IHB News 9-11-2010

This weekend's featured property has an open house if you want to go see one of the best neighborhoods in Northwood. This house is pretty too, but the price is laughable.

Irvine Home Address … 46 NEW DAWN Irvine, CA 92620

Resale Home Price …… $1,829,000

We're leaving together

but still it's farewell

and maybe we'll come back,

to earth, who can tell?

I guess there is no one to blame

we're leaving ground (leaving ground)

will things ever be the same again?

It's the final countdown.

Europe — The Final Countdown

IHB News

Only one more week before the fund closes to new investors. This is your last call.

This week I spent Thursday in Las Vegas. I toured the auction site and met with a company that provides data for those wanting to bid on auction properties. In the middle of a parking lot of a two story suburban office building, all the foreclosures in Las Vegas are auctioned. If you didn't know what you were looking for, you would never notice the small gathering of investors picking over the bones of the Las Vegas housing market.

The company that I visited has offices that look down on the auction site, and the data and services they provide will enable me to purchase properties directly from the auction site. As I have been looking over their data for the last couple of days, I am struck by how wide the margins still are in Las Vegas compared to Orange County. When I look at local properties, margins range from about 17% to 22%. It is rare to find over 25% margins here because there are many funds researching this market and bidding competition is greater. As I looked at Las Vegas's market, the margins are about 5% to 10% higher, and finding properties with margins over 40% are not uncommon. The margins were better last year, but they are still very good.

There are a number of reasons for the better margins in Las Vegas, but one of them is that with the low property prices, it is difficult for a big hedge fund to put large amounts of capital to work. There are several funds buying large blocks of REO from various lenders, but these still must be sold one property at time. Real estate is labor intensive, and with so many small properties to deal with, the market tends to get left to smaller operators with some local expertise.

Of course, I am less interested in flipping in Las Vegas's market to owner-occupants as I am in finding buy-and-hold properties for cashflow investors. That opens my resale market to a broader base than the Las Vegas MLS. The capitalization rates of buy-and-hold properties purchased at auction are extraordinary. You will be starting to see these properties in a few weeks as I will focus on providing those properties to cashflow investors. I will still be watching the Orange County market, but this fall and winter I anticipate we will see a leg down locally, so I am going to be much more cautious. The greater margins and the broader buyer pool of local cashflow investors is attracting me to the Las Vegas market.

Anyone considering investing in the fund should note that fund investors get a first look at all these cashflow properties, and they will be offered at a minimum markup as required by the fund documents. In other words, the fund investors get to cherry pick the best properties for themselves at great prices. Not to worry, I will make as many available to IHB readers as there is demand for. There is no shortage of these properties available in Las Vegas, and unlike our local market, they are clearing out their inventory. The Las Vegas market has already been pounded back to the stone ages, so withholding inventory is not on banker's minds.

Housing Bubble News from Patrick.net

Fri Sep 10 2010

San Bruno explosion and fire location, pics (patrick.net)

Falling Rates Aid Debtors, but Screw Savers (nytimes.com)

'Pain comes roaring back' on foreclosure front (southcoasttoday.com)

Las Vegas Housing Market Reports 12.7% Yearly Sales Decline in August (realestatechannel.com)

House sales in Las Vegas fall in August (lasvegassun.com)

Phoenix housing market lacks supply of homebuyers (azcentral.com)

California MLS inventory up 25 percent since April (mybudget360.com)

Again on Existing House Months' Supply: What's "Normal?" (calculatedriskblog.com)

Fed Abandoned Its Duty in Pre-Crisis Housing Bubble Posture (nakedcapitalism.com)

Greenspan Should Have Seen Housing Crisis, Burry Says (sfgate.com)

Burry, Predictor of Mortgage Collapse, Bets on Farmland, Gold (bloomberg.com)

Drunken, Raucous Bond Market Is About to Be Ill (bloomberg.com)

Global Housing Rebound Loses Momentum (bloomberg.com)

FDIC's Bair calls for tighter lending standards to pare U.S. mortgage risk (builderonline.com)

Higher education overused, overpriced (nypost.com)

Man charged with renting out houses he doesn't own (sun-sentinel.com)

Find cashflow-positive property easily. Free Trial

Thu Sep 9 2010

NY Times contemplates letting the housing market correct itself (csmonitor.com)

Time to stop propping up the housing market? (sfgate.com)

Let housing prices fall where they may (doctorhousingbubble.com)

Fannie Mae to Sell Foreclosed Houses With Subprime Lending Terms (housingwatch.com)

Subprime 2.0 Coming Soon to a Suburb Near You (bloomberg.com)

Federal aid coming to underwater debtors, to harm buyers (heraldnet.com)

As HAMP, HARP slow down, some analysts not happy with results (snl.com)

The Bears and the State of Housing (nytimes.com)

Fed sees weakened Western housing (ocregister.com)

