Best REO Cities: Where Should You Buy?

June 29, 2009

For many people around NoBullRE.com, they have an interesting dilema:

They have cash, good credit, are excited about this market, but don’t know where to buy an REO property.

Frequently, their emails are bombed several times  a week from groups in Atlanta, Detroit, Pheonix, Kansas City, etc, etc, etc with great properties and they just get totally confused.  A common question that we get is how do I choose one deal, relative to another.  Our advice….. first choose the location where you want the deal.

Without stealing our thunder for tomorrow night’s webinar (sign up here), I will at least share with you how we approached this same question.  You see, we had the choice to locate our REO activities anywhere in the country and have decided on one specific location…. and this includes picking a location to add properties to our own portfolio.  So why did we pick Tampa over all the other interesting places?

In theory, this question would be easy to answer….. simply ask the question “in which location will a home that you purchase produce the most net profit (combination of cashflow and resell profit)”.  If we just pull out our magic genie, should be no problem to answer….. yeah, right.

Given that NO ONE can predict the future, then the next best thing we can do is ask:

What major city has REO properties that are most likely to produce high returns?

To help ourselves determine that city, here is the questions we asked ourselves:

1. What cities can we get sub $100K properties that ARE NOT IN WAR ZONES; AND
2. What cities can we get good rental income relative to price; AND
3. What cities have banks that are NOT PANICKING; AND
4. What cities are showing signs of stabalizing; AND
5. What cities have professional real estate investors that are bullish (rather than scared).

We have highlighted AND in red because we see a common mistake where people get confused….. they maybe focus on where the get the BEST cashflow or where they get the BEST price.  While that may make sense short term, we don’t believe that is how you maximize your returns in this market.  In our opinion, you need to find the location and the property where you give yourself the best shot at all the criterion above.

In our webinar tomorrow night, we will be diving into this question and how we answered for ourselves.  You may, or may not agree with our conclussions but we believe you will find the approach very informative.

Sign Up For Our Webinar.

NoBullRE.com Alert: How To Increase Your Cash Flow By 82%

June 18, 2009

In this market, everybody wants to increase their cash flow.  I don’t care if you are a real estate investor, a realtor, a business owner, or most anything else, producing cash flow is top of everyone’s mind.  Especially if you could almost double cash flow with a minimal amount of effort.  That is exactly what a close friend of mine has done recently and I thought the NoBullRE.com community would find his story interesting to see how it applies to their situation.

Make Your Phone (or Email) Ring…. The Only Answer

Let’s play a little game of what do these people need to increase cash flow.  As the figure shows, regardless if you are a real estate investor or any other business owner, one of your biggest needs is for the phone to ring.

Now, from my friend Larry who owns a local hurricane shutter installation business.  His results:  Phone calls almost doubled (along with sales) over a 2-3 month period.  Guess what?  His cash flow picture approximately doubled as well.

How Did Larry Double His Business?

Very simply….  He SUBSTANTIALLY increased his exposure where people where looking for exactly what he does.  The funny thing is that he increased this exposure in places where very few competitors even begin to know how to play.  Where did he do it?

The Web…. here is what his visits have looked like.

But Larry had a web site for a long time with ALMOST ZERO VISITORS.  So what happened to explode his call volume?  Very simply, Larry took the steps to DOMINATE in Google and other search terms.   Take a look at this Google output and Larry now owns 4 POSITIONS in Google first page.

Think about it…… somebody does not sit down at their computer and randomly search for phrases like “Destin Hurricane Shutters”.   At that exact moment in time, they are very interested in finding someone that can help them with that topic…… Larry has just put himself in a position to be that person.

Now, also look at Larry’s rankings in other, related search terms.  For a real estate investor, maybe the search term would be sell my house fast Tampa.

Larry is my long time fishing budding and now have to apologize to him…… he has gotten so busy he is having a hard time finding time to fish.

Larry Didn’t Lift A Finger To Do This

Larry will be the first person to tell you he knows NOTHING about getting his website in Google.  As far as he is concerned, it is pure witchcraft (in reality, its is very predictable).

