Stock Market or Real Estate

...which to invest in? People make money in real estate investments every day AND people make money in the stock market every day. Also true is the opposite. Real estate took a long rise up over the last few years and people made a lot of money. The real estate market that most people talk about is single family residential. In growth areas, these new homes kept rising in value. Now the pendulum is swinging back. The stock market also has made huge increases this year. Does it keep going forever - please know the answer is no. Divercity is tauted as the answer. I say quality is a better answer - both in property and in stocks. Google, Yahoo, HP - all strong performers which will weather the storms. San Francisco, Phoenix, Denver, Los Angeles - also strong metros that will stay healthy long term. Not necessarily their suburbs - those areas are like the front and the back of the roller coaster - more excitement - more green faces. Same goes for growth stocks, small cap stocks, emerging markets, etc. Stay in the middle, stay in quality - do better.

Santa Cruz Apartment Building for Sale

This is a very nice, renovated building near the world famous Santa Cruz Beach Boardwalk. Nine units, all one story, on a decent sized lot. $1,395,000 which is a 12.9 GRM! Very good gross rent multiplier for the area and for the relatively low price point. I'm a big fan of one story apartment buildings. Leaks don't disrupt two units, tenants don't bang on their ceilings and railings cannot be fallen over. There tends to be a better chance of a land play in the future too.

San Jose Shopping Center for Sale

This is a very well price strip center in San Jose's North Valley. Fully occupied by local tenants (which I believe provides very good stability) and two name brand tenants plus a cell tower. This is a good deal. $3,950,000 at a 6.6% cap rate!!! The land alone at that price is $110 per foot - not bad for long term development.

Shopping Center Investments

Article I just posted on Inmanwiki.com:

I have been helping investors either purchase shopping centers or exchange into them. My client base typically has built equity in a rental house or a small apartment building and are interested to ease management and increase cash flow. Multi tenant shopping centers are the best choice to preserve equity, lessen management and provide cash flow with stability. A fully occupied center in a strong market such as the Phoenix metro will cost $2-5M with an approximate 7% cap rate. This tends to be a fully occupied center with local, regional and national tenants. All tenants on NNN leases so the risk of expense fluctuations is borne by the tenants. Management fees are paid in the NNN charges also. This stable and strong situation is coupled with the cost of financing which may be 6.25% or lower for conduit 10 year money, some of which may have a couple years of interest only payments. Internal rates of return may be as high as 12% after tax. With housing growth continued to grow in that market (and many others), this is a great trade or purchase.

Silicon Valley and Rents

I just spoke to a Tax Accountant who commutes in to Mountain View every week from the Central Valley. He has stayed at the EconoLodge for the past 4 years after he sold his home in Palo Alto and moved east. The room rates he was getting are going from $100 per night to over $200. That is still a deal for a room in Mountain View during the week. Hotels room rates are soaring and empty rooms are very hard to find. Smells of 1999... My girlfriend's comment was, I should be able to rent out my 1 bedroom condo for easily $2,000 per month. Smells of 2000...

Trulia.com sooooo Coolia

I've spent the last week learning the ins and outs of Trulia.com It is a very well done site to search for homes, get area information and has a new forum to ask the cyber-community questions about real estate. The site fuses together statistical data from all sorts of sources to allow for buyers to make good, informed choices. The pictures are pretty too...!

The Real Estate Market Slows in Summer

This is time tested and true. I have three, count them, one, two, three buyer clients that are holding off on their home search due to summer vacations. We are not talking, I'm going to the south of France for a month neither. These are just normal one week jaunts somewhere where Southwest Airlines flies. Although short, these trips temporarily avert the focus on writing offers. This is also the perfect time to be buying a home. Listings are at their peak and buyers are scarce.

San Jose Home Offer

I agree with the theory that the first offer is the best offer. When shopping for homes in a fluid market, a buyer will have seen all the current inventory in a certain neighborhood quickly. Some of these buyers buy what is sitting on the market and others find that the homes do not satisfy their needs enough. These people sit on the fence and wait for the new listings to come out. Once one does that fits their needs (and with the realization that this is a rare occurance) they make a serious offer with the intent to purchase that home. This coupled with the fact that new listings generate a lot of activity within the first two weeks gives credence to the fact that the first offer will be the best. As a home sits on the market, the offers that come in will tend to cut more at the price. A seller who gets an offer quickly should not think "we priced it too low". They instead should be happy that their agent advised them correctly.

