There’s always something to howl about.

Category: Investment (page 1 of 20)

Get up. Get Out. Get Contacts. Get Paid.

If you are following my journey, we moved to Tampa/St Pete FL last year.  We still have a home in San Diego but spend most of the year in Florida. The reasons are plentiful but, when COVID lockdowns hit, it gave me a chance to start a new “product line” (commercial real estate loans) in a new location.  The move isn’t without challenges.  Although I can lend nationwide, most folks want to work with a local lender unless they have a prior personal relationship.

How did I parachute into Florida and build up a profitable mortgage brokerage business in 15 months?

1- I worked my inactive client database.
2- I added Florida agents, whom I met at industry happy hours, to my weekly email list
3- I try call 5 inactive clients and 5 agents daily.  Few people answer their phones now so I usually end up leaving messages.

Last year started off really well.  Our Florida purchase volume was about half of our California purchase volume.  My goal for 2022 was to have our Florida volume to exceed of our California volume. 2022 was shaping up well until St Patrick’s Day-volume got weaker through Memorial Day, then even weaker by Labor Day, then it damned near dried up through now (Thanksgiving).

A month ago, I decided to try something different.  Calling agents and inactive clients is still a daily discipline but it gets depressing when few calls are answered.  I decided to do some “in-person canvassing”, one day each week, to meet business owners in and around St Petersburg.  Pinellas County is a hodgepodge of independent businesses so I decided to make a goal of having 25 conversations each day, each time I went out.

First, I went to the charming seaside village of Dunedin.  The local Chamber of Commerce gave me a map of 145 businesses within one square mile.  I met:

-8 real estate agents,
-6 bar/pub/restaurant owners, and
-13 shop owners.

16 of those people owned a home and 2 owned investment properties.  12 people gave me permission to email them a bi-weekly newsletter.  4 of them said they would like to own investment properties.

Last week, I visited Read more

Get over yourself and start living

We speak a lot to real estate agents and lenders here on Bloodhound Blog.  We hope (and know) that consumers read our work because we think you can learn a lot when you watch “industry folk” interact with one another.  We’re a fast crowd here– we challenge the status quo a lot.

Today, I want to talk to you, the watching consumer and I am going to speak directly to your fears about buying, owning, and/or selling a home.  I am not going to get into the weeds of your personal situation but I want to highlight one thing.  You CAN own a home in this country and most everybody who writes on Bloodhound Blog can help you.

Today is the anniversary of D-Day.  War is never anything to be celebrated but we can learn a lot from those who wage war.

June 6, 1944

You are about to embark upon the Great Crusade, toward which we have striven these many months. The eyes of the world are upon you. The hopes and prayers of liberty-loving people everywhere march with you. In company with our brave Allies and brothers-in-arms on other Fronts you will bring about the destruction of the German war machine, the elimination of Nazi tyranny over oppressed peoples of Europe, and security for ourselves in a free world.

Your task will not be an easy one. Your enemy is well trained, well equipped and battle-hardened. He will fight savagely.

But this is the year 1944. Much has happened since the Nazi triumphs of 1940-41. The United Nations have inflicted upon the Germans great defeats, in open battle, man-to-man. Our air offensive has seriously reduced their strength in the air and their capacity to wage war on the ground. Our Home Fronts have given us an overwhelming superiority in weapons and munitions of war, and placed at our disposal great reserves of trained fighting men. The tide has turned. The free men of the world are marching together to victory.

I have full confidence in your courage, devotion to duty, and skill in battle. We will accept nothing less than full victory.

Good Luck!

And let us all Read more

How To Fix Florida Homeowner’s Insurance Costs

This morning, The Wall Street Journal sounded the alarm about the ticking time bomb in Florida real estate.  It’s behind a paywall but I will try to highlight some key points for you:

1- Florida homeowner insurance premiums are increasing by a double-digit percentage
2- Insurance companies are withdrawing from Florida market because of catastrophic costs (hurricanes, etc)
3- Republicans in the Florida Legislature want to solve the problem with tort reform
4- Democrats in the Florida Legislature don’t want to remove ability to litigate
5- Neither address the fact that beachfront property insurance is heavily subsidized by taxpayers

Why would this arrest or reverse the Florida real estate boom?  While there has certainly been an increase in all-cash transactions, most properties in Florida are purchased with financing.  Mortgage companies will require certain property insurance coverage as a condition of approval and underwrite new loans with those (increased) costs analyzed.  Let me break that down for you:

Let’s consider a median-priced, single-family home in Pinellas County FL, selling for $295,000.  Someone could buy that home, with an FHA loan with a 3.6% APR, with $18,000 for a down payment and closing costs.  The monthly payment would be about $1750.  A family with the Pinellas County median household income of $5000/month can afford that with a 35% housing ratio.

