Housing Slump

[roc]

How much longer do you think the housing recession will last? My estimates is that it will go for about another 6-7 years easy. Now is the time to acquire real estate because once things start to bounce back your going to be in a position to cash out. Best of luck, Roc.

 

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[BeachBoy]

I think it will hit the bottom and start to go back up slowly after the re-electrion of Obama (so early 2013).

 

[Imon32red]

How much longer do you think the housing recession will last? My estimates is that it will go for about another 6-7 years easy. Now is the time to acquire real estate because once things start to bounce back your going to be in a position to cash out. Best of luck, Roc.

There is plenty of money to be made. We just flipped one investment in 3 months. It was on the market for 4 days before we accepted an offer. We have another one going on the market any day now. We think we can probably move it in a week or so. The problem with real estate is people think they can compete with the pro's, and know nothing about flipping houses.

I think the buy and hold is a good idea for long term growth. However, I need a much quicker return on my investment. the only buy and hold properties that I am going to own are for my own use.

 

[Pete799p]

I think it will hit the bottom and start to go back up slowly after the re-electrion of Obama (so early 2013).

I think the exact opposite will happen if Obama gets elected. I think we will have another 4 years of low to no growth. One of the biggest reasons is the lack of continuity in the government currently and the uncertainty associated with his policies. I am not saying the other guys are much better but I think the market has lost faith in his ability to lead as well as get anything done and the uncertainty of bills like Obama care have made businesses hold off on hiring new employees as they do not know how much it is going to cost them.

I also think we need to see some loosening of the lending requirements of banks inorder to allow people to get a mortgage. Once the banks start lending again the housing market will rebound.

 

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[Rickson9]

Hard to say. I'm a Canadian currently acquiring rental property in Phoenix and so far, cash flow is decent and there are many opportunities. I don't know how long it will continue. Capitalists in the market will determine the speed of the recovery.

I assure you that the "millionaire stories" 5 to 10 years from now will involve capitalists who are taking advantage of U.S. RE today.

Modern Land Grab

 

[Runum]

Guys, friendly rules reminder before this goes any further.

No political discussions.

 

[Kung Fu Steve]

There is plenty of money to be made. We just flipped one investment in 3 months. It was on the market for 4 days before we accepted an offer. We have another one going on the market any day now. We think we can probably move it in a week or so. The problem with real estate is people think they can compete with the pro's, and know nothing about flipping houses.

I think the buy and hold is a good idea for long term growth. However, I need a much quicker return on my investment. the only buy and hold properties that I am going to own are for my own use.

What is it you do so differently than the newbies? While I'm not into real estate, I find the marketing fascinating. I'm assuming you're selling it yourself?

 

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[Imon32red]

What is it you do so differently than the newbies? While I'm not into real estate, I find the marketing fascinating. I'm assuming you're selling it yourself?

Newbies will look for a "good deal", buy it, invest their money in carpet, paint etc., and try to sell it themselves. I work with an expert, someone who does this everyday, does it well, and makes plenty of money. This person knows things like who is buying houses in this economy, where they want to live, what they expect to pay, what they expect inside and outside the house. And then they meet or exceed those expectations. The last 3 that he sold were all under contract in less than a week. He has been doing this for years, and will continue to do well at real estate. We went through a few of the learning curves together, but now he does everything. I just invest and he gives me a percentage of the profits.

 

[Kung Fu Steve]

So do you use this information to make the right purchases or sell the homes easier? (I'm guessing you're going to answer that with "both") but I guess what I'm trying to get across is, is the process something along the lines of finding out who "ideal housebuyers" are, finding out what they really want in a home, and then finding one to purchase and redo for them? Or is it just going off of a template that has been created?

 

[JWatchdog]

Well since many of us on here aint speculators or see into the future regarding the housing market. I believe the biggest indicators that in some way lets us see into the future of the market would be the economy/financial markets. If you noticed with the treasury freezing rates and the MF Global bankruptcy. also other factors.These two
things to me show that there is no trust or optimism in our economy recovering. leading to problems trickling to everyone more than severe financially than what our goverment is telling us. I believe people will make a run on the banking system once they find out there is more paper asset then physical. Severe inflation will happen and
prices will plummet on housing badly. Many people will lose lots of there money. And I believe another sign to
lookout for is the Fed Reserve using quantitive easing( printing more money) again in order to keep defrauding the people that the economy is not in risk of having another collapse. Basically hoodwinking us into believing that they have it under control that the economy will recover. Shit just look at what is happening with europe. Bye Bye euro very soon. And just look at what china is doing. They are hedging there assess as much as they can from us.

