Real Estate Investment | Bay Area Real Estate Finance

It’s Tebow Time for Real Estate

Before there was a real estate bubble, there was debate. 1,000 economists could look at the data on a given day and come up with 1,000 different projections for real estate. And they did. Still do.

There were a relatively few people audibly calling for a bubble to burst well before it happened, but they were out there. Like Tim Tebow on any given Sunday, they had faith, and stuck it out until they got their 15 minutes. And good for them. Everyone else was punch-drunk, and we’re still mopping up the aftermath of that mess like the it was the county fair after Davey Hogan was in a pie-eating contest.

Tebow is still riding his hot streak, but many of the people behind the early housing bubble voices also completely missed the ride up, or got out too early. Nobody nails the markets without a little luck. A broken clock is right two times a day, so it is said…

. . . chuck enough pigskins down the field, and some of them are gonna get caught . . . Lucky streak? Or the real deal? This debate is not over…

Now, don’t get me wrong. I am a Tebow fan. This is a guy who draws hate for all the wrong reasons. And as his bottom-line-game-winner-respect grows, more and more sports fans are finding themselves wondering about belief, faith, and self-fulfilling prophesy. Watch the video below and see how a newbie quarterback stares down adversity with unwavering faith. It is a remarkable portrayal. There’s a lesson in there…

When The Doubt Has Become Mindless, It Is Time To Believe

Housing: You are HERE — What mood is most representative of the real estate market today?

The bubble happened, and it scarred the homeowner psyche to a degree that is thus far unknown. It will undoubtedly take some time to heal, and in the meantime, a struggling housing market is just baked-in. It’s the accepted reality.

Maybe you can catch a deal while everyone else is snoozing.

This is a good time to remind ourselves about the Investor Emotion Cycle, shown at right. See if you can trace the line from left to right, and find the string of emotions that have characterized the real estate marketplace over the past 6 or 7 years. Where are we now?

Housing Bull Linkfest

There has been an increasing amount of chatter about 2012 being the year to buy real estate. Last week I said “This Is What The Housing Bottom Looks Like“.

I am not alone in this belief. Poke around some of the links below from recent articles citing the opportunity in real estate markets right now. I’ll be back in a minute to tie it all together.

Forbes: The Next Mortgage Crisis (aka, not having one)

Talbott (formerly of Goldman Sachs): Housing – Buy Now!

Wall Street Journal: It’s Time To Buy That House

Marketwatch: Now Might Be The Best Time Ever To Buy A House

JP Morgan: Housing- Time To Buy

Wall Street Journal: Big Money Builds Case For Housing

Yale’s Robert Shiller (tentatively) Suggests favorable long-term buying opportunity

HousingWire: Buying/Renting Costs Draw Closer

The Two Key Drivers Behind The Current Real Estate Buying Opportunity

The current swarm of real estate bulls are largely drawing from the “affordability index”, which combines the cost of real estate, the cost of real estate financing (mortgage rates), and income levels. Affordability is at the highest level it has seen since tracking began.

The other key detail driving this mood swing is the squeeze play happening with rents. Builders have slowed down considerably while banks have taken over vacant foreclosed properties, sucking inventory from the housing economy. A tidal wave of used-to-own renters have spiked rental demand at the same time.

Supply down + demand up = rising prices.

click here to get a free analysis of your rent vs own options

The Self-Fulfilling Prophecy In Real Estate

If enough people join the real estate faithful, the market will begin to reflect it. This is a self-fulfilling prophecy in the making; the same confluence of data causing a flurry of analysts to issue ‘buy real estate now’ articles will influence attitudes and behaviors. And behaviors will influence housing values.

Think for a moment about how markets ebb and flow. What causes them to reverse? At some point, they run out of gas. There is shift, and the attitude rolls over from ‘Despondency’ and ‘Depression’ just they do from ‘Thrill’ and ‘Euphoria’. Housing was a lofty market that fell. At some point, it just doesn’t look so bad to buy real estate anymore.

At some point, it looks downright attractive. Would you buy a house for $100? How much closer to free would it need to get before you were ready to dump your landlord? You have to explore the idea to it’s extreme to find a balanced answer.

