Good real estate anecdotal evidence

Not scientific, but significant - I keep seeing emails through our intranet of agents asking for homes that are not yet on the market (MLS). This activity is typical of a tight or tightening market. Frustrated agents and their frustrated buyers who can't land a home, seeking an advantage in this market. If there were volumes of homes sitting on the market, this tactic would not be necessary. Beware the Spring - have your pens ready and your track shoes on.

Zero cash flow?

Some investors need no cash flow. Why? Normally because they have very good cashflow from other investments and need some tax sheltering. There are many investments out there, especially in high-quality single tenant NNNs such as CVS drug stores that are structured specifically for this purpose. Current financing is in place at the maximum amount so that the income from the property exactly pays the mortgage. What this also provides is extreme leverage. Most of these deals average around 15% downpayment. Who do you know that needs some tax sheltering? Hmmm?

TIC investment in Santa Cruz

A Realtor buddy of mine is working on an interesting investment. He bought a fourplex in Santa Cruz for $250,000 per unit, added $30,000 per unit for new kitchens and baths. $1,500 for a TIC agreement by the preeminent Bay Area legal authority. Now he is selling the units for $400,000 per. Simple? Yes. Profitable? Yes. So, why isn't everyone doing this?

Positive Leverage

This is a simple bit of real estate investment knowledge. Your cap rate should be higher than the cost of the money you borrow. In this case, every dollar you borrow works to better your rate of return. In fact, if you can finance 100% of an investment with "positive leverage", you should. Doesn't everyone invest this way? No. Negative leverage situations can be justified too. Normally this is the case when you expect significant return based on appreciation or by redevelopment. Yes, almost all Bay Area deals fall in to this category.

Cupertino - Vallco Mall - Lunar New Year Celebration

During the mid-1980s - Vallco was at its peak of coolness. I remember going in there and being impressed. Then Valley Fair merged their separate Emporium and Macys buildings to put Vallco 6 feet under. A new life is taking hold in Cupertino. Dynasty restaurant is always hopping. The new AMC theatres are going to bring great foot traffic. New condos, perhaps a hotel, household income demographics that are very impressive and a need to have good shopping in the west 85 corridor will bring the once cool mall back. It also helps to have a developer with deep pockets. It won't be Santana Row part deux, but even if it became half of that - wow. Now if Cupertino residents can stop voting down every bit of growth legislation...

Hilton Head - Golf and Investments

Sometimes you can have your cake and eat it too. A client of mine just bought a single tenant NNN investment in Hilton Head, GA. They live here, so why buy over there? Cap rates are just as good in the nearer states. The gentleman likes golf. Not a bad thing if you have to see your investment now and again to be in a place filled with golf courses. The IRS says there is nothing wrong with this. Lovers of chocolate - Hershey, PA?

Investments here and there

I just had a great conversation with a friend of mine who is active in development projects throughout the West as well as in China. She's looking at raising approximately $10M for a development in Shanghai. There's apparently a great need for senior housing in the ever changing Chinese market. Demographic trends are important to watch. Most young households in China are now dual income. No longer is there someone at home to care for the elderly parents. Also, with one child per family as the law, each child will have to support two elderly parents in the future. What will that do to real estate needs? A lot... Her senior housing project is wisely in the path of demographic development.

Busy streets, corners, 2 bedrooms and other hard to sell homes

First, let me say, almost every house I've owned has been on a busy street. I made those purchase decisions fully aware of their pros and cons.

I had two poignant conversations with buyers yesterday at an open house on a busy street in the Rose Garden. This got me thinking (and little does:)) about issues with the "un-perfect" house.

Should you buy a house with only 2 bedrooms?, only 1 bath?, near a freeway overpass?, backing to Cal Train?, on a corner?, on Hedding? - and does this affect value? Do you get a "good deal"?

Some are opportunities - some are strict value plays.

What we love: quiet street, 3 bedrooms, 1 bath with room for expansion - add a bath and you have the perfect product - and you probably bought it at a discount.

Or add a master bedroom to the 2/1 cottage.

But - can you move the house off of Hedding (my Rosegarden house sided to that street). Can you reroute the freeway - not even The Governator has those powers.

How do those things affect value - is there a percentage rule of thumb? Actually for you engineers out there - its a sliding scale. From zero discount in a hot market to huge discount in a pathetic market. So timing is important.

And finally to my conversation yesterday - both couples wanted to buy a house for 5 years and then leave the valley - should they buy an odd bird house or should they buy a cookie cutter 3 bedroom, 2 bath, 2 car garage with 1.5 pets house? Waddya think?

Austin Texas Popeye's Chicken NNN investment

My CCIM buddy Kevin Chin of Sperry Van Ness pitched this interesting listing today at the Income Property Marketing Group meeting this morning at the Presidio in San Francisco: Popeye's Chicken, 11 year lease remaining, absolute NNN, $1,568,511 price, 6.5% cap rate now, 6.74% cap in year two, built in 1997, 1 acre parcel in the Austin suburb of Pflugerville. Who wouldn't trade their break even fourplex or rental house for this solid deal near Dell headquarters?

Real estate investments = golf and enjoyment

Just ran in to a past client of mine. Last year I helped him sell his industrial building in San Jose with a slow and low paying tenant. He exchanged the property for a brand new Checkers Auto parts store in Utah. He and his wife just got back from 28 days golfing in Scotland at all of the best courses. Coincidence...?

