Sunday, October 18, 2009

Why Should You Buy Land?

I am the basis of all wealth, the heritage of the wise, the thrifty and prudent.

I am the poor person’s joy and comfort, the rich person’s prize, the right hand of capital, the silent partner of thou¬sands of successful people.

I am the solace of the widow, the comfort of old age, the cornerstone of security against misfortune and want. I am handed down through generations, as a possession of great value.

I am the choicest fruit of labor, the safest collateral and yet I am humble. I stand before every person bidding them to know me for what I am and asking them to possess me.

I am quietly growing in value through countless days. Though, I might seem dormant, my worth increases, never failing, never ceasing. Time is my aid and the ever increasing population adds to my gain. I defy fire and the ele¬ments, for they cannot destroy me.

My possessors learn to believe in me and invariable they become envied by those that have passed me by. While all other things wither and decay, I alone survive. The centuries find me younger, always increasing in strength. All oil and minerals come from me. I am the producer of food, building materials and the home to every living thing. I serve as the foundation for homes, factories, banks and stores.

I have not been produced for millions of years, yet, I am so common that thousands, unthinking and unknowingly, pass me by.

Who am I? “I AM LAND.”

by: anonymous

Copyright © 2009 - All Rights Reserved

Monday, September 28, 2009

Land as an Alternative Investment for IRA Account

Are you tired of dealing with tenants? Are you stuck with the stocks that have sunk in value in your IRA account? Land is an alternative to diversify your asset, especially for your retirement account. If you are not familiar with this subject, please read my previous posting on self-directed IRA.

There are two distinct components of real estate, the land and the building/improvement. As the time pass by, the land component usually (no guarantee) will appreciate in value and the building component will depreciate because of wear and tear.

Be aware that you should not expect quick profit from investment in land. Land is not a way for you to get rich quickly, instead it is a way to get rich slowly, if it is done correctly. What do I mean by done correctly? If you buy a land in the middle of nowhere, populated by skunks and raccoons, your land may not appreciate at all after you hold it for 20-30 years. Instead, if you buy pre-developed land in the path of growth, there is a higher chance that the land will increase in value because of the demand. What else do you have to consider in buying a land?

The land should:
• Not have a slope in excess of 15%
• Not be located in flood zone or earthquake zone area
• Not be in wetland area
• Be in a close proximity to a major metropolitan area
• Be easily accessible by highway, train or air travel
• Be located in an area with enough jobs
• Have adequate infrastructures and utilities (roads, electricity, gas, water, sewer)
• Have existing residential and commercial development
• Have existing or planned school system

Imagine a house in San Francisco Bay Area cost $70K in 1970. That same house today costs around $500K. If you bought a land worth of $70K in 1970, the land costs well over a million today.

Are you prepared for retirement? Do you think you have a plan in place?

Copyright © 2009 - All Rights Reserved

Thursday, September 3, 2009

Oklahoma City's Major Projects Despite Economic Gloom

Core to Shore
Despite economic gloom around the country, two major projects are going on in Oklahoma City. The City of Oklahoma City plans 20+ years Core to Shore project, estimated at over $3 billion of public and private investment. The project will transform the underutilized area between downtown (the “core”) and the Oklahoma River (the “shore”) into a world class design urban neighborhood.

Core to Shore plan includes the following:
• Realignment of Interstate 40 (I-40)
• Public parks and open spaces
• Hotel and convention center
• Over 3,000 housing units, ranging from single-family detached houses to residential towers
• Up to 550,000 square feet of retail space
• Offices
• Major civic buildings
• Multi-modal transportation center.

Devon Tower
Devon Energy Corp, the largest US based independent oil and gas producer, plans to construct the new corporate headquarters building in downtown Oklahoma City. Devon Tower, will be the tallest building in the Oklahoma City metropolitan area. At an astounding 925 feet tall, the construction will start at fall 2009 and will be scheduled for completion at 2012. Hines will be the development manager of the 54-story, $1.9 million sq ft, $750 million tower.

Interested to check Oklahoma City metropolitan area demographic and economic? Click here.

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Sunday, August 30, 2009

San Francisco Bay Area Population Growth Forecast to 2035

Remember my posting about California population? According to US Census Bureau, as of July 1st, 2008, California is the most populated state with 36 million people. Half of Californians reside in the Greater Los Angeles Area (5 counties which are Los Angeles, Orange, San Bernardino, Riverside and Ventura), and 20% reside in San Francisco Bay Area (9 counties, which are Marin, Napa, Solano, Sonoma, Alameda, Contra Costa, San Francisco, San Mateo, Santa Clara).

California Population July 1, 2008
That means around 7 million people are living in the Bay Area. Association of Bay Area Governments (ABAG) just released a projection, by 2035 over 9 million people will live in the Bay Area. That is two millions more than today!

San Francisco Bay Area Population Projection to 2035
San Francisco Bay Area Growth Projection to 2035
Some of the issues that ABAG are trying to address are housing, jobs, transportation, energy costs and reducing carbon dioxide emissions. Complete forecast can be read here.

One classic question remains, where are we going to house these two million people? Among two scenarios presented by ABAG, under Focused Future scenario, the amount of greenfield development will be reduced. Instead, growth will be redistributed near area with high concentration of jobs and transit.

Should we keep building housing or should we let the natural selection apply (lack of affordable housing will force people to move out of the bay area)?

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Tuesday, August 25, 2009

Transit Oriented Rental Properties

Investors who are seriously looking to invest in rental property, should understand well the difference between a tenant’s perspective and a homeowner’s perspective. Tenant is looking for convenience, while homeowner is looking for a nice and peaceful place to settle down or to raise a family. Tenant often prefers a place close to grocery, public transportation or easy access to major highways. Homeowner doesn't mind to buy a house in far away location in exchange for a bigger space for his/her family within the price range that s/he can afford.

A property close enough to public transportation, will make a good rental property, as long as not too close that it will be too noisy for the resident. An interesting area to watch out is President Obama’s administration’s proposal of $8 billion federal stimulus money to build high-speed rail (HSR) system in ten designated high-speed rail corridors across country.
Even though this plan has invited controversy from multiples parties, I would like to keep my eyes on properties located around the proposed high-speed rail lines. Of course the price has to make sense, which means the property has to be able to generate acceptable cash-on-cash return, so in case there is any change with Obama’s plan, you won’t be screwed.

Where are the ten corridors for proposed high-speed rail?
• Pacific Northwest
• California
• South Central
• Chicago Hub Network
• Northern New England
• Empire
• Keystone
• Southeast
• Gulf Coast
• Florida

See the map below for more detail.

High-Speed Rail Map
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Sunday, August 23, 2009

Should You Invest in California or outside California? Part 6

“Florida? Probably not. The hurricane comes every year.” Some investors shy away from hurricane-prone area like Florida or Texas, but they forget that they life in an earthquake-prone area, California. While tornado and hurricane can be expensive to insured, they are still insurable risk. Earthquake, in my opinion, is almost an uninsurable risk, especially the big ones that attacked San Francisco in 1906 and Loma Prieta in 1989.

