Securities-based loan has gained popularity in today’s economy. It is using the securities as collateral to a loan. If you are one of the investors with solid stock investments such as Apple, Google or Citibank, it makes more sense to borrow against your securities than selling them today. This way, you have access to liquidity without immediately liquidating your securities and still maintain exposure to the market.
Lending against securities is not a new concept. It is also an option to traditional mortgage, in which Fannie Mae limits investors to finance up to ten properties. Securities-based loan is underwritten based not on the property you want to buy but on the stocks you own. This type of loan is also an ideal source of funds for foreign nationals and borrowers with undocumented income.
The loan is non recourse and is setup like a credit line with an attractive interest rate as low as 2.75% fixed interest only. However, if the stock value declines to less than the loan amount, the lender may require you to add additional collateral or repay part or the entire loan. Lender may also liquidate all or part of the securities, which may interrupt your long-term investment strategy. Since stocks are the collateral, the interest paid is investment interest expense, not a qualified home-mortgage interest. Read IRS Publication 550 for more detail on investment interest expense.
A Securities Based Loan is not a margin loan, and has significant advantages over a conventional margin loan. Regulated under Federal Reserve Board Regulation U, margin loan or purpose loan, is a loan backed by securities and used for purchasing other securities, subject to margin requirements. On the other side, non-purpose loan is a loan that can be used for any investment other than purchasing additional securities. Non purpose loan is not subject to margin requirements and typically carry lower interest rate.
If you are interested in this type of alternative loan, consult tax attorney.
Copyright © 2011 wealthaspiration.com - All Rights Reserved
Monday, January 17, 2011
Monday, January 25, 2010
The Most Over-Hyped Housing ETFs
While everyone is debating when home prices will bottom, June last year, MacroMarkets LLC (co-founded by Robert Shiller) launched MacroShares which allowed investors to make a direct bet on housing. MacroShares Major Metro Housing Up (UMM), and MacroShares Major Metro Housing Down (DMM) were possibly the most over-hyped housing ETFs ever introduced. In fact, they aren't even ETFs, because it doesn’t hold an underlying basket of houses. Instead, it holds Treasury securities and cash, and shift assets according to the movement of the underlying indexes.
The benchmark index is the S&P Case Shiller Composite-10, an index comprised of real estate sales from San Diego, Los Angeles, San Francisco, Las Vegas, Denver, Chicago, Boston, New York, Washington DC, and Miami. Those 10 cities comprise about 30% of all the real estate transactions in the US. UMM and DMM were designed to deliver 300% of upward and downward movements of the S&P/Case Shiller Home Price Composite-10 Index, and was supposed to expire by November 25, 2014. Unfortunately, the MacroShares UMM and DMM did not track the Case-Shiller index they were supposed to follow, never attracted significant assets, and were liquidated in December 28th, 2009. Robert Shiller admitted it was a mistake and intends to try again.
Copyright © 2009 wealthaspiration.com - All Rights Reserved
The benchmark index is the S&P Case Shiller Composite-10, an index comprised of real estate sales from San Diego, Los Angeles, San Francisco, Las Vegas, Denver, Chicago, Boston, New York, Washington DC, and Miami. Those 10 cities comprise about 30% of all the real estate transactions in the US. UMM and DMM were designed to deliver 300% of upward and downward movements of the S&P/Case Shiller Home Price Composite-10 Index, and was supposed to expire by November 25, 2014. Unfortunately, the MacroShares UMM and DMM did not track the Case-Shiller index they were supposed to follow, never attracted significant assets, and were liquidated in December 28th, 2009. Robert Shiller admitted it was a mistake and intends to try again.
Copyright © 2009 wealthaspiration.com - All Rights Reserved
Wednesday, January 20, 2010
Worldwide House Price Indicator
The Economist compiles House Price Indicator for 19 countries around the world in addition to US Home Price Indices by Case-Shiller and FHFA.
Tuesday, January 12, 2010
Burj Dubai is Officially Open
Amid Dubai debt meltdown, Burj Dubai is officially open and was renamed after the UAE President, Burj Khalifa, last week on Monday January 4th, 2010.
For an earlier post on Burj Dubai, click here: http://wealthaspiration.blogspot.com/2009/03/worlds-tallest-building.html
During construction boom, Dubai borrowed $80 billion debt hoping to transform the economy into a regional tourism and financial hub. According to Deutsche Bank, UAE suffered the world’s steepest property slump in the global recession, with home prices dropping 50% from their 2008 peak.
Talking about Dubai brought back personal memory a little more than a decade ago. Beside a job offer I received from US based consulting company, I also had few other interviews with Singaporean, UK and UAE companies. The recruiter from UAE based company told me I could have the same salary as the US based company, except it was tax free. Finally after careful consideration, money though important, but was not the only thing in life, I pursued the offer from US based consulting company. The rest is a history.
Copyright © 2009 wealthaspiration.com - All Rights Reserved
For an earlier post on Burj Dubai, click here: http://wealthaspiration.blogspot.com/2009/03/worlds-tallest-building.html
During construction boom, Dubai borrowed $80 billion debt hoping to transform the economy into a regional tourism and financial hub. According to Deutsche Bank, UAE suffered the world’s steepest property slump in the global recession, with home prices dropping 50% from their 2008 peak.
Talking about Dubai brought back personal memory a little more than a decade ago. Beside a job offer I received from US based consulting company, I also had few other interviews with Singaporean, UK and UAE companies. The recruiter from UAE based company told me I could have the same salary as the US based company, except it was tax free. Finally after careful consideration, money though important, but was not the only thing in life, I pursued the offer from US based consulting company. The rest is a history.
