1. Unlawful discrimination-

Many landlords have personal preferences for certain tenants. If you express, even implicitly, some non-financial criteria, you may run the risk of unlawful discrimination. It is common knowledge that it is unlawful to refuse to rent because of a person’s race, gender, sexual orientation, age or disability. Lesser known ones are familial status and source of income. For example, you can’t restrict tenants to adults only. And if you have a tenant with a disability, then you have to make reasonable accommodations for them, such as installing handicap handrails or allowing service dogs. If you represent the housing as unavailable when it is, in fact, available that constitutes as refusal to rent as well. Carefully exercise fairness and honesty when responding to all inquiries.

2. Inadequate disclosures-

California law requires landlords to disclose the presence of hazardous materials to tenants, including but not limited to lead-based paint, asbestos, pest control treatments, carcinogenic material and methamphetamine contamination. Just like in sales of residential real estate, if there is a death in the unit within the last three years, the landlord needs to disclose the manner of the death. There are also less common cases that require disclosures, such as if the unit is in rental conversion or if the unit is within one mile of military base with ordinances. You have to keep yourself informed constantly on what need to disclose as new disclosure requirements may be enacted.

3. Lease termination and eviction-

This is one area which has triggered the most litigation. California law has well-defined guidelines on the process and the minimum number of days required to proceed on each step. For starters, landlords have to give a 60-day notice for lease termination should the tenant have occupied the unit for over a year. A 30-day notice is acceptable if the occupancy is under a year or if the landlord intends to sell the house and has opened escrow. If you need to evict any tenant as he fails to pay rent or for other reason, then you file an unlawful detainer lawsuit. It is a complicated procedure and you need to follow it to the letter.

These are the top pitfalls that you should watch out. If you want to be a successful landlord in the long run, you should consider retaining the service from a property management company. That will save you a lot of headaches and troubles.

Disclaimer: The above statements are provided for information only and are not to be construed as legal advice. Anyone viewing the information should not rely or act upon the information without seeking professional counsel. It is not intended to constitute legal advice or to substitute for obtaining legal advice from an attorney licensed in your state.

In the midst of all this, I found myself as thunderstruck as most other local agents by the strength of housing.  There was no particular news to drive the shift, as unemployment remained high and the government wasn’t providing any more incentives.  But, the reality we saw was fierce bidding wars, going in far above asking and often losing out to an all-cash buyer who didn’t need to worry about appraisals.

What could explain this sudden stampede?  As with any shifts in herd-mentality, the underlying cause was years in the making.

As discussed in the first half of my blog, when an asset class collapses under the weight of overleveraging, fear pervades throughout the investor pool.  So, when housing collapsed in 2007 and dragged down the economy and the stock market, investors sought relative safety in cash and government backed debt.  This led to record low interest rates for debt instruments, which was compounded by the ineffective efforts of central banks around the world to use monetary policy to fight the inevitable deleveraging.  (China and the developing world weren’t as heavily leveraged, since they didn’t have that privilege, so their economies responded well to monetary stimulus.)

Of course, when one asset category shoots sky-high, investors immediately looked for ways to offset the perceived increase in risk.  (In hindsight, they were correct to be fearful as the continuing Euro sovereign debt-crisis illustrates.)  So, this fear trade led to all sorts of distortions, principly in commodities as oil, gold, silver, etc. all shot up to record highs.  Even now, they’re not far off those records.  Then, once those got very high priced, investors rotated back to depressed equities on the stock market.  Now, we are within shouting distance of the bubble peaks, at least on the broad market basis.

Then, with all these investment categories at or near record highs, the fearful investor has few places to turn.  But, thankfully, housing had been soundly beaten down and until February this year, the pundits were still brow-beating it.  So, prices remained low while rents climbed from a still growing population.

Perhaps it just required the seasonal pickup in homebuyer activity to drive the already eager investor buyers into a frenzy.  In any case, when buyers had to line up for their turn at open houses, the market signal was unmistakeable.  With bids climbing, cash-heavy investors were still in the best position to win deals.  They’ve done their analysis (or worked with an investment Realtor) and know how much room is left in deals, allowing them to out-bid homebuyers while still making a good return.  With interest rates still being held to record lows, even a 4-5% ROI (30-40% lower than 2011) is attractive.

Meanwhile, credit remains relatively tight so many homebuyers find themselves in the rather unsavory position of having to bid obscene premiums above asking prices to be competitive against investors on prime properties.  Investors for their part have very good credit ratings and can get leveraged returns in the double-digits, justifying ever higher offers.

