Interesting Real Estate Investment Magazine

In Beta format as of yet - Nuwire Investor - is an online magazine devoted to "alternative investments". One of which is real estate. Their current poll results of what most interests their readership is as follows:
US real estate 39%, International real estate 22%, lending 22% and then the rest is small potatoes in comparison. Is there a trend towards real estate as an investment - absolutely. The lending category is quite interesting too in that people with capital (read baby boomers) want income streams generated from their investments. The rise in popularity of NNN investments is driven by this desire too. OK Mario get to the point - Cap rates will continue to have downward pressure, especially on high quality NNN investments due to higher demand and a ton of capital needing to be placed by those slightly older than me;-)

Dirt Lawyers

There are many breeds of attorney out there. Hoge Fenton in San Jose is the kind you want when transacting a real estate transaction. But lawyers are deal killers, some say, and sometimes that is true. I've seen this happen many times. Though, the right attorney understands that transactions should happen and risk is a natural part of real estate and by the way - LIFE! Also - the term "dirt lawyer" is a respected moniker amongst those with JD degrees. Or you can be boring and call them real estate attorneys or... yawn... land use attorneys. Check out their awesome website resource called dirtlawyer.com

51 New Condo Development

Last weekend was Centex's "51" Valentine's debut. I know the grammar doesn't flow well in that sentence, though the development has the flow of an experienced Fung Shui expert.
This development borders the train tracks of the main San Jose station. Wait! That's a good thing. The side that borders the tracks is the popular side for many buyers. I thought it was wonderful. San Jose skyline veiws, urban intrigue downstairs, light from the East and "public" privacy. Walk to see Madonna when she comes in to the Shark Tank. Be a loyal puck head. Shop and dine along the renovated The Alameda. And hop in your car to your Cisco or Yahoo job. I believe this valley is overcoming the housing issue with wonderfully designed condo developments. Kudos to Centex.

Yield maintenance and Defeasance

Most very attractive commercial financing over the last few years has been saddled with the burdens of yield maintenance or defeasance clauses. Essentially this is a prepayment penalty that does not go away, can be huge and can hinder the effective marketing of an investment property. Yield maintenance is simple - a formala is used to calculate what the prepayment penalty is based on the current market interest rates and the remaining term of the loan. This can be a large amount, but a seller can sell if he sees economic benefit. Defeasance is another difficulty all together - the loan cannot be retired, period. Companies such as Capital Defeasance Group provide the solution. The loan is removed from the property, the seller can sell unencumbered, the loan is then replaced to the lender by a portfolio of fixed rate income products (treasury notes and bills) which continue to pay down the loan according to schedule. Simple right? Actually yes, just difficult to explain without a powerpoint presentation. There definitely are significant costs involved. The upside is a property that CAN be sold.

YouTube, risk and REWARDS

As quoted in Michael Liedtke's YouTube article today in the Merc: "You can sort of look at Silicon Valley as a giant casino where you need the slot machines to pay off at certain intervals. It's payoffs like this that makes people want to keep taking risks." - Keith Rabois (a YouTube investor). What does this have to do with real estate in the Bay Area? Mucho my dear investor - The vibrant, the intelligent, the movers and shakers will continue to thrive here - Many will win and those wins will continue to make this a place where everyone wants to attempt to be. With jobs available and payoffs in the minds of each techie out there, Silicon Valley will continue to be a crowded place.

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?