But how about the earthquake insurance? Earthquake insurance costs a lot of money, with not much coverage. California residents have the option to get earthquake insurance through California Earthquake Authority (CEA). Insurance companies that belong to CEA offer standard earthquake insurance policy with 15% deductible. Earthquake insurance is also available outside CEA. There is premium calculator available at CEA website. Imagine the next big earthquake is coming, even if you have an earthquake insurance coverage, if insurance companies receive too many claims, do you think they will remain solvent?

An alternative to buying earthquake insurance is to retrofit the property. The money paid for insurance premium overtime, may be well spent on the project retrofitting the property. Some lenders opt for borrower taking precaution steps rather than buying earthquake insurance. The structure should be tied to the foundation, water heater should be secured to the wall and cripple walls should be braced with plywood.

Investors, if you think Florida or Texas or Oklahoma are risky, think again! Diversify your asset geographically!

Copyright © 2009 - All Rights Reserved

Thursday, August 13, 2009

Should You Invest in California or outside California? Part 5

If California were a country, it would be the eighth largest economy in the world. Look at the two tables below.

RankStateGross State Product (US$ billions)
3New York1,103.0
8New Jersey465.5
9North Carolina399.4

RankCountryGross Domestic Product (US$ billions)
1United States13,841.4
5United Kingdom2,770.2

Source: The US Conference of Mayors, 2007

That statement was valid at least until 2007. How about now, after financial meltdown and eroding property values? True, the Golden State is going broke and experiencing budget deficits. But so do other 47 states. How bad are the budget shortfalls? Here are ten states with the largest budget gaps:

StateFY2010 before budget adoption
(US$ billions)
FY2010 mid year gap
(US$ billions)
FY2010 Total
(US$ billions)
FY2010 Total – % of Budget
New York$17.90$2.1$20.0036.10%
New Jersey$8.800$8.8029.90%
North Carolina$4.600$4.6021.90%

Source: Center on Budget and Policy Priorities

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Wednesday, August 12, 2009

Should You Invest in California or outside California? Part 4

Demand, supply and appreciation have been analyzed. Now look at the income portion, or the rents.

San Jose-Sunnyvale-Santa Clara$961$1,113$1,338$1,924$2,118$450.0K
San Francisco-Oakland-Fremont$1,078$1,325$1,658$2,213$2,339$402.0K
San Diego-Carlsbad-San Marcos$1,024$1,168$1,418$2,067$2,493$323.2K
Los Angeles-Long Beach-Santa Ana$904$1,090$1,361$1,828$2,199$303.5K
Riverside-San Bernardino-Ontario$867$954$1,125$1,583$1,846$172.5K

TEXAS0-BR1-BR2-BR3-BR4-BRMedian Price
Austin-Round Rock$658$749$912$1,228$1,398$182.3K
Dallas-Fort Worth-Arlington$670$746$905$1,201$1,455$135.7K
Houston-Sugar Land-Baytown$642$714$866$1,154$1,451$138.5K
San Antonio$577$642$792$1,022$1,241$148.3K

FLORIDA0-BR1-BR2-BR3-BR4-BRMedian Price
Miami-Fort Lauderdale-Pompano Beach$842$953$1,156$1,479$1,728$206.0K
Tampa-St. Petersburg-Clearwater$705$782$946$1,199$1,447$135.3K

ARIZONA0-BR1-BR2-BR3-BR4-BRMedian Price

NEVADA0-BR1-BR2-BR3-BR4-BRMedian Price
Las Vegas-Paradise$731$861$1,013$1,408$1,695$155.3K

GEORGIA0-BR1-BR2-BR3-BR4-BRMedian Price
Atlanta-Sandy Springs-Marietta$729$789$878$1,069$1,166$115.6K

Source: HUD 2009 Fair Market Rents, NAR 1st Quarter 2009 Median Price

So, which area would you pick to invest? Feel free to drop a comment.

Copyright © 2009 - All Rights Reserved

Wednesday, August 5, 2009

Should You Invest in California or outside California? Part 3

Let’s compare the property value and appreciation between California and states outside California.

Home Price Index AZ CA FL NV
Home Price Index NY UT
Home Price Index GA NC TX

Here, I put nine states into three groups:
1) Group 1: California, Arizona, Florida and Nevada. These are states with high population growth. Properties here have potential of high appreciation. Speculators love these states.
2) Group 2: New York, Utah. States with modest growth. The characteristics are between Group 1 and Group 3.
3) Group 3: Georgia, North Carolina, Texas. Property values in these states are more stable, it goes up slowly, and are more resistant to the up and down of the economy. Conservative investors will look for cash flow here.

The next graphs will show you annual growth rates, 5-year growth rates and 10-year growth rates for the three groups.

Annual Growth AZ CA FL NV
Annual Growth NY UT
Annual Growth GA NC TX

Look at the annual growth rates graphs above. While real estate in California, Florida, Nevada and Arizona are able to yield more than 20% annual appreciation, during troubled economy, properties are also possible to shrink in value up to 20% annually. On the other side, real estate in Texas, North Carolina and Georgia, will not increase as much in value during the boom, they also will not drop in value as much as the hot states.

Timing is very critical for speculators in states located in Group 1. You are either extremely lucky and make instant fortune, or you are screwed if you are wrong. For investors looking for cash flow, properties in Group 3 will always be an opportunity and timing is not as critical here.

5-Year Growth AZ CA FL NV
5-Year Growth NY UT
5-Year Growth GA NC TX
10-Year_Growth AZ CA FL NV
10-Year Growth NY UT
10-Year Growth GA NC TX
Look at the 5-year & 10-year growth rates graphs above. Properties in Group 1 reached the peak in late 2006. If you bought property during the peak, you may have to wait for a long time for the value to get back to previous peak. The history taught us that California reached the peak in late 1990, and it took 8 years to go back to the value in late 1990.

Properties located in more stable states in Group 3 have more predictable growth rates. There was energy crisis and banks failure in Texas during 1980s. According to one of FDIC economist, in 1988 and 1989, failed banks in Texas comprised over 80% of total US failed-bank assets. However, it seems that Texas has learned its lesson well.

The source of data is Freddie Mac’s repeat-transactions house price index for existing homes.

Copyright © 2009 - All Rights Reserved

Monday, June 29, 2009

Should You Invest in California or outside California? Part 2

The last article talked about the population or the demand, this article, we will talk about the supply or the land. Below are the comparison of land area and housing density for the fastest growing states.

