Cashflow investors sat on the sidelines for the better part of the 00s. Now they are finding opportunities in many markets to buy cashflow properties at attractive valuations.

Irvine Home Address … 19 PERRYVILLE Irvine, CA 92620

Resale Home Price …… $668,000

I can open your eyes

Take you wonder by wonder

Over, sideways and under

On a magic carpet ride

A whole new world

A new fantastic point of view

No one to tell us no

Or where to go

Or say we're only dreaming

Aladdin — A Whole New World

The crash in housing prices has created a whole new world for cashflow investors. Investors have been waiting for years for the speculators to flame out. Now that the crash has occurred, many markets are inexpensive enough to present fantastic cashflow investment opportunities.

Vulture investors: They're back – and making a bundle

By Les Christie, staff writer — August 5, 2010

NEW YORK (CNNMoney.com) — These are the glory days of the residential real estate investor. Low prices, rock-bottom interest rates and stable rental markets have created huge buying opportunities.

"It's awesome right now. I don't think we'll ever see another time like this," said Tanya Marchiol of Team Investments, which has operations in about 10 states but focuses mostly on the Phoenix market.

These investors are known to many as vultures because they swoop in and buy "distressed properties" — foreclosures and short sales — cheap. Places like Las Vegas, Phoenix and Miami are popular because home prices there have dropped as much as 70%.

But how they're investing has changed. In the boom years, they would buy a property and flip it for a quick cash out. Today, they are holding and renting for hefty, steady incomes.

Once they analyzed their decisions based on home-price appreciation, which is very speculative. Now they consider potential rental profits, which is far more stable.

Back then, they flipped often and helped to bid up home prices into a froth. Now, the investors say, they can be a part of stabilizing neighborhoods.

This writer is conflating speculators and investors as if they are the same individuals, but they are not. Speculators were the idiots buying up properties because they were rising in price in hopes of capturing appreciation. Cashflow investors don't do that.

Speculators are currently groping for a safe haven for their money trying to find properties that are going to fall in value less than others. Speculators by nature have no concept of value other than recent changes in price. They are herd followers who may profit for a time, but eventually, they get stampeded when the herd bails on the speculative bubble of the moment. In contrast, investors are the ones buying for cashflow that don't care about resale value. They are the investors who create a bottom with their buying activity.

Condos for less than the cost of a Corolla

"People are not in it to flip like back in the old economy," said Matt Martinez, an investor and author whose new book, "How to Make Money in Real Estate in the New Economy" comes out next February. "The new economy dictates that you have to have a long time horizon."

Marchiol, for example, does not even factor in home price appreciation for at least a year. After that, she calculates only a 3% annual increase — a return that won't turn heads of investors who only want to buy low and sell high.

Marchiol just purchased four separate four-plexes in North Phoenix. Three years ago, each four-unit building sold for $310,000; she paid just $70,000 per building. She intends to spend about $64,000 rehabbing the properties, making her total investment $344,000.

In total, she currently owns about 17 rental units. Usually she buys the properties to keep herself, but she also works with a group of investors who are intent on holding them and renting them out. She can spot the deals and then sell to them.

For example, with her North Phoenix buildings, the investors will buy the buildings for $95,000 each. They'll put 20% down and finance the rest, about $76,000 per building.

At today's low interest rates, they'll get a near 5% loan. That yields a payment of about $400 a month. Figure another 10% of the price for property management, 10% for maintenance, an 8% vacancy rate, taxes, insurance and other home ownership expenses, and you're talking about a monthly nut of roughly $1,300.

Marchiol projects the apartments will rent for $600 a month each, for a total rent roll of $2,400. That gives the owners a profit of $1,100 per month and $13,200 per year — a nearly 70% annual return on investment.

I question those numbers, but the basics of what this woman does is brilliant cashflow investment. She is buying low and not selling. She is not buying high in hopes it goes higher.

After I wrote a recent post about Las Vegas, some investors there contacted me and said they were buying condos south of the strip for $50,000 cash and renting them for $750 a month. I can't verify those numbers, but they sound realistic, and the represent a GRM of 67. Locally, you would be lucky to find a GRM less than 200.

Although conditions are very favorable, investors have to be adaptable because the market is evolving rapidly. In Phoenix it's changed in just the past six months. Foreclosure auctions are no longer a fertile hunting ground for Marchiol.

"Amateurs have come in and run up the prices," she said. "In 2009 I bought 76 properties at foreclosure auctions, at an average of about 60 cents on the market dollar. This year, I've bought four."

That part of her story sounds like bullshit. All the great deals are already taken, right? Give me a break. She wants to brag about her home runs, but she doesn't want any competitors to come in and drive down her margins. I have had some similar discussions with trustee sale flippers. Just ask one, and they will tell you all the good deals were some time in the past and that margins are tight now.

Glenn Plantone faces a similar situation in Las Vegas. A veteran real estate broker and investor, he has switched from buying mostly foreclosures and repossessions to short sales almost exclusively. That's because the inventory of distressed properties available in Vegas is way down, to about a two-week supply.

There are no distressed properties in Las Vegas? I imagine the banks will be relieved to hear that. Forget about the 25% delinquency rate and the fact that 88% of mortgage holders are underwater. If there is any shortage of currently available properties, the shadow inventory is the entire city.

"The banks make better profits with short sales, so they're not foreclosing," Plantone said. "They've switched staff to processing short sales and they've gotten faster at processing them."

