Colli Real Estate

The American Real Estate Quiz

What the media remind us almost daily, many sectors of the housing market are by one parameters of the most serious since the Great Depression. The proof is the latest California Association of Realtors (CAR) to publish Sales of existing homes, which have reported lower prices in the average selling price of 35.3% over the previous year. During the worst period of 12 months house prices in Great U.S. Depression has decreased by 10.5% less dramatic. For investors with a high tolerance for risk, may now be time to kiss the timeless adage "buy low – sell high" and begin to filter through the wreckage for bargains. And while there are good business they are not universally available in all locations or property types. Investors need to know where to look, have a good understanding and management methods appropriate for evaluation. Sectors with more opportunities are single-family residential properties (SFRS) in class B or B-minus suburbs outside metro areas. Homes in many metropolitan markets were little changed, while cities in metropolitan areas extension (MSA) have deteriorated sharply.

Using MSA San Francisco as an example, statistics published car June 2008 indicate another year of annual decline of 4.3% to San Francisco proper. Comparatively, the average selling price in Vallejo, Calif., a suburb about 30 miles outside San Francisco, declined much more dramatic 37.3 years% over the year. Vallejo is also access to San Francisco by public transport, including bus routes, retention, access to the ferry, casual car pool access and access BART station in Richmond, California. Besides the statistics do not fully reflect the willingness of banks in difficulty and sellers to negotiate case by case basis in these markets. For example, one of our investors are now buying a SFR in Vallejo for $ 104,500. In this case, property is acquired at a discount of 65% compared to the implicit valuation in June 2007 (based on comparable sales for First American Title Company). Although this discount 65% is attractive not be a decisive factor in the decision to buy the property.

Approach using a Discount to market value is an evaluation method so crazy in the current environment because it assumes that historical prices were rational. A discount to market value will not pay the mortgage and not ensuring that the house will be affordable for potential buyers when an investor is willing to sell. Investors, in turn, must use the income approach or an approach to assess affordability.

For example, Vallejo consider property discussed previously. From an income approach (assuming a 30% deposit), cash in the state treasury is about 11.6% per annum and the maximum rate of 9.54%. From a standpoint of revenue yield is a cash attractive. It is well above the national average of annual money market rate of 2.99% and 2.90% average dividend yield of the S & P 500 stocks non-zero dividend. This offers additional performance substantial compensation for risk and additional responsibilities of management necessary for this investment.

From a perspective of the affordability of revenue an average home in the zip code is $ 50,030 per year. Most underwriting guidelines Lenders consider that 28-33% of household income limit allowed for housing expenses (rent or mortgage, plus taxes and insurance). Use this guide as a reference, the average household in this zip code, you can pay $ 15,000 per year ($ 1,250 per month) cover costs associated with housing. The mortgage payment will be Vallejo property about $ 550 plus monthly fees of $ 200 (taxes, insurance and maintenance or repair), which is comfortably below the limit accessibility implies $ 1,250 per month. Assuming a loan of 90% of purchase price and 7.0% fixed rate mortgage, the property could be purchased by the household income up to $ 182,000. This represents a premium of 70% in price purchase of $ 104.500. In a cautionary note, the value on the basis of affordability is not guided market values to return of the mortgage market analysis of historical trends. More details of this operation are put in our www.unitedinvestors.com website>> Education Center>> properties of the sample.

About the Author

Brian Topley, CCIM is Chief Investment Officer of United Investors real estate investment advisors based in San Francisco, CA. United Investors advises individual and institutional investors in the purchase, leasing, management and disposition of bank owned/foreclosure properties. He may be reached at www.unitedinvestors.com or (415) 274-2521.

This information is intended merely to be a general discussion, not deemed to be investment or legal advice. Real estate investments are not suitable for all investors and involve significant risks. Individual investors should consult their tax advisor, CPA, and financial advisors prior to making any investment decisions.

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