How Larry did this is to participate as a beta test partner for a new, local web positioning service that is in launch stage as I write this.  The cool thing about this service is that a group of techies have figured out how to slash the cost normally associated with getting a web site to dominate.  Normally, this service is cost prohibitive except for those with revenues to $1M+ per year….. unfortunately, that leaves a lot of people out in the cold.

Instead, for applicable businesses, this new service can place them for a SMALL FRACTION of that cost.  As Larry recently stated:

“I can pay for a whole year’s worth of service with a single sale….. becomes a no-brainer for me and I would pay them lot more.”

FULL DISCLOSURE:  I am a partner in this venture that has been in development for about 18 months.

A Unique Offer:  We Need A Few More Larry’s To Fine Tune Our Launch

I want to make a unique offer to a few more “Larry’s” and thought that we would do this with some NoBullRE.com readers.   Specifically, by helping us fine tune our systems prior to launch, we will:

• Give you a custom software tool that we use (no cost) and training to find unique niches that will work like Larry’s;
• Consulting (no cost) with one of the principals (or me) to make sure you have the right approach.
• Over $1,000 off the cost of the service.

It is vitally important to us to work closely with a few charter members to really iron out our systems prior to launch.  If you are interested in this opportunity, then simply put your first name and email in below…. From there, we will provide you our custom software tool and video training so you can decide if this is right for you.

First Name Email

See Future Website: www.eMirrorMarketing.com

Home Builder Confidence Drops With Rising Rates

June 15, 2009

As reported in the Wall Street Journal today, the National Association Of  Home Builders confidence poll dropped due to rising interest rates.  In reality, rates are still very, very low but they have rebounded off their historical lows of a few weeks ago.

As reported by the WSJ:

A market sentiment index published monthly by the National Association of Home Builders dipped this month. The gauge reflects builder confidence in sales of new, single-family houses.

The drop in the NAHB’s housing market index reported Monday, to 15 from 16 in May, followed two months of increases that had nurtured hopes of a bottom to the housing crisis. Signs have surfaced this spring indicating the worst of the recession is past.

But mortgage rates have climbed in recent weeks, pushed by rising government bond yields. Investors are concerned about inflation because of increased spending in Washington meant to pull the economy out of recession. Freddie Mac data showed the average on a 30-year mortgage loan was 5.59% last week — 73 basis points higher than the average four weeks earlier of 4.86%, an advance that could hurt demand for houses.

via Higher Mortgage Rates Sap Builder Confidence - WSJ.com.

Short Sales May Get A Bit Tough In Florida

June 12, 2009

Some interesting news that has come out today about short sales and in particular, the ability to get title insurance on the flipped property.  It appears that some title insurance companies are getting uncomfortable with the practice.  There is a good article coming from the Tampa Tribune on this topic.  To quote a portion of the article:

TAMPA - It may be a bit tougher now for investors to flip short sales for big profits.

Attorneys’ Title Insurance Fund notified its 6,000 member lawyers this week that it will not insure deals made with a popular - but controversial - method for closing flips of short sales. A short sale occurs when a mortgage holder agrees to allow a home to sell for less than the mortgage balance so that foreclosure can be avoided.

The Orlando-based fund is a major underwriter for lawyers who write title insurance in Florida. In a letter to lawyers, the fund said it has become aware of short sale programs advertised on the Internet that promise to make investors lots of money with little or no work.

via Home short sale flips nixed.

It will be interesting to watch to see how this impacts the ability of investors to rapidly turn a profit on their short sales.

Foreclosures Down — But Are They?

June 12, 2009

We are getting some more mixed news this morning on national foreclosures.  On one hand, foreclosures have dropped compared to last month.  On the other hand, the number of foreclosures is above 300K which is still a HUGE number historically.  Now that the foreclosure moratorium is beginning to lift, we will definitely see some of this type activity for a while.

In today’s Washington Post, they write:

Foreclosure filings fell in May compared with the previous month, but remain at elevated levels, according to data from RealtyTrac released today.

The firm counted 321,480 filings nationally, which can range from default notices to bank repossessions. That was down 6 percent from April, but an increase of nearly 18 percent from May 2008. RealtyTrac, a private firm, says its data include more than 90 percent of U.S. households.