I don't know if that is true or not in Las Vegas, but lenders certainly have not gotten any faster at processing short sales in Orange County.

He tries to purchase properties for at least 10% less than what he considers to be true market value, then he does some light rehabilitation and sells them to some of the 3,000 buyers he works with.

Since prices have fallen about 70% in some Vegas communities and rents have only declined by about 20%, it's possible for his investors, who are cash buyers, to make money from the first month the homes are rented.

"We're getting cash flow (net return on investment) of 12% to 14%," he said.

That is why I want to invest in properties in Las Vegas.

He doesn't completely ignore potential profits from home price appreciation because he believes the town is bouncing around the bottom. (Homes already sell for below what it would cost to build new homes.) He does not, however, emphasize that aspect of the investment.

It's the income from rentals that's paramount right now.

The beauty of cash flow, of course, is that even if the prices decline another 10% or 20%, the investors should be able to live with that.

"I tell them to plan on holding for five years," he said. "With cash flow, there's no need to worry about price drops."

Doesn't that read like stuff I have written in the past?

Buying rental properties in Las Vegas

Over the last few weeks, I have had many discussions with people who want to invest in my fund to flip properties locally. Many of these investors also want to own rental properties as long-term investments. in reaction to my post Buy Las Vegas Real Estate, many have done independent research on prices there and reached the same conclusion I have: the next three to five years represent a great time to invest in Las Vegas real estate. There is no huge urgency to buy today. It will take quite some time to grind through the inventory, but the combination of very low interest rates and very low prices make that market particularly attractive.

I have stated, "I personally plan to acquire all the Las Vegas real estate I can buy. And no, neither Ideal Home Brokers nor the mystery fund I might know something about is going to invest in cashflow properties there. I am not selling you on Las Vegas because I will profit from convincing you. I am bullish on Las Vegas real estate because I perceive it as the best buy-and-hold value we will see in our lifetimes."

That was then. This is now. I have been asked, "If you are doing this for yourself, can you get some properties for us?" Yes, I can. After discussing this at length with several investors, I am going to buy properties and offer them for sale to investors who read this blog. I have several interested parties already. I will try to supply however much is demanded.

I will be the trailblazer. I will find the lender who will consider the rental income from the unit in qualifying for the loan. I will find a competent management company locally to handle landlord-tenant issues. And I will find the properties, usually at trustee sale, and acquire them on speculation. I won't recommend any deal I would not take myself. In fact, if the property does not sell on the blog, I probably will take it myself. And yes, I probably will cherry pick some too.

Realistically, it will take a few months to get everything together and go through the process a time or two myself. If you are interested in this kind of investment, keep reading the blog, and you will see them as they become available. If you are not interested, feel free to ignore them.

Peak Buyer loses 10% down

Many of the properties I profiled in 2007 and 2008 were 100% financing deals. They are the weakest hands, and it isn't surprising they were the first to walk away. Over the last 18 months, many of the properties I have profiled put 10% down. They are also underwater, but since they sunk money into the property, they generally hold on a little tighter and try a little harder to stay put.

Today's featured property was purchased for $796,000 on 9/21/2005. The owner used a $632,800 first mortgage, a $79,100 second mortgage, and a $84,100 down payment. He gave up in early 2009 and got to stay for about a year.

Foreclosure Record

Recording Date: 10/13/2009

Document Type: Notice of Sale (aka Notice of Trustee's Sale)

Click here to get Foreclosure Report.

Foreclosure Record

Recording Date: 07/06/2009

Document Type: Notice of Default

Have you ever stopped to think that there would have been no real estate bust if prices have never risen above rental parity? Properties get distressed because they cannot be rented for enough to cover the payments, particularly investment properties. Even a primary residence could be rented out to someone with a job if the owner becomes unemployed and needs to move to less expensive accommodations. Paying above rental parity is the path to destruction.

The flipper purchased it at auction on 6/10/2010 for $620,000. It appears they are having a little buyer's remorse as they have priced this property to get out near breakeven.

If you would like to learn how you can get involved with trustee sales, please contact me at sales@idealhomebrokers.com.

Irvine Home Address … 19 PERRYVILLE Irvine, CA 92620

Resale Home Price … $668,000

Home Purchase Price … $620,100

Home Purchase Date …. 6/10/2010

Net Gain (Loss) ………. $7,820

Percent Change ………. 1.3%

Annual Appreciation … 30.1%

Cost of Ownership

————————————————-

$668,000 ………. Asking Price

$133,600 ………. 20% Down Conventional

4.51% …………… Mortgage Interest Rate

$534,400 ………. 30-Year Mortgage

$130,704 ………. Income Requirement

$2,711 ………. Monthly Mortgage Payment

$579 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$56 ………. Homeowners Insurance

$75 ………. Homeowners Association Fees

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

$3,421 ………. Monthly Cash Outlays

-$453 ………. Tax Savings (% of Interest and Property Tax)

-$702 ………. Equity Hidden in Payment

$223 ………. Lost Income to Down Payment (net of taxes)

$84 ………. Maintenance and Replacement Reserves

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

$2,572 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$6,680 ………. Furnishing and Move In @1%

