patrick.net

I won't get semantical about whether a home is an "investment." It's definitely an investment of time and money.

The thing about "investing" in a home is that each piece of RE is unique. A home is not a fungible commodity. Investing in a particular painting or sculpture is an apt analogy. That's why the courts can order specific performance when a home seller breaches the contract. If you dishonor a contract to sell corn, the buyer's remedy is just money damages--the difference between the contract price and the going rate for that commodity at the time of sale. If you can prove that an RE seller breached his contract you may have a remedy in equity to compel the sale.

That's also why shopping and negotiating is so important. And why the role of macroeconomics--the direction of the market in general--plays a lesser role. As long as you have a good sense of the comparable value of the house you buy, and you buy it for a good value, you can get near "the bottom." You are not timing the market, you're timing the market for that unique house.

Now, Surfer-X shield your eyes, that's also why a qualified and honest real estate broker may be worth the "investment" in his fee. Buying RE is tricky. Sure, Zillow is cool. But I wouldn't buy anything in a strange market without a local expert, and a lot of professional help. I nearly screwed the pooch on my own sale by not recording the transfer of my sole ownership to my wife before closing (to get the full $500). My real estate agent/CPA saved me a lot more than the 6%.

Newsfreak
It is my understanding that both agents actually represent the seller's interests...even if its a buyers agent. This is the myth of the buyers agent...they're still there to SELL. It's illegal to do something that could 'kill the deal'....correct me if I'm wrong....I'm not an authority.

Skibum

I will just refer you to the congressional transcripts:

Surfer-X: "Mr. Farkley, please tell teh members of this committe, are you now or have you ever been a Troll?"

Farkely: "On the advice of counsel I refuse to answer."

Surfer-X: “Mr. Farkley, please tell teh members of this committe, are you now or have you ever been a Troll?”

Troll: You have done enough. Have you no sense of decency sir, at long last? Have you left no sense of decency?

Astrid:

Absolutely right. I hold no brief for price-fixing.

The difference between "investing" in art and real estate is that everybody thinks they understand real estate.

Lunch is over. That was delicious, thanks. Time to go work for the Man.

that’s also why a qualified and honest real estate broker may be worth the “investment” in his fee.

In california the person you mention is currently in the Bahamas with Santa Claus, Elvis, Jimmy Hoffa, The Easter Bunny, and....... Jim Morrison.

They also must disclose all offers to the sellers, even if they find them insulting.

Really? :D

Rand H.:

Thanks for the info.

I'm thinking maybe buying the worst house on the best street, fixing it up, and settle for a few grand profit, i.e. $10-$20K a pop.

Do one every two months wouldn't be too bad, no?

Think it's doable in a sinking/sunk market?

Garth Farkley,

Sorry if the title of my thread "Time to Buy" was a bit provocative. My intention was to get people thinking about their own personal decision scenario. I personally think we've seen the macro peak and that macro sentiment has turned.

But, as the bubble deflates real-estate will become more and more local and there will be lots of "wild west" (thanks George) type of stuff going on. This means some neighborhoods will stagnate, some will bump up and down wildly, some will drop like a rock. It won't be so much of a balloon deflating (which does so pretty evenly), but more like a giant tin-foil ball being crushed (very lumpy).

Given all of that, each person's individual decision about when to buy will be different. People with lots of HaHas -- like those who sold recently (of which I fully disclose my own position) -- may wish to buy before the bottom since they can go in with lots of equity, reasonable fixed payments, and a hope of having their pick of homes that were out of reach a year ago. Others will want or need to wait until closer to the bottom. Some will want to wait until it's passed the bottom and shows signs of heading back up (Zephyr posited such a formula, but he's a RE investor/landlord).

Almost everyone who reads this blog is here because they want to buy not because they want to sit around and cheer the death of US real-estate (but I'm sure we have at least one who would love to see all US RE nationalized...)

Giant ball of tin foil beig crushed

Interesting analogy

Michael Holliday,

I’m thinking maybe buying the worst house on the best street, fixing it up, and settle for a few grand profit, i.e. $10-$20K a pop.

Think it’s doable in a sinking/sunk market?

People have historically succeeded doing that, and some will even in this market. The real test will be whether you have a visceral understanding of the neighborhood & market you do the rehabs in. I think your numbers are off (for CA anyway). You'd need to operate at a scale 10X that to make it worth while. Even then, the risk is enormous unless you're a craftsman already with the tools, knowledge, and passion to do home repairs and rehabs.

