Buying a Rental at Trustee Sale

Buying a rental property at trustee sale is not as risky and as speculative as many believe. With proper analysis and an accurate estimation of value, this can be a relatively low-risk way to obtain stable cashflow.

Irvine Home Address … 203 Briarwood, Irvine, CA 92604

Resale Home Price …… $299,000

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Opportunity

Came to my door

When I was down on my luck

In the shape

Of an old friend

With a plan, guaranteed

He showed me the papers

As he walked me to his car

His shoes

Finest leather

He said

You could wear this style

If you follow my advice

Bobby McFerrin — Opportunity

The common perception of me is that of a housing bear. It is true that I believe resale prices will fall as foreclosures wash though the market, but I also see good reasons to own real estate — I mean really own it when you don't have any debt. It isn't necessary to time the bottom tick of the real estate market to invest wisely and profitably. Your goal should be to obtain the most cashflow for the money regardless of resale price. If prices drop further, that creates additional opportunity to get even greater returns.

The people buying with an eye toward positive cashflow are the ones who stabilize the market. They always are because they are the only ones who will buy when prices are going down.

The fake appreciation engineered by the Federal Reserve and our various tax incentive programs has created a low-volume plateau that is about to crumble under the weight of higher interest rates, high unemployment and large numbers of foreclosures. When the public stops believing HELOC riches are right around the corner, the bubble will continue to deflate until cashflow investors set a durable bottom.

There are abundant opportunities to acquire cashflow properties in many markets, and trustee sales offer a unique opportunity to obtain a solid portfolio of properties pruned of weeds that do not perform as expected.

Back in January, I went through the basics of Trustee Sales:

Foreclosure 101: Vesting Title

Foreclosure 101: Non-Judicial Foreclosure

Foreclosure 101: Mechanics of a Trustee Sale

Over the next couple of weeks, we are going to explore the various ways you can participate in the clean up from the Great Housing Bubble:

Foreclosure 201: Buying a Trustee Sale Property as a Primary Residence

Foreclosure 201: Buying a Rental at Trustee Sale

Foreclosure 201: Flipping Trustee Sale Houses on Speculation

Foreclosure 201: Flipping Trustee Sale Houses to a Buyer in Escrow

Foreclosure 201: Buying Trustee Sale Properties Using Conventional Financing

Investment portfolio real estate

Diversification protects investors from price volatility in any one asset class. Real Estate is typically the largest portion of a retirees net worth, and in many cases, it is the only asset they have. Mortgage equity withdrawal is particularly problematic for those approaching retirement because it allows consumption of what used to be a forced-savings account. Californians emptied their housing piggy banks, and they are broke. Foolish borrowers cannot easily access their IRAs and 401Ks for spending money leaving these investment vehicles as the only retirement savings reservoir outside of Social Security most retirees have — assuming borrowers did not deplete their retirement accounts attempting to save their homes.

Working-class owners should diversify into stocks, bonds and other investment classes before looking to acquire cashflow-positive real estate. However, once equity in the family home represents less than a third of total net worth, families should diversify into cashflow investment properties to maintain a real estate exposure between 25% an 50% of total investments. Note that real estate investment trusts, which are a security like stocks, provide real estate exposure and cashflow and these holdings should be considered the same as holding real estate directly.

The size of the portfolio and the allocation to real estate establish an investment budget. The next task is to determine how and where to deploy capital in a way that balances risk and return.

Capitalization rates and opportunity costs

Investors review of the risks and returns of any asset class, and savvy investors realize that every investment creates an opportunity cost because the capital deployed in one investment could have gone to another. Opportunity costs drive all current investment choices; when asset prices are high and returns are low, investors seek other assets where prices are low and returns are high. During the bubble disciplined cashflow investors were not adding to their portfolio of real estate, and many investors liquidated when prices were too high. Now that prices are softening, cashflow investors are finding opportunities once again.

I described cashflow investment in greater depth in the post IHB Investor Reports:

One key concept for Investment Value of Residential Real Estate is capitalization rate. The Capitalization (cap) Rate is the (yearly) Net Operating Income divided by Asking Price (assumed purchase price). It is the simplest measure of an investment’s financial performance, and it provides a convenient comparison to competing investment alternatives. A cap rate is like an interest rate on a checking account, a mutual fund return, or a bond yield. Cap rates change over time to reflect the perception of risk in real estate as compared to other investments.