$6,680 ………. Closing Costs @1%

$5,344 ………… Interest Points @1% of Loan

$133,600 ………. Down Payment

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

$152,304 ………. Total Cash Costs

$39,400 ………… Emergency Cash Reserves

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

$191,704 ………. Total Savings Needed

Property Details for 19 PERRYVILLE Irvine, CA 92620

——————————————————————————

Beds: 3

Baths: 2 full 1 part baths

Home size: 2,000 sq ft

($334 / sq ft)

Lot Size: 4,465 sq ft

Year Built: 1985

Days on Market: 1

Listing Updated: 40400

MLS Number: S628520

Property Type: Single Family, Residential

Community: Northwood

Tract: Cs

——————————————————————————

Gorgeous upgraded single family house in NORTHWOOD. It has been renewly remodeled & upgraded with kitchen cabinets, granite countertops and wood flooring on first floor. Master bedroom with Retreat can be easily converted to 4th bedroom. Fire place w/granite tile & mantel, wide hardwood floor, plantation shutters, vaulted ceiling, Spacious backyard w/patio cover, No mello roos, Walk to Top Rated schools. Convenient to shopping and transportation. Awarded schools!!!

I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing the Irvine home market and combating California Kool-Aid since 2006.

Have a great weekend,

Irvine Renter

Borrowers no longer view debt as something to be paid off. We have entered the Ponzi era where borrowers inflate asset prices with perpetually serviced debt.

Irvine Home Address … 19 HAZELNUT Irvine, CA 92614

Resale Home Price …… $695,500

Some people ain't no damn good

You can't trust 'em you can't love 'em

No good deed goes unpunished

And I don't mind bein' their whippin' boy

I've had that pleasure for years and years

No no I never was a sinner–tell me what else can I do

Second best is what you get 'til you learn to bend the rules

And time respects no person–what you lift up must fall

They're waiting outside to claim my tumblin' walls

John Mellencamp — Crumblin' Down

Some people ain't no damn good. You're going to meet some of them in today's post. For those of us who didn't participate in the housing bubble, no good deed goes unpunished. I have been the whippin' boy for kool aid intoxicated fools who can't deal with the inconvenient truths I display on a daily basis. I've had that pleasure for years and years. Second best is all we seem to get by playing by the rules. Irresponsible homedebtors get loan modifications, no-interest loans, and principal forgiveness, and we have to pay for it! And the irresponsible get to walk away from their debts with no repercussions, and many don't think they did anything wrong. They're victims of circumstance so they say. Everyone else did it, so it must be okay.

I say screw them. Get the lazy squatters the hell out of our houses! What the lenders lifted up must fall. We are all waiting outside to claim their tumblin' walls.

Debts Rise, and Go Unpaid, as Bust Erodes Home Equity

By DAVID STREITFELD

Published: August 11, 2010

PHOENIX — During the great housing boom, homeowners nationwide borrowed a trillion dollars from banks, using the soaring value of their houses as security. Now the money has been spent and struggling borrowers are unable or unwilling to pay it back.

There is a pathology at work here that lenders don't recognize: borrowers never intended to pay that money back.

Once people accepted that house prices would always go up, they didn't need to worry about increasing their mortgage. As long as house prices go up, if the payments become too much to handle, they could just sell the house and let someone else pay off the debt — either that, or they could just borrow more money to make the payments. In either case, the borrowers were running a Ponzi Scheme. Every serial refinancer was a mini Bernie Madoff.

The road to hell is paved with good intentions, and strictly speaking, the borrowers intended to repay. When they sold the house, borrowers accepted the idea that the lender would take a portion of their appreciation to satisfy the debt. Borrowers were okay with sharing the profits, but if prices depreciated and if the borrower might have to come out-of-pocket to pay back the loan, well… that was never part of the deal. Besides, they couldn't pay back such a large sum even if they tried. Banks should have known this.

People who borrow money they have no intention to repay or no ability to repay are stealing. Unfortunately, the morality of this isn't quite so black and white. We have had many discussions about the morality of strategic accelerated default and the relative culpability of lenders and borrowers. Whatever the moral and ethical implications, lenders must deal with borrowers who will not pay back loans if prices go down. This is a new fact of life for lenders they must adjust to. Perhaps it will make them pause before inflating the next housing bubble, but as long as the US taxpayer is liable for their loses, lenders really don't care.

The delinquency rate on home equity loans is higher than all other types of consumer loans, including auto loans, boat loans, personal loans and even bank cards like Visa and MasterCard, according to the American Bankers Association.

Lenders say they are trying to recover some of that money but their success has been limited, in part because so many borrowers threaten bankruptcy and because the value of the homes, the collateral backing the loans, has often disappeared.

The result is one of the paradoxes of the recession: the more money you borrowed, the less likely you will have to pay up.

This is not a paradox. This is the obvious and predictable result of the deflation of the housing bubble. When lenders provide borrowers with money they can't or won't pay back, the more lenders loan, the less likely they are to get paid back. The only apparent contradiction here is that lenders didn't realize that the people they were loaning money to would behave this way. And that merely emphasizes how incredibly stupid lenders are.

“When houses were doubling in value, mom and pop making $80,000 a year were taking out $300,000 home equity loans for new cars and boats,” said Christopher A. Combs, a real estate lawyer here, where the problem is especially pronounced. “Their chances are pretty good of walking away and not having the bank collect.”

Lenders wrote off as uncollectible $11.1 billion in home equity loans and $19.9 billion in home equity lines of credit in 2009, more than they wrote off on primary mortgages, government data shows. So far this year, the trend is the same, with combined write-offs of $7.88 billion in the first quarter.