Despite the dip, this was the third month in a row that foreclosure filings exceeded 300,000 and the third highest monthly total since the firm began collecting the data in 2005, according to RealtyTrac. The company estimates that in a normal market, filings would fall to under about 100,000 a month.

via Foreclosure Filings Fall in May - washingtonpost.com.

As we move forward through the coming months, we will continue to see a lot of mixed data such as this.

Florida real estate crash means Tampa Bay homes are too cheap, report says - St. Petersburg Times

June 11, 2009

A new article lines up with what we are seeing on the ground in Tampa with probably some over correction in prices.  According to the article:

Tampa Bay area homes are too cheap. You read that right. According to IHS Global Insight, a economic forecasting company based in Lexington, Mass., our real estate is undervalued.

IHS took a measure of our depreciated home prices, population density, household income and historical attractiveness and insists our median home price of about $131,000 is 16.9 percent too low. Three years ago, when a typical home sold for $186,400, IHS deemed us 30 percent overvalued.

You can get the entire article below:

via Florida real estate crash means Tampa Bay homes are too cheap, report says - St. Petersburg Times.

Housing Inventory Drops Again - The Market Continues To Improve

June 10, 2009

A number of news outlets are reporting today that housing inventory, which is the amount of homes that are for sale, dropped 3.9% this month.  In some areas of the country, housing inventory is actually returning to almost normal levels: of course in others, things are very much out of kilter.

This ties in very much with our data that we recently showed in the Tampa market where cash buyers where going turbo.  See: Tampa Cash Buyers Fuel Local Market.  As market begin to return to normal, we are going to see lots of mixed signals (some good, some bad).

While we are not predicting an INSTANT market rebound, we are seeing consistent pieces of information that this market is trying to turn.

See Wall Street Journal Article On Housing Inventory

GO Zone Extensions, Deadlines, & Tax Benefits Simplified

June 5, 2009

NOTE: Did You See Yesterday’s Email About A Model Home Opportunity?  (Click To Read)

With the taste of Summer now in the air and with Tax season still fresh on everyone’s mind, I have been receiving a lot of questions from real estate investors who are looking for clarifications on the GO Zone time lines.  “So when exactly do the benefits end?” is the most common question that I have been receiving and more so as we approach mid-year.

GO ZONE EXTENSION

As you may already know, the IRS put an extension in place that extended the benefits of the GO Zone out until 2010.  The catch?  Well first of all, the extension ONLY extended the tax benefits of the GO Zone in certain areas.  In certain locations in Mississippi and Louisiana, you can still claim bonus depreciation benefits through 2010.

In Mississippi, the eligible counties are:

• Harrison County;
• River County;
• Hancock County;
• Stone County; and
• Jackson County.

For Louisiana, the list of parishes include:

• Orleans;
• Cameron;
• Plaquemines;
• Calcasieu;
• St. Bernard; and
• St. Tammany.

Note that in Alabama, the GO Zone bonus depreciation and GO Zone benefits are no longer available and already ended back in 2008.

CONFUSION AND CALRIFICATION

Ok, so here is where all the fun starts.  This is the point where I usually get asked “So Michael, if the benefits are extended in (as an example) Gulfport Mississippi until 2010, I have plenty of time, right?”

In short…NO!  The reason for this answer lies in the depths and details of the IRS Code.  I’ll give you both the long and short versions. For those who can’t wait to read the long answer, I will give you the short version first.

THE SHORT VERSION

Basically (following the above example), as long as you put a new unit into rental service by the end of 2010 in Gulfport Mississippi then you will be able to claim GO Zone benefits.  HOWEVER, you will only be able to have the Bonus Depreciation on that portion of the structure that was completed ON OR BEFORE December 31st, 2009.  So if the new home construction was just started and only the foundation was completed by the end of 2009, you would only be able to use that portion of the structure (since you can not depreciate land) that was completed by the end of 2009 for your Bonus depreciation calculation.  In this example, you would only be able to count amount for the foundation in your bonus depreciation calculation.

So here’s an example.  Suppose that you are purchasing new home construction. Specifically, a brick exterior 3/2 1300 s.f. single family home in the Gulfport MS area for say $140,000.  In this example the land is estimated at $20,000.  The first thing that you want to do is calculate the max Bonus Depreciation which you do by first subtracting the value of the land and then take 50% of that.

