Financing Buys Better Deals… NOT!

by Tim Krulia – Private Money Blueprint CFO

As part of our quest here at PMBP to give you the single best resource on the financial aspects of growing your real estate investing business (aka, we help people find private money quickly, easily, and abundantly)… here’s an article I found that reinforces the concept that cash is king, even in a buyer’s market.

Hey there my friends, this week’s spotlighted article is titled, “Homebuyers Finding that Cash Really is King; Even in Buyers’ Market, Many Can’t Close Deals as Investors Snap Up Homes.”  The later half of this week’s article is a tangent of comments made by the author in the article. If you’re into studying unemployment, you may dig this hard core.

If this article doesn’t edify the fact that private money is a smarter route to take for an investor to acquire real estate than traditional methods, than I don’t know what does. Check this stat out from the article!

“Across the country, some 22 percent of all previously owned homes sold in December were purchased entirely with cash, up from 16 percent a year earlier.”

I guess this is no real news to the Private Money Blueprint family because we know that cash is absolutely king in the real estate world. I guess there’s just more people that are getting wise to the facts and using cash instead of banks. The author of the article hits the nail on the head mentioning that buying with cash gets investors better deals vs. financing because it doesn’t require a bank’s approval & its way faster and easier!

Here’s where I’m going to run off on a tangent and jump on my soap box a bit. There was mention in the article of an underlying issue brewing from the contents of this article. The author notes in the article that as inventory of homes for sale drops, it’s harder to get good deals unless you are a cash buyer.

What About The Drop In Inventory?

Duh, cash is king, we know, but what about the drop in inventory?

I think we’re going to start seeing inventory decrease more and more in 2010, but not as much for the author’s reasons (holding up foreclosures for hopeful mortgage modifications). Instead, I think we’ll have the job market to blame as it rebounds (finally).

Keith Hall, Commissioner of the Bureau of Labor Statistics on Friday, February 5, 2010 announced before the Joint Economic Committee (US Congress) that, “The unemployment rate declined from 10.0 to 9.7 percent in January“.

I think that if our government plays it right, we may have just come off our unemployment peak for this recession! What do you think?

Unemployment Stats…

Check out this Unemployment Rate chart from the Bureau of Labor Statistics.

I know it’s too early to tell and all, but I like what I’m seeing. The government is starting to really get it right in my perspective!

Did you listen to the emphasis on job creation in the State of the Union speech the other day? How about the possible $5,000 tax credit given to employers for each new employee they higher up to $1/2 Million per company that’s on the table in Washington?

It goes without saying that if you’ve been reading my columns I am a staunch believer that job creation and lowering the unemployment rate is the #1 driver that’s going to get our economy back to solid ground.

Finally, we’re looking to set aside something like $33 billion for job creation as a stimulus instead of giving $800+ billion to the banks last year (who aren’t as important to us private money guys anyway). If the government can get this stimulus passed and others follow, I’m excited for my optimistic educated guess of unemployment recovery in our midst to turn into reality.

Where this all looks like it’s leading is a potential uplift in the real estate markets… a slow one… but potential uplift.  However, a huge factor in moving properties on the market is the availability of financing for the end buyer (which banks are still very tight with their money)… but when you have the cash (not necessarily your own… but funds from private lenders) available to buy properties today you’re ahead of the game and can capitolize on the best deals, the quickest, with the most profit spreads.

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5 Best Real Estate Markets for 2010

by Tim Krulia – Private Money Blueprint CFO

As part of our quest here at PMBP to give you the single best resource on the financial aspects of growing your real estate investing business (aka, we help people find private money quickly, easily, and abundantly)… here’s an article I found that will show you 5 markets you may want to look at in 2010.

Okay, with 2009 behind us… it’s time to start looking at 2010 and how we can all kick some more butt in the real estate market. With our forecasts… getting private money for real estate in 2010 should be about as plentiful as it was in 2009, so don’t hesitate to shoot us a message if you have any questions on that front anytime.

Okay, according to a recent article at the MSN Real Estate site… most of the major real estate markets in the U.S. will still be down in 2010… but, they’ve forecasted these 5 markets below to be the top 5 real estate markets in 2010 as determined by forecasted appreciation rates:

The top 5 cities for home prices

1. Tacoma, Wash. (+2.44%)
2. Memphis, Tenn. (+0.99%)
3. Pittsburgh (+0.89%)
4. Charleston, S.C. (+0.18%)
5. Seattle (-0.50%)

These five markets are culled from data on Moody’s Economy.com and based on the largest 100 metro areas.  There are a few other really great points in the article in addition to the “top 5 markets” that you’ll want to take 2 minutes to check out.

I’m a fan of this article because it raises a few great points of interest and is in line with my personal philosophy of how 2010 should play out.

Scherzer writes (and I feel strongly that this is also the case), that “even though there are government stimuli in place (tax credit) and low interest rates (which help stabilize the market’s values) the leading factor that’s going to lead to increasing home values is a turn around in the labor markets first and foremost. “

The article lists their potential top 5 cities for the housing market in 2010.  A leading factor used to determine the values includes looking at the labor market & the economies of the listed cities.