Even when a lender forces a borrower to settle through legal action, it can rarely extract more than 10 cents on the dollar. “People got 90 cents for free,” Mr. Combs said. “It rewards immorality, to some extent.”

To some extent? LOL!

If banks give out free money, everyone will want it. This entire fiasco has made sure moral hazard is deeply embedded into the belief systems of every borrower in America. How many people buying real estate in California are doing so because they believe prices have bottomed and that lenders are going to be giving out free-money HELOCs soon? Realistically, it is more than half. Kool aid intoxication has not gone away, it has gotten worse.

Utah Loan Servicing is a debt collector that buys home equity loans from lenders. Clark Terry, the chief executive, says he does not pay more than $500 for a loan, regardless of how big it is.

“Anything over $15,000 to $20,000 is not collectible,” Mr. Terry said. “Americans seem to believe that anything they can get away with is O.K.”

It is zombie debt collectors like Mr. Terry that will make life hell for those attempting to walk away from HELOCs. Go get 'em Clark!

But the borrowers argue that they are simply rebuilding their ravaged lives. Many also say that the banks were predatory, or at least indiscriminate, in making loans, and nevertheless were bailed out by the federal government.

Let's stop for a moment and shed a tear for the victims… You know, those HELOC abusers who pulled half a million bucks out of the wall and bought new cars and took fancy vacations while the prudent went to work and paid taxes to eventually bail them out.

Finally, they point to their trump card: they say will declare bankruptcy if a settlement is not on favorable terms.

They should declare bankruptcy. There is nothing wrong with that. The system was designed to provide a mechanism for those who need to wipe the slate clean and start over. Anyone who defaulted on their loans should declare bankruptcy and be done with it. Hoping the problem will go away on its own will hurt them more in the end.

“I am not going to be a slave to the bank,” said Shawn Schlegel, a real estate agent who is in default on a $94,873 home equity loan. His lender obtained a court order garnishing his wages, but that was 18 months ago. Mr. Schlegel, 38, has not heard from the lender since. “The case is sitting stagnant,” he said. “Maybe it will just go away.”

Mr. Schlegel’s tale is similar to many others who got caught up in the boom: He came to Arizona in 2003 and quickly accumulated three houses and some land. Each deal financed the next. “I was taught in real estate that you use your leverage to grow. I never dreamed the properties would go from $265,000 to $65,000.”

I guess my real estate education must have been a bit better than his. When I studied real estate economics, the professors always emphasized the prudent use of debt to maintain positive cashflow. Borrowing past the breakeven point is guaranteed to destroy your investment. At some point during the bubble, borrowers unlearned this simple truth about debt, and they sought to maximize their borrowing to acquire as many homes as possible even if the cashflow was negative. At that point, the entire market became a Ponzi Scheme waiting to implode.

Apparently neither did one of his lenders, the Desert Schools Federal Credit Union, which gave him a home equity loan secured by, the contract states, the “security interest in your dwelling or other real property.”

Look at this guys attitude. He clearly feels no responsibility whatsoever for the losses, and he really believes he is going to escape with no further damage. If he had any brains at all, he would declare bankruptcy now and start over. If he doesn't, the lender — or the zombie debt collector who buys his loans — is going to come take whatever he has. All these people who are walking away from recourse debt will be contacted by debt collectors once they start acquiring assets again.

Desert Schools, the largest credit union in Arizona, increased its allowance for loan losses of all types by 926 percent in the last two years. It declined to comment.

The amount of bad home equity loan business during the boom is incalculable and in retrospect inexplicable, housing experts say. Most of the debt is still on the books of the lenders, which include Bank of America, Citigroup and JPMorgan Chase.

The second mortgage debt and HELOCs are the root of all our housing woes.

The main reason lenders will fail to execute more short sales is due to these seconds and HELOCs. The holders of those worthless loans have the power to hold everyone hostage and try to extort whatever they can out of both buyers and sellers. In the end, the buyer and seller are better off in a foreclosure that wipes out the seconds, HELOCs and back HOA dues.

With the huge amount of second mortgage and HELOC debt still on the books of major banks, they are still insolvent. Despite the Federal Reserve stealing from savers and giving the money to banks — which is the net effect of zero percent interest rates — it will take many more years before banks have made enough money to fully write down the losses on this part of their portfolios. It also suggests that the Federal Reserve may maintain zero percent interest rates for a very long time. Welcome to Japan.

“No one had ever seen a national real estate bubble,” said Keith Leggett, a senior economist with the American Bankers Association. “We would love to change history so more conservative underwriting practices were put in place.”

OMG! I don't believe he said that. The reason we had never seen a national real estate bubble is precisely because we have never had such stupid underwriting practices in place. What did these idiots expect? If you give unlimited money to anyone who asks, you are going to have problems. The ignorance is truly remarkable.

The delinquency rate on home equity loans was 4.12 percent in the first quarter, down slightly from the fourth quarter of 2009, when it was the highest in 26 years of such record keeping. Borrowers who default can expect damage to their creditworthiness and in some cases tax consequences.

Nevertheless, Mr. Leggett said, “more than a sliver” of the debt will never be repaid.

You think? Not that the banks have written down the bad debt. Thanks to amend-extend-pretend, only a sliver has been written off so far.