Purchase Price:           $140,000
Land:                                 $20,000
Total Construction:   $120,000
Bonus Depreciation:    $60,000

If this home was purchased and completed before the end of 2009, then that is exactly what would be on the table; a $60,000 bonus depreciation.

If you did not know the “details of the IRS code” and purchased the same exact home in December (ASSUMING that you would be able to get the same price), then what you could get as a benefit depends on what is completed on the home.  Realistically, if you waited until early December to purchase, you would be lucky to have the foundation completed by the end of the year (given permitting, etc.).

Completed Construction:  $12,000
Bonus Depreciation:              $6,000

As you can see, a big difference in savings.

THE LONG VERSION

For those of you who still want proof that the GO Zone benefits are as described above, let’s look at the long version of the answer.  This requires that we dive into the source of the GO Zone benefits - the Internal Revenue Service.  The following link takes you to the IRS Notice 2007-36 entitled “GO Zone Bonus Depreciation Additional Guidance”

http://www.irs.gov/irb/2007-17_IRB/ar12.html

From the above source:

“.02 Determination of Adjusted Basis Qualifying for the GO Zone Additional First Year Depreciation Deduction.

(1) Property described in § 1400N(d)(6)(B)(ii)(I) and section 4.01(4)(a) of this notice.

(a) In general. In the case of GO Zone extension property described in § 1400N(d)(6)(B)(ii)(I) and section 4.01(4)(a) of this notice (GO Zone extension real property), § 1400N(d)(6)(D) provides that the GO Zone additional first year depreciation deduction is available only for the adjusted basis of such property attributable to manufacture, construction, or production before January 1, 2010.”

WHAT THE SMART INVESTORS ARE DOING

Working with lots of real estate investors, I can see what the seasoned investors are doing:

1. They are making sure that to maximize their GO Zone benefits and Bonus Depreciation that the homes will be completed before the end of 2009;
2. They are also planning ahead of the “end of the year” rush (will be more so this year give the above time lines) and purchasing early while the quality “deals” are still available;
3. Along the same lines, they realize what the builders know. That is that the end of the year will bring higher demands and this will facilitate higher prices to get the same tax benefits.  Thus, by purchasing early ahead of the crowds, they not only get a better selection of product to choose from, but also are purchasing at lower prices as well.

CONCLUSION

While the IRS has granted and extension of the GO Zone benefits, they have caused a bit of confusion as to the best way to maximize these benefits for real estate investors.  The bottom line is that if the construction portion of the home is completed by the end of 2009 you will be able to maximize your benefits.  For the smart investor who thinks ahead of the crowd, this means getting into contract early for new constriction to not only ensure completion on time, but also to ensure getting in at great pricing as well.

Professional Cash Buyers Are Buying - Are You?

June 2, 2009

As we continue our series of blog posts about the change in real estate markets, we will now show a little known “secret”.   What the average Joe is doing, and what the professionals are doing, are 180 degrees apart.  Again, we will use Tampa as our example but what we show is happening in many places across the USA.

So What Is Joe Doing?

Referring to the typical home buyer as the “average Joe”, let’s see what is happening.  What everybody “knows” in the market is that times are tough and RETAIL prices are dropping.  Referring to the figure below, we see that this is true in every submarket in Tampa.

Chart Shows 12 Months Of Data For Various Tampa Submarkets

NOTE:  This is RETAIL pricing.  Prices paid by investors is RISING.

So, with this happening, Joe still believes now is not a good time to buy.  Let’s also look at the number of mortgages being written but let’s go all the way back to 2005 as we started coming off the boom in Tampa.  Here is what those charts look like for conventional, FHA, and VA financing.

Clearly, Joe is still on the sidelines.

What Is Sue The Professional Doing?

As mentioned in a previous blog post, there is now BIDDING WARS between professionals when a house goes on the market priced right.  Let’s see if we can really QUANTIFY that.  One very good measure of professional activity is CASH purchases.  Typically pro’s move in with very low (or zero) financing so if we look at the number of cash purchases, it  give us some indication as to the direction of pro’s and knowledgeable individuals.  We can also verify by being in the market that this is EXACTLY what is really happening.