The cap rate is inversely related to price; in other words, high cap rates are synonymous with low prices and visa versa. The cap rate an investor will accept varies from person to person. There is no single appropriate rate to apply to value.

Historically, cap rates on investment real estate are 10% to 12%, but in our era of cheap money and sub-5% interest rates, cap rates of 5%-6% are common today. The spread premium between real estate cashflow and savings account interest compensates holders of real estate for the additional risk. The current spread is very small, which reflects a lack of viable alternative investments and residual kool aid intoxication (people are overpaying).

Cash-on-cash returns and leverage

The cash-on-cash return is of greater interest to the typical leveraged investor as described in IHB Investor Reports:

The Cash-On-Cash Return is similar to a capitalization rate in that it shows a return on investment, but it is measured by comparing the Total Profit and Loss after Expenses, Debt and Taxes to the Total Cash Costs. This is the important rate of return for investors who are not purchasing with all cash. As long as debt is less expensive than the cap rate, the cash-on-cash returns can be magnified by increasing debt. This is an appropriate use of leverage to increase investment returns—to a point.

The over-use of leverage is biggest mistake made by speculators who think they are investors. Leverage (debt) magnifies the capitalization rate. For example, if a property had a 10% cap rate, the application of 5% debt results in a cash-on-cash return much greater than 10%. For this reason, many naively assume that more leverage must be better; on paper it certainly looks that way. However, leverage cuts both ways, and if rents or property values decline, the magic of leverage can drive stellar returns into a black hole.

Judicious use of leverage can increase returns, but the investment goal is to eliminate debt and own cashflow properties with no debt at all, particularly for retirement. Retirees gain little benefit from assets that fail to deliver cashflow.

Cashflow investing versus speculation

Many people who label themselves investors are really speculators. I detailed many of the differences in the post Speculation or Investment. Speculators and investors differ greatly on their use of debt.

Speculators are only interested in assuming a position in a financial market with hope they can exit that position later at a higher price and make a profit. Speculators will maximize debt and minimize debt-service payments because debt is merely a means to the end of taking a position in the market. Resale price is everything to a speculator.

Investors also take positions in a financial market, but they look for low prices which increase their rate of return on a cashflow basis. Investors will minimize debt and maximize debt-service payments in order to retire debt and maximize investment cashflow. Resale price is irrelevant to an investor who need never sell to obtain maximum value from the investment.

To further illustrate the investment style of allocating money, read the posts Accelerated Amortization and Time to Payoff.


Note: take a moment to watch this informative video. Take special note of the cashflow return on investment Bruce Norris is getting in Riverside County (about 40 seconds in).

Advantages of trustee sale purchases

Trustee sale purchases represent the best method for sophisticated investors to acquire cashflow real estate. The first advantage is obvious; the property is acquired at a lower price, which increases the cap rate, and if low-cost debt is used, the lower price increases the cash-on-cash return. The second advantage is not so obvious; if the property does not perform as projected, if purchased properly it can be sold for a profit, and capital is released to pursue other investments.

These two advantages suggest a method for acquiring, evaluating, and operating a rental property portfolio that retains only the best performing properties.

Procedure for acquiring, evaluating, and operating rental property

The procedure Ideal Home Brokers recommends is as follows:

  1. Establish ownership parameters and scan for targets.
  2. Select and bid on best candidates.
  3. Acquire property at trustee sale.
  4. Prepare property for occupancy.
  5. Offer for rent at rate consistent with financial projections for market rents for 30 days.
  6. After 30 days, offer for rent at the proforma price and for sale at a decreasing price until it is rented or sold.
  7. If rented, place new debt on the property (this may require "seasoning" the property by holding for 90 days) if this fits within a larger strategy and only if the interest rate is lower than the capitalization rate.

The first four steps are similar for any acquisition, but steps five, six and seven are unique to this opportunity. Since the property is generally acquired at auction for a price below resale, if the property does not perform as expected, there is little reason to keep it. The property should be offered for rent at or slightly above the projected rental rate, and if it fails to rent for that amount in a timely manner, the property should be disposed of.

Current returns favor flipping

Cashflow properties rarely offer investors rates of return exceeding 20%, and in today's market, 5% is far more common. So why not flip the property and make more than 5% in 120 days? Why not take that capital and flip in and out of two or three properties a year and make more than a 20% rate of return?

