[VanMorrisonFan]

Hello, newbiz…

I am not sure exactly what you mean by a “foreclosure business.” During the last downturn there were a few hearty souls who made a living buying foreclosed properties, fixing them up, and either renting them out or selling them.

In order to get started in THAT business you don’t need to buy a “foreclosure business,” but you do need to have a VERY GOOD understanding of the judicial foreclosure process. Having a handle on real estate values (where the market REALLY is) is important. You’ll need some knowledge of construction and repair costs. Finally, you’ll need some capital. Oh…some luck would also help.

I spent an afternoon with a friend several years ago (during the last down cycle) driving around Pasadena looking at homes that were about to be foreclosed upon. Much of what we saw looked awful from the outside, but I am sure there were some “diamonds in the rough.”

I think the best thing to do would be to specialize in an area where you think there will be a good number of foreclosures. (Say Downtown Condos!) Know the buildings, floorplans, rental prices, and realistic sales prices for properties in that area. I am sure there are books you can get on the subject. Go to a few foreclosure sales but DON’T bid on ANYTHING until you know what you are doing.

Good Luck!

[VanMorrisonFan]

Great chart, Robby! What I find interesting is that there will also be a lot of re-sets between 2008-2010, when some are forecasting that this current little hick-up will be over.

Ha!

[VanMorrisonFan]

How I wish that media spin-meisters (especially those who are bullish on housing in this market) would take a basic class in economics.

Demand and supply are always related to price. Yes, there is a shortage of housing. No, there is no shortage of two bedroom condos in the $400K – $500K range, especially in Orange County.

If anything, the demand for low-cost housing will create downward pressure on homes, at least those that are unaffordable (by definition, most homes on the market).

[VanMorrisonFan]

Powayseller…

Can you see if there have been any recent sales on your street?

I’m wondering when and for how much the last actual sale took place. I’ll bet the last sale was in the mid-500K range, right?

[VanMorrisonFan]

I have a background as an appraiser (though I am not doing it now), so maybe I can help with the difference between Zillow and listing prices.

In “down” markets, sale prices will always lag listings, especially when sales are slow. I don’t envy appraisers in this market. What do you do in a neighborhood where you have three sales that may be four months old and three listings at prices lower than the sales would indicate? You know the sales are not an accurate reflection of current value…but what is?

Conventional wisdom is that listings determine the bottom end of the value range – i.e., the value of a home cannot be less than the asking price of similar homes in the area. However, in a very slow market, listings aren’t an accurate indicator of value, especially if people listing homes have not “faced the music” and recognized where the market REALLY is. That’s my hunch of where the market is right now – massive mismatch between where the sellers want to sell and where the buyers want to buy.

This mismatch will probably last until foreclosures start. Lenders hate holding properties – they aren’t set up to be landlords, they have to add staff to do it, etc. etc., so they will dump properties for what they can get for them. I appraised commercial real estate in the last huge So Cal downturn and I was shocked at how banks dumped properties.

[VanMorrisonFan]

REIT’s have had an amazing few years. I have some money in Cohen and Steers REIT fund, which has also done well. Vanguard has a REIT fund which has done even better.

The outlook for REIT’s is reasonably good, but I would not have all of my eggs in one basket. How diversified is this family member? If she has 100% of her money in the TIA-CREF REIT fund that is not a good thing. REIT’s are good as part of a diversified portfolio. I wouldn’t have more than, say, 15-20% of my money in REIT’s.

[VanMorrisonFan]

The collapse of the tech stocks fueled the way for the real estate boom, in more ways than one. Others have written on the way the Fed reduced interest rates to stimulate the economy, which made it possible for people to afford more home.

Psychologically, though, homes were an easy sell. No one really understood what the tech stock companies were doing. They had some process or software or gizmo they were working on, but there was a lot of smoke and mirrors at work. Four walls and a roof are easy to understand, and tangible as well. You can touch them. You can sit in your real living room (nothing virtual about that) and watch your real television from the comfort of your real easy chair.

As with the tech stocks (remember all the talk of the “new paradigm” where “earnings don’t matter?”) the realtors had their own buzz words to encourage buying. “Everyone will always need a place to live” presumably meant that price was unimportant in buying a place to live. “They aren’t making any more land” meant that you were lucky to buy the lousiest house in the lousiest neighborhood.

Alexis de Tocqueville wrote that in a democracy people are never sure of where they “fit in” to the social ladder, so they are always competing for one upmanship. In an aristocracy, of course, people know EXACTLY where they fit in, so no matter what they do they can never change it. In a democracy people are constantly seeking to show that they are as good as, if not better than, their friends and neighbors, so if everyone is buying a new home, or fixing up their home, then you must do so as well.

The logic of “panic buying” applies to things as varied as tulips in Holland, tech stocks, homes, and just about anything you can imagine.

Remember the Dr. Pepper commercial? I’m thinking of the one that said, “I drink Dr. Pepper and I’m proud/I’m part of an original crowd?” If you’re part of a crowd, how can you be original?

[VanMorrisonFan]

Part of the problem is cultural. In goal-oriented, forward-looking cultures (like America) people assume that close friendships and even marriage will “fit into” the empty spaces after education, work, and other responsibilities have met. In more relational, process-oriented cultures people assume the opposite – work, education, etc., take second place.

There are pros and cons of each type of culture. Try and get your phone or car fixed in a place where relationship is more valued than completing a particular task! Oh boy…that mentality can really be a problem. On the other hand, more and more Americans report that they are lonely and disconnected…that they spend day after day paying bills and feel strangely unconnected from other people – even family members at times.

What’s the solution? I think it is to take some time to focus on close friendships/relationships. Make that one of your core goals. The time spent will at first seem wasted, but in time the harvest will be enormous.

[VanMorrisonFan]

I think anyone coming to the event should bring either

(1) Most outrageous real estate advertisement (outrageous claim, false promise, misleading financing claim, etc.), or

(2) The most rosy-eyed real estate article from the business section of a major newspaper.

Just for fun sake, dig up some old “sky is the limit” articles from a year back.

Not sure if I can make it, as I am in L.A., but I enjoy reading all of the posts and discussions.

[Author]

Posts