Referring to the figure below, we see that Sue was not buying in 2005 when Joe was buying everything in sight.  We also see that now Sue, the Cash Buyer, is now buying while Joe is bailing.  The typical example of the pro’s doing EXACTLY OPPOSITE what most people do.

Just for comparison purposes, let’s now put conventional financing and cash on the same chart.

NOTICE THAT THERE IS NOW MORE CASH BUYS THAN FINANCED!!!  If that does not tell you something interesting about the way the pro’s think vs Joe.

The Cash Buying Pro Is Now A Huge Percentage

A natural question to then ask is what percentage of sales is cash now, and in the past.  This is shown in the chart below:

From this chart, we can see that cash buyers are now nearly 40% of the Tampa Bay market.  If you ever wanted an inside look at what the “pros” are doing in a market, this shows you.

Predictions For The Future

While we don’t have a crystal ball either, let’s see what predictions that we might be able to draw from this information.

1. Cash buyers & pro’s are buying everything in sight right now;
2. Conventional buyers still see “gloom & doom”;
3. Inventory will be absorbed by the professionals given rents versus prices;
4. At some point (we predict 6-12 months), Joe will wake up and then realize they are about to miss a golden buying opportunity;
5. Once a significant number of Joe’s start to “get it”, then prices begin to rise again as they scramble to buy homes before prices “rise too much”.

The joys of a real estate cycle……. it is just too predictable.

The Market Is Changing - Part 2 - Historic Rental Returns

June 1, 2009

In our last post, we talked about bidding wars occurring for properties, at least from the professional investor community.

I know that seems strange to many but it is really occurring.

As we progress in this series of blog posts to really show you what is happening behind the scenes, the next consideration is the unbelieveable change in cash flow that people can get from properties.  While this is occurring around the country, we will discuss a case study in Tampa, Florida where we have been spending a lot of our time.

Tampa, Florida Case Study

Let’s consider a simple, 3 bedroom house located about 5 minutes from downtown Tampa.  This is just a bread & butter type home we love for our own portfolios.   We will take a look at what has happened as we have gone from the peak of the market in 2005 to where it is today.

First, let’s get to the punchline which is shown in the figure below:  THE EXACT SAME HOUSE HAS HAD A CASHFLOW CHANGE OF $700 PER MONTH!

As we will see in a moment, the current house can be purchased for $92,000.  When you factor in vacancies, etc., this still results in a 15%+ cashflow based on a 20% down purchase.  Back in 2005, you would have lost several thousand dollars a year in cashflow.

Why Is The Cash Flow So Much Better?

1. Are rents better?  Not really, the rental market has been pretty flat as can be seen in the figure below

2.  The principal & interests is MUCH LOWER because of pricing

In this particular example, there was a $430 difference just in principal & interest between 2005 and today.

3.  Taxes & Insurance Are Much Lower As Well

When all is factored in right now, on the EXACT SAME HOUSE, we go from something that is a bad investment in 2005 to something that is a great investment today.

But Is Now The Right Time - Maybe It Will Get Better?

In tomorrow’s blog post, we are going to look at what is happening in the cash buyers market….. which is comprised of mostly local and national professionals.  As you will see, there is tremendous movement there right now which is very likely to stabalize, and then increase, pricing levels for properties.

• Who Is "REALLY" Making $ In Today's Real Estate Market? Our 29,689 Members Tend To Agree... It's Usually Not The GURUs Have you ever noticed that every "Guru" real estate pitch sounds the same........ They once were poor, but now are rich working only 5 hours per week, and you can be rich too if you just buy their "can't fail system". Or have you noticed that every property promote has a can't miss proposition, if you just buy TONIGHT.  At the NoBullRE club, we are huge believers in real estate investing...... but we also know that every approach has two sides: Nothing is perfect.  If you want unbiased ("No Bull") facts of who is making money, how are they doing it, and where do they get their knowledge, then you don't want to miss joining the NoBullRE Club  IT'S FREE (FOR NOW) Name Email See What Others Are Saying SECURE & CONFIDENTIAL Your info will never be shared CONFIDENTIALITY GUARANTEED

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