The only reason is lack of opportunity, and for the next three to five years, there will be no shortage of flip opportunities as California turns over a significant percentage of its housing stock. Perhaps after this debacle is truly behind us and we have mopped up the foreclosures, keeping money tied up in long-term hold properties is warranted, but until the foreclosure wave recedes, investors with the cash to play in this market should consider doing so.

Flipping houses is the subject for next week.

IHB Property Evaluation Reports

To help buyers and investors, we designed the IHB Fundamental Value Reports, to have some consistency in format and information. The differences in the reports are primarily in the information they present because different audiences have different needs and wants. They all pull from the same basic data. Everything is transaparent. The report for Trustee Sales used as rentals is the most complex of the group, so bear with me as we delve into the details.

The cover page has pictures if they are available. The vast majority of foreclosures never hit the MLS, and often all we can get is a picture of the front elevation and perhaps a floorplan. We advise owners to budget for complete renovations. If they do not need to spend the renovation money, they should consider it a savings.

The basic property information is present: address, beds, baths, and so on. The scheduled date of the Trustee Sale (subject to postponement), and the published opening bid are presented for reference; however, the published bid is often meaningless as these bids are frequently dropped at the last minute.

The maximum bid amount is our recommended amount. The financial performance of the investment is calculated based on this price. If we obtain price improvement at auction, the performance of the investment is improved.

Of course, this brings up the key conflict of interest between investors and the IHB as service providers. Investors want to get the best possible deal — which means bidding less — and we do not want to research hundreds of properties and go to countless auctions and not buy anything. Our solution is standardization. The maximum bid price is set to an amount that allows the investor to get out unscathed (and usually make a profit) if the investment does not cashflow as planned. If an investor wants to guarantee price improvement by lowering the maximum bid amount, then we charge a fee to attend the auction.

The most important items are bold faced: the final bid decision deadline and the sale day cash requirement. If a buyer is interested in a property, we don't want to wait until the last minute to finalize our research and and gather the necessary cashier's checks. In an investor missed the deadline or fails to come up with the cash, they missed the deal.

We provide our opinion of the likelihood of success given the foreclosure market comps, and we provide a breakdown of the total cost as well as the equity obtained on auction day.

The next two numbers are the net income and the capitalization rate. The net income is annualized from the positive cashflow detailed on page two. When this annualized net income is divided by the total trustee sale cost (also detailed on page 2), the result is the capitalization rate.

The final three numbers are of great interest to cashflow investors who plan to obtain cash-out refinancing to free up capital to acquire other properties. This spreadsheet calculates the maximum cashflow-positive loan the property will support (within other limits). The remainder is capital investment after financing. The cashflow after financing is divided by the capital required to obtain that cashflow to measure the cash-on-cash return.

Let me be clear: this is still an all-cash deal to get the property at auction. The cash-out refinancing comes later, probably after three to six months of seasoning.

I recognize this sounds antithetical to my mantra of eliminating debt, but debt does have its uses. Debt is very dangerous if too much is used, or if it is considered a permanent part of the plan. Debt used in acquisition, which this debt is indirectly used for, is not an inherently bad use of debt. As long as there is a plan for consistent reduction and final elimination of this debt, it is useful. As long as the investor keeps debt elimination as the goal, using debt to obtain cashflow-positive property is beneficial, and for many would-be landlords, essential.

Page 2

The second page provides the detail for the summary numbers on page 1. The sale day cash requirement is the sum of the maximum bid amount and the trustee sale fees. The total trustee sale cost includes renovation and improvements, property taxes (both back and current), an allowance for tenant move out and cash-for-keys if necessary, and transer taxes due. The cost of ownership includes the standard costs minus any financing costs as this is an all-cash deal.

The rental income is derived from comparables found in the MLS. An allowance for vacancy and collection loss is provided. Realistically, tenant turnover will cause the loss of one month's rent once every two years or so. In fringe markets, this number may be higher. Wise landlords set aside this money in a cash account to cover the missing payment when it occurs. The net monthly rental income is the gross rent minus the vacancy and collection loss.

The operating expenses are typical of a rental including a property management fee. These fees can be as low as 3% and as high as 12% depending on where the property is located. Six percent is relatively common in Southern California.

Net Operating Income is the monthly cash expenses is subtracted from monthly rental income. This is the stable cashflow capable of covering a mortgage payment. This is where the magic of this spreadsheet comes in.

