Thursday, August 28, 2008

There are always opportunities

My Real Estate Prognosis

People have been asking my opinion on what's happening in the real estate market with all the foreclosures and banking (mortgage derivatives) problems and the rising unemployment rate.
One of the maxims of real estate investment is to buy the worst house in the best neighborhood. A lot of investors are picking up houses in good neighborhoods at prices we haven't seen for 4 years. I saw $300,000 condos in Oxnard, less than a mile from the beach going for less than $160,000 needing minor cosmetic work; some of these were bought and resold for $190,000 in a couple months. There are still bargains like this out there if you know where to look. If you have the capital and credit rating now would be a good time to buy.
In the early and mid 90's, outlying areas like the High Desert (Palmdale, Lancaster, Victorville, Hesperia, Apple Valley) essentially dried up with lots of vacant homes left empty on the market. In these areas, and areas like them (Hemet & Banning in Riverside, Santa Paula in Ventura) qualified buyers will be able to pick up really homes even more cheaply in the next six months to a year. However, those who wait too long will find that the homes in the better neighborhoods and near large employers will be bought up by many first time buyers who are now able to afford California real estate, and investors who are buying for long term appreciation and rental income, or just to "flip" after doing cosmetic repairs. One of my clients whittled his list of 50 potential properties down to 6 and found that 3 of those were already in escrow or contingent on inspections. This goes back to people buying up the homes in nicer areas or getting bargain basement prices on other homes.
In the Victor Valley, a lot will depend on how soon the rail spur into Southern California Logistics Airbase (SCLA--the former George Air Base). This will generate many new jobs in the area, and will increase property values around the base. Much of the older housing west of the base, and east of 395 will need to be updated or redeveloped or it will remain a blighted low income area. The newer tracts within Adelanto will see a resurgence in value and they present a lot of potential for profit.
For those readers who are renting, it's definitely time to start looking at buying. For those who are looking for rental properties, there are a lot of opportunities to buy housing in many places for less than it would cost to buy the land, pull the permits and pay the new higher fees ($35,000+ for a 2000 sq. ft house in Hesperia), and build the house ($70-135 sq. ft with $100 being average). What this means, of course, is construction of new homes has slowed down. On the up side of that, is now might be the perfect time to find a good deal on remodelling your home or constructing an addition to your home.
Unlike two years ago, when contractors were hiring just about anyone who could breathe, and you were lucky to be able to get a contractor to call you back, and they were backlogged for 2 weeks to 3 months, it is fairly easy to find people who are eager to work on your project. This is good for investors and homeowners as the surplus of construction workers and limited demand for them makes for lower prices in most cases.
Be careful to hire only qualified professionals. Get several references from anyone that you get a bid from. While it might be cheaper to hire an unlicensed builder, if he or she does bad work, there is no bond to go after, and nothing to win in court, so you could not only be out the original cost for labor and materials, but you'd have to pay to have it fixed and buy new materials. An unlicensed contractor without worker's compensation insurance could also sue you or your homeowner's insurance if they are hurt on your property while doing work under your instruction.
My prognosis boils down to this: Near job centers and in better neighborhoods, the homes are going to be bought up quickly as young professionals who couldn't buy in the last couple of years, either improve their neighborhood, or shorten their commute, and as investors compete with them in the same areas. Many very cheap houses will be bought up by investors who will use them as lower cost housing. Many of the mid range houses will sit on the market for a while as bargain hunters compete in the better neighborhoods (gated communities, near the beach), the rental neighborhoods (these are easier to rent out as there is always a demand for low priced housing), and areas near major employment centers. Many mediocre REO houses will sit until the banks either sell them cheaply, because no bank wants to sit on inventory.

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