I picture the guy who owns a local construction company, has tools and supplier relationships, makes a good living doing commercial building already, maybe serves on the city council with his grade school buddy the realtor(tm) Mayor, and then does a few of these plays during the year in the neighborhood he grew up in. That might work. Flippers, not a chance. They'll get destroyed.

nomadtoons2,

Where do you live again? You and need to do some serious "dumpster diving" together! ;-) Seriously, your list just amazes me. I've seen people throw out perfectly serviceable stuff, but nothing anywhere near as nice as items you listed. Maybe the key is to focus only on super-rich neighborhoods.

and many don’t even need the logisitical help with contracts, etc., especially with a good RE attorney.

This raises a good point. If I can't trust my own Realtor to negotiate in my best interest and present me with accurate unbiased market information (and under the current system I certainly can't), then wouldn't I (as buyer) always want to retain a RE attorney --working solely for me-- to draft my offer, review contingencies, counter-offers, final sales contract, etc.?

Has anyone out there ever retained a RE attorney for this purpose?

Harm,
I live over in Alameda, and seriosuly- people throw away TONS of things here. The diffrence between here and say- berkeley or Oakland is that in berkeley, there's a lot of students that live there. Anything that gets thrown out that's good- it usually gets grabbed. I can recall guys in old trucks that drove around after the students moved out, just loading up on the stuff. here in Alameda, it's all old and rich people. So there it sits, and nobody picks it up. I also have the ability to fix almost everything. Like the lawn mower. It's a 2004 MTD 6 Horsepower, self propelled unit with a rear bag. It was on the side of the street with " free" on it. I pulled the rope, and it did start, but smoked like hell. I worked on small engines for my part time job in TN. I know the engine, a Overhead valve Briggs engine has a very low exhaust port, meaning when people sharpen the blade, the large muffler gets filled with oil, which makes it smoke like crazy, hence making the owner think they blew it up. I've picked up 3 or 4 of these and can get them completely cleaned up and resold on CL for $100-150 bucks.
Basically, people buy things more like solid items that can never fail or else they throw them in the trash. Everything is repairable, and that's howI usually find this stuff. Just very slightly broken or in need of some basic cosmetic cleaning, etc.

Randy H,

Provocative is good. You know I'm a Randolfe fan.

I just don't know any markup code for tongue in cheek. I'm only trying to lampoon the avid troll witch-hunters.

I mean I'm not coming out the closet or anything. Troll-curious, maybe. Troll, never.

astrid Says:

"fatwallet.com has several really long threads about RE investing and that’s definitely the theme. The more successful investors always advise others to skip the realtor and go directly to a seasoned RE attorney."

Successful real estate guys will often go directly to the seller and try and make a deal without a real estate agent (If you are a successful investor you have a letter of intent and purchase agreement that you are familiar with and don't need an attorney unless there are some strange title issues).

When a real estate agent has an exclusive listing on a property successful investors will work with the listing agent NOT a buyers agent. If I have a $2mm listing I make $120K if I find the buyer and only $60K if I split the fee with a buyers agent. Listing agents do everything in their power to make sure investors represented by buyers agents never buy a single property...

Hello,
So. San Hosebag inventory making big strides this week; currently much higher than the peak last fall. Driving around town with eyes open seems to confirm this.

Also, noticing some re-listings after (possibly) falling out of escrow...seems to be happening more with the cheapest of the cheap properties.

Ditto in East Bay - Alameda & Contra Costa approaching 8800 active listings.

Ditto in south bay in general too. 400K - 500K places used to be hot cakes but now they are getting stale. The low end is getting squeezed by the rate hikes.

Mountain View and Palo Alto appear to be holding up for now, although they are still softer than last spring.

I just checked the rates. A jumbo 30YR FRM with 20% down and 0 point is now near or above 6.5%. It seems that it is no longer possible to do 100% financing cheaply any more.

Many people are still saying that interest rate is at historical low. They fail to understand that a "small" increase from 6% to 6.6% is a 10% interest payment hike.

I am not surprised that Voodoo-financing-dependent low-end units are getting pressured recently.

And my Realtor friend said that some of her entry level clients are being offered loans at 7.5 to 8%. I am assuming these are fixed.

Sounds about right, even for people with very good credit, if the downpayment is small.

SJ_Jim

Here's the scoop on Sacramento metro area inventory:

http://sacramentohousingbubble.blogspot.com/

Not sure if I marked this as a link, or even if that's allowed.

I can't vouch for his numbers but this guy obviously puts work into his page. The recent top was 12,000+ on or about Nov.15. It's getting close again as of 4/5/06.

Is there anything like this kind of hard data for the BA? Our opinions are all interesting, sure. But opinions are like a**holes, everybody has one.

BTW, this Sacto blog has many topical articles, and the commentary is well written. The focus is obvious:

http://www.sacramentolanding.blogspot.com/

He also lists lots of related links.

If posting these links is taboo please let me know. I'm not trying to step on anyone's toes. I gather that Patrick is not in a competitive mode here.