Blah blah blah. The real estate market is going to be good for real estate investors. Buy cheap, cheap in order to have some cushions from further prices declining...

 

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[Runum]

Well since many of us on here aint speculators or see into the future regarding the housing market. I believe the biggest indicators that in some way lets us see into the future of the market would be the economy/financial markets. If you noticed with the treasury freezing rates and the MF Global bankruptcy. also other factors.These two
things to me show that there is no trust or optimism in our economy recovering. leading to problems trickling to everyone more than severe financially than what our goverment is telling us. I believe people will make a run on the banking system once they find out there is more paper asset then physical. Severe inflation will happen and
prices will plummet on housing badly. Many people will lose lots of there money. And I believe another sign to
lookout for is the Fed Reserve using quantitive easing( printing more money) again in order to keep defrauding the people that the economy is not in risk of having another collapse. Basically hoodwinking us into believing that they have it under control that the economy will recover. Shit just look at what is happening with europe. Bye Bye euro very soon. And just look at what china is doing. They are hedging there assess as much as they can from us.

Blah blah blah. The real estate market is going to be good for real estate investors. Buy cheap, cheap in order to have some cushions from further prices declining...

And so the question has always been on this forum....How are you going to use this information to prosper in the future?

 

[Jake]

Guys, friendly rules reminder before this goes any further.

No political discussions.

Just a question..I'm not trying to stir anything up or derail the thread but how do you separate business and money from politics?

You need to think about the current political climate when making decisions. A loose monetary policy drives asset prices upwards. Inflation and deflation expectations will help you make a decision in any market.

You also need to think about taxes. Is the city you're thinking about buying in running a surplus or a deficit? Do they have a reason to raise property taxes which will cut down on your cash flow and asset value?

Monetary policy, taxes, tariffs, minimum wage increases, etcetera..all political

 

[BeachBoy]

Guys, friendly rules reminder before this goes any further.

No political discussions.

sorry I didn't write a political view but what I thought would happen, not related to my preferences.

it's kinda hard not to relate house prices with politicsé

 

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[Runum]

Just a question..I'm not trying to stir anything up or derail the thread but how do you separate business and money from politics?

You need to think about the current political climate when making decisions. A loose monetary policy drives asset prices upwards. Inflation and deflation expectations will help you make a decision in any market.

You also need to think about taxes. Is the city you're thinking about buying in running a surplus or a deficit? Do they have a reason to raise property taxes which will cut down on your cash flow and asset value?

Monetary policy, taxes, tariffs, minimum wage increases, etcetera..all political

I agree with you about the need to analyze politics when making decisions.
However, on a forum, polite political discussion frequently turns into a flaming wars of words.
These wars do not change anyone's mind and solve nothing.
All the heated argueing starts with an innocent mention of some view related to politics.
We saw this happen on other forums. This rule has been in place since the beginning of the forum.
Instead of politics and debating political positons, we just focus on how we can turn policies into our favor.

 

[Pete799p]

I didn't mean to start a political debate just my oppinoins about the politics that might effect the housing market.

Anyways a few good indicators to watch will be young adult unemployment that is currently around 19%. There have been enough college grads over the last few years living at home that could eat up the housing surpluse as well as drive rental vacancies lower. One major problem is most dont have the jobs to do so or are currently saving to purchase their first house. If young adult unemployment decreases you might see a rise in home purchases in the FHA markets. This coupled with the new FHA regulations that further facilitate flipping provide a great opportunity for rehabbers to make investments in the areas that are most attractive to first time home buyers.

 

[InMotion]

Need clear out the distressed before new home building will rebound. Rentals are booming now; many people have lost faith in owning a home. Investors will have to take up alot of slack. You can sell a home right now for peanuts but most people aren’t going to buy until housing prices rebound and they have a job to pay the mortgage.