New Home Listings in Cupertino 2nd week of July

1. 6074 Alcante Drive, San Jose, CA 95129, $1,285,000, 4 bed, 3 bath, 2082sqft
2. 1104 Del Cambre Drive, San Jose, CA 95129, $958,000, 4 bed, 3 bath, 1880sqft
3. 7822 Festival Drive, Cupertino, CA 95014, $1,088,800, 3 bed, 2.5 bath, 2012sqft
4. 18721 Newsom Ave, Cupertino, CA 95014, $789,950, 3 bed, 2 bath, 1249 sqft
5. 10399 Rivercrest Court, Cupertino, CA 95014, $1,395,000, 3 bed, 2.5 bath, 1915 sqft
6. 7512 De La Farge Drive, Cupertino, CA 95014, $1,068,888, 3 bed, 2 bath, 1300 sqft
7. 1038 Craig Drive, San Jose, CA 95129, $945,000, 4 bed, 2.5 bath, 1363 sqftSan Jose
8. 850 Alderbrook Lane, Cupertino, CA 95014, $928,000, 3 bed, 2 bath, 1201 sqft
9. 1631 McGregor Way, San Jose, CA 95129, $1,100,000, 4 bed, 3 bath, 2004 sqft
10. 10407 Avenida Lane, Cupertino, CA 95014, $1,595,000, 4 bed, 3 bath, 2429 sqft
11. 6608 Danridge Drive, Cupertino, CA 95014, $1,199,000, 4 bed, 3 bath, 1800 sqft
12. 5066 Doyle Road, San Jose, CA 95129, $2,250,000, 4 bed, 4+ bath, 4227 sqft

If you want any further information on these Cupertino area homes, let me know.

Wrap Financing

The time of creative house financing is upon us. With the major shake out of the zero down, stated-income loan debacle will come the need to sell property the creative way. Are there still many buyers out there who want to buy homes? Yet, 100% financing is gone and homes will sit if market forces don't change to allow the sales to happen. The last wrap I participated in was in 1999. It was on a very ugly, old and quite un-finance-able fourplex in San Jose. The seller wrapped the note for 100% of the purchase price and kept the underlying financing in place. I paid the seller monthly and he paid his lender monthly. After a couple years, when rents rose, I refinanced the property and the seller went away happy (and unencumbered). This creativity goes away in hot markets where every buyer has cash, financing and motivation to buy, buy, buy. By the way, I don't suggest this method of operation, it's not typically allowed by lenders. Peace!

Zillow - give me a pillow

Zillow.com still is not accurate with house prices based on my scientific and highly biased survey by myself of my house. About an 18% below market valuation of a simple track house in Menlo Park, CA. What would I have said if the valuation was 18% higher than what I thought the value was? Maybe not blogged this issue. Like I said, it was a very biased survey. I hope nobody makes buying decisions based on Zillow. I sure won't list my house based on Zillow!

Automotive Commercial Real Estate

In the Bay Area, I know that available lease space is hard to come by if you have an automotive use (read dirty - as in auto repair, smog, tires, muffler, etc) The difficulty in finding lease space, due to neighborhood issues, zoning, averse landlords, etc. makes lease rates higher and keeps occupancy very high. This seems like a good niche to invest in. I agree. Expect to pay more though in lender margins and the cost of a Phase 2 environmental report on each sale or refinance. My mantra is - people make money doing what other people won't. Mechanics do and landlords that rent to mechanics do.

Sometimes the Experts are Not

In the Mercury News Real Estate section this last weekend, a mailed in question was answered about selling a triplex that the owner lived in one unit. He wanted to sell his place and 1031 into a condo to live in. The "expert" completely disallowed any 1031 possibility because he lived in the property. This is not true depending on how he filed his taxes. He very well may have listed his 1/3 portion as his principal residence and the other 2/3 as investment property. Thereby allowing him to exchange his investment portion via the 1031 exchange. Could he exchange into a condo? Yes, though he cannot live there until he converts it to investment property, ideally at least after one year of renting it out. Then, he also would be allowed his capital gains exclusion for the 1/3 portion. From this, he could buy a condo and live in it right away. Let's talk to a CPA please.