When will this end?  It’s hard to say only because it’s so early in the cycle for housing.  We’re still far below the price records of 2007.  Many Bay Area condo communities are still 60% below the peaks, making the recent 10-20% price spikes seem trivial.  Plus, much of the price appreciation is being driven by cash or cash-heavy buyers who aren’t going to be affected even if interest rates rise.  And, with rental returns still very solid, we may be in the middle of a steep 2-3 year recovery cycle.  While occasional speed-bumps on the path to recovery are unavoidable, the savvy investor or buyer will lock up good deals whenever possible as the housing market makes it way back toward the peaks.

To make sure you’re prepared to succeed with your home purchase, you need to do these two things:

• First, make an assessment your personal finances and get your financing in order.  If possible, find a licensed financial advisor (available at Archers Homes) to help you understand your cash needs and long-term objectives.  Then, talk to a loan officer early and obtain a pre-approval letter with a direct lender.  Keep it current.  Long gone are the days when sellers would accept offers without accompanying proof of funds and financing.
• Second, get yourself a good buyer’s agent.  In the past, some frustrated buyers who had poor experiences during the boom days with inexperienced agents stayed away from all agents; they’re doing themselves a disservice.  In today’s competitive market environment, a skilled buyer’s agent is your main competitive edge, helping you to navigate a rapidly shifting market place and giving you a fighting chance to get the home you want this year.

Here are some tips on what to look for in a good buyer’s agent.

1.       An effective communicator:

One of the top complaints from buyers is a non-responsive agent, and deservedly so.  Real estate is a people business.  When it comes to winning deals, a buyer’s agent needs excellent communication skills and responsiveness with all parties involved.  To save yourself headaches and frustration, find an agent who really speaks to you from the get-go.  This is not just about speaking the same language.  It means an agent who adapts to your communication style.  Whatever you preferred method of communication, be it a phone call, text message, email, video chat and what not, your real estate broker should be able to respond with a timely message, ideally within hours if not minutes.

2.       On top of the market trend and local data:

The real estate market is in flux and the recovery is highly localized.  The agent who is plugged-in can help you access the latest data and make the best decision.  At the introductory meeting, ask the prospective agent a few questions about trends in the local market.  Have the agent explain the rationale behind each trend, like school ratings, employment levels, mortgage rates, or home prices.  If he or she appears to know less than you, move on.

3.       Tuned into your needs and timelines:

Many buyers avoid getting an agent because they don’t want to be pushed to buy anything.  Certainly, nobody should be pushed into anything.  A good agent should advise and guide you.  She should take the time to understand your needs and match you with a suitable property within your budget.

This relationship is a two-way street.  The buyer should do their part to be honest and communicate your needs and timelines.  Don’t try to draw attention from agents by boasting that you are ready to buy now or want something much higher than your budget.  You will end up with what you’ve asked for — a pushy salesperson.

If you merely want to monitor the market and are not yet ready to buy, tell your agent so your agent won’t rush you.  In a hot market, good property can come and go within days, so you need to tell your agent when you’re ready to act decisively.

4.       Organized and attentive to details:

Thanks to all the new regulation created after last housing bubble burst, real estate business has a lot (and I mean a lot) of highly regulated paperwork — from the initial offer, to inspection reports, to endless disclosures, to closing statements from the title company and the lender.  Besides the sheer volume, time is of the essence.  All the paperwork have to be reviewed, completed, and reviewed according to a very tight schedule.  It can easily overwhelm any buyer and even novice agents.  A good agent can help you make sense of the myriad of documents and make sure each time-sensitive task is completed according to the contract terms.

On the road to real estate success, a buyer’s agent is like a car.  You should always start your journey with a good one.

Today, as I pursue my own goals of being a profitable investment Realtor, I’m still monitoring Redfin’s cost-efficient model.  For me, rather than focus on whittling away on a single percentage of cost saving, I believe it’s more important to find deal opportunities for 10-20% savings.  So, when I saw this press release from Redfin about its most recent investment round of almost $15 million, I had mixed reactions.

On one hand, I’m very glad that Redfin seems to have reached cashflow positive and has a sustainable business model.  At least we’ll all get the chance to follow its progress for several more years and see if it’s able to affect greater changes on the industry.  On the other, Redfin’s CEO candidly admits that its operational model has limits in terms of efficiency, still suffering millions in losses on a seasonal basis.  So, while Redfin may only need the money from this round for a rainy day, it’s still facing tough competition against the entrenched players in the industry.