Jump ahead to lines 28 and 29. These are the two limiting factors when considering cash-out refinancing. Line 28 has the maximum loan amount the lender will allow. In the example above, it is assumed the most a lender will allow on a cash-out refinance is 80%. During the bubble — and during the Saving and Loan disaster — lenders were willing to go much higher than 80%. This number is totally dependent upon lender standards.

Line 29 is the maximum cashflow positive loan the property will support. In Irvine, it is very rare to get properties where the cashflow justifies a loan greater than 80% loan-to-value. If I were to model the property Bruce Norris bought in the video above, the maximum cashflow positive loan would likely exceed 100%.


Note: The Savings and Loan fiasco of the late 80s and early 90s was caused by the phenomenon illustrated here. Lenders in the S&L era would provide cash-out refinancing in excess of 100% for nothing more than an aggressive proforma. Basically, you could walk into an S&L loan department with a spreadsheet like mine that projected a cashflow that justified loan of 120% of the development cost, and the lender would give you the money. There were deal makers all over California and Texas drawing up proformas and walking out of banks with millions of dollars. As one might imagine, there was fraud and theft on a grand scale. It has only since been eclipsed by the Great Housing Bubble.


On most properties in Irvine, the actual monthly cashflow will be zeroed out by the loan. The actual profit and loss is captured in the amortization on the loan. This is a viable way to acquire and pay off real estate.

The financing section details how the maximum loan is calculated and the remaining capital the investor must leave in the property to remain cashflow neutral.

Page 3

Page three shows the various comparable ranges and cashflow values with a summary chart.

Page 4 has comparables and notes.

When people think about buying foreclosures at auction, the whole activity seems extremely risky and speculative. I hope I have demonstrated today that investing in this market with limited risk is easier than most imagine.

The most important part of this process is selecting the right comparables. The spreadsheet will do the math quickly and accurately, but if the data is bad, or if the proper adjustments to the data are not made, the whole deal falls apart. If the comps are too high, there is a chance the investor will overpay. If the comps are too low, the investor will be outbid.

For instance, when I ran the report for this property, my maximum bid amount was under the amount the buyer ultimately paid. Based on his current asking price and the previous reductions, it appears this buyer was too aggressive in his valuations, and he overpaid. That is the random nature of this market. There is no way to know if someone with aggressive assumptions is going to compete with you at auction, and that includes the lenders and their willingness to drop bids.

Knowing the market where you are buying is the key. Many of the investors that have contacted us are already expert in the valuations and rents in a given market area. These are the clients most likely to have a positive result. We assist in the research, analysis and acquisition, but ultimately it is the investor who must decide if the deal is right for them.

Irvine Home Address … 203 Briarwood, Irvine, CA 92604

Resale Home Price … $299,000

Home Purchase Price … $257,800

Home Purchase Date …. 1/12/2010

Net Gain (Loss) ………. $23,260

Percent Change ………. 16.0%

Annual Appreciation … 45.3%

Cost of Ownership

————————————————-

$299,000 ………. Asking Price

$10,465 ………. 3.5% Down FHA Financing

5.19% …………… Mortgage Interest Rate

$288,535 ………. 30-Year Mortgage

$63,257 ………. Income Requirement

$1,583 ………. Monthly Mortgage Payment

$259 ………. Property Tax

$12 ………. Special Taxes and Levies (Mello Roos)

$25 ………. Homeowners Insurance

$328 ………. Homeowners Association Fees

=============================================

$2,206 ………. Monthly Cash Outlays

-$151 ………. Tax Savings (% of Interest and Property Tax)

-$335 ………. Equity Hidden in Payment

$21 ………. Lost Income to Down Payment (net of taxes)

$37 ………. Maintenance and Replacement Reserves

=============================================

$1,780 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————–

$2,990 ………. Furnishing and Move In @1%

$2,990 ………. Closing Costs @1%

$2,885 ………… Interest Points

$10,465 ………. Down Payment

=============================================

$19,330 ………. Total Cash Costs

$27,200 ………… Emergency Cash Reserves

=============================================

$46,530 ………. Total Savings Needed

Property Details for 203 Briarwood, Irvine, CA 92604

——————————————————————————–

Beds: 2

Baths: 1 bath

Home size: 1,000 sq ft

($299 / sq ft)

Lot Size: n/a

Year Built: 1978

Days on Market: 74

MLS Number: P720337

Property Type: Condominium, Residential

Community: Woodbridge

Tract: Vg

——————————————————————————–

==== PRICE REDUCED FOR QUICK SALE ==== Private end unit overlooking greenbelt in beautiful, peaceful neighborhood of Irvine. This unit has been renovated with new paint throughout, new carpet, new baseboards around all rooms and brand new kitchen appliances. Tile entry opens to spacious living room. There is also a separate room for laundry.