Now, let’s double the homeowners insurance, from $150/mo to $300/mo and add .5 % to the mortgage annual percentage rate.  The monthly payment jumps to just under $2000, and increases the housing ratio to 40%.  Unless the median family income jumps to $69,000, there will be less buyers for the home, currently priced at $295,000.  If incomes are stagnant, the higher mortgage rate (likely) and the doubling of the homeowners insurance costs will drive the price down to $265,000.

A drop in prices may be unlikely because of the nationwide supply/demand imbalance but it’s likely that Florida property prices may flatten for a few years.

What’s the solution?   More market,  less government..

Let’s start here; do away with the National Flood Insurance Program.    If we can’t “close it”, seriously reform it.  NFIP is a wealth transfer from working-class homeowners to upper middle-class beachfront Read more

Listing and Selling A San Diego Home The BloodhoundBlog Way

I am a California real estate broker.  I don’t sell a lot of homes and prefer not to have a robust brokerage business.  My business partner (and wife of 22 years) and I make our bread by funding residential and commercial loans, the former in California and the latter nationwide.  Many of my commercial lenders require a real estate broker’s license to earn an origination fee

I refer (at no cost) some 8-10 buyer clients and 2-3 listing clients per year.  I stick to my knitting and refer out the brokerage business but once a year, a situation presents itself that I just can’t refuse.  This year, it was listing and selling a townhome in the Carmel Valley section of San Diego.

This new client was a referral from my friend.  The seller is an engineer so my friend felt that my analytical skills would match up perfectly with his needs but, more importantly, this guy was frustrated because his original real estate agent wouldn’t call him back.  He tried one of the “brand name agents” in his area but only one of the junior “team members” called him.  My  friend asked if I could just call him and help him get his home sold, whether I did it or referred it out.

I called him and met him at his home in May.  His home was a 1200 square foot townhome in a high-demand San Diego neighborhood.  The property was in perfect condition with designer upgrades to the bathrooms and flooring.  We discussed keeping the home as a rental but, in the end, he wanted to sell and asked me to list it in the Fall.

During this period, Greg Swann was talking about his listing and sales success using, among other tactics, a transparent marketplace (watch the video, it’s the third topic he discusses).  Greg has a three-step praxis for listing and selling properties:

1- price to fair market value
2- list in increments of $5000 (rather than the XXX,999)
3- ***  disclose offers as they are received,  in the confidential remarks  ***

I shared Greg’s video with my client and he, like me, loved the idea Read more

The Real Estate Correction of 2021

Over 13 years ago, I tried to explain how mortgage securitization would cushion losses to investors and lessen the negative effects of mortgage defaults to real estate prices:

Basically, the Titans of Wall Street never had to answer for the performance of these loans because the money managers wanted that last little bit of yield the risky or exotic mortgages produced. The rising housing market would disguise the loose guidelines (defaults would just be refinanced) and everyone would make their little golden crumbs as the vanishing loaf was buried deep in the breadbox. If that wasn’t enough, the lenders would buy securities firms and the securities firms would buy lenders, all of them buying time before the cat got out of the bag.

Then Alan Greenspan raised interest rates and all hell broke out. Rapid growth in housing arrested and the refinance boom stopped. Alas, the lenders and Wall Street Titans kept the easy money machine flowing. Think about it, it wasn’t their money, it is yours…so why close the bar tab if you never intend to pay it ?

Now…here is the part where you should be infuriated but don’t have to be… This crap has been buried in so many funds that it won’t have too much of a lasting effect. The debacle that we read about will be paid for by you, Mr. and Mrs. America with the $57,254 balance in your IRA account. And it is going to hurt you, probably to the tune of two or three grand. That means these HUGE default rates we read about MAY lower your IRA balance to $54,819 next year. If you’re 50 years old, it means that the monthly check you draw from that IRA when you are 70 years old WILL be some 38 bucks lighter because of this mess.

I was correct in THEORY but things never work out theoretically, right?  Just 18 months later. I posted that same article with a Mea Culpa:

I’m kicking this one up to the top, in honor of today’s events.  It’s a historical look about the early MBS markets.  Now before you jump me for my incorrect Read more

A note to our rental-home investors: Influx just lacks majesty, but it’s the upside of an exodus.