Larger Loans - Better Rates

If you need more money, you get better rates. That's not an addage that bankers go by, although, they sure seem to act that way. The lowest margin commercial (read conduit) financing starts at loans above $2,000,000. Margins over the 10 year approaching 120 basis points. The same loan under $1,000,000 and you may be paying margins of 190 or more basis points. Not fair in my book. Something must be said about a larger investment property providing more stability in a market. Especially in a less costly market, where a $3,000,000 shopping center IS significant. Not so in the Bay Area, where the donut shop I patronized today would sell for that amount. My eyes glaze over...

Shopping Center Financing Challenges

It is wise to have a lender take a good look at a retail property before making an offer on it. Even in premier city locations, let's say San Jose, there will be differences in the rates a lender will charge depending on the neighborhood. Is this "red-lining" - no such thing in commercial. Neighborhoods are ranked, A, B, C... and a lender will add costs to the margin depending on its lower grade. This can be shocking once you are in escrow and committed to close the deal. Of course, condition, age, tenant profile, lease terms, and more will also affect the rate a lender is willing to offer. I highly suggest having a lender who is willing to give you quick commitments when shopping for a center. Does anyone wonder why many deals fall apart, especially on high cap rate deals?

Starbucks NNN in San Jose

Rare I tell you, rare. Expensive too, this is not so rare.
Great Willow Glen-ish location at the corner of Leigh and Curtner. This location will do well always. Starbucks and Wireless Toyz, both with firm leases till mid 2011 only. Starbucks does not pay increased property taxes till 2011, if they decide to stay. Wireless pays 3% rent increases every year, then flat in both 5 year options after the first increase. This structure in confusing. Must use CCIM spreadsheet, Must use CCIM spread...
$670 per foot, 4.8% Cap Rate, 8 years old, $2,198,000 price.
When you buy a strip center, you buy the leases. If these leases were structured better, this center would fly off the shelves. Then again, it's Starbucks in San Jose. I could be wrong.

Mexico - The Perfect Storm

Here's a great idea brought up at the Intero Mexico kickoff: Being that:
1. Mexico real estate is now available to be purchased by US citizens via the "fidecomiso"
2. Reverse mortgages are becoming very popular with people over 62
3. The baby boomers want to be active in their later years
4. And finally, passive rental income is always nice:

There will be a good trend of retirees who tap their equity via a reverse mortgage (no monthly payments) to pay for a vacation condo in Mexico (all cash) and then enjoy the benefits of a place to play AND rental income too.

Hellooooo......!!!!!

I'm calling my mother right now.

Bond Rates Peak + Caps Dropping

This is NOT what we want. Solid asset retail centers have been been getting more expensive since March as an adjustment to the low cost of financing which bottomed out at about 4.5% + whatever spread your local lender is charging. Deals were being financed at 5.75% for 10 year money. So caps went from 7.0 to 6.5 or lower. Now, rates are at a peak and financing is costing 6.1% or more. This wipes out most deals in expensive markets like California. It also makes deals in less expensive areas not as great. Cap rates have to rise to adjust for this. It is also a fact that sellers are less likely to react to this movement as quickly. It reminds me of gas stations and their quick and slow reaction to the cost of fuel.

Dallas Single Family Homes

A great leader I just met at the Mike Ferry Manager's Retreat in Irvine was teaching me about the single family market in Dallas. For $120,000 you can buy a 3 year old rental house. Rent would be $900 per month. After paying a interest only payment and all expenses with 10% down, you can cash flow $200 per month. Not a bad place to put $12,000. Find the right property management company and you can ride the Dallas resurgence. Apparantly that market is growing in very good ways. Hmmm... thanks for sharing Joel.

Las Vegas - what do you think?

Two real estate friends of mine (yes, there is a differnce between real estate friends and "regular" friends) just got back from Vegas where they put deposits down on 3 condo hotel units. One development in downtown and the other on The Strip. The sales pitch attempted to counter the negative media news of slumping sales in that market. Suggestions were varied as to why the market is doing better than what is being reported. Examples: 1. A large number of "sales" are pre-construction contracts, which will not close (and hence, record) for a year or more. 2. Volume may well be down, yet average sales prices are holding firm. (I believe in supply, demand & price curves - sorry I don't believe this unnatural phenomena) Builders need to hold recorded sales prices high so that the rest of the development will continue to sell at similar prices. That is why many units are sold at higher prices because the developer is kicking in extra bling (upgrades, upgrades, upgrades). Finally, they countered the concern of the glut of hotel rooms. They're reply was "if we build it, they will come>" Sure, to an extent. I have a hard enought deciding which hotel to stay at now. I only imagine the hell when there are 5 Bellagios side by side.