Think tanks says rate hikes will soften Canadian housing market (toronto.ctv.ca)

Refinance activity drops off, and house purchases remain unpopular (community.nasdaq.com)

House sale listings rose in August (reuters.com)

Scary Housing Numbers (sandiegoreader.com)

San Bernardino: Two brothers charged with foreclosure fraud (blogs.pe.com)

How house prices and debts build ugly tensions between parents and children (blogs.telegraph.co.uk)

If You Thought the Housing Bubble Was Bad (blog.american.com)

California Coast Completely Photographed (californiacoastline.org)

Wed Sep 8 2010

Housing Inventories Rise for Eighth Straight Month (blogs.wsj.com)

'Prime' house prices may crash harder than the rest (moneyweek.com)

California Realtors To Pay Political Fee To Corrupt Our Laws (realtytimes.com)

Will Government Let Housing Market Crash (and lose those CAR donations)? (rejournalonline.com)

True Cost Of The Wall Street Bailout (dailybail.com)

Shock Therapy for the Housing Market (thenewamerican.com)

The Policy of Screwing Prudent Renters to Benefit Loan Owners (irvinehousingblog.com)

Walking Away From a Mortgage (kiplinger.com)

Volatile Housing Market Baffles Houseowners (audio – npr.org)

House Equity Lines Of Credit: The Next Looming Disaster? (businessinsider.com)

Urban Legends: City vs Suburbs (foreignpolicy.com)

From owners to renters, foreclosure is complete (edhtelegraph.com)

Do houseowner regulations go too far? (starnewsonline.com)

For rent in Los Altos, only $18,000 per month (patrick.net)

Find cashflow-positive property easily. Free Trial

Tue Sep 7 2010

Housing Woes Bring New Cry: Let Market Crash (cnbc.com)

Facing foreclosure at $5 million and up (mortgage.ocregister.com)

Newport house foreclosed at $7.8 million (mortgage.ocregister.com)

Another potential house seller chases the market down (calculatedriskblog.com)

A housing market out of sync (washingtonpost.com)

San Francisco landlords suddenly jacking up rent prices? (patrick.net)

Desert Mesa Ghost Town (lasvegassun.com)

Apartments go belly up, too The Columbus Dispatch (dispatch.com)

Floria: HOA charging $600 for a mailbox (weblogs.sun-sentinel.com)

Despite government's efforts to kill free market, housing remains mired (statesman.com)

How Debt Can Destroy a Budding Relationship (nytimes.com)

Heavy in dollars, China warns of depreciation (reuters.com)

The true cost of the bank bailout (pbs.org)

How to End the Great Recession (nytimes.com)

Why Do CEOs Make So Much Money? (newsweek.com)

US imaginary housing value down at least $4 trillion (philly.com)

No defence left against double-dip recession (telegraph.co.uk)

Learning to Survive the Coming Perfect Storm (theautomaticearth.blogspot.com)

5 Doomsday Scenarios for the U.S. Economy (theatlantic.com)

Fears grow over global food supply (edition.cnn.com)

Irvine Home Address … 46 NEW DAWN Irvine, CA 92620

Resale Home Price … $1,829,000

Home Purchase Price … $1,150,000

Home Purchase Date …. 1/10/2003

Net Gain (Loss) ………. $569,260

Percent Change ………. 49.5%

Annual Appreciation … 6.0%

Cost of Ownership


$1,829,000 ………. Asking Price

$365,800 ………. 20% Down Conventional

4.36% …………… Mortgage Interest Rate

$1,463,200 ………. 30-Year Mortgage

$351,608 ………. Income Requirement

$7,293 ………. Monthly Mortgage Payment

$1585 ………. Property Tax

$233 ………. Special Taxes and Levies (Mello Roos)

$152 ………. Homeowners Insurance

$184 ………. Homeowners Association Fees


$9,447 ………. Monthly Cash Outlays

-$1461 ………. Tax Savings (% of Interest and Property Tax)

-$1976 ………. Equity Hidden in Payment

$581 ………. Lost Income to Down Payment (net of taxes)

$229 ………. Maintenance and Replacement Reserves


$6,820 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$18,290 ………. Furnishing and Move In @1%

$18,290 ………. Closing Costs @1%

$14,632 ………… Interest Points @1% of Loan

$365,800 ………. Down Payment


$417,012 ………. Total Cash Costs

$104,500 ………… Emergency Cash Reserves


$521,512 ………. Total Savings Needed

Property Details for 46 NEW DAWN Irvine, CA 92620


Beds: 5

Baths: 4 full 1 part baths

Home size: 4,600 sq ft

($398 / sq ft)

Lot Size: 10,000 sq ft

Year Built: 1998

Days on Market: 249

Listing Updated: 40410

MLS Number: P716400

Property Type: Single Family, Residential

Community: Northwood

Tract: Rose


Magnificent home in elegant Rosegate Estate of prestigious Northwood Pointe with beautiful architecture featuring 5 bedrooms + home office + built-in library,4 car garage. Soaring ceiling,wrought iron staircase,lime stone flooring & custom built-ins throughout the house give it a grand & dramatic personality. gourmet kitchen with granite counter tops & granite center island overlooks beautifully landscaped matured back & side court yard over french door. Private corner & cul-de-sac location only few minutes of walking distance to national Blue Ribbon award winner of Canyon View elementary and Northwood High school and close access to Meadowood swimming facility,Citrus glen tennis center and three parks with baseball,soccer,volleyball,basketball facilities.