Property History for 203 BRIARWOOD

Date Event Price
Mar 20, 2010 Price Changed $299,000
Mar 15, 2010 Price Changed $306,000
Feb 23, 2010 Price Changed $309,000
Feb 22, 2010 Price Changed $314,900
Feb 12, 2010 Price Changed $319,000
Feb 03, 2010 Listed $324,900
Jan 27, 2010 Sold (Public Records) $258,000

One percent price reductions really don't seem like enough, do they?

Former Owner

The former owner of today's featured property was an ordinary HELOC abuser. She bought the place in 2003, and by 2006 she was in an Option ARM that finally blew up. There is no way to tell how long she was delinquent before they issued the notice of default, but the lender wasted no time in the foreclosure process:

Prior Transfer

Recording Date: 01/27/2010

Foreclosure Record

Recording Date: 12/23/2009

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 09/18/2009

Document Type: Notice of Default

IHB Trustee Sale Services

The cleanup of this mess has been delayed 12 to 18 months by the various moratoria and lender delays, but they are finally moving to clean up this mess. This clean up will create opportunities everywhere.

There is no reason the prudent readers of this blog who carefully saved their money should not step in to profitably clean up the mess from the mass stupidity of lenders and borrowers. I will feel good about being an active part of the solution. Someone has to come forward and buy these properties. Those buyers will be compensated with steep discounts (otherwise they wouldn't bother).

Our service gives you this opportunity. Seize it.

sales@idealhomebrokers.com

34 thoughts on “Buying a Rental at Trustee Sale

    1. Planet Reality

      Yes you have been more right. It takes balls to re-evaluate and change course based on a dynamic mutable situation.

      It’s one thing to say some one has cancer. It’s another thing to predict how it will progress and predict the new drugs that will be tried.

      Now here we are. All the players want house price to at least stabilize. They can and will do anything to achieve this. Areas like Irvine are impacted big time by these drugs. Irvine is the more healthy cell that does not need the cancer drugs as bad, hence it can thrive.

    2. IrvineRenter

      “Actually I have been more right than either of you, but I did not want to brag.”

      Mark and I wrote about it publicly, but you acted on what you saw and sold your home in 2005 and rented. That does make you more right than either of us.

      1. Planet Reality

        He wrote about it publicly too, many people have. Making money off the knowledge is more impressive.

        1. Planet Reality

          If you want to go up several levels from marginal bubble observers:

          Roubini didn’t put his money where his mouth was.

          Schiff got slaughtered.

          It’s not enough to be right. I’d rather be in the shadows making money.

          1. DarthFerret

            Planet Reality: It’s not enough to be right. I’d rather be in the shadows making money.

            Wait a minute, I’ve heard this before. I don’t mean something kinda like it somewhere. I mean I’ve heard exactly this phrase, and I’ve heard it several times on this very blog/board. Long-time IHB readers, help me out, who used to say this all the time? I can’t recall who it was. I think we may have just outed PR.

            PR, you’re welcome to fess up and tell us which realtard’s or homedebtor’s doppel you are. Confession is so much more cathartic than exposure.

            -Darth

      2. lowrydr310

        I don’t know awgee’s story…

        The real winners were those who bought a few homes in 2002/3 with a 5 year IO ARM, then sold at market value just before the peak. I wonder how many smart people did this, resisting the HELOC temptation, and coming out way ahead in 2007.

        I remember a friend telling me about this in 2003, and trying to convince me to buy a house. I was relatively young at the time and was just starting my career. At the time, the IO ARM didn’t make sense to me. I couldn’t afford the fully amortizing payment, so why would I want a loan product like that?

        I’m ready for the next big housing bubble!

        1. Soylent Green Is People

          It’s a bit sad to say, but the real winners were the people who bought at the peak. Why?

          1) They did not have to put cash down. -0- risk capital expense.

          2) They did not have to document anything to get their home. In 2000-2003, just as it is today, you need your most recent prostate exam results just to get a mortgage.

          3) They could then overleverage their home post closing and withdraw a mountain of tax free cash.

