Norada Real Estate Investments

National Economic Outlook (June 2011)

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With presidential elections coming up next year, and Osama Bin Laden now dead, we're going to be hearing a lot of political talk about the old Bill Clinton mantra,“It's the economy, stupid.” So, let's look at the basics.

“The economy” means jobs. From the high point of the expansion that ended in 2007, to the low point of the recession in early 2010, the economy lost about 9 million jobs. Almost 2 million of those jobs have been recovered and the economy is adding new ones at a rate of 1.5 million a year, but even if this rate improves, that's only another 2 million before election time, still leaving us down 5 million jobs from where we were.

The culprit, of course, is ourselves. Instead of freely spending money like we did, we've been putting it in the bank, an extra $400 billion a year. That equals a lot of jobs, even if some of them are in China. In the long run this is a good thing because we had gone over our eyeballs in debt, but in the short run it means the economy will grow only slowly.

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Three Strategies for Surviving in a Slow Market

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Don’t buy into all the doom and gloom stories from the media. Learn how to profit from them. Many investors continue to be very successful in the real estate business by following the philosophy, Don’t be afraid to be a “purple snowflake.” So try these strategies. You can make a great deal of money in a down market if you stand out, show that you are unique, and most importantly, set yourself apart from your competition by being “a purple snowflake!”

Strategy #1: Ride the Downturn — Don’t Sell

Yes, don’t sell. Good times or bad, my advice is always to hold on to a property if you can. Your wealth will come from holding on to real estate, not selling it. How serious is the problem really? Let’s say the home you live in, your rental property, or the property you bought as a “fix and flip” goes down in value. Well, if you weren’t planning to sell right away, would it matter? Hang on until the market comes back. Look at the historical records of the property value where you live and that will reassure you. Realty-Trac or First American Data Solutions provides this data, or you can ask your local real estate professional for help. Historically, a real estate market will always come back.

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When Is Cash Better Than Financing?

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Using all cash to purchase investment property may be better than financing in two particular situations.

The first situation is a short-term deal, that is, you intend to sell the property shortly after you buy it (known as “flipping”). When you have the cash to close quickly, you can generally get a larger discount on the price of a property. In this case, financing could delay the transaction long enough to lose an opportunity.

You’ve heard the expression, “money talks, BS walks.” This is particularly true when making an offer to purchase a property through a real estate agent. The real estate agent is more likely to recommend to their client a purchase offer that is not contingent on the investor obtaining bank financing.

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The Great Debate: Flipping versus Holding

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Some investors focus on flipping — that is, turning properties over quickly, rather than keeping them long term. In most cases, holding property generates more long-term wealth for you than flipping. Therefore, you may consider flipping some properties and holding others. On the other hand, you may consider using the flipping strategy a while, and then begin holding rental properties later. The big question is, “When should you hold versus when should you flip?”

The Advantages of Flipping. The main advantage of flipping is that you get your cash out immediately rather than later. For many people, the certainty of getting a paycheck right away is highly appealing. Flipping takes the real estate market per se out of the equation. If you buy a property correctly, whether the market is rising or falling is almost irrelevant, except for how long it will take you to resell the property. (Of course, if you buy cheap in a soft market, you can afford to hold a property longer.)

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Double Dip Has Come and Gone

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The S&P/Case Shiller Home Price Indices reported Tuesday are, as usual, so far behind the curve that not only did they miss the “double dip” that has come and gone, it will be at least July or August before it reports an apparent upturn in prices in March and April. S&P's view of the data was dour. “There is very little, if any, good news about housing. Prices continue to weaken, trends in sales and construction are disappointing, ” said S&P's David Blitzer. “The 20-City Composite is within a hair's breadth of a double dip.”

There's just one problem with that. Other price indicators that are not constructed with the Case Shiller's large built in lag, passed the 2009-2010 low months ago. The FHFA (the Federal Agency that runs Fannie and Freddie) price index showed a low in March 2010 that was broken in June 2010 and never looked back. That index is now 5.6% below the March 2010 low. Zillow.com's proprietary value model never even bounced. It shows a year over year decline of 8.2% as of February. Zillow's listing price index shows a low of $200,000 in November 2009, followed by a flat period lasting 6 months. As of March 31, that index stood at $187,500, down 6.25% from the 2009-2010 low for data.

The Case Shiller Indices for February held slightly above the January level (not seasonally adjusted). I follow their 10 City Index due to its longer history. It was at 153.70 in February versus 152.70 in January. These levels are still above the low of 150.44 set in April 2009.

The Case Shiller index showed a recovery in prices in 2009-10 only because of the weird methodology it uses.  [Read more…]

U.S. Housing Market Intelligence Report (April 2011)

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Categories are graded from A thru F:

Economic Growth:  C-
Economic growth trends were mixed this month, as several key metrics ticked up while others ticked down.  The employment market improved once again as year-over-year employment growth has now been positive for seven consecutive months, and unemployment now stands at its lowest level since March 2009.

