East Bay Blog

I really want to Thank You. When I first started my East Bay Real Estate Blog last month, I was hoping it would not be a waste of time. Well I checked my website stat’s today, and I am getting an average of 29 people reading my blog every day. Thank You for taking the time, and if you have comments, please post them.

So today I want to take some time to let everyone know why I think Real Estate is the best investment you can own. After watching some of the news this weekend, you would think that the real estate market is crashing. Every show that talked about real estate was filled with bad news. The National Association of Realtors even came out last week and said that for the first time in 40 years, the median price of a home would decline year over year. How much would the median price drop……drum roll…….0.7%. A drop of less than 1% is not what I would call a crash. What other investment do you know of that has never dropped year over year, since the 1960’s? I don’t know of any. Yes, the East Bay has seen a drop from the peak of more than 1% but that is because of the incredible gains that property values in this area experienced over the last several years. If you purchased a home 5 years ago, don’t worry, you still have plenty of equity.

There are many reasons why I think Real Estate, especially in the East Bay, is the best investment you can own. A couple of reasons why I like real estate so much are;

Leverage. You can purchase a property with little or no money down. There are few other investments where you can use so much borrowed money and so little of your own. The money that you are loaned is also tax deductible, which brings me to my 2^nd point.

Tax Benefit. The interest you pay on your mortgage is tax deductible. One of the few deductions left that the IRS still allows. On top of that, if you have lived in your property for several years as your primary residence, your gain at time of sale is also tax free up to $250,000. A married couple is exempt from tax up to $500,000. How many other investments can you own, make a $250,000 profit, and not pay tax?

Security. Real Estate is a real world investment. Unlike stocks, bonds, commodities… it is not just a piece of paper, it is a physical thing. You don’t have to rely on others running a company, hoping that your share price goes up. You are in complete control of your real estate. Live in it, rent it out, fix it up, alter it, you are in control of your investment. If times get tough, you can’t move into your stock portfolio. Real Estate provides security that other investments don’t have.

There are many other reasons why I think real estate is the best investment you can own, but I don’t have time to write them all down here.  And if I did, I don’t think you’d have time to read them all.  Again, I am not putting down other investment vehicles.  The smart investor will diversify and have other investments in addition to real estate, but in my opinion, as a long term investment, nothing beats real estate.

Happy Monday, thanks for taking the time to read my East Bay Real Estate Blog. Some interesting real estate news was released today. The numbers released by the National Association of Realtors today showed that last year second-home sales dropped from 40% of all homes sales to 36% of all home sales. This is no surprise. With the change in the market, it was obvious that 2^nd home sales would drop last year compared to 2005, but what is interesting is when you look inside the numbers a little more you will see that vacation home purchases were actually up 4.7% during the year to a record 1.07 million units. How can 2^nd home sales be down so sharply last year while vacation home purchases hit a new record? The answer is…..baby boomers.

The Baby boom generation is starting to hit retirement age, and that means spending more time away, and in vacation communities. So while investment purchases started falling last year, vacation homes were in much demand. Because it is going to be a while before the baby boomers get too old to enjoy their vacation homes, I think the vacation home market will remain pretty stable for the next several years. In addition these markets may not see the price corrections we are seeing in other markets.

So how about the investment market? That activity or lack thereof is what caused the sharp decline in second home purchases last year. Many investors, most notably “flippers” started to disappear last year, and for now seem to be taking a wait and see attitude. That means it is time to start bargain hunting. The best bargains are found when the market seems to be at its worst.

One clue that it is now a good time to start planning for investment is the number of bank owned homes in lower income communities. A couple of hours research on the MLS made it perfectly clear to me that now is the time to start thinking about investment property in these areas. Let me be clear, investment property not for the purpose of flipping, but for the purpose of rent & hold. Lower income neighborhoods are showing the pain of the sub-prime meltdown. These neighborhoods show deep corrections in price, while more affluent neighborhoods are managing to keep their value.

The market is going to stay this way for a while. So I would not suggest trying to flip anything just yet, especially in these neighborhoods. If on the other hand you are an investor and you are not against going into lower income communities with your investment dollars, this is the time to start looking. By the time you hear that the market has stabilized and people are getting back into real estate, it will be too late.

Today on my East Bay Real Estate blog, I decided to write about Real Estate Seminars.  Last year (2006) I attended the Learning Annex Real Estate Seminar in San Francisco.  The main speaker was Donald Trump.  Along with the Don, some other speakers were featured including Suzie Orman and Tony Robbins. 