At some point in the future, we will look back on this time and wish we bought real estate. Not just a home, but more home. A vacation home, an investment property. Multiple investments. It will happen again. Exactly when I am not sure. But real estate will find Tim Tebow’s faith again. And while the majority is still doubting it for all the wrong reasons, real estate will quietly become a winning bet before maybe drawing the eventual attention of the hysterical masses all over again.

It will happen when the Velocity of Money picks up, stimulus dollars of the past/present/future, bite down into the economy and get it humming again, and inflation comes flying around the corner harder than a Jon ‘Bones’ Jones spinning elbow strike.

The other side of this market is escalating rents or double-digit mortgage rates. Take your pick. Or lock it in right here at the historical bottom in rates, and the cyclical bottom in Real Estate. This is the sweet spot for buying real estate.

click here to get a free analysis of your rent vs own options

Money Hand Holding Bankroll Girls February 08, 20117 — 'Come on, come on. Listen to the money talk.'

This is particularly common at the lower end of the price spectrum, as seasoned real estate investors are active in the market for investment real estate. They have been since the crash, and with every notch lower in the housing value indexes, more buyers step in to the market.

Any seller in this market has to be careful about qualifying any offer, given the challenges associated with borrowing mortgage money in the current climate. If financing is involved, the odds of that offer following through are lower than if there is no financing from a bank. An all cash offer conveys capability, intent, and speed – all variables that the seller will value, sometimes more so than price.

Investors use this to their advantage by offering quick closing time frames and all-cash offers, and often get the property at a discount.

Compete with price. Period.

Everything has its price, they say. If you need financing, but want to buy real estate in a market sector that is swimming with cash-laden investors, you have one real variable you can manipulate: price. You can offer more money than the cash investors – enough to compensate for the risk you bring: risk of financing following through, risk of financing taking too long, risk associated with you being a first-time buyer – a little less confident about buying in general and maybe hesitant to make it past your contingency removal dates.

You can mitigate these risks by dangling more money in front of the seller. Most sellers in this market are not selling because they think it’s a great time to do so. They’re selling because they need to. So they’re anxious. An offer to close quickly is relatively appealing. But money buys time, and offering a higher price than the all-cash investors will get the attention of that seller. You just need to find out how much it’s going to take to get that attention.

Wait just a second…

I am not suggesting recklessness in the bidding process. I am suggesting that money will compensate for the advantages the all-cash investors bring – at some point. I don’t encourage anyone to allow for budget creep – where the anxiousness about getting an offer accepted leads to overspending and operating beyond the intended price range. I just think that you can’t expect to compete with a cash offer and expect the same discount to the acquisition price.

This would be a good time to remind you that your own individual circumstances require unique planning, especially with respect to financing.

Built-in reality check

Your financing relies upon a valid appraisal. If you really shoot the moon, and pay too much for the property, the appraiser is going to have a tough time justifying the price. You’ll have a chance to think about it if you receive such an indication. The financing may still work, but would likely require you to increase your down payment dollar-for-dollar above the value indicated by the appraisal, and when making an aggressive offer, you should be prepared to encounter this.

At the end of the day, you can pay any amount you want to as long as the seller agrees. You can finance it if the lender agrees. Believe it or not, there are still some free market dimensions to this marketplace. But to continually make financed offers that are on par with all-cash offers is a process that is likely to lead to exhaustion, frustration, and disillusion. And also prolonged renting.

The other card you can use to your advantage is to appeal to the seller on a personal level. Sometimes that happens, but that’s about as common as finding a diamond in a haystack. So don’t count on it.

If you do compete with investors, and pay a higher price, you’re going to have to shake off the feeling that you overpaid for your home. Fair market value is a subjective concept, and the all-cash investor looking only for discounted acquisitions likely places a lower value on the property than a first time buyer would. If it is about buying your home, and competing with someone who wants to buy a house, fix it up, and sell it for a profit, the cost is just going to be different. Period.

Are you encountering this?

I’d love to hear about frustrations in the bidding process – have you been outbid by all-cash buyers? How many offers have you made or did you make before getting one accepted? Please share your story in the comments below!

Category: Real Estate Investment

When Is The Best Time To Buy Real Estate? Tebow Time