This is difficult to answer because when there’s any room spec. home developers swoop in and take out the slack almost immediately. There’s such a huge surplus of construction companies out of work that it will take a major shift in the market to get something going, not this sloth growth. It will take many, many years talking from a new home perspective, maybe ten or more in some markets. Construction is lagging the market in this recession where before it helped lead us out. There are some specs of hope in the custom home market building for retires but not enough to go around.

 

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[Jake]

I agree with you about the need to analyze politics when making decisions.
However, on a forum, polite political discussion frequently turns into a flaming wars of words.
These wars do not change anyone's mind and solve nothing.
All the heated argueing starts with an innocent mention of some view related to politics.
We saw this happen on other forums. This rule has been in place since the beginning of the forum.
Instead of politics and debating political positons, we just focus on how we can turn policies into our favor.

Fair enough. It's definitely a fine line. if you can talk about policies then it's not completely banned.

Thank you for your answer

 

[roc]

And so the question has always been on this forum....How are you going to use this information to prosper in the future?

Well hopefully I can get my private financing gets in place so I can take advantage of the market for the next few years. Roc

 

[CashFlowDepot]

I really think you'll be looking at 15-20 years before you start seeing PRE-crash activity.

Here's why:

(1) There are 3,800,000 REO properties the banks are holding back and not selling yet because it would make prices drop like a rock if they did.

To make matters worse, there will be another 4,000,000 foreclosures in 2012 - these are homes which are already in delinquent status and most already have a notice of default filed.

There's an estimates 3,000,000 additional "shadow" property which are delinquent but the banks have not done anything yet. I personally know 2 people who have not made a payment in 2 years and they are still living in their house but have not received a notice of default. The banks don't even call. So they continue to live in the house without making payments.

When you add that all up together, it's a heck of a lot of inventory that needs to be liquidated before we can get back to normal.... what ever that is.

(2) When Texas had the big RTC mess, it took 15 years for prices to get back to pre-RTC prices. The mess we are in now is bigger than the RTC so 15 years may not even be enough time. That's why I said 20 years!

But...this all presents HUGE OPPORTUNITIES if you are NOT in the business of selling to a retail buyer.

Sellers need to sell but they can't compete with all the REO and short sale inventory, so it's easier than even to get options and to buy with creative seller finance terms ( like 00% financing)

When you acquire these houses, you can rent them out. All those people who got foreclosed on need a place to live so rents are going up up up.

Or, you can wrap the underlying loan and sell the house with seller financing. Since it's so hard for people to get institutional financing you'll have buyers with lots of money and pretty good credit lined up to buy your houses.

Don't wait for the market to turn around. Take advantage of the opportunities we have right now. It's not like it was 5 years ago, but in many ways, it's better!!!

Jackie @ CashFlowDepot.com

 

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[Rickson9]

Jackie, I'm a Canadian that owns a number of rental properties in Phoenix, AZ. I'm limited by geography. There are no liens/mortgages on any of the properties. What is the best/low-cost way to unlock my equity?

 

[CashFlowDepot]

HI Rickson9

Avoid bank financing. The prices may go down more and you sure don't want to find yourself in an upside mortage situation like so many others. It will cost you a fortune in loan fees too. So avoid bank financing.

The best way to unlock the cash is to find someone who is in the middle of a 1031 exchange and has a lot of cash they need to park someplace fast. Once they sell the initial property, they only have 45 days to name the exchange property to avoid paying taxes on the capital gain.

So, the strategy would be that you sell them the houses BUT you keep an option for 50% of the upside so you can still capture part of the appreciation in the future. If you want to keep cash flow too, you could master lease the properties for 50% of the cash flow. Since you already have tenants and management in place, this would be attractive to a prospective buyer.

If the market tanks in AZ, you could not exercise your option in the future. (but you still got your cash out)

If the market picks up in AZ, you're safe with your option and master lease.

Either way, the buyer gets what they need and you get what you need.

So, the next question is, how do you find someone who is in the middle of a 1031 exchange?