I went out of curiosity to see what the hype was all about.  You see last year the market was more active and a lot of people thought that Real Estate was a way to "get rich quick".  There was a lot of hype about this event so I attended.  The main speakers on the main stage were pretty good.  Overall they had some decent advise and seemed to be there to teach.  The rest of the "classes" however, which were what the majority of the event, consisted of Real Estate "gurus" who wanted to sell you a system where you too could become rich.  Beware of these types of pitches.  You can spend a lot of money very quickly, but it will take you a long time to make it back.  There is no such thing as a proven get rich quick system.  

These so called gurus who tell you that they can guarantee you become rich with no risk usually work in a common format:

1. The first part of their seminar usually consists of a goal-setting exercise.

2. The middle part gives some information about what could be done, but not how to do it.

3. At the end, it all leads to having to take more expensive--$3,000 to $7,000--seminars and boot camps to receive the actual hands-on experience you need, suggesting that if you didn't take it, you would fail.

Be Careful, some of these pitches sound really tempting.  These people promise to invest with you, and make it sound like you will be rich with no risk.  I am positive there are a lot of people out there that have paid thousands with no results.

I'm not saying that all seminars are bad, but a couple of golden rules; If it sounds too good to be true, it probably is, and there is no get rich quick method that does not involve a lot of risk.  Savvy would-be investors should take their time developing their knowledge of the real estate industry and shouldn't look to get rich overnight.  The skills it takes to be successful in real estate take years to accumulate, such as the skills of a Professional Realtor.

A couple of final hints for those of you who are thinking of attending a real estate seminar.  First of all TAKE YOUR TIME, don't be rushed into buying anything at one of these seminars, and AVOID HIGH-PRESSURE SALES PITCHES that require you to buy now or risk losing the opportunity.

Although East Bay Real Estate is our focus, we always keep up to date on what the media is saying nationally about the Real Estate market. So today we had some news come out which said that last month (March), existing home sales posted their sharpest drop in 18 years. The reasons sited for this large drop? Two main reasons quoted were the bad weather we had earlier this year, and the sub-prime mortgage problems. If you have not already heard, a lot of the sub-prime lenders are having problems with foreclosures and short sales. So you, as a buyer/seller of real estate, how should you interpret this news? I think that depends on what your plans are.

If you are a first time buyer, or just a buyer period, this is the best market you could hope for. The media is helping fuel the fear that the real estate is in trouble. You can use this to your advantage when negotiating. (If you’ve read my blog before, you’ll know that in my opinion real estate is the best investment you can make) Asking price offers are no longer necessary in this market. If you are a first time buyer talk to your agent about what is a fair price to offer on a particular house. A lot will depend on market time, and history. If you don’t have an agent yet, I would be happy to assist you.

If you are a move up seller, this market is good for you. As a seller you may not like the fact that we are not in a seller’s market, but on your purchase you will be able to negotiate your purchase price down (see buyer paragraph above). Also with the right Realtor® it is still possible to have your home sell quickly. If you price right, and show well in the beginning, your home won’t sit on the market for months. So don’t worry, it’s relative, you are saving more than you are losing. At the end of your move, you should be seeing a benefit from this market.

If you plan to sell and not buy, this situation is a bit tougher for you. Do the math and calculate your cash flow if you rent out your property instead of selling. With the change in the real estate market, rents have been rising over the last year. If you can come close to breaking even, you may want to consider holding off on your sale. If you are a flipper, and you purchased with the intent of flipping property, I hope you did your research. It is very hard to flip real estate in this type of market. You cannot count on the market conditions you had when you purchased. Flipping should only be done by experts in this market.

The bottom line is that it is all about perspective. What your situation is, should dictate what type of real estate market you think we are in. I’m willing to bet that for at least half of you out there, this is one of the best real estate markets you’ve seen in a long time.

P.S. One word of advice. When selecting a Real Estate professional, make sure they do this full time. Over the last couple of months, I know there are many agents who have moved to part-time status. With the decline in volume, many agents are moving into other jobs to supplement income. Being a successful Real Estate professional is a full time job, don’t short change yourself.

I thought that an interesting topic for my East Bay Real Estate blog today would be zillow.com. Zillow.com has become an increasingly popular site in the last year. For those of you that might not be familiar with it, zillow.com is a website which claims to be able to provide you with the value of your home instantly. All you do is type in your address, and out will pop a number, which zillow estimates to be the value of your home. So how accurate is Zillow?