Land Density
Source: US Census Bureau

Unlike the north east region, which is running out of land for low density development, California still has room to grow. Keep in mind, not all land are available for development. The following categories of lands are not available for housing development:
• Public land such as national or state park
• Land with slope in excess of 15%
• Wetlands
• Prime and unique farmlands
• Flood zones area
• Habitat for endangered species

In 1996, California Department of Housing and Community Development tried to determine how much lands are developable within 35 California counties. The result is only 13% of lands are developable.

California Developable Area
Source: California Department of Housing and Community Development

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Wednesday, June 3, 2009

Should You Invest in California or outside California? Part 1

I am often asked this question, “where should I invest in real estate, in California, or out-of-state?” There are pros and cons to either choice. In this article, I want to talk about population and its growth.

According to US Census Bureau, as of July 1st, 2008, the US population is estimated at around 304 million. California is the most populated state (36 million), followed by Texas (24 million), New York (19 million) and Florida (18 million).

Population July 1, 2008
Look at the pie chart above, you will notice that one of every eight Americans is Californian.

How about the growth? From April 1st, 2000 to July 1st, 2008, Texas grew by 3.4 million people, followed by California (2.8 million), Florida (2.3 million), Georgia (1.5 million), Arizona (1.3 million) and North Carolina (1.1 million).

Population Growth by Number
Percentage wise, during the same period, California grew by 8.5%. Nevada has the highest percentage growth (30.1%), followed by Arizona (26.7) and Utah (22.5%).

Population Growth by Percent
Looking back as far as 1930, the graphics below will show you the population history for 11 different states in the US.

Population 1930-2008
Population 1930-2008
Source: US Census Bureau

Another interesting observation, during the period of 1988-2003, California is the number one destination for immigrants to come. According to US Department of Homeland Security, among all of the immigrants that enter US, 31% of them settle in California. That number is only from international immigration. Domestic migration into California also contributes to its growth.

Immigration 1988-2003
Source: US Department of Homeland Security

If present trends continue, California's population will likely reach 40 million by 2010, and 45.5 million by 2020 (source: California Department of Finance). Long term perspective, based on population growth, the demand for housing in California is still strong.

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Friday, May 29, 2009

New Rules on Appraisals

In order to achieve the independence and accuracy of the appraisal process, effective May 1st, 2009, Fannie Mae and Freddie Mac have adopted the new regulations governing appraisals. The new rules, known as Home Valuation Code of Conduct (HVCC):

• Prohibits lenders from accepting appraisal report where the mortgage broker (or real estate agents) had a role in selecting, retaining, or compensating the appraiser
• Require absolute independence between in-house appraisers and loan production within lender’s organization
• Only applicable to 1-4 unit single family residential
• Government-insured loans are exempt

HVCC is not even a month old, but many people are unhappy with the execution. Yes, the purpose is good, which is to stop unethical mortgage brokers’ influence on inflating the price. Property values were over inflated during the boom, and that is one of the reasons of today’s mortgage meltdown. The new policies should give us more reliable appraisals and less fraud. In reality these are some of the unintended consequences:

• Even though ordering from Appraisal Management Company (AMC) is not required, and a lender may order appraisals directly from an individual appraiser, what most happen is, a mortgage broker orders appraisal, directed by a lender to a specifically authorized AMC.
• The existence of AMC means, consumers pay more for appraisals, while appraisers make less, because AMC retains percentage of the fees.
• The relationship long established between the ethical appraisers and brokers are gone, and inexperience appraisers from AMC may be assigned instead. This cause delay and longer escrow time, and the quality of the appraisal report may suffer.

Further detail on HVCC, can be found here.

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Tuesday, May 26, 2009

Foreclosures are Coming to Affluent Neighborhoods

Foreclosures are coming to affluent neighborhoods. Obviously, the riches are not immune to recession. Few of the foreclosed properties are listed below:

75 Tobin Clark Drive, Hillsborough, CA 94010
450 Middlefield Road, Atherton, CA 94027
996 Laurel Glen Drive, Palo Alto, CA 94304
151 Giffin Rd, Los Altos, CA 94022
12051 Stonebrook Drive, Los Altos Hills, CA 94022
15070 Montebello Road, Cupertino, CA 95014

If you want to get updated information on off market deals and opportunities, please subscribe to our mailing list.

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Monday, May 25, 2009

What Happens in Vegas Doesn't Stay in Vegas Anymore

Interesting video documentary from Vanguard Journalism:

Remember, there are always two sides to a coin. One side is crisis, the other side is opportunity.

Copyright © 2009 - All Rights Reserved

Thursday, May 21, 2009

When Renting is a Smart Financial Decision

The current edition of Forbes magazine has an intriguing story. It is a wakeup call that the path of homeownership is not always financially wise. The house was purchased for $922,500 in 2004 and now, it is pending at $849,000 price. It is likely that the offer maybe less than the listing price. After 5 years of homeownership, the seller is losing money, not only the equity, but also the $60K every year that she spent for mortgage payment, taxes and insurance. Had she chosen to rent similar house, she would only pay $36K each year. True, that mortgage interest and property taxes can be deducted from your taxable income, but remember, the higher the salary, those deduction will phase out.

As everyone tried to be homeowner, in the past few years, I heard this all the time: “Why do you want to make your landlord rich?” Now imagine if Ms. Seaman was renting the house at 1233 S Curson Ave, Los Angeles, CA 90019, instead of owning it. I would not ask her, the renter, “Why do you want to make your landlord rich?”, but I would ask her landlord instead, “Why do you want to fund your tenant’s lifestyle?” Yes in this story, it is smarter to be renter in West Hollywood neighborhood.

Of course, our lives are not based on financial alone. There are things in life that can’t be measured by money. So, it is OK to own a home in affluent neighborhood as long as you can afford it. What I mean by that, for the super wealthy people, it doesn't matter to spend a lot money every year for the house they like, or these people may buy the house in cash, since they have excessive cash anyway.

You may have wondered, why would I bring up that renting can be a smart financial decision, considering I am in the real estate investment business? There are two reasons. First, I am blatantly honest here and I like to speak out my mind. Second, if you live in expensive neighborhood like Ms. Seaman does, you’d be better off by renting there. Instead of using the money for down payment, mortgage, property tax, and maintenance of a house in West Hollywood area, you can invest that money to buy residential rental in different area, or maybe out of state, and pocket cash 6%-10% every year. Especially right now, you can find many houses that are 70% off from the peak and houses that cost less than their construction cost (you get the land for free). This way, you fund your retirement portfolio. This is not for people who have nothing, and have no choice other than renting, rather for people who have choices on what to do with their money and choose to rent because by renting, they will be better off financially.

Copyright © 2009 - All Rights Reserved

Monday, May 18, 2009

Houses for $26,900 with $450 cash flow per month

That is the promotion! Houses for $26,900 with $450 cash flow per month. That is equal to annual cash-on-cash return of 20%! Sounds too good to be true?