Eric Hairston plans to be among this group. During the boom, he bought as an investment a three-apartment property in Hoboken, N.J. At the peak, when the building was worth as much as $1.5 million, he took out a $190,000 home equity loan.

Mr. Hairston, who worked in the technology department of the investment bank Lehman Brothers, invested in a Northern California pizza catering company. When real estate cratered, Mr. Hairston went into default.

The building was sold this spring for $750,000. Only a small slice went to the home equity lender, which reserved the right to come after Mr. Hairston for the rest of what it was owed.

Mr. Hairston, who now works for the pizza company, has not heard again from his lender.

Since the lender made a bad loan, Mr. Hairston argues, a 10 percent settlement would be reasonable. “It’s not the homeowner’s fault that the value of the collateral drops,” he said.

Isn't it funny that homedebtors have no problem keeping all the profits when prices go up, but when prices go down, it isn't their fault and the bank should absorb that loss. If the guy wanted an equity partner to take that risk, he should have sought one out. What he did was take out a loan, and lenders do not assume downside risk — well, at least they aren't supposed to.

I sincerely hope lenders are learning the lessons of this bubble collapse. Lenders and borrowers do not view the world the same way. Borrowers expect all the downside benefits of equity participation and all the upside benefits of debt in fixed amounts. This is the new world order.

Marc McCain, a Phoenix lawyer, has been retained by about 300 new clients in the last year, many of whom were planning to walk away from properties they could afford but wanted to be rid of — strategic defaulters. On top of their unpaid mortgage obligations, they had home equity loans of $50,000 to $150,000.

Fewer than 5 percent of these clients said they would continue paying their home equity loan no matter what. Ten percent intend to negotiate a short sale on their house, where the holders of the primary mortgage and the home equity loan agree to accept less than what they are owed. In such deals primary mortgage holders get paid first.

The other 85 percent said they would default and worry about the debt only if and when they were forced to, Mr. McCain said.

“People want to have some green pastures in front of them,” said Mr. McCain, who recently negotiated a couple’s $75,000 home equity debt into a $3,500 settlement. “It’s come to the point where morality is no longer an issue.”

Earlier this year, I wrote that by the end of 2010 the idea of a moral obligation to repay mortgage debt will carry no weight. It is August, and we are already there.

Darin Bolton, a software engineer, defaulted on the loans for his house in a Chicago suburb last year because “we felt we were just tossing our money into a hole.” This spring, he moved into a rental a few blocks away.

The only positive lenders have obtained by allowing widespread squatting is that they have convinced a few people prices might come back soon. This false and misguided hope is stopping them from lapsing into the malaise demonstrated by Mr. Bolton in the comment above. As prices roll over again in the inevitable double dip, more and more borrowers are going to embrace Mr. Boltons attitude and realize that continuing to pay an oversized mortgage on an underwater property is tossing their money into a hole.

“I’m kind of banking on there being too many of us for the lenders to pursue,” he said. “There is strength in numbers.”

Borrowers who took out enormous loans during the housing bubble never intended to repay these loans from their wage income, they always intended to pass this debt to some else. Somewhere along the way this subtle paradigm shift took place. It seems very reasonable that one could merely service debt for a while and resell the property to someone else and pay off the debt then. Like any Ponzi Scheme, it works until there is no greater fool to come along and assume the debt. Then the entire system comes crashing down and a spiral of debt deflation we are witnessing today. The worst part is that this thinking is still alive and well today.

The reason this problem won't simply go away is because incomes do not support the debt created. Even at 4.5% interest rates, as a society we cannot support the debt lenders made. Deflation will continue until prices are back in line with incomes. In markets like Las Vegas, we are already well below the price point needed, but in Orange County, our prices have not fallen enough to be supported by the local population. More pain lies ahead.

They shook down the walls

Did any of you have a piggy bank growing up. I had one that didn't have a hole to empty it. In theory, you were supposed to fill it, then break it with a hammer. It was a secure as home equity used to be before HELOCs. Of course, being an enterprising child, I knew that if I shook the piggy bank, I could get coins to fall out of the little slot. It took more effort, but you could raid the piggy bank, and with a little patience, you could get every last coin out of it.

Homeowners during the housing bubble were no different. A home was like a piggy bank that was difficult to make a withdrawal from, but with HELOCs prying open every home safe, lenders were helping homeowners shake down their own houses. Some homeowners, like the ones I am featuring today, shook their house often and made sure every available penny was stripped from the walls.

• My records don't show when this house was purchased, but there was a $230,500 loan on 8/25/1997. From that we can surmise they bought the house in 1997 and paid $288,125 using an 80% loan.
• On 1/22/2001 they refinanced with a $254,800 and began down the road leading to rampant HELOC abuse.
• On 7/17/2002 they obtained a stand-alone second for $45,000.
• On 3/3/2003 they refinanced the first mortgage for $350,000.
• On 5/6/2004 they obtained a $126,000 stand-alone second.
• On 3/27/2006 they borrowed $602,509 in a new first mortgage.
• On 8/4/2006 they got a $27,000 HELOC.
• On 1/16/2007 they refinanced with a $692,254 first mortgage. Note the odd amount. They left nothing in the walls.
• Total mortgage equity withdrawal is $461,754.
• Total squatting time was only 10 months. Beneficial California Inc moved quickly on this one.