I went on the site and picked a small random sample of homes that I have seen on the market. I input the addresses of these homes and then compared the number that zillow calculated with the number I thought was the fair market value of the home. For the most part zillow.com came within 20% of the value that I had estimated, IF the stat’s they had were correct. That is to say, if the number of bedrooms/bathrooms and square footage it had were correct then it did come within 20%. If any alterations and/or modifications were done to the house, and the changes were not reflected in zillow.com, then the estimates were way off. I believe zillow.com pulls property statistics from county records, so if what you see in zillow is incorrect, chances are the county has incorrect records for your house as well.

After my “test” today, which was based on a small sample of East Bay homes, I would have to say that zillow is a nice tool if you want to get an idea of what your home might be worth. It will give you a ballpark figure, however if you are looking to buy/sell a home, have a professional Realtor® do a market analysis of the property. A 20% price mistake is huge when you are buying/selling a home.

Also, market conditions are extremely important. I have noticed that in a changing market, zillow has tended to be a bit behind the curve. In the “sellers” market a couple of years ago, it seemed to have low prices, and in a “buyers” market, prices seem to be too high. There are many exceptions however. How your home shows is something zillow cannot calculate, and whether a home has been upgraded or not is something zillow would not know.  If your home has significant modifications I would shy away from using it to get a value altogether.

Again, these are just my opinions, and are based on a small sample that I used in my “test”. If you want to see how it works, check it out for yourself.

Real Estate in the East Bay, like many other places, enjoyed terrific gains over the last several years.  One of the side effects of this jump in home values were people buying a little more than they should or could afford.  When home values were increasing, it was very tempting to buy a home that may have been a little out of our price range.  It was easy to think that with home values increasing, we had to buy that home now, or we would never be able to afford it in the future.  Adjustable rate loans let people qualify at ridiculously low introductory rates.  Lenders knew those rates wouldn't last forever, but who cares when homes are increasing in value as fast as they were.  Worst case, people could just refinance out of trouble, or so we thought.

Welcome to present day reality.  Some of those people have rates that are now adjusting up to market rate, and they can't afford the payment.  Even worse, they can't refinance because the equity that they thought would certainly save them is not there.  That is a big reason why we are seeing the rise in short sales and foreclosures, however you can benefit from this lesson.

Seeing what some people did wrong, remember to budget yourself when looking for a home.  Yes, in the long run I'm sure your home will increase in value, but that could take years.  Make sure you know what your payments will be before you start house hunting, and don't even look at homes over your price range.  That will only serve to temp you to stretch yourself.  Be realistic with your payments.  Although some may say that this market is "bad", I don't think so.  It's just different.  Make sure you pay attention, and remember your budget.  A good Realtor will never try to push you into a home you can't afford. 

The good news for you all this week is two fold.  First, market activity seems to be picking up a bit.  Although you can credit the nice warm weather we've been having lately, I think it may be a bit more than that.  I've met with several sellers this week, and they all seem to be up to date with the current status of the market.  That is to say, they are willing to price correctly, and be patient.  They know not to expect to sell in one week.  Six months ago, I was trying to educate every seller I met as to the reality of the market.  The buyers I am working with are also ready to buy.  They have seen what is going on, and know that this is a good time to purchase a home.  If they are selling, they know it's all relative, what they lose in the sale, they gain in the purchase.  Also, the National Association of Realtors reported yesterday that pending home sales rose in February by 0.7%.  That is more than was expected, especially since we had an extra cold February.  I still remember seeing my fountain in the back yard covered in ice...  The increase in activity may be a sign that the market is starting to stabilize.  Too soon to tell, but a good sign.

The second bit of good news for you all, is that the quality of Real Estate & Mortgage Professionals in this industry will be getting better shortly.  Contrary to popular belief, being a real estate professional is hard work.  When the market gets a bit crazy, like it was for the past several years, everyone jumps in.  The fact that you could practically just put a post in front of the house, sit back and wait for the offers did not help the perception that this is easy.  Now those days are gone, and it's back to normal.  Marketing is once again very important.  Keeping clients updated on activity, being proactive in implementing new strategies for getting the word out about a home, and working hard are once again keys to selling Real Estate.  On the buying side, being able to provide information on competing properties, taking clients to see several that may fit their needs, and advising on the best negotiating tactics are more important now.  That means that all of the people that jumped into this thinking it was easy money are now hitting the exits.  The cream rises to the top...  and only the strong survive.  That is happening right now in our business, and you will benefit.

If you have any response to my comments, please post them.  I would love to hear what you think.  If you would like to post your own commentary, let me know, I appreciate more than one point of view on our market.  Talk to you again soon...