Saturday, May 5, 2007

Flexible 1031 Exchange Intermediaries

Can you get away with a closing on an exchange past 180 days? NO. That is not a debate. Can you fudge the 45 day rule? Some do and some get away with it. Don't expect your national exchange company to do it. By the way, this is illegal. And just fixing that document does not put you in the clear. Do purchase contracts have dates on them? Do lender docs have dates? This is a very risky strategy that I cannot stand behind. It's best to be very clear on what is available to replace your property with before your 45 days is anywhere near up.

What to buy?

Buy the perfect house, it will make your life much easier in the future. There will be many temptations to buy a less than perfect house for the savings of some money. Take my word for it, remodels take more time and money that you initially plan for. You cannot move a busy street or noisy overpass. You will have to heavily incentivise a future buyer to buy your castle. Also, is time not money? Do you enjoy or just tolerate weekends at Home Depot? Do you like the beach, the mountains, Disneyland or Yosemite? Does you boss like you rested on Monday's and most importantly, what does your significant other really think?

Google, Yahoo & Apple

These three and other large, well-capitalized tech companies are buying large tracts of land in Silicon Valley for future expansion. This is a great sign for the long term health of the Valley. With large investments, these companies will be more apt to stay than ship off their workforce to cheaper locales such as Austin. That was a boondoggle that Apple went through in the mid 1990s. Many dissappointed Apple families moved back to the Bay Area only to find a costlier transition. Silicon Valley is here to stay. That's why most tech giants are betting long.

Cookie Cutter America

Every city in this country has a Starbucks (or dozens of them), a Quizno's, a Walgreen's, a McDonald's, a Cheesecake Factory, etc. What's a foreign visitor going to say when he visits all the major cities in this country and sees the same things? OK, I'm being cynical, yet it is true. Companies are expanding rapidly due to a variety of factors: franchising, investors buying coupon clipper investments, distribution channels, large volume purchasing discounts, etc. Every American wants the cheap goods Wal-Mart or Target can offer. This the trend my fellow investors. Make decisions with that in mind.

Banking Relationships

When buying a house or any other real estate, consider the deep relationships you may already have. Banks want to vertically integrate their existing customers. It cost less for them to prospect their current clients than advertise for new ones. Therefore they can be more competitive to them. And existing customers have more for the bank to go on than just a FICO score. Finally, existing bank customers tend to have savings or at least healthy checking accounts to verify. This why one of my current buyers acheived a 1/4 point better interest rate from a certain large bank than what my super loan broker could acheive.

Scratch That, Buy a Fourplex

Never mind what I said about the condo purchase over the land deal. There is still 100% financing possible on fourplexes as long as your FICO scores are healthy. This give you leveage of rents and on appreciation value. If your $300,000 condo goes up 5%, that's a $15,000 gain. If the $1,000,000 fourplex does the same, that's $50,000. I also bet that the fourplex on an after tax basis is the cheaper ownership.

Newbie Investor's Land Speculation Goals

Let me buy a $15,000 single family lot in the desert above Los Angeles. The goal is that the lot will sell for $30,000 in a few years. Small $5,000 downpayment (feel free to extrapolate for ye with bigger budgets) and small monthly negative. Is this a good investment? Will the effort be worth the possible $15,000 gain less the cost of ownership? That same small downpayment will cover the closing costs on a zero down condo for our investor to live in. Then she benefits from tax sheltering and better financing. In this case, go for the condo.

Deep Data from PropertyShark

Do you want to know everything about a property from your desktop? PropertyShark does just this and in a way no one else ever has. Property Shark will give you: comparable sales, property details, ownership info, maps, photographs, listings, foreclosures, pre-foreclosures, mailing lists and more, directly from the web. This information, as per their website, will "level the playing field." What is this fluidness of the real estate market going to do for prices? Illiquid assets tend to get lower valuations. Therefore....?

Housing Incentives Fleeting

No more flat screen TVs, Home Depot gift cards, tens of thousands of dollars in upgrades for your new K&B home. Sorry, the market is strengthening and builders are adjusting their prices. The glut of new homes coming on line is also short. Soon, there will be far fewer available new home developments for buyers to choose from. Builders who pulled out of options on land for development will start to look at those again. Though they will look at them like stock investors who survived the dot com bust do now.

The West is Holding Strong

The "pending home sales index" shows weakness through most of the country. The South dropped month to month over 7% in activity. This is not the trend typical of the Spring selling season. The West is moving in the right direction at 1.6% higher than last month. We may not be rock solid, though we are at least fairly stable. Please consider that the Bay Area is weighing that average significantly.