Foreclosure Record

Recording Date: 03/26/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 11/09/2009

Document Type: Notice of Default

When you see HELOC abuse this bad, it is almost incomprehensible how a middle-class family could have pissed away nearly half a million dollars. If we weren't so numb to the large numbers, we would be outraged by $46,175 worth of HELOC abuse. When the number ballons to $461,754, its like trying to imagine infinity; the mind just can't grasp it.

The flipper bought this property at auction for $571,800. They will make a nice margin assuming it sells for near its asking price.

If you would like to learn how you can get involved with trustee sales, please contact me at sales@idealhomebrokers.com.

Irvine Home Address … 19 HAZELNUT Irvine, CA 92614

Resale Home Price … $695,500

Home Purchase Price … $571,800

Home Purchase Date …. 6/16/2010

Net Gain (Loss) ………. $81,970

Percent Change ………. 14.3%

Annual Appreciation … 123.5%

Cost of Ownership

————————————————-

$695,500 ………. Asking Price

$139,100 ………. 20% Down Conventional

4.51% …………… Mortgage Interest Rate

$556,400 ………. 30-Year Mortgage

$136,085 ………. Income Requirement

$2,823 ………. Monthly Mortgage Payment

$603 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$58 ………. Homeowners Insurance

$80 ………. Homeowners Association Fees

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

$3,563 ………. Monthly Cash Outlays

-$471 ………. Tax Savings (% of Interest and Property Tax)

-$731 ………. Equity Hidden in Payment

$233 ………. Lost Income to Down Payment (net of taxes)

$87 ………. Maintenance and Replacement Reserves

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

$2,680 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$6,955 ………. Furnishing and Move In @1%

$6,955 ………. Closing Costs @1%

$5,564 ………… Interest Points @1% of Loan

$139,100 ………. Down Payment

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$158,574 ………. Total Cash Costs

$41,000 ………… Emergency Cash Reserves

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$199,574 ………. Total Savings Needed

Property Details for 19 HAZELNUT Irvine, CA 92614

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Beds: 3

Baths: 1 full 2 part baths

Home size: 1,786 sq ft

($389 / sq ft)

Lot Size: 3,400 sq ft

Year Built: 1985

Days on Market: 7

Listing Updated: 40400

MLS Number: S628132

Property Type: Single Family, Residential

Community: Woodbridge

Tract: Bg

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This turnkey, single family detached home is located in Woodbridge's terrific Briarglen Tract, which is inside of the Loop, and offers three spacious bedrooms,a dining room, new lighting fixtures, new a/c and many other upgrades for you to enjoy. Take advantage of all that Woodbridge has to offer. HOA's only $80/mo. Enjoy access to two lagoons, 20 pools and rec center. This charmer is move-in ready with freshly painted interior, new granite countertops and gorgeous travertine floors in the kitchen, family room and dining rooms! Master bath has large bathtub, dual sinks, natural lighting. New landscaping and spacious backyard with fruit trees is perfect for entertaining! A must see! No need to preview!

A must see! No need to preview! Please explain to me how that works. Is this a must see, or is there no need to see it?

I am a reputed housing bear, but there are markets where I am very bullish. Everyone who wants a great long-term buy-and-hold property should be looking in Las Vegas, Nevada.

Irvine Home Address … 647 SPRINGBROOK #22 Irvine, CA 92614

Resale Home Price …… $359,000

Are you still feeling lucky tonight?

Throw the dice again… let it ride (let it ride)

Wanna do this one more time?

Hit me again… let it ride (let it ride)

Are you gonna play tonight?

Sleep with me, just right by your side

Gonna do this one more time

Hit me again… let it ride (let it ride)

Charlie Clouser — Let It Ride

For someone who writes bearishly about real estate almost daily, it will surprise some to hear me be completely and unabashedly bullish. I am very bullish on Las Vegas. I will put my money down there, and let it ride.

Booming Vegas or Real Estate Bust?

By Eric Fry — Aug 3, 2010, 2:03 PM

Over the weekend, your California editor jumped the border into Nevada. He took a spur-of-the-moment road trip to Las Vegas with his co-editor, Joel Bowman.

During their two-day romp in Sin City, neither editor engaged in any activities that needed to “stay in Vegas.” No drunken debauchery to report…or not report. No big-ticket gambling losses…or small-ticket moral lapses. Just the same old wholesome living with which they routinely bore themselves.

While most of the tourists were busy losing their money and sleeping off hangovers, your editors were busy gathering macro-economic data points. After all, Las Vegas may be famous for its ostentatious casinos, but it is infamous for its outrageous housing bust.

No city in the country throws a better housing bust than Vegas.

Although the residential real estate market in Las Vegas has been stabilizing for the last two years, home prices remain more than 50% below the peak levels of 2006. “In 2000,” the Las Vegas Sun reports, “the median price of existing homes was $134,500. That shot up to a high of $285,000 in 2006, but in 2010 prices have been running slightly more than $120,000.”

I want to take a moment to think about the numbers given above. In 2000, the average annual mortgage interest rate was 8.05%, and the stable median home price was $134,500 in Las Vegas. If you borrowed 80% of that amount ($107,600) the mortgage payment would have been $793.28. Today, a 30-year fixed rate mortgage can be obtained for 4.56%, and the median home price is $120,000. If you borrow 80% of that value today ($96,000) the mortgage payment would be $489.85.

The median home in Las Vegas — a 3 bedroom 2 bath detached property — can be owned for less than $500 per month.

