move-up buyers don’t have enough equity to “trade up” to that new home. Key issues to watch here: What happens to household formation, and do builders begin to throttle back price gains in favor of selling more homes in 2014?













3.  WHAT HAPPENS TO MORTGAGE CREDIT?
Lenders could begin to ease certain “overlays”—or additional credit and documentation checks—that have been imposed over the past few years. Mortgage insurance companies are getting more comfortable insuring loans with down payments of just 5%. So don’t be surprised if, at the margins, it gets a little easier to get a mortgage—especially if you have lots of money in the bank.

Even if it gets easier to get a loan—by no means a given—borrowing costs and fees could rise. Banks also face new mortgage regulations that could keep most of them cautious. Borrowers with more volatile or harder-to-document incomes, including the self-employed or those who make a lot of money on commissions, bonuses, or tips, could continue to face tough sledding.


Bloomberg News

4. WHAT WILL INVESTORS DO WITH THEIR HOMES?
A handful of institutional investors have purchased tens of thousands of homes that are being rented out. These homes tend to be concentrated in a few of the regions that have been hardest-hit by foreclosures over the past five years. Investor purchases played key roles in stabilizing prices, especially because investors were wolfing up homes at a time when supplies were already dwindling. A key question now is what happens after the initial rush to invest subsides. More lenders and investors are extending debt financing to some of these property owners, which should help boost returns. Can owners perfect the expense management associated with maintaining and leasing tens of thousands of individual homes?
Can owners perfect the expense management associated with maintaining and leasing tens of thousands of individual homes?

5.  WHEN DOES HOUSING HIT A TIPPING POINT ON AFFORDABILITY?
Rising home prices are a double-edged sword, especially in pricier coastal markets such as San Francisco and Los Angeles. On the one hand, rising prices are giving many homeowners equity in their homes again—an extremely positive development to the extent it means these borrowers are less at risk of foreclosure.

But price inflation is making housing less affordable. This will be a bigger problem if cash buyers retreat from the market in 2014 and/or if interest rates rise in a meaningful way. Consider: In Los Angeles, prices have jumped by nearly 30% in the past two years, to a median of $448,900 in the third quarter. Assuming a 20% down payment, the monthly payment of principal and interest on the median priced home has jumped from $1,255 in the third quarter of 2011 to $1,823 in 2013—a 45% increase.

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Appreciation Rates Grind to a Halt

As you may have seen in the media lately, most of the best appreciating markets have seen a significant slow-down in the appreciation rate. Even more accurately, I get news from our teams in the field that this is the case. You can see it in some of the fastest appreciating markets like Phoenix, and even in Las Vegas (despite the upwards pull of the inventory-suffocating SB321 which came into effect on 10/1/2013 and is a very strong pull on home prices).

Many other fast-appreciating markets are also leveling off. California markets and even some Florida markets have eased up some in the past couple of months. One obvious reason is seasonal – this is traditionally the slowest period of any year. However the rising interest rates have been keeping some would-be buyers at bay, and the prices themselves, having become higher – have put other buyers off. Some investors are starting to feel that they missed the boat in places like Phoenix due to the 70% gain it displayed in the past two years.

Well even in Phoenix, after a 70% gain in prices and now on a “respite” from appreciation, the prices are not that much above construction costs. Builders are still struggling to beat the prices of existing homes, and the intrinsic value is excellent. The same holds true in Las Vegas. Florida was already an excellent value (recall we discussed the judicial foreclosure process in FL slowing down market absorption of foreclosed homes, thus damping supply shortages somewhat) and now is poised to produce even better deals. It is not hard to buy a FL property in Jacksonville or Orlando/Tampa for substantially less than construction costs.

For investors, there is good news in what is happening. Our limited “window of opportunity” seems to be extending more. It is an excellent time to pounce on attractive Single Family Homes. We will discuss this and lots of other relevant and important new market data at our 1-Day Expo THIS SATURDAY! We invite you to attend (free for you and associates if you mention this blog – just email us at info@icgre.com)We will also have an OBAMACARE expert to guide us through the maze, and outstanding expert speakers in addition to lenders, and market teams straight from the trenches. 

Looking forward to seeing you there!

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Don’t Forget to Get a Fixed Rate Loan!

I encounter many investors still tempted to get some flavor of an adjustable loan when using their available investment loans. There are extremely low interest rates being offered on many shades of variable interest loans such as 1/1, 5/30 and so on. 


Given that there is a virtual consensus among economists that we are headed to a high inflation period, it would not be the wisest move. When inflation is looming the need for fixed-rate loans becomes even greater than it usually is. Fixed-rates are still very low, not far from the lowest rates in over 50 years. At this point, and before inflation rears its ugly head, it is definitely the time to lock in a rate forever. 


Once you have locked in your 30-year fixed rate loan, inflation actually becomes your ally. It erodes the real monetary value of your loan, which never changes with inflation because it’s, well… FIXED! In a way the very process of inflation will hasten the real-life pay down of your loan balance. 


Many of you are eligible for a lot more investment loans than you might think. We will talk about this in detail, and also share strategies to increase the number of investment loans you can get at our incredible Real Estate 1 Day Expo on Saturday, December 7, 2013 near San Francisco Airport. More details can be found on our website www.icgre.com.  We have been producing these events for over 20 years, and we always have the most useful experts to assist you.  


This time there will also be a discussion of the new Affordable Care Act (Obamacare) and strategies on what to do, credit enhancement and repair (to be able to get all these loans), and an amazing lawyer battling the banks in court to share his insights and wisdom. In addition, market teams from the most relevant markets in the US will be there. Looking forward to seeing you!
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