Finally, my favorite data point is the fact that there’s $60 billion dollars in real estate commissions being paid out, implying that there’s somewhere around $1-1.5 trillion dollars worth of real estate is still being sold each year.  While this is no where near

the peak rates, it’s still a fairly healthy amount of turnover for a total real estate asset value of about $40-45 trillion.  During a more typical year, about 5% of real estate changes hand.  So, despite all the doom and gloom about real estate, life goes on and people are still buying.  As for me, I’ll continue to focus on finding great deal opportunities for my clients that can yield 10-25% returns.

Needless to say, it’s hard to know what to do.  Honestly, I can offer no answers.  But, I’m inclined to follow the smart money, which happens to be the wealthy top 1% who have done well in spite of the last two bubbles and can influence the growth of their wealth.  At the moment, most of them are concerned about an imminent collapse in the value of the dollar from both record monetary expansion and giant entitlement obligations from Medicare and Social Security.  The debt ceiling may just be the proverbial straw.

So, reminiscent of other historical episodes of high inflation, the wealthy are piling into classic inflation hedges like gold and other commodities or anything able to generate strong cashflows, including performing real estate.  Some are even fancying farming.  For the masses, the implication is clear.  Unless our government engineers some massive wealth transfer from the upper classes, we might as well place our bets alongside the wealthy.

While some gold bugs are calling for gold to reach almost unimaginable highs of $5000-7000 an ounce, that is a real possibility since most people haven’t invested in gold yet.  Then again, most people didn’t believe gold can go from $700 to $1500 in just 2 years.  But, you can’t eat or live order cialis in gold.  And, it won’t pay any dividends.  So, if inflation is coming, hard assets like real estate are the safe bets and even better than gold.  Amazingly, real estate is still falling.

When is the absolute bottom?  It’s impossible to tell since the government can decide to change the game at any time.  If we assume they leave things the way they are now, then we’re likely looking at a bottom in the next 12-15 months as investors absorb the excess inventory.  The actual bottom itself will be nearly imperceptible, as it will seem to drag on indefinitely, keeping the weak buyers out of the market.  Still, knowing what properties to buy remains critical to success, just like in the stock market.

Savvy buyers are picking up quality properties that offer 8-12% returns.  If you want assistance in investing $500K-5M, please contact us.

These investors are now able to leverage their stronger currencies to buy deeply discounted,

distressed US real estate at a further 30% exchange rate advantage compared to just 2-3 years ago.  Even investors from China, with their tightly controlled currency, enjoy a 20% price advantage against the dollar.  Considering that local investors are already driving hard bargains and getting returns of 12-15%, even in California, the additional currency exchange rate discount just makes our distressed properties seem dirt cheap.

For foreign investors, today is a great time to take advantage of their strong currencies to pick up performing hard assets in the US.  Unlike US sovereign debt which is non-recourse and on the verge of credit rating downgrades while only offering 0-3% returns, performing US real estate offers strong asset coverage while offering double digit returns.  Since vacancy rates in the US are dropping rapidly from the 3-4 million new renters from the recent housing bust, rental rates will continue to improve, providing further downside protection.

Meanwhile, there is always the small possibility of shocks to the global financial system either from exploding commodity prices, escalating sovereign debt issues in the EU, or military actions from unstable nuclear-capable states.  In any of these long-tail scenarios, the global flight to safety will drive up the US dollar, reversing the currency exchange advantage of foreign investors.  But for those foreign investors who invest today in a performing US property, they will have a powerful hedge against the appreciating dollar with higher converted rents.

For more information on how to invest between $250K-$1M in US real estate and get a professionally managed return of 7-10%, please contact us.

Domestic investors have been aggressively bottomfishing all the distressed properties available from overwhelmed banks and despondent mortgage investors.  Through a number of available channels, properties in once hot areas around California, Arizona, and Florida have dropped up to 90% from their peak in 2006-2007.  Many of the very best deals require all cash purchases, which leaves them out of reach of most individual investors.

However, for those who have held on to their cash, today’s housing environment offers a once-in-a-generation buying opportunity.  While prices of many regular sale areas have high potential for another 10-20% decline, the prices of many deeply distressed properties in second and third-tier cities have dropped so far, they can be paid off with just 2-5 years of savings for the average future buyer.  So, unless average income implodes by 50% over the next 5 years, these distressed property deals offer very sustainable values.

In addition, many of the distressed properties are in solid blue collar communities with regular and dependable renters.  Since many under-qualified buyers found themselves whisked into new homes with questionable lending practices and then unceremoniously evicted, they are leading the decline in rental

vacancies and offer a strong customer base for rental landlords.