Hard Money When Buying a Shopping Center

Remove some, but not all contingencies and pass through money to the seller? Why would someone do this? The answer is when the seller is on the line for an extended period of time with their property off the market. Conduit financing takes 90 or more days. Should a seller take their property off the market for that long with no compensation? What if the market sours? What if the opportunity that they want goes away? Therefore, it is reasonable to compensate the seller for this opportunity loss. And 1 or 2% of the purchase price may be reasonable.

My Perfect Shopping Center - Version 2

What else?
Not too deep depths. Bathrooms in each 1,200 square foot space.
A few kitchens built out.
Adjacent to a Walgreen's or other major drug store.
Newer construction, 1980's or better.
Central in the metro or in the path of growth.
No gas stations on the lot. No grocery anchors.
Mix on mom & pop tenants and some national name recognition, although corporate signatures not required. And most importantly, within a non-stop, relatively short flight of San Jose on Southwest.

The Perfect Shopping Center

My perfect shopping center:
(because if you don't know what you are looking for, you'll rarely find it)
Spaces demised into 1,200 - 2,400 square feet.
A dentist, a bank, a restaurant and another dentist.
No video store. Parking over 4 per thousand. Ideally far more than this.
Leases terminating 3-5 years from now. Increase of property taxes passed through to tenants. Corner location on a 4 lane street. I can go on and I will next time.

East West Bank's Financing Promo

Apartment building loans 6.75% with 1 point, fixed for 10 years and ONLY 5 years prepayment penalty. Good deal? I think not. Conduit lenders are about 100 basis points lower for 10 year fixed rate money. Yes, there are 5 more years of prepayment penalty. Although, that probably is insignificant when you calculate cash flows on a 5.0 cap rate deal. Would you like to cash flow or not? Shop around.

Taco Bell/KFC NNN Investment

I have a soft spot in my heart for Taco Bell. It was my first job when I was a sophomore at Bellarmine. Now I am looking at a single tenant investment in Gas City, Indiana of a Taco Bell/KFC combo location. One of my concerns of single tenant deals is that the business may fail and you are faced with a large vacancy. Yum! Brands is hedging its bets on this location, and many others, with essentially two business models in the same space. This seems good for the landlord too. Hmmm...

Cinco de Mayo

Happy Holidays! Saturday afternoon under the sun at Santana Row. Plenty of tequila flowing. Party goers lining up to fill the lounges along the strip. Weather has a lot to do with success. If it were rainy and cold, the sales would be less robust. Retail tenants go so far with the weather issue as to prefer space on the east side of the street over the west. The afternoon sun being too much. Does the Southwest have advantages over the Northeast? Did Silicon Valley flourish due to great weather, among other things?

Sacramento Strip Center

I was walking a current listing in west Sacramento last week. Modern shopping strip of 12,000sf. Fully occupied. Nice condition. Yet, the neighborhood was rough. Crime statistics were above average and the household income stats were mediocre to low. Does this rule out a property? Should it? The stores were all doing very well. In fact, there was little in the way of retail nearby. Is a trophy asset necessary? Or, does cash flow and stability matter?

Foreclosures in Cupertino

3 months ago, Chicago Title held a foreclosure class in its Cupertino office. There were perhaps 30 agents there learning about the process. Yesterday the class was filled with about 50 eager agents. Does this signify more foreclosures? Or does this show a harder real estate market for Realtors who are looking at different forms of making a living? I suggest the latter. Due to a variety of factors, there are more agents struggling with the economics of the industry.

Cisco and Milpitas

Cisco is expanding in Milpitas to a 5 building campus. Get this, they occupy 50 buildings so far in San Jose and Milpitas. Have Milpitas real estate values increased over the last decade? Have Milpitas school scores increased? I remember when Milpitas was not the sought after address it is now. Should we pay attention to trends outside of real estate? Perhaps, If you want to play more golf in your golden years.

Property Taxes Soft

Sacramento County has lowered property tax assessments on 50,000 homes this year. Owners tend to complain when they are being assessed on values higher than what the market is supporting. Beware though, there are catch up provisions in Prop. 13. 2% increases per year is the maximum. If values are flat for a few years and assessments are flat, that is only temporary. The assessor will add up those 2% increases cumulatively when values rise above the missed increases. This happened earlier this decade.

Where Housing Goes So Does Retail

10,000 homes will be developed in Roseville, California due to an annexation of 2,200 acres of farmland into the city's borders. Ten Thousand. Roseville, which is a booming town and a wealthy one at that, is continuing. Housing prices are slumping right now. Don't expect that to continue. The Central Valley is expected to grow dramatically in the next few decades, hiccups aside. Buy and hold. Buy and hold.

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!