A month or so ago I attended the monthly Silicon Valley broker’s meeting of my company. They always have a speaker every month, and last month it was a gentleman from First American Exchange Company. He gave an interesting (if you can believe it!) presentation on Avoiding Capital Gains Tax upon Sale of your Home. Now that home prices have … Read More
As all of the housing forces come together, rather strange results surface from time to time. The newest is relatively unprecedented, with Americans of retirement-age taking out long-term mortgages. To read an interesting article about never being too old for a mortgage, CLICK HERE. It wasn’t so long ago that Americans would work to pay off their homes, sell them, … Read More
This came up because the “switch” I had found for her had higher HOA dues than the property she was originally calling on, but I explained that the “switch” would rent for considerably more than the property which originally interested her, and would in fact provide much better cash flow. These days, though, the people who are investing for cash flow are not buying in the mid-county area ( Capitola , Aptos , Soquel , etc.) – because the properties there do not cash flow without a huge down payment- and even then, if you were to put a huge cash down payment, you would have a poor cash-on-cash return of your investment. … I don’t see the sense in buying something in, say, Santa Cruz that requires a large down payment, which does not provide much in the way of cash flow (and probably has a negative real cash flow, considering vacancy factor, maintenance, etc.), and will be heading steadily down in resale value for some months (or years?) … On the other hand, it is patently sensible to me to buy a $250,000 3-bedroom house in Watsonville, put down 20% ($50,000), rent it out for $2000 a month , make $500/month after principal, interest, tax, and insurance – and assuming a 10% vacancy factor, you’re making a 10.8% return on your money every month. … There are very few investment-grade properties in Santa Cruz county outside of Watsonville where you can buy, hold at a profit, and sell down the road for a net profit – without speculating on an eventual price increase to make it all worth the considerable risk.
A few days ago, after about a month’s silence, I wrote something of a “doom and gloom” blog entry about Santa Cruz real estate – in fact, I’m proud to say, the entry was even picked up on the HousingDoom.com blog, which I read now and again to stay in touch with my darker side. You see, I felt the … Read More
Still, though – if you have a house in Santa Cruz, you’re looking at it being worth about $58,725 less than it was this time last year, if your house is something like the median house. … I looked at Sold Single Family Residences: Median Price of Sold Houses in June & July of 1999 Watsonville: $247,000 (1.0) East side Santa Cruz: $390,500 (1.58097) West side Cruz: $395,000 3/2 1486 (1.59919) Capitola: $360,000 (1.457489) Soquel: $379,000 (1.5344) Felton: $310,000 (1.2551) What this says is that back in the summer of ’99, the median-priced house in Capitola cost about 1.457 more than the median-priced home in Watsonville. Now, let’s look at sales data from September 2008: Watsonville: $352,000 (1) East Side Santa Cruz: 615,500 (1.74857) West side Santa Cruz: 702,500 (2.0468) Capitola: $711,000 (2.01988) Soquel: $610,000 (1.73295) Felton: $486,500 (1.3821) (* August 2008) You’ll notice that compared to the 1999 ratio, the sampled areas in the county appear considerably higher relative to Watsonville than they have been historically. If we use the same ratio from the summer of ’99, here’s what prices in the rest of the county should look like today: Watsonville: $352,000 East Side Santa Cruz: $556,501 West side Santa Cruz: $562,914 Capitola: $513,004 Soquel: $540,108 Felton: $441,795 What does all this mean?
On the eve of our tour down to Watsonville to look at some REO foreclosure opportunities, I got a call from one of the staff writers for the Register Pajaronian.
…I don’t know that you’d need to write up 20 offers to get a decent price on a place in Watsonville, but It’s true that the asking prices are not quite to the point where they are obviously a screaming deal for a true, pure investor. But they are very close, and in many cases, it’s possible to negotiate a price down to the point where it does make sense.
There were recently a couple of listings in Watsonville where the asking price did make sense to investors – and those properties sold in under a week.
I just spent the last hour or so going through every house and condo listing from Larkin Valley down through Watsonville, and I found that there are seventy listed REOs in that area.
…Investors need to pay less than retail consumers, because a true investor is looking for cash flow with a relatively small down payment – that is, he’s looking to actually get a return on his investment month to month, just as if he had it invested in an IRA or something.
But there are a few investor grade listings out there, and that’s what we’re going to be seeing this coming Saturday, March 1. … We’ll probably want to carpool, but if you want to follow along, that’s fine – we will make copies of the properties we are going to see, if you have a GPS unit in your car or know Watsonville well, feel free to drive by yourself and just meet us at each property in turn.
I’d turned my brother on to the foreclosure auction some weeks ago, and he’d actually taken the time to drive around to quite a few of the properties on offer, to verify their condition, at least visually.
…There may have been a few flippers out there, but most of the excitement seemed to come from nicer homes in the nicer Bay Area neighborhoods, and people were looking to get into the market for a bit less than full retail value.
…Maybe a lot of other people ended up losing patience and wouldn’t have been around towards the end of the auction, and could have picked up some of these Santa Cruz properties for a song. I’m going to make a note on my calendar to check the sale price of these properties in six weeks or so, to see what they actually ended up selling for.
I cobbled together a PowerPoint presentation, about 20 slides or so, about some market statistics and the opportunities that are there for investors in Watsonville who want to buy short sale or REO real estate. I had 30 minutes to talk, it actually ended up being closer to an hour because there were a lot of questions from the people who were there.
It’s kind of amazing how much opportunity there is for investors down in Watsonville, but there’s so few people right here in Santa Cruz who know what’s going on down there.
… Anyway, I had fun doing the presentation, and I’m going to try to do some more such presentations at other investment clubs in the area.
After perusing Craigslist.com and the Santa Cruz Sentinel On-Line classifieds (as I talked about in a previous blog entry ), I figured it would rent for $1,250 or so per month.
…That’s pretty suspicious, given that it’s a much nicer property than Sunnyhills – it’s got a 1-car attached garage, an extra bathroom, and about 20% more square footage, but according to Zilpy, it would rent for about 17% less money than the superior townhome.
…Well, part of the problem may be that Zilpy is apparently using some kind of proximity factor in its algorithm, as well it should – but in the case of Weeks Drive, it comparing it to a couple of rentals in Adult Village, an “adult community” where at least one occupant must be 55 years old to live there, and the other occupant (if any) must be at least 45. That keeps a damper on home values in that area (which is kind of the idea), and it likewise has a depressive effect on rental prices, thus throwing off Zilpy’s estimate for home values.