I find that amazing, in itself. What is he, like the Linus Torvalds of the Bubble or something?

HARM
Yes, I hired a real estate attorney on the second house I ever bought. I bought from owner, negotiated the price myself(It was about 50K below market.)and hired an attorney to do the contract. Escrow does the rest...as far as telling you what papers need to be in by when. Between an attorney and a good escrow agent, there is little need for the realtor.

When I first came to the US, I took Greyhound all the time to go between cities. The fun part of this was, I got to meet people I never interacted with later on in my life, but their lives, their existence always stayed with me all these years, and I often wonder what will happen to the US if this ignored mass of silence became deeply affected by the burst of the bubble.

Now we are setting our eyes on the nice enclaves of Pac Heights, West Valley, chatting away with local issues and perhaps planning away with trading up a step closer to our dream property when this all unfolds. But at the back of my mind, I somehow wonder if I want to up my exposure of fixed asset in this country when all the time bombs go off.

The fact is, lots of Americans are not living a good life, certainly our definition of a good life. America is a far safer place than it should be because the silent masses are still able to get by, although their living space will be increasingly squeezed in the coming years. I was actually shocked by the poverty I encountered here coming from Asia, and having toured around some of Asia's poorest countries, the bottom strata in America is not living a much better life compared to poor Asians, the former living in urban waste, and the latter living in nature, somehow a better option if I have to choose between the two.

I am not convinced that we are free from the possiblity of social upheaval in this country. We are just a step away from it, just that we managed to miraculously stay off due to our disproportional control of the world's resources. If we lose our grip on the resources, I am not sure what will happen. We are already becoming a very divisive country, the red vs. the blue, the illegals vs the legals, the religious vs. the liberal, and such division has gotten more intense lately, while I can only see it intensifying going forward. If the bottom of the food chain in this country starts to boil, I am afraid housnig bubble may be the last thing on our list of worries.

Michael Holliday Says: April 6th, 2006 at 2:12 pm
I’m thinking maybe buying the worst house on the best street, fixing it up, and settle for a few grand profit, i.e. $10-$20K a pop.
Do one every two months wouldn’t be too bad, no?
Think it’s doable in a sinking/sunk market?

Just be careful with this: if it takes you 6 months to buy, renovate and sell, you could find that if the market tanks in the duration, you will be selling for a loss, even with the renovations, or at least not make it worth your while for the labour you've expended and risks you've taken. I've got a friend who does that here, but when the market goes soft, it's harder to find a buyer, people make lowball offers even if it's a really good reno. You could end up getting offers $50K less than you bought it for after renovations... Unless you buy really well, and get the run-down place cheaply and you're confident... There may be ways of making over timber frame houses in the US which add much more value, all the stuff here is brick, so there's not much you can do with the exterior :(

Owneroccupier Says:
Apart from energy (oil, ng, uranium, etc.), and gold, silver, what other real assets are good for hoarding? How does one hoard agricultural products, esp soy and sugar? Any suggestions?

if you hoard uranium at home, better put some orange police warning tape around it and keep a geiger counter handy - and try not to let the kids play too close...
some of the organic products will go past their use by dates...
how is 'energy' a real asset? not very tangible... :P

hey astrid,

i've just been talking to the housing policy adviser to the state Greens, who have a few people in parliament, and she's broadly in agreement on my nationalisation scheme, heh... it turns out they have a few policy documents pretty well in line with a lot of my proposals for programs - a senator did a great speech on it recently. the 'labor' party in power, on the other hand, sold out long ago, they're a bunch of crypto-fascists in bed with investment banks and developers, and so it's an uphill battle - election is about 1 year away, and labor are on the ropes cos they are unpopular, been resting on their laurels, infrastructure is run down, etc etc... i'm hoping to get some small party people in on the affordability platform by publicising it heavily as an issue, which means getting the skates on...

Sean
I like how you put smiley faces on the end of your sentences! :)

Owneroccupier Says:
The fact is, lots of Americans are not living a good life, certainly our definition of a good life. I was actually shocked by the poverty I encountered here coming from Asia, and having toured around some of Asia’s poorest countries, the bottom strata in America is not living a much better life compared to poor Asians, the former living in urban waste, and the latter living in nature, somehow a better option if I have to choose between the two.

heey! don't tell paul chua that, america is the best country in the world with the best values in the world, and when president bush says 'invade!' you'd better believe it's the best thing you can do, to avoid clear and imminent threats to the American way of life...

a friend of mine just came back from LA, said he was amazed at the visible homeless rate, even compared with sydney, which has a certain amount of visible homelessness... so it sounds more like places in eastern europe like hungary i've visited, with homeless people holed up in the subways, etc...

if only superman were here to help us [sigh]

Energy is a real asset because it is not a derivative or a virtual asset. It does happen to be a consumable asset, not a durable asset though.