It that isn't affordable, I don't know what is. The house is cheaper, and the cost of debt is much cheaper. Anyone living in Las Vegas who is choosing to rent when they could buy is a fool. Anyone thinking of investing in Las Vegas, now is the time — not because prices will come roaring back (they won't) but because the price-to-rent ratio is outstanding, and unless you are buying in the worst neighborhoods, I don't see how prices could go much lower. Unlike the inflated markets in California — the foolishly percieved safe havens — the property values in Las Vegas really can't go much lower, and although appreciation is years away, the rental stream makes ownership there very rewarding.

I personally plan to acquire all the Las Vegas real estate I can buy. And no, neither Ideal Home Brokers nor the mystery fund I might know something about is going to invest in cashflow properties there. I am not selling you on Las Vegas because I will profit from convincing you. I am bullish on Las Vegas real estate because I perceive it as the best buy-and-hold value we will see in our lifetimes.

I know it is hard for the kool aid intoxicated to get their minds around buying properties that will see no appreciation for ages, but realistically, there isn't going to be appreciation in any real estate market for ages. The best, and in my opinion, the only good reason to buy-and-hold real estate is for the rental cashflow. You want perpetual cashflow, not a cashless asset that requires taking on debt to convert to spending money.

Not surprisingly, mortgage defaults and foreclosures have been soaring over the last three years. “Since January 2007, Nevada has ranked No. 1 in the nation in foreclosure filings [as a percentage of total mortgages],” the Sun continues. “[Among cities], Las Vegas was ranked No. 1 in 2009 and will be near the top again in 2010.”

And to judge from a recent report by the New York Fed, Las Vegas will not be surrendering its “No. 1” position any time soon.

“Although the official home-ownership rate for Las Vegas is a respectable 58.6% as of August 2009,” DailyFinance observes, citing the Fed study, “the ‘effective’ rate is more like a dismal 15%… How is the ‘effective’ home-ownership rate different from the official one? The authors of the New York Fed study removed those homeowners who have negative equity – those who are ‘underwater’ and owe more on their mortgage than their home is worth.”

In other words, 58.6% of all Las Vegas residents may own a mortgage, but only 15% of them own a home.

The overhang of distressed mortgage debt is why a recovery will take forever in Las Vegas. All the debt must be extinguished. For those waiting for house prices to go up, the crushing weight of all the other homeowners who are giving up will keep foreclosure inventory high for many, many years. The one scenario that could make prices go lower is if interest rates move significantly higher before unemployment improves. With the entire housing stock trading at a 20%-40% discount to rental parity, a modest increase in interest rates won't significantly harm affordability like it will here.

The commercial real estate market in Las Vegas is almost as distressed as the residential market. Office vacancy rates have plummeted from about 8% in 2000 to 24% recently. Therefore, even if the Vegas real estate market is recovering, a lot more recovering will be required to restore stability…and rising prices.

Given your California editor’s familiarity with these macro-economic data points – and his unfamiliarity with Vegas itself – he expected to roll into a tawdry wasteland last Friday when he rolled off of I-15 onto Las Vegas Blvd. He expected to find clusters of low-budget tourists roaming the sidewalks of half-empty hotels. He expected to find deserted casinos in this gaudy patch of desert…and cut-rate pricing on everything.

But he found the exact opposite. The place was packed – every square inch of it – and priced for boom-time conditions.

On Day One of his visit – a Saturday – most of the best-known hotels on the Strip were either sold out or offering rooms at Midtown Manhattan prices. On Day Two, hotel room rates dropped sharply, but the crowds remained at capacity. All along the Strip, the casinos and restaurants were bustling, while the sidewalks and poolside lounge chairs were packed to capacity.

Finding a lounge chair anywhere close to Mandalay Bay’s wave pool required Green-Beret-style recon missions…or a lot of money. High-rolling hotel guests could chose to roll out $250 to $1,000 to rent a cabana…for one day!

The cabanas were full.

I have told people on many occasions that I strongly believe in the economic recovery of gaming and tourism in Las Vegas. Once the rest of the economy begins to improve, the unemployed start going back to work, and people have two nickles to rub together, they will put one of them in a Las Vegas slot machine. A reviving economy in Las Vegas will signal the end of the recession better than any government report.

Where is all this money coming from? How on earth could the sluggish US economy play host to such seeming prosperity?

Your editor has no decisive answer to these questions, but he does have indecisive guesses:

First up, he observed a very large percentage of “ESL” tourists. The crowded sidewalks featured almost every language on the planet. Apparently, Vegas appeals to foreigners.

Secondly, your editor suspects that Vegas has become a leading “staycation” beneficiary. Vacation destinations like Paris, Venice and Cairo are as expensive as they are distant. So why not go to Vegas, which enables tourists to visit the Eiffel Tower, the canals of Venice and the pyramids of Cairo…just by strolling from one end of the Strip to the other. Better still, these sites offer valet parking and free booze.

Whatever the exact causes, the Las Vegas economy appears to be recovering. Sin is still selling.

Drunken debauchery will always be popular. Once people can afford it again, Las Vegas will be there waiting to take their money.

One busy weekend does not necessarily make a trend. But the official numbers seem to support your editor’s first-hand impression. Tourist visits are on track to jump 3% this year to about 37.5 million, which would be the largest number of visits since 39.1 million tourists visited Sin City in 2007.

Vegas may not have returned to its peak prosperity, but neither has it descended into anything resembling a bust. Perhaps, therefore, the Vegas housing bust is drawing to a close…no matter what else is happening in the rest of the country.