Absolute NNN Sonic Burger

The food is not my style, but the investment definitely is. I just saw two absolute NNN (the tenant is responsible for all expenses including property taxes and maintenance) Sonic Burgers in Utah. 20 year initial lease terms! 7.0% cap rate. This is a great trade investment to boost cash flow from some under-performing, high valued apartment building. South Ogden for $1,148,000 and Clearfield for $1,028,000. Relatively low price points too. The trade analysis from a 3% cap apartment deal is very straight-forward. I would imagine...

86,000 square feet Whole Foods by the Tank

The Alameda is an area that people will make money at. We have finally turned the corner on mis-matched retail, residential and industrial spaces. Finally gone is Miracle Auto Painting and other toxic, ugly uses. What we have to look forward to are better restaurants, hipper retail and neat loft condos. But the best bets are the homes behind the Alameda. These smaller 1940s and 1950s homes have decent lots and a great walking location to downtown, the Sharks!!! and the revitalized The Alameda. Oops, forgot to mention a whopping new Whole Foods, expensive yes, but awesome. Look in to it.

Happy Real Estate New Years!

Today is the day for resolutions, even with big subjects like where to invest in the new year. Beats "I will join a gym and lose 10lbs".
Real estate resolutions are impacted by end of the year tax planning or in other people's cases - new years filings and larger than expected tax bills. In the first quarter of every year there is more activity in investment properties due to advice by tax preparers or by large checks being sent to Fresno. For whatever reason, make a move now, not later. Urgency is something everyone should have in their resolutions this year.

Whinning about the market

KGO radio this morning was a whine-fest about how expensive the market is and home owners that were duped into "exotic" financing that will force them to sell their homes when their payments rise. My opinion, most (and yes there are some sad cases out there of unscrupulous loan agents) buyers knew what to expect when they opted for that loan. ARMs adjust! 2 year fixed rates adjust in two years! Interest only payments for 5 years mean year 6 will be higher! These short term loans were not meant to be held forever. They were an entry vehicle for the first few years. There is the cost and effort of refinancing. But needing to sell your home is an extreme measure and probably not necessary. Need help? Talk to my buddy Amanda Pham at Sinclaire Financial 408-942-7962, she rocks. As for the market being expensive... yes it is. And since 1991 when I got in to this business, NEVER has there been a year when people said anything other than that. This is an expensive market, but justifiably so.

Ron Ricard speaks on Foreclosures & Investors

Just came from a great class given by our local IPX 1031 Exchange guru Ron Ricard hosted by Fiona Tsang at Chicago Title. The class was on short sales and the foreclosure process. Apparently very few of those happening in the South Bay or the Peninsula. Defintiely more in the outlying parts of the Bay Area. Very interesting fact that all Realtors should know: you can NOT represent an investor buyer who is buying a home from an owner-occupant seller who is in distress (read: short sales and foreclosure situations). That's the law folks. Unless you want to spend time in some of the state's less desireable hotels (read: San Quentin). I know, the law does not make sense in certain situations. It would be nice to have representation all around. Talk to your local councilmember... Comments?

Multiple offers on fixers in the valley

There seems to be three buyer segments in Silicon Valley's home market right now. And this perspective is from single family homes in the sub $700k range. My buyers encountered multiple offers on the perfectly remodeled homes (those with the brand new feel, full new kithens and baths) and the same on 45 year old homes with 45 year old kitchens and baths. The opposite was true in the large middle segment. So, the flippers are well represented as are the buyers who are looking for turn-key homes. This even more so gives confidence to the flippers. But the buyers in the middle are few. I think many of these people read too much Mercury News.

Invest in China? Perhaps...

I just got an email from a CCIM buddy of mine who just got back from his second investment tour of China. I was with him, as well as 30 other CCIM's on his first trip November 2005. There are many residential opportunities there, mostly condos in new buildings. Some, as in Beijing near the 2008 Olympics, provide guaranteed cash flows of 8% for the first few years. I was really impressed with Macao. This is the Las Vegas of the East. If Steve Wynn is already there... And Macao will eclipse the gaming revenue of Las Vegas in 2007. Hmmm.

Cupertino schools - need I say more?

Every time I hold an open house in Cupertino school district, I am reminded of what good school scores can do to the popularity of a community. This drives property values dramatically. And even within the hallowed school district are breakdowns between good schools and great depending on their API numbers. I think this view is foolish though. I would rather buy in to the lower scored elementary areas and see better appreciation on my homes value as all the schools rise to approximately the same levels over time. I believe its the family and child with more emphasis on the education than the overall school. Arrogant maybe, but what parent would not believe that?

75 years flat lease for a Walgreen's???

I was just reviewing a package for 5 brand new Walgreen's NNN investments through the South. Flat leases for the initial 25 year term which is acceptable with such a high quality tenant. But, the remaining 50 years of 5 year options are flat too!! And the initial cap rates are between 6% and 6.2% Not very attractive. In my opinion, these deals will sell, but some buyer is not taking in to account the depressed value of these deals over the next 5 decades. And let me ask, How many retailers have survived any 75 year span?

The calm before the real estate storm?

Real estate markets tend to take breathers, then they come back with a vengeance. This year has been a year of transition. Higher interest rates have pulled the steam out of the local housing market. This overshadowed the very real job growth that has been continuing in Silicon Valley. Now we're in the holiday season and shopping for presents takes precedent over shopping for housing. But once we get past Superbowl Sunday, the market will start cooking again. Suggestion: if you're thinking about buying: Do it NOW!!! We just passed our inventory peak of the year and sellers are somewhat frustrated. This will change dramatically over the next two months. In the spring expect another Silicon Valley real estate run.