Linda in LA-LA-LAND Says:
Sean
I like how you put smiley faces on the end of your sentences

the student has exceeded the master :!: :D 8) ;) :mrgreen: :lol:

The mystery revealed.

:twisted:

Different Sean,

I know Australia fairly well since my parents lived in Sydney and are now retiring in Queensland. You can't even compare Sydney's poverty to what we have here, striking. Redfern or Paramatta are heaven compared to Oakland (and Oakland is already heaven compared to a lot other places), there are lots of pockets here I don't dare to drive by any more. When I was younger, fearless and had nothing to lose, I wandered around these ghettos often thinking how did America get by with all these people living in such miserable conditions?

Australia is a much better place than the US, the only thing I dislike about you guys is the tax rate.

It does happen to be a consumable asset, not a durable asset though.

i'm kidding, really. the energy resource is tangible, e.g. oil, coal altho you wonder about hydro-power. further, i assume 'energy' or energy as a resource is classed as an asset for accounting/trading purposes.

i also presume O-O isn't going to hoard uranium at home? altho it might keep down cockroaches, hmmm...

surprisingly, all kinds of energy can be stored by very real atoms

yes, altho the 'solidity' of atoms is an illusion - they themselves are just bundles of energy in turn... 'energy' like heat energy is just energy transmitted in the infrared spectrum causing further excitation of molecules; electrical energy is a movement of electrons down a wire due to electrical charge attraction; etc; so it's all either E-M radiation or electrical charge effects! :idea:

if only i'd focused on business studies instead of science in my misspent youth! :cry:

yeah, true, sydney has a big visible homeless problem in the inner city because the weather is mild year round, and they like sunning themselves in the street, and they can sleep in alleys without getting chilled...

unfortunately, they tend to be the deinstitutionalised mentally ill, there's moves afoot to reinstitutionalise or otherwise do something...

You can’t even compare Sydney’s poverty to what we have here, striking.

so there! and redfern is only a problem for cultural reasons - they're trying to gentrify it in a big way right now with the Redfern-Waterloo Authority.

i think my earlier references to US 'fatalism and individualism' are fairly valid...

i think it's just lesser extremes of rich and poor in australia, partly due to a strong union movement and a wage setting social contract that makes wage differentials flatter. most lawyers here make $50K a year, and are lucky to get the work! doctors make $70-80K after overheads! a lot of tradesmen are now pulling $100K+

but i don't think tax is that bad, it's highly comparable to US, especially since income tax here is only pulled by the Feds, no state income taxes. it's classed as a '30% taxing country', altho the top rate is about 48%. compare it to sweden etc where it's more like 60%... obviously HK is a flat 15%, but they don't have a welfare system either...

it’s stuff inside the atom that is insubstantial, atoms themselves are fairly hard to break units. I do know light can be energy or particle. Have I restored my credibility?

not really, but i'm a bit rusty myself.

you're right in what you say at a HS physics level... atoms definitely are hard to break, because nucleii are bound by things like the 'strong' force, and electrons are held by 'electrical' force. but they've 'discovered' that subatomic units like protons, neutrons, electrons, i suppose quarks, etc, are all just bundles of energy in themselves. the solidity of anything is an illusion, in that regard. electrons are really just energy waves in 'orbital' levels, they are not like hard little peas.

the fact that electrons are relatively easy to remove from nucleii and move around is the basis of the entire branch of all chemistry, and i suppose biology in turn. also in electricity generation...

'splitting the atom' is possible, and releases huge amounts of energy (nuclear fission). fusing nucleii can also liberate huge amounts of energy = nuclear fusion, which is how the sun works, and how all the matter in the universe was created.

etc.

Sean & Randy:

Thanks for the advice on buying low, selling high.

I will remember those words.

_________________________________

"...a qualified and honest real estate broker may be worth the 'investment' in his fee."

Surfer-X says, in response:

"In california the person you mention is currently in the Bahamas with Santa Claus, Elvis, Jimmy Hoffa, The Easter Bunny, and……. Jim Morrison."

You forgot Bruce Lee.

I meant atoms are solid compared to quarks

heh, digging a deeper hole... they're all just energy waves... quick, go browse wikipedia! don't post anything!

remember, these things are pretty tiny, the very conception of 'solidity' doesn't mean anything at that level, when they are all bound together they make a block of metal, or a desk, or whatever, but they are really only 'force fields' of energy in fact. the quarks are more than just probabilities, they're a bunch of energy; the concept of 'electron orbitals' got revised to suggest the 'average energy' of an electron meant there was a probability it could be 'found' in a certain orbital. etc. but HS teaching is still influenced by the early models of 'plums in a plum pudding' theory somewhat - early theorists could only think in terms of the solids that they knew...