          4) When the tap was shut off, they stopped making payments – up to 2 years by some accounts.

          What do they show for it? A boatload of cash – if they were smart and saved their funds during the 2 yrs they squatted (a miniority I know). Roughly 5 years (2005 – 2010) living La Vida Loca in a home they would never be able to afford, and only the shame of bad credit – which goes away in 4 years – before they can buy again THE SAME HOME NOW GREATLY REDUCED.

          Will the Feds come after these people? Doubtful as they’ve become a newly minted victim class. Will banks come after them for the cash they lost since Cali is a recourse state? Meh, who has the time? Besides, bailouts papered over those old wounds.

          The cynic in me salutes these “winners” for gaming the system at the expense of the prudent.

          My .02c

          Soylent Green Is People

    1. IrvineRenter

      Rents are certainly softening, particularly at the low end. The properties in your links are likely not good comparables. Rents at Irvine Company properties are probably closer comps, but they don’t appear on the MLS.

      It was difficult to find a property in Irvine with even reasonable cashflow. If this property with renovation and updating could not obtain the $2,050 rent, then it will not perform as a cashflow investment, and it should be dumped.

      1. DarthFerret

        IR,

        Whoever is running your comps needs to be retrained. You will DEFINITELY not get $2,050/mo for this unit. Not even close! These 2/1’s have never rented for $2,050. Good units with A/C in these complexes were renting for LESS THAN $1600/mo this past summer, and rents have softened further since then. IF the new buyer installed A/C, you might get lucky and find a renter that would fork over $1,500/mo, but I doubt it.

        Irvine Company (TIC) properties are generally not good comps for privately-owned properties. For starters, you can’t compare with their marketing and visibility. Having said that, the 3 properties that Geotpf listed above are also not good comps for this property. The lower-priced 2/1 is in Orangetree, which generally won’t compete in price with Woodbridge even though that unit has A/C and washer/dryer included. The other 2 higher-priced listings are both 2/2’s, one of them with a garage and both with w/d included.

        This property on Briarwood will probably rent for $1,400-1,500/mo. Definitely no more than $1,500.

        -Darth

      2. bltserv

        IAC has rents as low as $ 1645.00 for 1072 Square feet 2 bedrooms. Special at Quail on 3/19 Craigslist. And thats with Direct access Garage
        and all Granite and Appliances. IR. Rents are going DOWN and the IAC has to move the prices down or they cant fill the vacancies.
        And this “dump” in your example is 32 years old
        and has no A/C or Garage. You would be lucky to get $ 1200.00 for this place in this market.

    2. IrvineRenter

      Based on the astute observations presented here, I went back and updated the graphics to reflect the current market rents (or thereabout).

      With rents at the low end being where they are, prices are still far too high. Nothing justifies these valuations.

    1. IrvineRenter

      I have intentionally left off any tax implications of this deal. Investors have a wide variety of tax situations, and tax modeling should not be a reason to do a deal like this. If this is owned in an IRA, there are no taxes. If this is owned by someone in the highest marginal bracket, the tax savings can be significant. Also, It gets very difficult to model depreciation because it impacts capital gains, and it is further impacted by how long the property is held or if it is sold at all.

      The tax implications are important on a primary residence because people will adjust their take home pay to increase their exemptions, but cashflow investors may or may not want to do this. There are income tax benefits available, but the deal should still stand alone.

  1. tlc8386

    The problem that is still lurking is comps when foreclosures finally hit enough of Irvine. Many have called this the next wave when reality hits housing.

    Will banks allow you to sell it higher than comps? Will you be able to get lending? This should bring down housing even further and IR has mentioned this in many of his posts.

    HE has done a fantastic job at posting information more than ANY analyst I have read.

    But as any investor you do look for green shoots it just may not be the time yet for Irvine. But if Benny B keeps rates low enough desperate people may still have time to get out of their homes and you could find that needle in the haystack and buy really low. And still get a loan.

    Buying cash still has it’s risks of putting your money into a home that still has to get through the next wave of new comps Sellers are still trying to get the WTF pricing.

    The problem is one of time. How long will you live here, long enough to see housing go back up in price? The government is pulling out all the stops to keep housing stable. But without new jobs how long can this last?

    RE is a high risk investment but the best thing Irvine has going for it is price controls new housing is still priced higher than old housing with mello roos taxes. The folks buying into this want the schools for their children and are willing to pay for it.