The houses were REO properties, which were purchased in bulk, rehabbed and sold to investor. What kind of houses will you get? I checked three of them:

House #1
Location: Indiana
Below Poverty Line: 41.26%
Vacancy rate: 15.14%
Ratio of renter-occupied to owner-occupied: 125.17%

House #2
Location: Georgia
Below Poverty Line: 43.42%
Vacancy rate: 22.73%
Ratio of renter-occupied to owner-occupied: 158.03%

House #3
Location: Florida
Below Poverty Line: 35.31%
Vacancy rate: 13.97%
Ratio of renter-occupied to owner-occupied: 74.20%

What do those numbers mean?

1) They are located in slum neighborhood. In my previous article, I mentioned, I personally will not invest in a slum, and will advise the same to my clients. You can rehab any properties, but you can’t change the location. Choosing the right location is one aspect of successful real estate investment.
2) High vacancy rate means, you have to wait longer to get tenants. As a result, your cash-on-cash return may be lower than the one advertised.
3) High poverty rate means, most people are low income resident or welfare-dependent. Low income neighborhood tends to have higher crime rate. It may take you or your property manager extra effort to screen qualified tenants and collect rent. Few months of uncollected rents lower your cash-on-cash return. And sometimes bullet proof vest is needed to collect rents!
4) High renter-occupied to owner-occupied rate. Tenants usually do not take care the properties as good as owners. There is no pride of ownership. Deteriorating neighborhood lowers property values.

Bottom line, you get what you pay for, and know what you are getting into.

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Wednesday, May 13, 2009

Trustee Sales at San Mateo County and Santa Clara County

Buying at foreclosure auction can be rewarding if you have two things, cash and time. Before you are allowed to bid at trustee sale, you have to show the auctioneer that you have sufficient cash, usually in the form of cashier checks or money orders. Second, it is very time consuming, especially if you have demanding full time job. Let’s say, you have done your rigorous due diligence on the property you plan to buy and finally manage to take time off from your work, but at the auction, you find out the property you are interested, is being postponed or cancelled. For example this past week, hundreds of properties scheduled for auction in San Mateo County and Santa Clara County were postponed or cancelled.

Sold properties are listed below:

AddressCityZIP CodeStarting BidSold for
1135 SAGE STREETEAST PALO ALTO94303$225,250$225,250.01
750 6TH AVEREDWOOD CITY94063$216,750$233,000
232 GARDENIA WAYEAST PALO ALTO94303$178,500$183,000
1616 HEMLOCK AVESAN MATEO94401$401,272$401,272.01
1319 MONTE DIABLO AVENUESAN MATEO94401$348,500$370,100
2020 SPYGLASS DRIVESAN BRUNO94066$539,750$539,750.01
547 GROTH PLSAN JOSE95111$112,500$127,400
929 E. EL CAMINO REAL C211SUNNYVALE94087$236,800$236,800.01
488 AMARGOSA COURTSAN JOSE95111$111,234.6$111,234.61
1345 HALF ROADMORGAN HILL95037$312,035.43$312,035.44
2061 EAST SAN ANTONIO STREETSAN JOSE95116$127,000$132,300
5179 ALUM ROCK AVENUESAN JOSE95127$196,421.98$250,300
564 COYOTE ROADSAN JOSE95111$157,026.32$180,000
953 DEER MEADOW COURTSAN JOSE95122$175,000$175,000.01
14411 HIGHGROVE COURTSAN JOSE95127$157,026.32$175,000
3017 LUCAS COURTSAN JOSE95148$525,300$561,500
2470 ALFRED WAYSAN JOSE95122$195,500$195,600
941 DRY CREEK ROADSAN JOSE95124$578,000$701,000

Even if you have cash and time, be sure you are mentally ready. Why? Please read this article.

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Monday, May 11, 2009

Due Diligence on Apartment Building – Part 4

A group of people who bought lands at New Mexico tax auction, later discovered there were demolition and weed cutting liens on the properties, in the amount which was more than the property values. One buyer paid $800 for a property, only to find out a lien of $20,000 (Source: Clovis News Journal).

A condominium in Colma, California, was foreclosed by the HOA for $7,000. I was told that a young couple bought it. I don't know whether they realized that there was a mortgage lien in the amount of $600K, much more than the condo market value of around $300K. So the young couple got property worth of $300K for $607K. Great deal? Yeah, right!

Title and ownership information is a critical consideration when buying any kind of real properties, whether it is land, or single family or even apartment building. There are a lot of things which can encumber the title of a property. The simplest example is a mortgage. When you take a mortgage, the lender places a lien in the property as collateral. Let’s say one property has multiple liens at any one time. The priority of the liens is normally based on the time it gets recorded. The lien which is recorded earlier, takes higher priority over the lien which is recorded later. There are exceptions to this rule. Property tax takes the highest priority over all other liens. IRS lien has 120 days of redemption right, no matter when it is recorded.

Example of other type of liens:

• Home equity line of credit
• Mechanic’s lien: Lien placed by contractors for nonpayment of labors and/or material at the property
• Municipal services lien: Lien placed by the municipal for unpaid utilities and school assessment
• State income tax lien: Lien placed by the state for unpaid state income tax
• Judgment lien: Lien as a result of financial judgment
• Child support lien: Lien for past due child support

Other things that can impact the property’s title:

• Recorded lease option
• Property restrictions (eg: BMR property can only be sold at an approved price)
• Partial interest

Remember, something that sounds too good to be true, it probably is! Do your necessary due diligence.

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Thursday, May 7, 2009

Due Diligence on Apartment Building – Part 3

Jim Sullivan, a real estate broker from New Jersey, bought tax lien from Gloucester County in 1999. The defaulted owner was Accutherm, a thermometer factory. Sullivan foreclosed the property, hired contractor to make building modification, and leased it to Kiddie Kollege Day Care Center in 2004.

Apparently, the building was contaminated with mercury and the parents of 94 babies and children sued him. Mr. Sullivan asked Superior Court Judge to void the foreclosure and then he sued the previous building owner, Accutherm. Unfortunately, Sullivan is still liable to clean up the mercury. The state Department of Environmental Protection ordered Sullivan to demolish the building and clean up the site, an estimated $1 million project. OUCH!

Source: Gloucester County Times, The Philadelphia Inquirer

The story is a perfect example of investor’s failure to conduct due diligence on environmental issue. There are firms that specialize and are experienced in environmental analysis and engineering. They can do proper research to determine the potential presence of hazardous materials. Examples of hazardous materials are asbestos, lead-based paint, mold, radon, gas leaks from underground storage tanks and … mercury. Get familiar and review environmental regulations at federal, state and local jurisdiction.

You may want to consider phase 1 environmental assessment. This assessment will examine the history of the building and determine if potential contamination exists. It doesn't involve physical analysis and testing of the soil, water, air or building material. If it is identified that further investigation should be performed, then phase 2 environmental assessment has to be done. In phase 2 assessment, actual sampling of soil or water will be collected and tested in laboratory.

