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.


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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