    This constraint on new homes keeps older homes from falling even further. You look at a home from 1979 who wants 1.5 million and you just have to say are you kidding me!!!!!

    These folks are still hoping someone will pay for their heloc. And many a fool may do so.

  2. Ron

    I own 207 Briarwood, which is right across the path from 203. I have it rented for $1,450/mo.

    And yes, it’s cash flow positive at that price. I bought a long time ago…

    –Ron

    1. IrvineRenter

      If this unit would only get $1,450 rent, the cashflow value is almost 30% less, and it makes no sense at all at this price point.

      I wish I could have found a better example in Irvine. I wanted to demonstrate how the math works, but as I mentioned in the post, garbage in, garbage out. It really makes we wonder what the buyer at auction was thinking.

      1. Ron

        I orignally had it listed at $1600 and it probably would have rented at that price. It’s nice on the inside. No granite counters, but hardwood floors, all new windows, plantation shutters, textured paint, etc.

        I had shown it to several people who were considering it. But I wanted a larger pool of potential renters to choose from, becasue I really wanted someone in there who was stable and would take care of the property. To me that was more important than the price. I really didn’t want to see someone tear it up.

        It’s cashflow positive even at $1,450, and that doesn’t include the monthly paydown of the mortgage, so even though I could possibly have gotten more for it, I’m glad I lowered the price. I think the tenants are happy as well, which is good.

        –Ron

  3. E

    OK…somewhat on topic.

    I’m sure we all read the article in the NYTimes today.

    http://www.nytimes.com/2010/04/21/business/economy/21leonhardt.html?src=me&ref=homepage

    From the article.

    “A two-bedroom Spanish-style condominium in Beverly Hills, Calif., for example, recently went on the market for $1.075 million, notes Don Heller of Prudential California Realty. Including taxes, condo fees and the tax deduction for mortgage interest, a typical buyer making a 20 percent down payment would face an effective monthly payment of about $6,000. Compare that with the monthly rent on a similar two-bedroom condo nearby — $7,600. “

    Here’s what’s for rent in a carbon copy building RIGHT ACROSS THE F***ING STREET.

    http://losangeles.craigslist.org/wst/apa/1692663488.html

    $4500 ASKING price.

    Fucking piece of shit reporter.

    1. Planet Reality

      This is hilarious. Compare this to the Irvine rental parity examples from the 1990s showing a $700 per month Irvine condo. My, my have times changed.

    2. wheresthebeef

      I don’t know the 90210 market that well, but $7600/month for a 2 bedroom condo is fucking ridiculous, my bullshit detector went off instantly. For that price, you can rent a really nice house in that area…stupid reporter.

  4. tlc8386

    http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2010/04/21/financial/f114610D02.DTL&type=business#ixzz0llZnxlgQ

    you guys can’t miss this

    The former head of construction giant KB Home was convicted Wednesday of four felony counts in a stock option backdating scam.

    A federal jury in Los Angeles found Bruce Karatz guilty of two counts of mail fraud, one count of lying to company accountants and one count of making false statements in reports to the Securities and Exchange Commission.

    Karatz was acquitted on 16 other counts.

    1. E

      Sweet.

      Mail fraud is a big one from what I understand.

      When I worked in the insurance industry as a claims adjuster we would have the insureds mail in a “proof of loss” form.

      The reason we would have them mail it in was so that if we ultimately found the claim to be fraudulent, mail fraud would be added to their list of offenses which is more serious than insurance fraud and we could just turn it over to the Feds.

    2. IrvineRenter

      I used to work for KB Home when Bruce Karatz was CEO. One of his sons worked for the company then, and I had several meetings with him working on a project in north LA. He was pretty cool. The youngest son works locally and has posted here on the blog. He hates my guts.

      1. Chris

        I wouldn’t worry if I were you. It’s similar to market longs hating you for buying DIA put options. There’s always opposing force somewhere.

        Keep up the good work IR.

  5. AJ

    Those articles would bother me…but I’ve gotten so used to crappy journalism. The media’s desire to see the light at the end of the tunnel wherever they can find it the last year has been gross, and I can only guess it has something to do with the obama love that is likely still going on around the editorial cubicles. How many readers really buy what is being reported about the economic turn around? DOW @ 11,000+! It’s over!

      1. tlc8386

        It’s just a pump to get you to buy because renting is more expensive and he says so.

        Do you really believe anything anyone tells you–

        Never–always do your own homework.

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