In addition, retail sales improved this month, while real GDP for the fourth quarter was revised slightly higher to 3.1%. On the downside, the rate of inflation (both full and core) continues to increase, while the average length of unemployment increased to an all-time high, currently at 39 weeks.

Affordability:  D+
Affordability has rarely been better for entry-level buyers, and rarely worse for move-up and move-down buyers, who need to extract equity from their existing home.  As such, we continue to grade our overall affordability indicator at a D+.  After increasing every quarter from Q1-2009 through Q2-2010, owner equity declined for the second consecutive quarter in Q4-2010; a reflection of the continued downward pressure on home prices.

Mortgage rates remain near historical lows, and home prices have dropped from unrealistic boom levels to entirely sustainable levels, with some markets like Las Vegas well into “over-correction” territory.  Our housing-cost-to-income ratio remains low, now at 22.4%, and our JBREC Affordability index stands at a remarkable 0.0, which is the highest possible rating for affordability.  The median home price-to-income ratio has declined to 2.8, which is less than the long-term historical norm and near a level conducive to market health.

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The Return of Real Estate – Fortune Magazine

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This week’s issue of Fortune Magazine proclaims the “return of real estate”.  I didn’t think I would see an article like this from a mainstream publication so soon – especially from one of the most trusted financial magazines.  Could this mark the beginning of more good news to come?

“Forget stocks. Don’t bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing,” writes Shawn Tully.

The article covers five trends as justification for improvement in the real estate market:

  1. The steady decline in prices which has been going on nationally since 2005 has finally hit a level where it costs less to own a house than to rent in many cities.
  2. The supply of renters has increased sharply in the recent past, which has already begun to cause rapid increases in rental rates.
  3. Home builders have held back on building new homes for several years, creating the conditions for a shortage of new homes when demand goes up just a little bit.
  4. Investors, responding to the big demand for rental units, are rapidly buying down the overhang of foreclosed homes which has dogged the market.
  5. Finally, the U.S. economy seems to be on the path to improvement, although we still struggle with high unemployment and weaker-than-normal consumer spending.

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Atlanta Investment Property with Seller Financing

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We just released our latest real estate investment opportunity in Atlanta, Georgia.  These are fully refurbished single family homes within the greater Atlanta market.  The properties are delivered tenant occupied and managed by our professional management firm.

The properties provide investors with a positive cash flow of $300 to $500 per month (assuming a 40% down payment).  They also have capitalization rates starting at 10% providing investors with solid returns.

As good as this investment is, the “kicker” is our exclusive NO qualification seller financing.

Our No Credit, Stated-Income Investment Program is a unique real estate acquisition system enabling investors who cannot or do not want to qualify for conventional financing to purchase our refurbished and rented single family properties.  By removing all the “big bank” financing restrictions, investors can purchase an unlimited number of our income properties without any credit or income qualifications.

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Real Estate Investing Myths

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There are various myths about real estate investing that never seem to die no matter how much you try to kill them!  Hopefully, the information provided below will help you avoid falling for these untruths.

Myth #1: You Can’t Make Money in Real Estate Without a Lot of Money.

It’s true that you usually (but not always) need money to get started in real estate.  However, you don’t need hundreds upon thousands of dollars to get your investment career started and moving!

As discussed in one of my other articles, one of the great benefits of real estate is “leverage”, that is, you can use very little money to buy your way into properties that will keep on appreciating over time and increasing your wealth. In effect, you have what the military calls a “force multiplier”, that is, with one effective “weapon” you can eventually conquer your piece of the real estate market.

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Why You Should Buy a Rental Property

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It is an out-of-favor asset class that has attracted the attention of David Ackman, a hedge fund manager with a fondness for contrarian investments.  “The best investments we've made are the ones no one else would touch,” Ackman explains.  That's why he's so hot on Single Family Home Rental Property.  They are cheap, he says.  They are a buy.

Ackman argues that Single Family Home Rental Properties possess the identical investment attributes that strongly performing stocks typically possess.  Says Ackman:

We believe we've identified an investment with:

  1. A low valuation – The lowest valuation in at least a generation.
  2. Forced sellers – A large number of distressed transactions.
  3. Extremely attractive financing available – High loan-to-value, low-rate, fixed-rate, long-dated, non-recourse debt, pre-payable without penalty.
  4. Favorable long-term supply dynamics – Short-term oversupplied market, but long-term supply is controlled.
  5. Favorable long-term demand dynamics – Demographically driven demand growth.
  6. Out-of-favor – Currently, this is a somewhat shun asset class.

Ackman's bullish perspective flies in the face of the pervasive pessimism about home-buying. “Experts Say Housing is a Lousy Investment and it Always Will Be,” an August 2010 headline on Yahoo! Finance declared. “The US Housing Market is Headed for a Complete and Total Nightmare,” another financial news service predicted. And just last week, a CNNMoney.com headline warned: “Why Home Prices Could Fall Even More.”

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Norada Real Estate Investments 30251 Golden Lantern, Suite E-261 Laguna Niguel, CA 92677

(949) 218-6668
(800) 611-3060
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