Weekly Santa Clara Housing Stats

The housing market is showing a slight turn toward more sales and less listings. Think the Titanic and its turning radius. OK, not that bad... Though, think about that. If you could see a trend before the rest of us, would you not benefit? What makes a Jedi Knight so special? He can see things seconds before they happen. Follow the Force young Skywalker.

Investment Magazine to Read

NuWire Investor is a new on-line investment magazine that is worth reading. April was their debut issue. It covers various investment vehicles including investment and commercial real estate. The staff is awesome and has deep resources on a variety of investments. This issue covers the baby boomers and where they are placing their investment dollars. Where the boomers go, we should anticipate and be there first.

Beach House in Mexico

Buyers please beware of the "Americanization" of Mexico's coastline. Recently, the Mexican government allowed the purchase by foreign nationals of property along the coasts via trusts administered by banks. Essentially this is as easy a home purchase in the states with a bit more paperwork. What is concerning is the pricing of homes in these zones when marketed to Americans. Speak to local real estate brokers as well as those catering to English speaking Norteamericanos. Shop around! Value will become apparent once you have seen many listings across a spectrum. Once you are happy with your beach home, send me the keys for a weekend getaway. I promise to blog from there in your honor.

Vacation Rental - 2nd Alternative

Do you have to buy a condo to have a vacation rental? Do most businesses buy their retail space? No. Therefore, could you rent a condo and use it as a vacation rental in San Francisco? Unless the lease says otherwise, this may be a great opportunity. I envision a 10 day per month "free" condo in SF every month. Yes, nothing is free. The other 20 days will be about working the rental. So? Maybe? I think this is worth some consideration. Any ideas?

My Dream House

A picture of my dream house is affixed to my goals binder. Address is 3456 Baker Street 4 bedrooms, 3.5 baths with an incredible view of the Palace of Fine Arts. $3.95M. How do I get there financially? With a 25% downpayment, I will need $15,000 per month to cover the nut. $2,500,000 of a fuly paid off investment property at a 7 cap rate. Possible, absolutely. My how - buy a house rental every year for the next 10 years and I will far surpass that goal. Wanna crunch some numbers?

Hot Spots - Internet Access

I was all set up to add to my blog at the Border's Books Cafe at Santana Row. Yes, my favorite hang out. I had great signal strenghth and my frappuchino by my side in a comfy leather chair. Perfect, right? ARE YOU A MEMBER? What! No. Internet access was available at a daily rate of $9.95. Umm, no. I packed up and walked over to the local Intero office and settled in. Will I possibly buy a book at the Intero office? Umm, no. Sorry Borders.

Vacation Rental in San Francisco?

I was looking for a hotel room in San Francisco yesterday for 4 hours on the web. Offended at the thought of paying $400+ for a boxy, boring room, I migrated to Craig's List. Under vacation rentals are dozens of daily rentals of condos in San Francisco. Some start at $100 per night. This got me thinking. If you could rent a $400,000 1 bedroom condo for $2,000 per month over 20 days, you could break even. Break even is not expected on condos in SF with a normal full time tenant. AND... you could visit your investment property the other 10 days.

Mel's Dinner

Do restaurants in San Francisco have to be avante garde and trendy to make their rent and to be successful? I have 10 team members at Mel's Diner on Lombard who think no. Mel's - been around for decades. Not trendy. Though people want the basics too. Sometimes shaking beef at Xanh is too much. Sometimes the mushroom burger is what makes your mouth water. So what does this have to with real estate? Invest in Burger Kings and Sonic Burgers - people will continue to eat there. And, more importantly, your tenants will pay their rent. Win Win Baby!

Borrow more for better rates

Commercial lenders will either have higher interest rates on smaller loan amounts, lets say under $1,000,000 or they won't lend under that threshold. The lenders who do lend in that arena will charge more for their efforts. Completely opposite from the conforming and jumbo loans for your Sunnyvale ranch house. So my advice is PLAY BIG!!!

Same tenant - different location

Corporate credit is nice - maybe. What is interesting is that a national tenant in Colorado, such as Walgreen's, will sell at a 7.5 cap rate. While the same corporation who has a store in San Diego, will sell at a 6.0 or lower cap rate. The checks come from the same national office. The quality of that ability to pay debts is the same. Then why the difference in value of the investment? Comments?

Wholesale Bankruptcy Retail Space - Need Some?

123 retail lease locations available to purchase from one bankruptcy of Hancock Fabrics. If you are a retail landlord, don't assume that if your tenant goes under, that this will leave you with vacant space. As have other companies such as Warehouse Records and Kmart, Hancock Fabrics which declared bankruptcy will generate revenue for their debtors through the sale of these leasehold interests. Most of these sites have under market value rents and therefore have value. The value is determined by the discrepancy between current and market rate rents and the remaining term of the lease plus any options to renew. Do you know of anyone who wants 10,767 square feet in Vacaville for another 16 years? The only other space near me is in Newark, though that has only 2 years remaining. Rats!