You can go to 1031.ORG to get a list of all the 3rd party companies who handle these transactions. There will be an email for each company. Send them a flier about your properties and the proposal. They will pass it on to all clients who need to find a replacement property fast.

You can also go to REE.com and post your proposal there. It's a great place to find exchange and seller finance opportunities for all kinds of properties.

My guess is you'll close by the end of January!

Best of success

Jackie @ CashFlowDepot.com

P.S. alternately, you may want to SWAP those properties for something closer to home. I'm a big advocate of only investing in your own backyard. To find someone who wants to swap check out Permanent House Swapping and Real Estate Exchange: Trade, Homes, Land, Boats, Cars, Airplanes, RVs Yu may find someone who has properties in Canada they'd like to trade for something in Arizona

 

[Rickson9]

Thanks Jackie! An awesome and very helpful response! I'd give you more +speed but I've maxed out on you atm!

A few more questions:
"So, the strategy would be that you sell them the houses BUT you keep an option for 50% of the upside so you can still capture part of the appreciation in the future. If you want to keep cash flow too, you could master lease the properties for 50% of the cash flow. Since you already have tenants and management in place, this would be attractive to a prospective buyer."

1. How do I execute the option for "50% of the upside"? Do I need to wait for the Buyer to sell or can I execute whenever I want (with an appraisal determining the capital gain)?

2. Once I sell my "50% of the upside", do I keep "50% of the cash flow" via the master lease (no properties, no capital tied up, but keep half of the cash flow)? I'm assuming that the contracts are independent.

3. What happens to each master lease as the underlying tenants either renew or leave?

4. Currently the property manager enforces my lease/rent collection. Who enforces my master lease once I sell to a Buyer while keeping options on 50% of the cash flow?

5. From my limited understanding in a 1031 exchange, the property being purchased must be of like-kind as the property being disposed. Wouldn't it be difficult to find a prospective Buyer who owns and is currently disposing of a number of condos and houses simultaneously? Or does the dollar amount simply need to be the same (e.g. Buyer disposes of $1m house and buys 5 x $200k rental condos)?

I'll start looking for a Canadian attorney who can help me with this. Thanks again!

 

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[max momo]

Rickson,

In addition to CashFlowDepot's most awesome answer, I pose to additional options for you to ponder/investigate:

Start a REIT

Start a MLP

These are doable...not simple, not easy...but if you have multiple free and clear cashflowing properties, definitely doable...

 

[Rickson9]

In addition to CashFlowDepot's most awesome answer, I pose to additional options for you to ponder/investigate:

Start a REIT

Start a MLP

These are doable...not simple, not easy...but if you have multiple free and clear cashflowing properties, definitely doable...

Good ideas. I've thought about those, but I don't like dealing with the securities commission.

Offering memorandums, subscription agreements, closely-held issuer exemptions, accredited investor exemptions, partnership letters, etc. been there done that, not for me. Good for somebody else tho!

 

[CashFlowDepot]

thanks jackie! An awesome and very helpful response! I'd give you more +speed but i've maxed out on you atm!

A few more questions:
"so, the strategy would be that you sell them the houses but you keep an option for 50% of the upside so you can still capture part of the appreciation in the future. If you want to keep cash flow too, you could master lease the properties for 50% of the cash flow. Since you already have tenants and management in place, this would be attractive to a prospective buyer."

1. How do i execute the option for "50% of the upside"? Do i need to wait for the buyer to sell or can i execute whenever i want (with an appraisal determining the capital gain)?

typically, the option is written for a certain time frame - like 5 years, 10 years, 1 year, 30 years. And it will say you can't exercise your option until that date. In long term options, it's a good idea to record a deed of trust to protect the option and put the world on time that it exists. If the new owner wants to sell, they will need to pay you $$$ to get the option releases.

2. Once i sell my "50% of the upside", do i keep "50% of the cash flow" via the master lease (no properties, no capital tied up, but keep half of the cash flow)? I'm assuming that the contracts are independent.

keep 50% of equity with the option. Keep 50% of the cash flow with the master lease they are separate



3. What happens to each master lease as the underlying tenants either renew or leave?

nothing. When there is cash flow, you get part of it. When there is none, you don't.