There is an open house at this property this weekend. If you have never seen this neighborhood, it is very nice.

Redfin didn't pick up that this property was purchased on 5/29/2007 by a knife catcher for about $1,448,000 according to the taxable value.

BTW, do any of you think this property has appreciated 50% since 2003?

16 thoughts on “IHB News 9-11-2010

  1. Perspective

    Are there a sufficient number of IHB readers who qualify as sophisticated and/or accredited investors to build a sizable fund?

    1. IrvineRenter

      It depends on how you define sizable. I have commitments for over $1.5M for the flipping fund, and many that I have met with have reserved significant funds to pick up cashflow properties. This fall I suspect most of the order flow I purchase will go to the investors I have already talked to.

        1. IrvineRenter

          I lived in Las Vegas for a while, but I don’t see myself wanting to give up the climate of Orange County any time soon. There are times when I see a huge McMansion in Las Vegas selling for the price of a tiny condo here that I think about it. I probably will be a Las Vegas owner before I am an Orange County owner because I will pick up some of these cashflow properties for myself.

  2. Stock Investor

    Perosnally, I don’t like Las Vegas, but I was curious. I did my own research. Return on investment may be above 10%.

    However, I did not take into account:
    – tax (1%?)
    – maintenance (1%?)
    – management fees (50% of first month rent, and 10% later)
    – promotions (1-2 months free rent)
    – possible eviction costs (1-2 month rent, $300 for papers/locks/garage opener/etc, $4000 in repairs)
    – less than 100% occupancy

    Still good enough. Especially if investor believes in quick economic recovery. I will not be surprised, if some people are really interested.

  3. .

    That’s a beautiful home except for the ugly tile floor. I don’t understand why you say the price is laughable. The original asking price of $2,099,000 was laughable. According to Redfin, 70 houses over $1,000,000 sold in that zip code alone in the past year and 8 New Dawn sold for $1,824,000 (although I suppose it had the number 8 premium in its favor).

    1. winstongator

      That is the biggest medium term problem IR will face. With the excess inventory, and less people, rents will face downward pressure, but more importantly vacancy can be higher than projected.

      1. FoolishRenter

        LV will need a stimulus package to bailout the casino’s. It will be a tough sale to Joe public, for the funding of vice. Just call it entertainment. The downturn is assisting in the water allocation problems for the little guys, but the larger “resorts” have the money to use water recycling on their properties.

        What’s the typical upkeep on rental property in LV with the extreme hot weather, but not cold extreme?

        1. IrvineRenter

          Upkeep depends greatly on property type. For investments, it is usually better to stick with condos where there is an association to take care of exterior maintenance. Then the only real problem is tenants trashing the inside.

          Las Vegas’s climate is particularly hard on exposed wood. Stucco siding and tile roofs will last a very long time with little maintenance. Desert landscaping is also preferred because if the water gets shut off, there is less that can die and need replacing.

  4. winstongator

    It’s funny that you mention a difficulty in real estate being the ‘labor intensive’ part. What’s the unemployment rate? How many realtors/mortgage brokers/bankers have are among those numbers?

  5. MikeInIrvine

    From the NY Times story (above) here’s a contract law question….. “If the seller does not agree to pay (sic) the development fee a lien will be placed on the property…”

    How can an agreement between two party be made ‘sticky’ so that it affects a 3rd party that never agrees to the terms and conditions – acceptance of a development fee – be made subject to it.

    If, as a 2nd or 3rd buyer of one of these properties I refuse to accept the terms of any development fee – does that automatically become a deal breaker? If a seller agrees to take out any development fee clauses what recourse does the developer have for sales that occur 10-15 years after the original sale?

    1. IrvineRenter

      These fees become like the CC&Rs; that stay with the property. As a buyer you can’t avoid them which is why they are so controversial. Many buyers will simply avoid these properties or heavily discount them just as buyers do with Mello Roos.

  6. Art vanDelay

    Doesn’t “cashflow” investing pretty much assume, and depend, on there being human beings with a pulse who cough up cash every month that flows into your account. I assume the ROI models get all bolloxed up when those mirror foggers fail to materialize.

    1. IrvineRenter

      Yes, the problem you describe is very real in Detroit. Anyone who believes Las Vegas will turn into Detroit should not invest there.

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