Contaminated sites are often referred to as brownfields. In one of his articles, Joel W. Reese, an environmental litigation attorney from Dallas, suggested that buyer should add a transfer of claims for environmental injury in the deed. In general the right to seek compensation for environmental injury is a personal right that accrues to the owner at the time injury happens. Without transfer of claims in the deed, this right is left with previous owner, and successor buyer may not be able to recover environmental injury damages without first incurring the cost of cleaning up the property. Consult attorney for this matter.

Copyright © 2009 - All Rights Reserved

Wednesday, May 6, 2009

Due Diligence on Apartment Building – Part 2

Compliance to accessibility laws is often overlooked by many people. Apartment buildings that are not accessible to people with disabilities easily invite discrimination lawsuit. Ignorance can lead you to penalty for fair housing laws violation and the cost of correction can be hefty.

Some items you have to check during your due diligence period:
• Clear floor space to allow wheelchair access and turning
• Doors with proper width
• The steepness of the slopes and curb ramps
• Minimum number of disabled designated parking spaces and passenger loading zones
• Reinforced walls for grab bars in the toilet, bathtub and shower stall
• Accessible locations for light switches, electrical outlets and thermostat.
• Any protruding objects that reduce the headroom clearance which are hazardous for the blinds

Beside compliance to federal laws such as Americans with Disabilities Act (ADA) and Fair Housing Act, you have to comply to the regulation of state and local jurisdiction as well.

Copyright © 2009 - All Rights Reserved

Monday, May 4, 2009

Due Diligence on Apartment Building – Part 1

This article is to fulfill what I have promised on March 16th, 2009. When you start to play with 5+ unit apartment building, there are various subjects that you have to consider, which don't exist when you are in the 1-4 unit game. Since it is impossible to cover everything in a blog, I will only touch few important subjects.

Today, we will talk about valuation method. Unlike 1-4 unit single family houses, in which sales comparison method is normally used with the most emphasis, income method is used for apartment building valuation. There are three factors here, the capitalization rate or commonly referred to as “cap rate”, net operating income (NOI) and building value.

                        Net Operating Income (NOI)
Building value = ----------------------------------------
                                    Cap Rate

The capitalization rate is determined based on the capitalization rate of apartment buildings sold recently within that particular area/neighborhood.

Net operating income is gross operating income minus operating expenses. Note that operating expenses don't include debt service, depreciation and income taxes.

What do you have to account when analyzing net operating income?

• At least the last one year of monthly P&L statements
• Three to five years of annual P & L statements and income tax returns
• Rent rolls and payment history
• Copy of all lease agreements and any addendums
• Security deposit records
• Other source of income such as income from vending machine and laundry

• The last three years of property tax bills
• Insurance policy: term, exclusion, all riders
• Property management agreement
• Utility bills: gas, electric, water & sewer, trash
• Any assumable service contracts such as landscaping and wireless internet services
• Any assumable warranty from vendors

Copyright © 2009 - All Rights Reserved

Wednesday, April 29, 2009

San Francisco County - Tax Defaulted Properties Auction’s Result

Last month, I wrote about tax defaulted properties that were being auctioned by San Francisco County. The auction ended yesterday. The original list had 56 properties, which were a combination of lands (10), single family homes (18), multi-unit properties (4), condo (2), office condo (1), commercial properties (2) and timeshares (19). 43 properties had been redeemed by the owners prior to the auction and only 13 properties were available for public auction.

The 13 properties available were all timeshares and only one of them at Union Square sold.
• 4 timeshares of The Suites at Fisherman's Wharf (Fisherman Wharf)
• 3 timeshares of Nob Hill Inn (Tenderloin)
• 6 timeshares of Club Donatello (Union Square)

It makes sense that most of the valuable properties were redeemed by the owners. Had them not been redeemed by the owners, I bet they would sell close to their market value. You could still get a discount, but since the auction was publicly advertised, and San Francisco is such a hot location, everyone with cash would fight to be the winning bidder. Who would not want to win a house in Sea Cliff neighborhood (starting bid was $19,500)?

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Monday, April 27, 2009

Using Self Directed IRA to Invest in Real Estate

The fact that you can invest in real estate using self directed IRA must be widely known by now, but to my surprise, that is not the case. Many people still do not know that they can do variety of investments using their IRA other than stocks, bonds and mutual funds.

So what else can you invest using your IRA? The possibilities are endless, for examples, real estate, trust deeds, partnership interest and private equity. According to Internal Revenue Code Section 408, the only prohibitions are investing in life insurance and collectibles such as artworks, stamps and antiques.

If you want to invest in real estate using your IRA account, first you have to open a self directed IRA account with one of the IRA custodians. Here are few that you can consider (this is by no mean an endorsement of these companies):

Pensco Trust Company
The Entrust Group
Equity Trust Company
Sunwest Trust

Before you jump or run to open a self directed IRA account, consider the advantages and disadvantages below.

• Exposure to wide variety of investment vehicles
• Interest free loan from Uncle Sam, since the growth on your account won’t be taxable until you retire.

• The gain from real estate appreciation will be taxed as ordinary income during your retirement, versus capital gain, had the asset been held outside IRA. This is a disadvantage if you think your tax bracket after you retire will be higher than capital gain rate.
• Since your rental income is not taxable, you can’t deduct paper loss as a result of depreciation.
• You should have enough cash in your IRA for unexpected repairs.
• Mortgages might be hard to obtain.
• IRA custodian companies charge fees for managing your account.

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Friday, April 24, 2009

So You Want to Buy Foreclosure?

So you want to buy foreclosure? Make sure you know what you are doing, and be ready financially and emotionally. Sure, you may get a bargain, but you are also more likely to spend tens of thousands of repairs.

Disgruntled homeowners who lose their homes through foreclosure and eviction, often time, try to retaliate by damaging the house, or removing and selling fixtures such as cabinets, sinks, water heater and toilet.

Look at these ads in craigslist (craigslist ads expire a week after posted):

Carpet and Pad 250 sq yds New - $900
Have almost 250 square yards of new heavy grade beige carpet and pad.
Bring your box knife and cut yourself a piece, with pad included.

Custom Cherry Kitchen Cabinets!! Hand made! Beautiful! - $4600
These cabinets were taken out of a friends home that was another foreclosure casualty. The cabinets were too new and too expensive to let the bank have them.

GREAT PRICE!!!--- Can be negotiated, if purchased with other items. (Light Fixture, Mirror, Towel Bar, Toilet Paper Holder and other household items)
Can be purchased together or separately. In perfect condition, only 4 years old.

Nice used fridge stove dish washer, foreclosure special
220 for fridge
295 for stove
120 for dish-
and 150 ea for washers

FORECLOSURE SALE-everything must go
I have a multitude of items for sale......refrigerator(2 years old-white) stove,microwave,dishwasher,kitchen cabinets(1 1/2 years old) full mattress set(good condition),hurricane shutters,bookcase,2 dressers,end table etc All reasonable offers considered-must be able to remove also.