She includes some great statistical content about 2008, 2009 and probable 2010 foreclosures and also how they may relate to ARM mortgages making their first adjustments.  Don’t miss the link for RealtyTrac and all the foreclosure listings (http://www.foreclosurelistings.com/).  If you don’t know about this website, you should check it out ASAP!

Note that if you are in the business of buying foreclosures, this article notes an expected increase from 3.2 million foreclosures in 2009 to 4 million in 2010! As we know, one of the smartest ways to buy real estate is by using private money.

If this is your business, I think it would be smart to be aggressive recruiting funds now to take advantage of this next huge round of “low hanging fruit” to buy this year.  There’s some great free articles and resources here on this blog under the “Private Money Articles” section that you can refer too.

So, whether you’re investing in one of those 5 markets or not… it doesn’t really matter.  There’s deals everywhere and there’s buyers everywhere… just clarify your strategy in whatever real estate market you’re in and get ready for 2010 and the continued wave of sub prime and Alt A foreclosures (and the wave of commercial foreclosures starting to pile up too).

– Tim

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The Most (and Least) Affordable Cities In The U.S.

by Tim Krulia – Private Money Blueprint CFO

As part of our quest here at PMBP to give you the single best resource on the financial aspects of growing your real estate investing business (aka, we help people find private money quickly, easily, and abundantly)… here’s an article I found that will help you target some great cities to look at investing in right now.

But, I’ll summarize it here for ya to save you some time 🙂

The Most Affordable Real Estate Markets To Buy a House

According to CNN Money… they did a vast survey and came up w/ the most affordable (defined by the median income versus the media house purchase price) in America… enjoy 🙂

Most Affordable

1. Indianapolis –
   Median home price: $105,000
   Median income: $68,100
   Affordability score: 94.5%
2. Youngstown, OH
   Median home price: $72,000
   Median income: $54,300
   Affordability score: 93.9%
3. Detroit, MI
   Median home price: $84,000
   Median income: $57,100
   Affordability score: 92.2%
4. Warren, MI
   Median home price: $140,000
   Median income: $79,000
   Affordability score: 91.8%
5. Grand Rapids, MI
   Median home price: $103,000
   Median income: $63,100
   Affordability score: 91.4% — 5th best

That does it for the top 5 MOST affordable places to buy a home. What this shows you is where the home prices are depressed… a lot of these markets are being hurt big time by foreclosures… which is a good thing right now (for buyers).

Notice 3 of the top 5 are in Michigan…

Now, for the LEAST affordable.

The Least Affordable Real Estate Markets To Buy a House

1. New York City, NY
   Median home price: $425,000
   Median income: $64,800
   Affordability score: 19.2%
2. San Francisco, CA
   Median home price: $598,000
   Median income: $96,800
   Affordability score: 23.6%
3. Honolulu, HI
   Median home price: $598,000
   Median income: $96,800
   Affordability score: 23.6%
4. Santa Ana, CA
   Median home price: $598,000
   Median income: $96,800
   Affordability score: 23.6%
5. Nassau/Suffolk, NY
   Median home price: $380,000
   Median income: $101,800
   Affordability score: 39.6% — 5th worst

If you look at these markets, you can see that their pricing is still high compared to median incomes in those areas… and when you look a bit more deeply at why… most of these areas are places that a lot of companies are either already located or are locating too… and they are in typical areas that tend to be at the top end of the pricing scale anyway and have not been affected as much by foreclosures (at least… yet).

Tell me about the Benjaminz, Timmy!

This article hits home for me, literally.

Sure, I’m an Atlanta, GA resident now, but I was born and raised in the mid-west and these cities are still the homes of most of my friends and family.  When I was a mortgage broker in Columbus, Ohio we would write mortgages for properties in some of these cities and typical a water cooler convo would be about how ridiculously cheap you could purchase one.

A friend of mine bought a house in Youngstown, OH for something like $7K cash about 15 years ago and sold it for a whopping $24K about ten years later (ok, nothing exciting there but the sales price was about 3X the purchase price).  I was the loan officer on the sale and the seller was really happy about it (he sold it back in 2005 before the markets got rough too).

He charged about $600 a month for rent and sold it to his long time renter who did a good job keeping the house up while living there.  That’s really awesome cash flow for a $7K investment!!!  I guess the point is that even though these cities sound gloomy in this article, there’s tons of positive cash flow to collect with tiny capital risks.  Just think about how far $50K of private money could take a smart investor in one of these cities!

So, as a take away for you from this article… is to look at areas where the affordability index are still high (aka, where the median income is close to the median house purchase price) to buy rentals… and to find markets where you’ll find great buys.   Of course, do your due diligence on the areas you’re buying for rentals… but now is the time to once again get cashflowing properties… and PRIVATE MONEY is of course the easiest solution to get the funding to buy those properties.

Good luck!

– Tim

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