“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
Showing posts with label California. Show all posts
Showing posts with label California. Show all posts
Sunday, August 23, 2009
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
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
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