“Welcome to life off the lead, puppy.”

Me today to our buy-and-hold rental property investors:

It’s not well-reported, except in the form of secondary evidence like U-Haul rates and MLS listings and closings, but very-vertical cities are emptying themselves to the benefit of very-horizontal communities. Congratulate yourself again for investing in Phoenix, the world’s largest suburb.

At the moment, we are on fire, and that is unlikely to abate quickly. Demand far exceeds available supply, and the builders are better at writing contracts than erecting structures, for now. Rental demand is strong, too.

Prices have been strongly upward since the first wave of the exodus, surging with the second wave. The absolute strongest marketing characteristic for a home in Metro Phoenix right now is availability.

That’s good, but will it last? The big short-run fear would be whiplash from mortgage forebearances. Foreclosures or sales in lieu of foreclosure could be enough to cool our overheated demand. On the other hand, late-adopter first-time home-buyers are scooping up suburban parcels, too, as a part of the urban exodus.

We were nearing the top of this market in March, and the top is out there still. There is now nothing like a national real estate market, and it could be that 10%-20% of the nation’s housing stock is being abandoned. What seems certain is more rather than less volatility.

Every one of our investors is sitting on a huge amount of accrued equity. That creates a tax problem, if you sell, unless you can effect a 1031 exchange into another real estate investment. But: If you can, now or sometime soon might be the time to think about banking a riskier win into a safer refuge.

Meanwhile: Excelsior!

Vacation Rental Investing: Perdido Key, FL– Purple Parrot

How about a vacation property, on Perdido Key, Pensacola, Florida, which cash-flows with just 25% down payment?

This Realtor-listed property sold for $238,000 in November of 2019 and this FSBO sold for $242,500, two weeks ago.  Both properties are 2 BR 2.5 bath bungalows and are in the Purple Parrot Village Resort, a community of about 150 bungalows on the east end of Perdido Key, walking distance to Johnson State Beach, a half-dozen restaurants, and less than 10-minute drive to two golf courses, a dozen restaurants, Big Lagoon State Park, and the world-famous Flora-Bama Bar and Marina on the Alabama state line.

While there are no similar properties listed now, a few of the 2BR, 2.5 BA bungalows turn over each year and its; likely that one of these can be purchased for less than $245,000.  Let me walk you through how I analyze  or “screen” properties like this one for investing purposes:

I star by using the public-facing rental calculator on the Vacasa website to get a rough annual income estimate.  When adjusted for the amenities, it shows $45,000.  That is above the average for the area so I adjust downwards (to the average) to arrive at $39,000.  Vacasa (and most other vacation property management companies) charge a 30% management fee so our adjusted annual income will be $27,300

We plug in the following annual expenses:

$1500  for Repairs/Maintenance
$2800  for taxes
$8400  for HOA fees
$  300  for insurance
$10,788 to cover the 30-year fixed rate mortgage, for $183,750, at 4.125% (4.38% APR)

As a Vacasa-Certified Real Estate Broker, I have access to some pretty nice analytical tools so here are the numbers in a nice report.

The down-payment plus closing costs will cost you approximately $66,000 and, while it’s not uncommon to purchase these properties furnished, you may want to spend $5,000-10,000 changing/updating the furnishings.  Your investment then, should be around $75,000.

I can’t predict the future but I do think these properties will double in value over the next 20 years.  Let’s assume it only appreciates at less than 3% annually and, in 20 years, sells for $375,000.  If we assume selling costs of approximately 8%, that should net Read more

Three reasons why New York and San Francisco aren’t dead

“The reports of our deaths are greatly exaggerated”– New York City and San Francisco

The Bloodhounds have been talking about San Francisco and Manhattan’s death over on Facebook.  The general consensus is that they have been ruined by Marxist mayors (they have) and become much too expensive for people to live, work and play (they have).  The pandemic exacerbated these flaws and now that everyone is working from home, these cities are destined to crumble into ruin.

Greg Swann fired a shot the other day, right here in Bloodhound Blog.  I don’t dispute that both cities are in trouble.

This graphic shows the growth in year-over-year housing inventory.  While most of the country is experiencing actual declines in housing inventory (less homes for sale than the year before), NYC and San Francisco have more homes for sale than the year before.

Some reasons for the decline in housing supply are:

(1) homeowners are hunkering down because of the pandemic,
(2) some homeowners are in trouble and taking advantage of the mortgage forbearance program.— they are delaying the inevitable sale,
(3) new housing construction has slowed or halter in most major cities.