As we noted in yesterday’s Reckoning, the weight of stubbornly high foreclosure rates – coupled with stubbornly high unemployment rates – continues to weigh on the national housing market.

I have written that Gaming Interests Could Save the Las Vegas Housing Market. Maybe someday I will raise the billion dollars required to save their housing market. I hope nobody there is holding their breath.

Art and science of distressed property investing

Finding a distressed property market is not difficult, and anyone who understands business math enough to compute a rate of return can measure which markets are a good deal in today's dollars. That is the science.

The art of distressed property investing is recognizing which of these markets the conditions are temporary and in which markets the distress is a long-term problem. I am bullish on Las Vegas because the local economy will recover there. The distress is temporary.

There are many distressed property markets where I am not bullish. Detroit, Michigan, may never recover. They may end up bulldozing a significant portion of their empty housing stock. Here in California, I wouldn't touch Bakersfield, Fresno, or Santa Maria. They are too far from major population centers to see spill-over economic growth, they are seeing varying degrees of demographic shifts and out-migration, the school systems are awful, and their local economies are not very diverse. The fringe markets within 90 miles of major population centers will recover eventually, but the overhead supply of foreclosures will take quite some time to work through.

In short, not every distressed market where the price-to-rent ratio is good is necessarily a good investment. Those markets where economic recovery is likely are the best investments, and Las Vegas is at the top of my list.

The extra breadwinner

Even the condos were put to work during the housing bubble. Properties both big and small were steady breadwinners for many families. I imagine they miss that extra income now that the housing ATM has been turned off. Some are still receiving the squatter's stimulus, but eventually that will run out as well. All these equity-stripping former owners will need to adjust to a new life based solely on their wage income. The horror of it is unimaginable.

• This property was purchased by the previous owner on 9/12/2001 for $237,000. The owner used a $225,000 first mortgage and a $12,000 down payment.
• On 2/21/2002 he obtained a stand-alone second for $24,000 which recouped his down payment and pulled $12,000 out to spend. Not bad for 5 months ownership.
• On 9/8/2003 he refinanced with a $240,000 first mortgage.
• On 9/8/2004 he obtained a $100,000 HELOC.
• On 8/15/2005 he got a HELOC for $141,000.
• Total property debt was $381,000.
• Total mortgage equity withdrawal was $156,000. Not bad for a small condo.
• Total squatting time was about 1 year.

Foreclosure Record

Recording Date: 05/27/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 02/18/2010

Document Type: Notice of Default

Foreclosure Record

Recording Date: 12/17/2009

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 09/09/2009

Document Type: Notice of Default

The flipper has been wisely lowering price to find the market. The margin is getting pretty thin, and without any upgrades, the price may have to go even lower to find a buyer.

Irvine Home Address … 647 SPRINGBROOK #22 Irvine, CA 92614

Resale Home Price … $359,000

Home Purchase Price … $311,000

Home Purchase Date …. 6/16/2010

Net Gain (Loss) ………. $26,460

Percent Change ………. 8.5%

Annual Appreciation … 89.3%

Cost of Ownership

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$359,000 ………. Asking Price

$12,565 ………. 3.5% Down FHA Financing

4.60% …………… Mortgage Interest Rate

$346,435 ………. 30-Year Mortgage

$70,987 ………. Income Requirement

$1,776 ………. Monthly Mortgage Payment

$311 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$30 ………. Homeowners Insurance

$335 ………. Homeowners Association Fees

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$2,452 ………. Monthly Cash Outlays

-$287 ………. Tax Savings (% of Interest and Property Tax)

-$448 ………. Equity Hidden in Payment

$22 ………. Lost Income to Down Payment (net of taxes)

$45 ………. Maintenance and Replacement Reserves

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$1,784 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$3,590 ………. Furnishing and Move In @1%

$3,590 ………. Closing Costs @1%

$3,464 ………… Interest Points @1% of Loan

$12,565 ………. Down Payment

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$23,209 ………. Total Cash Costs

$27,300 ………… Emergency Cash Reserves

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$50,509 ………. Total Savings Needed

Property Details for 647 SPRINGBROOK #22 Irvine, CA 92614

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Beds: 2

Baths: 2 full 1 part baths

Home size: 1,100 sq ft

($326 / sq ft)

Lot Size: n/a

Year Built: 1985

Days on Market: 27

Listing Updated: 40382

MLS Number: S623642

Property Type: Condominium, Residential

Community: Woodbridge

Tract: Lr

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HIGHLY SOUGHT AFTER END UNIT WITH VIEW OF GRRENBELT! No one above or below! This charming Cape Cod style home is located in the desireable Woodbrige area of Irvine. Open and spacious floorplan offers soaring ceilings and an abundance of natural light! Beautiful travertine flooring throughout the downstairs. Family room offers gas fireplace, The interior has been freshly painted with neutral colors. Inside laundry, Stainless steel appliances in kitchen wth breakfast bar. Large patio area with views of greenbelt and plenty of room to BBQ and entertain. Located in the highly sought after Irvine Unified School district and the Woodbridge Association features approximately 40 parks and pools, two 'landmark' lakes and swimming lagoons, two beach clubs, 24 tennis courts, plus many other recreational amenities!

desireable? GRRENBELT! That is really embarrassing to have a jarring misspelling in ALL CAPS.