Foreclosure Sale - GE Black Profile Kitchen Appliances - $250
House went into FORECLOSURE.... Must sell all my home appliances I purchased with home.. Everything is basically brand new, we only lived in our house for a single year.
We have available a GE Black Profile Series Stovetop/Oven-Range (electric) this will be for sale at $370 or best offer.
Also available is a GE Profile Stainless Steal Stovetop Microwave Oven.

Sometimes it is cheaper for the bank to give a house away than to keep it. The Detroit News reported bank owned house for sale for $1 in Detroit and it cost the bank $10K to unload the house. The $10K was used to pay delinquent taxes, water bill, sales commission and closing cost. The bank finally gave up since every time property manager tried to fix the house, the thief stole something from the house in the next few days. What do you get with $1 house? Pretty much an empty shell, as the thief stole everything from siding, fence, furnace, kitchen sink and even copper plumbing.

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Monday, April 20, 2009

Hillsborough House Under $1M, not in MLS

If you search MLS today, you will not find a single family house under $1.7M in Hillsborough, California. The house has 2 large bedrooms, 3 baths, approximately 1,770 sq ft living area, and almost half an acre lot. A little TLC is needed, but the house has great potential.

Hillsborough is an upscale, quiet and secluded neighborhood in San Mateo County, located 20 miles south of San Francisco. The Town of Hillsborough maintains its rural country atmosphere, characterized by scenic winding road and green vegetation. The median family income according to HUD is estimated at $250K.

If you are interested, please email me.

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Wednesday, April 15, 2009

Correlation between Neighborhood Characteristics and GRM

In one of the seminars I attended, I met a gentleman in his mid fifties. Despite the worldwide financial troubles, he saw a lot of opportunities in the real estate and wanted to start putting his money into real estate. He asked me if I can find him a property which produces annual rent 12%-15% of purchase price. That means GRM of 6.7-8.3.

GRM or Gross Rent Multiplier is a simple way of comparing investment properties by dividing the purchase price by gross annual rent before vacancy and expenses.

                                                                      Purchase Price
Gross Rent Multiplier (GRM) = -----------------------------------------------------------------------
                                              Gross Annual Rent before Vacancy & Expenses

Again, GRM is just a rough estimate to compare properties. For accurate financial analysis, all factors such as vacancy, repairs to bring property ready for rent, taxes, insurance and property management fees have to be included.

While it is not impossible to find GRM of 6.7-8.3, based on my experience, you will find those properties located in depressed neighborhood. I call them “junk real estate”.

Let’s examine neighborhood characteristics based on median household income, poverty level, vacancy, ratio of renter occupied to owner occupied and crime rate. Those data can be found from US Census Bureau and local police department. From scale 1 to 5, I give 1 to neighborhood with the lowest median household income, highest poverty level, vacancy, ratio of renter occupied to owner occupied and crime, while I give 5 to neighborhood with the highest median household income, lowest poverty level, vacancy, ratio of renter occupied to owner occupied and crime.

As a case study, we’ll take a look at 5 single family homes with 3 bedrooms located in Oakland.

Neighborhood characteristics12345
NeighborhoodEast Oakland Lake MerrittOakland HillsOakland HillsPiedmont Pines
Beds/Baths/Sq ft3 /1 /12483 /1.5 /14943 /1.5 /15083 /1.5 /15423 /2 /1716 ZESTIMATE$221,500$367,000$466,000$587,500$709,500
Monthly rent$1,600$1,975$2,295$2,500$2,795

Compare the house in east Oakland and Lake Merritt. Lake Merritt house is 66% more expensive than east Oakland house, but the rent is only more expensive by 23%. Compare any other 2 houses above, you will find, the percentage increment of rent tends to be less than the percentage increment of housing values. It shows you a tendency of higher GRM as the neighborhood characteristics improve, because the price goes up faster than the rent. While this tendency generally holds true regardless of the location (eg: Phoenix instead of Oakland), this analysis is only a general observation, and not an exact science. Instead of fixed value of GRM, you will find a range, and it could be possible that two neighborhood characteristics have GRM range overlap to each other.

House Value and Monthly Rent
I personally stay away from investing in depressed neighborhood and advise the same thing to my clients, but I know other investors who mainly invest in low end housing. It really depends on your objective, risk tolerance and experience. Why people invest in low end housing? Lower GRM usually means higher cash flow. They get more steady income from the cash flow regardless of the appreciation and the up and down of the housing market (please read “Nice Cash Flow or Great Appreciation?”).

Few years ago, one investor bought multi unit property in depressed downtown Los Angeles. He worked with police department, evicted drug dealers, and promoted education in the community. As a result, the quality of the neighborhood gradually improved. As the quality of the neighborhood improved, so did the building value.

If investing in low end housing is appealing to you, three properties are available, two of them currently offered at $49K, and the third one offered at $59K. You won’t be able to find these houses in the MLS.

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Wednesday, April 1, 2009

Low Income Housing Tax Credit

Tax credit is absolutely better than tax deduction. Let’s say your tax bracket is 35%. $1,000 tax deduction reduces your taxable income by $1,000 and subsequently reduces your income tax by $350. $1,000 tax credit directly reduces your income tax by $1,000.

Federal, state and local government offer variety of tax credits. One of them is low income housing tax credit (LIHTC) for investor to develop, acquire and rehabilitate housing for low income tenants. Why does government give investor free money? Well, it is a win-win scenario. The government lacks the resource to provide affordable housing, and it needs private investor to help the government increasing the supply of affordable housing. On the other side, without tax credit, providing housing for low income tenants may not be economically feasible for investor.

LIHTC program was enacted in 1986 based on Section 42 of the Internal Revenue Code. Tax credits have been awarded to developers whose project meets requirements as follow:

• Residential rental property
• At least 20% of the units must be rent restricted and occupied by households with incomes no more than 50% of the HUD-determined area median income OR at least 40% of the units must be rent restricted and occupied by households with incomes no more than 60% of the HUD-determined area median income
• The rent, including utilities, do not exceed HUD specified limit
• 30 years or longer operation under rent and income restriction

The developers can then sell the credit to investors and investors will receive tax credit over 10 years period. Investors need to maintain compliance with applicable rules, and if the rules are violated, investors may have to pay back the credits taken, or unable to apply for future credit.

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Monday, March 30, 2009

The World’s Tallest Building

Started in 2004 and scheduled for completion in late 2009, the world’s tallest building today is located in Dubai, United Arab Emirates. Burj Dubai, 162 stories, developed by Emaar Properties, is a mixed of hotel and luxury apartments, with four luxurious pools and spas, 15,000 sq-ft of fitness facilities and an observation deck on floor 124. Although the official height has been kept private until completion, the height is estimated around 2,684 feet.