Copyright © 2009 wealthaspiration.com - All Rights Reserved
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 wealthaspiration.com - All Rights Reserved
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 wealthaspiration.com - 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 wealthaspiration.com - All Rights Reserved
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 wealthaspiration.com - 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.
Copyright © 2009 wealthaspiration.com - All Rights Reserved
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.
Copyright © 2009 wealthaspiration.com - All Rights Reserved
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).
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!
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)?
Copyright © 2009 wealthaspiration.com - All Rights Reserved
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!
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)?
Copyright © 2009 wealthaspiration.com - All Rights Reserved
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.
Copyright © 2009 wealthaspiration.com - All Rights Reserved
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.
Copyright © 2009 wealthaspiration.com - All Rights Reserved
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 wealthaspiration.com - All Rights Reserved
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 wealthaspiration.com - 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.
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:
Source: Center on Budget and Policy Priorities
Copyright © 2009 wealthaspiration.com - All Rights Reserved
| Rank | State | Gross State Product (US$ billions) |
| 1 | California | 1,813.0 |
| 2 | Texas | 1,142.0 |
| 3 | New York | 1,103.0 |
| 4 | Florida | 734.5 |
| 5 | Illinois | 609.6 |
| 6 | Pennsylvania | 531.1 |
| 7 | Ohio | 466.3 |
| 8 | New Jersey | 465.5 |
| 9 | North Carolina | 399.4 |
| 10 | Georgia | 396.5 |
| Rank | Country | Gross Domestic Product (US$ billions) |
| 1 | United States | 13,841.4 |
| 2 | Japan | 4,375.4 |
| 3 | Germany | 3,325.8 |
| 4 | China | 3,280.6 |
| 5 | United Kingdom | 2,770.2 |
| 6 | France | 2,558.7 |
| 7 | Italy | 2,103.2 |
| 8 | Spain | 1,438.0 |
| 9 | Canada | 1,425.9 |
| 10 | Brazil | 1,313.3 |
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:
| State | FY2010 before budget adoption (US$ billions) | FY2010 mid year gap (US$ billions) | FY2010 Total (US$ billions) | FY2010 Total – % of Budget |
| California | $26.00 | $19.5 | $45.50 | 49.30% |
| New York | $17.90 | $2.1 | $20.00 | 36.10% |
| Illinois | $13.20 | 0 | $13.20 | 37.70% |
| New Jersey | $8.80 | 0 | $8.80 | 29.90% |
| Florida | $5.90 | 0 | $5.90 | 22.80% |
| Massachusetts | $5.00 | 0 | $5.00 | 17.90% |
| Pennsylvania | $4.80 | N/A | $4.80 | 18.00% |
| North Carolina | $4.60 | 0 | $4.60 | 21.90% |
| Connecticut | $4.20 | N/A | $4.20 | 23.90% |
| Georgia | $3.10 | $1.0 | $4.10 | 23.80% |
| US | $139.4 | $25.7 | $165.00 | 24.00% |
Source: Center on Budget and Policy Priorities
Copyright © 2009 wealthaspiration.com - All Rights Reserved
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.
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 wealthaspiration.com - All Rights Reserved
| CALIFORNIA | 0-BR | 1-BR | 2-BR | 3-BR | 4-BR | Median Price |
| 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 |
| Sacramento-Arden-Arcade-Roseville | $737 | $838 | $1,022 | $1,475 | $1,690 | $169.3K |
| TEXAS | 0-BR | 1-BR | 2-BR | 3-BR | 4-BR | Median 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 |
| FLORIDA | 0-BR | 1-BR | 2-BR | 3-BR | 4-BR | Median Price |
| Miami-Fort Lauderdale-Pompano Beach | $842 | $953 | $1,156 | $1,479 | $1,728 | $206.0K |
| Orlando-Kissimmee | $793 | $862 | $985 | $1,233 | $1,452 | $154.8K |
| Tampa-St. Petersburg-Clearwater | $705 | $782 | $946 | $1,199 | $1,447 | $135.3K |
| Jacksonville | $685 | $779 | $907 | $1,138 | $1,304 | $154.1K |
| ARIZONA | 0-BR | 1-BR | 2-BR | 3-BR | 4-BR | Median Price |
| Phoenix-Mesa-Scottsdale | $624 | $727 | $877 | $1,277 | $1,495 | $129.2K |
| NEVADA | 0-BR | 1-BR | 2-BR | 3-BR | 4-BR | Median Price |
| Las Vegas-Paradise | $731 | $861 | $1,013 | $1,408 | $1,695 | $155.3K |
| GEORGIA | 0-BR | 1-BR | 2-BR | 3-BR | 4-BR | Median 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 wealthaspiration.com - 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.
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.
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.
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 wealthaspiration.com - All Rights Reserved
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.
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.
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 wealthaspiration.com - 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.
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.
Source: California Department of Housing and Community Development
Copyright © 2009 Wealth Aspiration, Inc. - All Rights Reserved
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.
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).
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).
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%).
Looking back as far as 1930, the graphics below will show you the population history for 11 different states in the US.
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.
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
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).
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).
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%).
Looking back as far as 1930, the graphics below will show you the population history for 11 different states in the US.
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.
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
• 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
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 wealthaspiration.com - All Rights Reserved
Remember, there are always two sides to a coin. One side is crisis, the other side is opportunity.
Copyright © 2009 wealthaspiration.com - 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 wealthaspiration.com - All Rights Reserved
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 wealthaspiration.com - 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
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
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