Greg Swann went so far as to suggest that cities might be dead forever, thanks to the internet and remote work opportunities.  While his criticism of poorly run cities is valid, the notion that the future of work is a “laptop in the basement” is not.

I am the one of the most tech-friendly Luddites you’ll ever meet.  If an app or platform is relatively easy to use, I embrace it.  Back in the early days, I was teaching real estate agents and lenders how to build IRL networks from social media.  I have been doing that since 2003.  The key component to success in online networking is to connect online but to meet, and develop a relationship in person.  Human beings are mammals and we like to cuddle.  The cuddlers will be more productive than the email-ers every time.  Keep this in mind when you think that humans will scatter to the mountains and do business on Zoom forever.

Here are three reasons why neither San Francisco nor New Read more

Eight reasons to own vacation rental properties

While we earn most of our money from our mortgage brokerage business, I started helping investors buy real estate some 5 years ago.  Working in San Diego, I have seen just how profitable vacation ownership has been for long-term investors.  If you follow me on any of my social sites, you will see that we just traveled to the Florida Panhandle to look at some of the best areas to own a vacation rental property.   Subsequently, we entered into a strategic partnership with Vacasa, the nation’s largest vacation rental property manager.

Here is an incomplete list of reasons why we think vacation rentals make sense for most investors:

1- Landlords get paid up-front.  When this COVID panic hit, politicians in every level of government instituted eviction stays, denying landlords the right to remove tenants who couldn’t afford the rent.  When you own a vacation rental, the typical stay is 7-30 days and you get paid by the renter before they occupy your property

2- The capitalization rates are better than long-term leases.  Properly managed, vacation rentals produce between 1.6 and 2.1 times the annual income which a long term lease would produce.  A vacation rental requires much more active marketing and management and, for that, vacation rental property managers take a healthy management fee but, after that is accounted for, the net operating income is still better than a long-term tenant.

3- Vacation rental properties are maintained better than those with long-term leases.  This seems counter-intuitive but, because of the active management, the properties are kept cleaner and repairs are addressed immediately.  The housekeeping service is usually passed on to the vacation renter and many of the repairs are covered by that renter if they break it.  Routine maintenance is addressed immediately because the vacation rental needs to be in top-condition to be rented again– tenants don’t “hide” small problems (which can become big problems)

4- Owners can take a vacation in their property.  While using the property can eat into profits, there are seasonal vacancies which can be expected and, if the property is within driving distance, the owner can use the property for leisure Read more

“Americans will downsize and live multigenerationally, in order to offset the fraud they know exists in real estate. Until there is wage growth, and that could be years or decades away, people will not trust any upward movement in real estate values.”

A searing indictment of The Bernanking System in Business Insider:

Once people start to come out of negative equity, even more of them will sell and try to get out from under the cloud they are under. So, the housing bubble orchestrated by the Fed and by the hedge funds and by the wealthy could free up massive inventory. The average person fears negative equity. The Fed will not erase that memory.

The only way people will risk negative equity is if their house prices are cheaper than rent. But the artificial inflation of housing prices will do nothing but push the average Joe away from housing.

Keep in mind that about 4.4 million houses were sold in 2011 and only 2.4 million mortgages were taken out for purchase. That is a mortgage depression and the rise in house prices has not changed that mortgage depression.

People are learning that the uptick in prices is a scam, both by banks withholding massive inventory, and by the Fed making more easy money available to the rich. Once they own most of the inventory, they will be forced to initiate a housing bubble or they will be stuck with the properties.

Primary Home – Investment or Liability

Pre-2007, I am not sure this topic would have even been controversial; people not only regularly utilized their home as their “primary investment”, but often, treated it as their personal piggy bank.  In hindsight we can all judge others as we secretly lick our own wounds from a vicious downturn no saw coming, but that experience left a visceral taste in many mouths.

Most experts would suggest that your primary residence is not an investment.  Why, you ask?  First, you purchase a home based on need.  Your buy and sell decisions rarely spring from analytical thinking around market timing.  Instead, most times, they are rooted in your changing life needs.  Second, investment strategy wages a secret war with your personal desires.  For example, I want a tricked out man cave equipped with a full wet bar, bathroom and other appropriate amenities.  Am I thinking about the return on my investment, or the endless joy my friends and I will have watching football on Sunday, Monday and Thursday?  Sure, I will likely increase the value of my home with these upgrades, but the anemic return on investment, if any, would never be worth the money.  Said differently, would you make the same upgrades to your rental property; probably not.