Other than Burj Dubai, which means “Dubai Tower” in Arabic, the US$20-billion mega project of downtown Burj Dubai has manmade lake, shopping malls, business centers and premium hotels.

According to Mohamed Alabbar, Chairman of Emaar Properties, Burj Dubai goes beyond its physical specifications. It is about the human spirit of attaining the seemingly impossible and setting new benchmarks.


Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Tuesday, March 24, 2009

Top Apartment Market by Marcus & Millichap

Marcus & Millichap released the 2009 National Apartment Index. The index tracks different markets based on various criteria, such as effective rent growth, vacancy, employment, construction and affordability. Here are the top 20 markets for 2008 and 2009.

Rank20082009Cap Rate Range
1San FranciscoSan Franciscomid- to high-4 %
2SeattleSan Diegolow-6 %
3New York CityWashington, D.C.5.5 % to 7.0 %
4San JoseLos Angelesmid- to high-5 %
5OaklandSeattlemid- to high-5 %
6Los AngelesOaklandlow-6 %
7Orange CountySan Josehigh-4 %
8San DiegoOrange Countymid-3 % to low-4 %
9Washington, D.C.New York Citynot stated
10PortlandPortlandnot stated
11ChicagoDenverhigh-6 % to low-7 %
12BostonPhiladelphialow- to mid-7 %
13DenverChicagohigh-6 % to low-7 %
14Las VegasNew Jerseynot stated
15Fort LauderdaleMinneapolis-St. Paullow- to mid-7 %
16Riverside-San BernardinoLas Vegasmid- to high-6 %
17Salt Lake CityRiverside-San Bernardinomid- to high-6 %
18MiamiSalt Lake Citymid- to high-6 %
19PhoenixMiami7 % to 8 %
20TucsonMilwaukeelow- to mid-8 %
Source: Marcus & Millichap

San Francisco ranks the first position both in 2008 and 2009 because of its strong effective rent growth. It is very interesting fact that despite of the high foreclosure and unemployment rate in California, six metropolitan areas in California occupy the top 8 markets during 2008 and 2009.

Another observation worth to mention, the higher the rank of the market, the cap rate tends to be lower.

So should you invest in California, or should you invest out of the state of California? There is no general answer to this question. It is very specific to your circumstances and objectives. I will write the advantages and disadvantages of investing in California versus investing out of California to help you in your investment decision. Come back and feel free to post a comment or feedback!

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Thursday, March 19, 2009

San Francisco County - Tax Defaulted Properties Auction

San Francisco County will conduct tax defaulted properties auction on April 25-28, 2009. There were more than forty properties in the original list. Some of those properties have been withdrawn from the auction list or redeemed by the owners. I decided to drive by to take a look at few of them.

225 32nd Avenue, SFR, 4BR/3BA, 2,260 sq ft, built in 1959.
Located at an affluent Sea Cliff neighborhood, adjacent to Palace of the Legion of Honor, right by the Pacific Ocean. Sea Cliff is home to actor Robin Williams and Oracle CEO, Larry Ellison.
Starting bid: $19,500, $2,347,000

551 11th Avenue, SFR, 1BA, 2,150 sq ft, built in 1914. Located at Inner Richmond neighborhood, 2 blocks away from Golden Gate Park.
Starting bid: $13,500, $1,152,000

225 Diamond Street, Duplex, 3BA, 2,006 sq ft, built in 1900.
Located at Eureka Valley neighborhood, west of Castro Street.
Starting bid: $42,000, $1,190,000

6 Starview Way, SFR, 2BR/1BA, 1,187 sq ft, built in 1900.
Cornet lot, located at Midtown Terrace neighborhood, west of Twin Peaks
Starting bid: $22,000, $841,000

1357 Plymouth Avenue, SFR, 1BA, 1,296 sq ft, built in 1919.
Located at Westwood Park neighborhood. Close to San Francisco City College and Balboa Park BART station.
Starting bid: $77,500, $709,000

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Monday, March 16, 2009

Due Diligence on Residential Rental Properties

I can’t emphasize enough on the importance of due diligence. How many of you signing your mortgage documents without thoroughly reading it? Or buying stocks of a company without at least reading the financial statements?

I know this happens not only at the individual level, but at the institutional level as well. Few friends confessed to me that they didn’t read the mortgage documents before they signed them. Some well known corporations, their representatives didn’t thoroughly verify the vendor invoices before paying them. Let’s say you receive an invoice of total cost $30 millions, do you know that one of the charge of $75K, may not be a valid expense? If you are one of those people, chances are, you may not do the proper due diligence when buying investment properties.

One time, my agent, who was a seasoned REALTOR with more than 20 years experience, presented a property to me. The property was in a good neighborhood and relatively new. I started to do the due diligence. Everything looked fine, until I found out the guy who was living cross the street was a sexual offender. I immediately notified my agent, and he was surprised. He didn’t know about it. Since my intention was to purchase the property and hold it as a rental, it would be a big liability for me, let’s say if I had tenant with children. Especially I had the knowledge about the presence of sexual offender. You may guess the end of the story. I asked my agent to find me another property.

Due diligence requires a lot of work and knowledge. Novice investors don’t do proper due diligence because they don’t know how to do it. But the worst part is, people who exactly know what they are supposed to do and know how to do it, yet they choose to ignore it for whatever reason.

So, what kind of due diligence has to be done on residential rental properties? I give you few examples.

Demographics, do you know the population, density and the growth rate in that city or county? How much is the average household income? How about vacancy rate?

Business and economics, who are the major employers? Do they have plan for expansion or reduction? Any future massive layoff? What is the unemployment rate?

Natural Disasters, whether it is an earthquake, tsunami, hurricane or tornado, know your potential risk.

Zoning and Planning Department of the city, what is the zoning of the subject property? Does the city have plan to construct highway close by (potential noise)? Any public airport near by?

Title and lien, any easement, encroachment, or special tax assessment?

And much more. No matter how well you do the due diligence, it may be still few surprises down the road. The goal is to know what you are buying and minimize your risk as much as possible. If you have the proper due diligence, you will still be much better off than if you don’t.

In the future, I will write about “Due Diligence on Apartment Building”. Stay tuned and come back often.

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Saturday, March 14, 2009

Nice Cash Flow or Great Appreciation?

Which one do you think is better: Nice Cash Flow or Great Appreciation? Here is my personal opinion:

Nice Cash Flow is equal to money NOW, while Great Appreciation is equal to money LATER. Do you want to receive money now or do you want to receive money later? You tell me.

Nice Cash Flow can buy you grocery and pay your bill. Great Appreciation neither pays your bill nor buys you grocery.

Usually you either have Nice Cash Flow with not so great appreciation, or Great Appreciation with not so nice cash flow (worse, negative cash flow), or something in between.

If you have both Nice Cash Flow and Great Appreciation, either you are extremely lucky or in a bubble.