4. Currently the property manager enforces my lease/rent collection. Who enforces my master lease once i sell to a buyer while keeping options on 50% of the cash flow?

the management company can be instructed to send 1/2 of cash flow to you and 1/2 to new buyer or 30/70% or 10/90% - what ever you agree to.

5. From my limited understanding in a 1031 exchange, the property being purchased must be of like-kind as the property being disposed. Wouldn't it be difficult to find a prospective buyer who owns and is currently disposing of a number of condos and houses simultaneously? Or does the dollar amount simply need to be the same (e.g. Buyer disposes of $1m house and buys 5 x $200k rental condos)?

no stretch at all. I know a guy who sold a $760,000 house in california and exchanged in to 12 houses in florida. Happens every day.

my last exchange was for 2 houses in to 1 house (less management, better property)

i'll start looking for a canadian attorney who can help me with this. Thanks again!

avoid a reit. It will take 6-9 months and hefty attorney fees to set up and a lot of government regulations - especially the sec. I will never do one again.

 

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[Rickson9]

Thanks Jackie! Your info has been invaluable to me and I really appreciate it!

I will definitely look to use options when I decide to withdraw my equity from the properties. I like the idea of getting my equity out while keeping upside re: appreciation (option) and rent (master lease)

In general, at the moment prices in Toronto are $550 per sq ft compared with $50 per sq ft in Phoenix, AZ. An 800 sq ft condo in Toronto would rent for $1400 per month while a similar condo in Phoenix would rent for $700 a month. Although the rent is double in Toronto, the price is 10-fold.

I've been thirsting for cheap property for so long that I'm going to enjoy Phoenix for a little while. It's also fairly pleasant to be able to 'oversee' my RE business (especially during the Canadian winters)

I think I will continue to collect properties in Phoenix and look to exit once a a recovery is underway. An ideal situation would be: 1. Phoenix recovers, 2. Toronto, Canada goes into a real estate funk (which hasn't been seen since 1991-1996), 3. Withdraw funds by optioning the Phoenix properties + master lease, 4. Deploy capital in my own 'backyard'

Thanks a lot again!

 

[Imon32red]

So do you use this information to make the right purchases or sell the homes easier? (I'm guessing you're going to answer that with "both") but I guess what I'm trying to get across is, is the process something along the lines of finding out who "ideal housebuyers" are, finding out what they really want in a home, and then finding one to purchase and redo for them? Or is it just going off of a template that has been created?

It really depends on the market you are trying to target. It really is quite simple. Find your target market, determine the price range they are looking for, determine the amenities they are looking for, and the location they are looking to live. Once you know this it's all in the numbers. It doesn't matter if it takes 3 days or 3 months to find the house to buy, the numbers have to match.

What I notice is newbies scour the market, looking for that great deal. After they buy one the end up being stuck with it because either the money was wrong, or no one wants the house.

On a side note, we put one on the market last week. Even with the holidays we had several showings. On Tuesday we had two offers.

 

[roc]

I hate to say it but it took Japan, 20 years to pull its self out of a recession.

Also Jackie you are a wealth of info, your post have changed my mind on the way I invest. Thank you for all the great info. Roc

 

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[houseofcards]

Excellent topic very helpful to everyone reading. I am looking to buy a house or a condo in Phoenix, AZ where I live and I wm looking for distressed property that I could fix up. Sites like ziprealty, and my real estate agent who basically i think uses the same site haven't been very helpful and needles to say I am still searching for that property. Maybe someone can point me in the right direction? Thanks for reading.

 

[roc]

Excellent topic very helpful to everyone reading. I am looking to buy a house or a condo in Phoenix, AZ where I live and I wm looking for distressed property that I could fix up. Sites like ziprealty, and my real estate agent who basically i think uses the same site haven't been very helpful and needles to say I am still searching for that property. Maybe someone can point me in the right direction? Thanks for reading.

Your best bet is to search the area where you want to buy and look for the most run down house in the neighborhood. Once you find it go knock on door and tell them you buy houses and that they someone forwarded there address to you and that they want to sell. OR if you don't feel confident knocking on the door, research the house info and found out who owns it and send them a hand written letter that your interested in buying there house.Hope this helps.Roc