The Perfect Apartment Unit Mix

The most common apartment investor request is for a building with a predominance of two bedroom units. Don't show them a building of 1 bedrooms and, the horror, a building of studios. I'm going to step out on a limb here - I love studios and 1's. One bedrooms tend to have overall low occupancies. This is important when the landlord pays for water, garbage, etc. Realistically less toilet flushes (ok, sorry, but true) which means less plumber calls and lower utility bills. Studios are even more so this way. If I was in need of crashing at a friends apartment, I would choose the friend with the most ample space. Reasonable? Or I could definitely be swayed by location.... sure. Something to think about.

Residential Stats Santa Clara County

More divergance - listings are increasing while escrows are dropping off. This continued pressure in the middle of the buying season will cool off prices overall. Again - not in the hot areas - although definitely in central San Jose and east.

Investing in Phoenix - Low Unemployment

From US Bank Economic Update - Low unemployment and strong job growth in the Phoenix Metro. It's all about jobs. Think Silicon Valley - housing is strong due to job growth. In Phoenix, the same rule applies. 3.9% unemployment. 4.3% job growth over last year. More importantly, construction jobs did not take a huge percentage of this growth. Growth was in the best areas - business and professional services. Housing prices have slumped in that market, though, with strong job growth, that will change.

Yield Maintenance or Defeasance?

Lenders may give you an option of yield maintenance or defeasance when selecting a loan for a commercial property. The rate of the YM tends to be higher to offset the lender's increased risk of receiving the money back and having to reinvest it. This higher cost does add some flexibility if you decide to sell the building before the 10th year. You need to ask yourself what is more likely in the next few years.

Credit vs. Non-Credit Tenants

There is more risk - as the market suggests - in non-credit rated tenants. The mom and pop nail salon seems more risky than the Quizno's. A retail center of Quizno-quality name brands will sell at a lower cap rate than a center made up of neighborhood service providers. The difference in costs also is evident in financing. 5.9% vs. 6.78% is the difference in 10 year fixed money from credit to non-credit tenants as quoted from one lender's rate sheet today. Fair, yes. Higher risk/reward center will also command higher cost of capital. I suggest that the higher upside would be in a neighborhood center that can be converted to name brand tenants over time.

Rental House Cap Rates

What is the cap rate on your rental house? Annual income less expenses over current market value, right? The "less expenses" part is the nebulous part of the analysis. Needed items to include are major capital improvements that don't happen yearly. Roof replacements, new kitchens, bathroom remodels, landscaping, painting - all of these should be prorated every year to give a more fair cap rate. Don't be surprised if you get a 2.3% cap rate as I just did on my rental house. So, does that 4% cap rate apartment building look better? Maybe... That's another discussion.

Monthly Santa Clara County Stats

More active listings coming on the market and less deals going in to escrow. Divergent paths between the two stats. This is true in both the single family market and the condo/townhouse market in Santa Clara County. Yet, this is opposite of what is happening in Cupertino, Saratoga, Los Gatos, Palo Alto and Los Altos. We have micro-markets and it is very evident.

Cap Rate Compression

The general feeling is that cap rates are too low. Compared to what? If you compare it to rates 5 years ago, yes. That is a poor comparison though. Cap rates need to be compared to the cost of money and what interest rates will do in the near future. Also, new and significant pressure is coming from the baby boomers moving equity into stable commercial investments. Down payments are higher and not just because lenders are requiring it. More so due to the fact that very conservative buyers are buying into commercial property and being very risk adverse. All cash purchases abound. Leverage at a later stage in life is not so important. Cash flow, security, stability, asset protection rule the deals. Cap rates will continue to compress in the near term - think 10 to 20 years - just in time for the Gen Xers to step in.

Intero @ Santana Row?

Functionality at the workplace. Something to think about when considering investing in an office building or perhaps a retail center. Intero's new office at Santana Row - I wasn't sure what to make of it. Office space in a very high rent retail location - does that make sense? I had my ahah moment while in the yoga class today at Club One in Santana Row. The cost of this operation is actually low. Yes the rent is high, though staffing is minimal. It is a high profile space and very, very functional to the whole company, especially to gym rats like me who will end up working more effectively and longer because of this unique satellite office. Price per square foot is not the only factor of space. My bet is I will be more profitable, as will the company due to this added tool and asset that now exists. The world is a-changin'. Grab your laptop and be ready to move.