Nice Cash Flow will likely be loyal and stay by your side during good and bad time. Great Appreciation doesn’t guarantee to always be there for you and may disappear as soon as the trouble comes.

Nice Cash Flow is not too sensitive to timing, while Great Appreciation is very sensitive to timing.

Nice Cash Flow tends to attract investor more, Great Appreciation tends to attract speculator more.

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Friday, March 13, 2009

Responsible Investing: Aspire Wealth, Preserve the Earth

There is unspoken law in the earth we live in. It is the law of the nature, which keeps our earth in balance. If this law is violated, either by ignorance or by intentional act, nature will slap us, the human occupants.

Remember the tragedy on December 26, 2004? The deadliest tsunami in the history hit south Asia, triggered by a massive earthquake of magnitude 9.0, the largest earthquake in 40 years. Hardest hit areas were Sumatra (more than 170,000 deaths), Sri Lanka (more than 31,000 deaths), Thailand, and India. Eyewitnesses reported even animal could sense the danger before it happened. Elephants screamed and ran for higher ground. Dogs refused to go outdoors. Flamingos abandoned their low-lying breeding areas.

Long before the tsunami happened, most of the coral reefs surrounding Phuket Island were dying, as victims of greedy investors. Hundreds of beach-front resorts and foreign-owned dive shops have destroyed the coastal ecosystems. It was the greed to cash in more than 10 million per year of the tourism industry. According to Nipon Pongsuwan of the Phuket Marine Biological Centre, the primary factors responsible for the reef destruction were sewage from seaside resorts, sludge from never-ending coastal construction projects, overfishing and thousands scuba diving tourists.

While the existence of the reefs alone doesn’t prevent the earthquake and the tsunami, it will at least lessen the impact of the Mother Nature’s powerful forces. In Sri Lanka for example, the less altered and more vegetated areas of the seashore withstood the tsunami to a much greater extent than other areas with no vegetation. United Nations official reported that the damage from the Indian Ocean tsunami could have been reduced if more coastal areas had maintained their protective shields of mangrove swamps and coral reefs. Mangroves grow in thickets along tropical coastlines and their root systems help binding the shore together, naturally acting as a shock absorbent against destructive waves, and a buffer against erosion.

It is one of Wealth Aspiration, Inc’s values that when we invest, we must do responsible investing. In spite of our encouragement to investors to aspire wealth, we must not forget to preserve the earth. It is our responsibility to the nature and to our many generations to come.

Respect the nature and the nature will respect you.

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Great Financing News for Investors

Investors, great news! Last month, Fannie Mae made announcement to allow investors to own up to ten financed properties. This is one change to their policy, which earlier, investors were only limited to finance up to four properties only. Fannie Mae finally realized, experienced and bona fide investors should be allowed to conduct their business without interruption.

The new policy comes with set of requirements:

• No bankruptcy or foreclosure in the past 7 years
• No delinquencies in the past 12 months
• Full documentation of rental income on the subject property and 2 years of federal income tax returns on rental income from other properties
• Two to six months of liquid financial reserves, depends on whether it is a second home or investment property

Despite this change, I also hear many lenders take underwriting to the other extreme. Some borrowers with perfect credit score have been scrutinized and have a hard time getting a loan. Financing is definitely scarce at this point.

Cash buyers usually have the advantage of negotiating with sellers, especially for REO properties. Banks are furious to unload properties from their balance sheet and they are more willing to settle for less in exchange for cash and faster closing.

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Thursday, March 12, 2009

Surprise Voice Mail from Property Manager

Last week, I received a voice mail from my property manager. I dreaded to listen to the message. I thought, “They must be asking me to replenish the reserve account for repairs”. Eventually I listened to the voice mail, and to my surprise, it said, “The tenant paid the rent all the way to June. Please let us know how you want to get the money. Do you prefer to receive it all at once or to receive it every month?” I told them that I would like to receive the rent every month as usual instead of all at once, so the accounting would look neat, clean and consistent. Well, blame on my perfectionism. Besides, I haven't earned those future rents.

Outsourcing the management duties to property manager really saves me time. Time is money. Plus, I have to confess, home maintenance and repairs are not my strength. Property management companies definitely do better job than me, and they do it full time and professionally. As a result, I am able to focus on what I do best, which is providing consultation, research and comprehensive due diligence report for my clients.

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved

Wednesday, March 11, 2009

Crisis or Opportunities?

CRISIS or OPPORTUNITIES? There are always two sides to a coin. One side is credit crunch, soaring foreclosure rate and 25-year high unemployment rate (8.1% as of 3/6/2009). The other side is OUTRAGEOUS OPPORTUNITIES to find bargain houses anywhere in the US. All of sudden, tremendous potential buying opportunities are screaming for your attention:

• Residential rental with cash-on-cash return better than ever
• Houses that cost less than the construction cost
• 70% off from the peak

However, given the likelihood of continued market volatility and uncertainty regarding the depth of the recession, you should move forward with caution and selectivity in assessing every investment opportunities. Consider as well longer term time horizon and sufficient capital resources.

Many people have asked me, is it a good time to invest in real estate yet? Are we reaching the bottom already? Nobody knows the future and neither do I. Even Warren Buffett has been criticized of buying too early and that he needs a new crystal ball. But here is my personal opinion, if you can find residential rental with annual cash-on-cash return of 6%-9%, and you plan to hold it for five to ten years, it will not hurt you even if the house values dip a bit further. You still receive 6%-9% of your investment every year. Am I right?

I know exactly what you are thinking. You argue with me, “but if I wait a little more, and I buy at the bottom, my cash-on-cash return will be even better”. My friend, think about this, if you know where the bottom is, that means the bottom is over and we are in the recovery mode. When the sellers are aware that house prices are recovering, do you think they will give you bargain? NO! Time is in their favor. They would prefer to hold and wait because they know they will get higher sales price the more they wait. And when do you think that buyers have more negotiation power (please look at the graph below): when the price is going down (point A), or, when the price is going up (point B)? You definitely have greater negotiation power at point A. It is possibly you even pay close enough to the bottom.

I have to admit, this investment is not for everyone, especially if you can’t afford to wait. Financing is scarce now even for somebody with perfect credit. If you have extra cash, you can purchase residential rental below $200K in good neighborhood, and expect to get 6%-9% cash-on-cash return. We also learn from history that recession may take a long time to recover. In Southern California for example, the house value started to go down around 1990, dropped up to 26% of value, and it took nine years to go back to 1990 value.

The other side of the coin, people are seeing outrageous opportunities. According to National Association of Realtors, buyers stepped in to snap up properties at steep discounts in December. San Francisco Chronicle reported ultra-rich Chinese from China are going to seize the opportunity to take advantage of some great deals in New York, California, Boston and Las Vegas.

So, crisis or opportunities? The ball is in your court.

Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved