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

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

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