If it was that easy, I wouldn’t write the article.

I will start with a question.  Is it easier to invest in stock or buy a house?  Right now, Berkshire Hathaway Inc. (NYSE: BRK.A) trades at $128,175 per share.  Its five year performance has been strikingly similar to the performance of many real estate markets.  If you have a job making $50k and $7k in the bank, do you think you will ever in your lifetime own a share of Berkshire Hathaway A outside of a very lucky lotto ticket?  The answer is unequivocally no.  You don’t qualify for the right to buy on margin and even if you did, where would you get the 50% required to do a margin buy?  And how would you live on the prison food when the margin call comes?  All important questions to consider…

Now, let’s take that same fellow Read more

Where is the Real Estate Market Going Today???

If you are like me, you have a random sampling of news websites to keep you abreast of the happenings of the world every hour or so.  It’s the age we live in; every data point, story, press release, blog post triggers a monsoon of pundits and analytical analysis that either sends you running for the hills or tripling down on your latest investment.  If you don’t believe me, scroll through this reputable blog and tell me how I should be the most confident in years on Tuesday then be disappointed in home sales twice only a week later.  With everything out there, how do you find the truth?

First, understand the underlying data.  As it relates to real estate, one needs to be especially cautious.  Data may or may not be adjusted for seasonality, it may or may not be a selection of particularly poor or particularly good markets, it may be new homes vs. existing homes, etc.  With the need for new headlines every hour, data can and will be manipulated to tell whatever story is the flavor of the moment.  Personally, I always start at one of the sources.

Second, understand the basics of real estate.  Unlike the stock market, real estate is slow moving, plodding, and a hyper-local asset class.  Despite what the headlines might say, you have not missed the bottom in many locations.  If you are looking to buy a single family home, tomorrow will be just as good a day as yesterday, as will six months from now.  Interest rates tend to move on a quarterly basis and rarely increase more than 0.25% in that time span.  Sure, your neighbor might have a 3.75% interest rate, but your 4.25% will put your payments close enough and will still be historically, the lowest in our history.

Investors will likely need to act with more urgency.  In most of the hardest hit markets, institutional investors (i.e., private / public corporations with lots of money to spend) have quietly been buying up homes at a breakneck pace.  Trying to find a bargain in Florida or Nevada is no longer a Read more

The Chupacabra, Loch Ness Monster, and the Most Rare Sighting of All; an Amazing Broker

It’s been quite a while since I last wrote on Bloodhoundblog.  It certainly doesn’t mean that I have been absent; frankly, it just means I have been too busy to take 30 minutes and compose an interesting thought provoking piece of writing up to the standard we have all come to know and love on this site.

But I digress, as a real estate investor I have only worked with two great brokers in my entire investing career.  I find most run-of-the-mill brokers to be under-educated, uninspired, and more interested in cashing a check by any means necessary than actually meeting my needs.  The first broker was a dynamic “buyers” broker, who understood my investment goals and my available capital.  Rather than over promising and under delivering, she relentlessly showed me house after house for 4 weekends straight until we found the right quaint little fixer-upper in my price range.  Her reward, a $2,000 commission on a $40k home sale and my testimony.

What was my testimony worth?  I did two more deals with her, both taking much less time and for a much higher dollar value in the next year (+$10k to her bottom line).  I did another deal with her the following year for another $10k to her and I referred her like crazy to all of my investing friends.  Even if none of them bought a single thing from her, she turned a $2k commission into $20k, at no additional cost to her and very little time thanks to her investment in me and her in-depth market knowledge.

Realtor number two is basically the same story, but add a few more zeros given some career advancement and price appreciation (Detroit vs. New York City).

From a buyer’s perspective, I am looking for the following qualities:

  • Market Knowledge – I don’t need you to print off a list of 80 comps (not reviewed 90% of the time) and ask me what I think.  I need you to send me a targeted list of homes you have been inside and already know will meet 90% of my needs.  I need you to know why this Read more

CNBC: “In the name of supporting home prices, the Obama administration will likely put in place a system under which investors make private profits while the taxpayers subsidize the risk.”

Is housing the next Solyndra? Looks like it. The Obama administration is getting ready to transfer billions of dollars worth of foreclosed homes to campaign donors. If you think still more Rotarian Socialism sucks, wait until the house up the block from yours goes Section 8. Looters never tire of loot, so rent money they don’t have to earn will turn out to be the perfect garnish for real property they won’t have to pay for.

We are living in Part Three of Atlas Shrugged