With distressed properties at steep discounts, rental yields are now reaching 12-15% in certain areas, even within California.  So, while general real estate prices have further to fall over the next 12-15 months, now is a great time to pick up a few strong cashflowing properties.  Of course, as with all investments, knowing the right price is critical, so give us a call to get a professional at your side.

I recently went to a live residential properties auction for the San Francisco Bay Area. When talking about house auction, most people associate that with court house auctions or trustee’s sales which all to-be-foreclosed properties have to go through so that it will be sold to the highest bidder or to be re-possessed by the banks. The problems of trying to buy a house at court house auctions are 1) Houses usually get pulled out at the last minute. It is hard to do the buyer’s investigation ahead of time.  2) The starting bid is typically set at the balance amount which is usually way above the fair market value. 3) You need to pay cash for such properties. All these 3 reasons make auctions feasible only for seasoned investors.

The auction I went to was a bit different. First it was an auction of bank owned properties of about 70 properties. That means these properties have gone through the trustee’s sale. Many have been selling as bank-owned properties for awhile. When they don’t sell, banks seek other channels such as internet bidding. While it still doesn’t sell, then it is sold in the live auction. Second, financing is available for a subset of properties through Fannie Mae Homepath or another national lender. Third, all properties to be auctioned will be posted for weeks ahead. Disclosures are posted online and they have the open house available for inspection.

Last, you can bid at the comfort of your home via live webcast. Below is the screen shot.

You can listen to the live streaming of the auction with only sub-second delay and bid anytime with a click of the button. It’s much more pleasant than sitting for hours at the live auction.

Before you jump into it, there are also some warnings. All properties are sold as-in, where-is. You have to do your own due diligence. And some may still be occupied and it’s your responsibility to evict the occupants. And there are still reserve prices. The one I went about 40% of properties went into contract. That means the winning bid met or close to met the reserve price. You have to pay attention what the auctioneer says at the end of the auction to know whether the bid has met the reserve.

If you are eager to try but are not sure how, you should go with a realtor who is familiar with auction as your bidder’assistant. If you want to know more details, ping me.

First, by trading up, these homeowners are opting to sell their homes at either a small or negligible loss so they can purchase a property in a prestigious neighborhood at a steep discount. These are usually million dollar neighborhoods with a few distressed homes that are being sold for 30-40% discounts, even steeper drops than more modest and affordable neighborhoods. Often, they are able to get such a home for little more than what they paid for their current home. Similarly, townhouse homeowners are able to trade up to single families with a bit of financing lifting and foresight.

While taking a loss is hard for anybody to stomach, I commend these homeowners for using this situation to get into a home that otherwise would have remained out of reach even in times of easy credit. The calculus is cold and brutal. For a loss of around $30-100K, they’re able to save $300-500K on a prime property. This is not for the faint of heart.

Meanwhile, another group of homeowners are trading up by actually going against the prevalent trend and moving out into the exurbs. Out there, they can easily buy a home twice as large for half the price. Plus, many of the homes are nearly brand new, having sat empty since the housing bust. This is possible as the telecommuting culture is pretty mature in the Bay Area and many technical workers don’t ever have to show up at the office, negating the enormous burden of high fuel costs.

Of course, the first strategy is predicated by a belief that home prices in California are not about to revert back to the national median. As for the second, it’s a great way to hedge against further price declines since prices in the exurbs are already at the national median.

Hence, I always advise property investors to either spend a small bit of time and money to hire an investment advisor or work with a broker with an investment background. The additional cost is really minimal when considering the sums involved. For a few hundred dollars or even at no cost with a investment properties broker, you get powerful advice which can make or save you hundreds of thousands.

For example, my neighbor is a property investor. He gets a good rental rate on the property and tried to sell during the last legs of the housing boom in 2008. At the time, the market was falling apart and he couldn’t get a buyer. So, listening to his real estate agent, who professed to be financially savvy but had no investment advisory license, he was told that he should relist in the following year when the price should have sharply rebounded. Unfortunately, rather than base his decision on solid analysis, he followed his agent’s blind optimism.

Today, with prices down over $130K, he finally has the clarity to stop working with that real estate agent. However, instead of working out his projected returns going forward, which would be quite good given the increasing rents and today’s low prices, he opted to just cut his losses and sell through a different agent. I get the sense that he was just fed up with poor advice and really got nervous that his principal was evaporating.

Aside from his current loss and lost future earnings, I’m rather concerned that this person’s experience probably left a bad taste in his mouth about all real estate professionals.