Multi-family properties have been the hardest hit segment in the desert area for number of sales during the current real estate downturn.

In July, 13 multi-family properties went into escrow, the largest number in over a year! Of the 13 properties, 11 were REO! The two non foreclosure sales were a high end quality 16 unit building in South Palm Desert and a 5 unit moderate building in Central Palm Springs.

All of the REO sales were older, fixer properties with tenant problems or were vacant. There are some opportunities in this area of the market. Investors need to be prepared to spend some time and money to resolve the problems with the properties however. This can often be lucrative so long as you know what you are doing and what to expect.

There have been a fewer number of foreclosure properties in multi-family because this type of property is mostly “investor owned” which means at least 20% down payment was made when properties were acquired. Owners with equity are less inclined to reduce their prices to compete with REO’s.

-- Jeannie

I am always frustrated how the media and other trade groups use statistical data to prove the point they want to make, thus I like to do my own statistical research. If you have read my web site previously, you are aware of how I “harp constantly” about UNDERSTANDING THE NUMBERS!!! Up to now, I have only charted inventory, new sales (pendings) and new listings.

I decided to check out some foreclosure statistics. I obtained these stats from www.foreclosure.com which I subscribe to. These numbers will not be perfect. I have noticed some duplications as well as errors on this website, however this is the best I have to work with and nothing is perfect.

My ratio of actual foreclosures to notices of default filed tells me that about 70% of properties that go into foreclosure are “cured”. This represents a 5% decrease in the cured rate from January, 2008, the last time I did this analysis.

“Curing” the default means the loan was brought current or paid off during the foreclosure period. After a notice of default is filed, the borrower has ninety (90) days in which to bring the payments current. Between the 90th day and the 120th day, the borrower must pay off the loan in full in order to save the property. After 120 days of being in foreclosure, a trustee sale can be held on the courthouse steps with the property sold to the highest bidder or just taken back by the lender.

The statistics show that, in general, the more affluent the area, the fewer number of foreclosures. This is partly because more sub-prime loans were made in the lower priced neighborhoods.

In reviewing these stats, foreclosed properties as well as properties that have had a default notice filed doubled in the three month period from January 08 to April 08!!!

-- Jeannie

It can be very profitable purchasing bank owned properties in the current real estate market. This endeavor comes with various frustrations that vary from lender to lender.

The optimum situation is where the lender/seller* responds quickly to offers, is knowledgeable and the transaction goes smoothly.

I have sold REO properties in the current market as well as in the last real estate downturn in the mid 90’s when we had the RTC/Savings and Loan debacle.

Here’s a few things to be prepared for.

1) Lack of logic. We know what the most economical/practical thing for a lender to do, but sometimes they don’t. Decisions are being made on behalf of the lender by an individual where “it’s not their money”. Resign yourself to being surprised.

2) Hurry up and Wait. It may take days to get an initial response to your offer. It may also take many days to get the signed sellers acceptance of your offer as well. Then once the lender has finally signed the acceptance, they may come back with additional requirements.

They will expect these “additional requirements” be met by you almost immediately or they will cancel your transaction and accept another offer.

3) Lender Addendums All banks have their own addendums that I am sure their attorneys spent many hours drafting and contemplating every remote possibility of liability they could think of.

These addendums put all liability on the buyer and have so many disclaimers on behalf of the lender you have no recourse if there is something wrong with the property.

4) State Mandated Disclosure Forms Check with your own state, but in California lenders are exempt from the required state disclosure forms if the property is an REO.

5) Property is sold “as is” Don’t even think about trying to negotiate any repairs or fix up. Most likely it will never happen. The best you can hope for is a repair credit.

6) Escrow with an REO Property So you have survived all the above. Now you are in escrow. The lender always selects the escrow company. Many times it will be in another city 100 miles away.

Keep copies of all your documentation. Items get lost quite frequently and you may be required to resubmit various documents. Remember, if you don’t, the lender will cancel the transaction and accept someone elses offer

Often the lender waits to return the grant deed which holds up your closing. I have never figured out why this occurs but it does quite often.

7) Your Real Estate Broker The broker that wrote your offer will be working on your behalf to handle all the previously mentioned issues and iron out the issues as they arise. Many times you may be frustrated and what your broker is telling you isn’t logical. Re-read item # 1.

Again, purchasing REO’s can be very profitable, but it is frustrating and time consuming. That’s why you are getting a great buy!

• The term lender in this article refers to the bank/seller of the property that you are purchasing.

-- Jeannie

Huge Decline in Multi-Family Property Values: Palm Springs, Cathedral City, Desert Hot Springs, Palm Desert, Indio aka The Coachella Valley

Since February 1, 2008 38 new listings in the Coachella Valley, from Indio to Palm Springs and including Desert Hot Springs.

No Sales.

Properties are listing for about 60% of their value in 2005.

Who has any equity left with this amount of decrease in value?

Cap rates need to get back to 6 or 7% for any activity to be generated.

-- Jeannie

I own several properties out of my area, so decided to list them with another broker. I don’t feel comfortable working outside my area of expertise.

I have received quite an education……I’m thinking it should be mandatory for real estate agents/brokers to actually have a working relationship with another broker where they are the client. This certainly gives a new perspective on the broker/client relationship.

First of all, I have always been reluctant to contact my client(s) unless I have something specific, either negative or positive to tell them.

I have discovered I like hearing from my agent, even if it just to say hello. The personal contact is important. Of the three agents I hired, only one responded without my having to make an inquiry.

I have always found it awkward to relay to clients what I have been doing for them, especially when it didn’t produce the results I was hoping for. I never want to appear as if I’m bragging.

I found I liked hearing “what they were doing”. At least I knew they were trying new things and actively working to sell my property.

Two of the three agents I listed with never provided any information or contacted me after the initial agreement was consummated. Each time I had to be the initiating party for any communication.

Never Assume Anything! One of my listing agents told a potential buyer that the AITD loan I was suggesting was illegal and might be a criminal act! An AITD (all inclusive trust deed) is explained in detail in the Real Estate Finance Class that licensees are required to take.

I will never in the future worry about having too much communication with clients.

-- Jeannie

I do my own research and opinions on this blog are only mine based on direct observations and research that I do on a daily basis.

I read the local Palm Springs newspaper, The Desert Sun, which can also be accessed as http://www.mydesert.com/apps/pbcs.dll/section?category=business04

An article published 2/12/08 “Dissecting area real estate woes” describes a different real estate market than I know in the Coachella Valley. This article states that the average home price has inched up in the last year. I am certain by selecting the right criteria a case to support this could be made.

The reality of the market as I am seeing it is that prices have fallen 35 to 50% in some types of product in this area.

Examples:

Three Bedroom, Two Bath Single Family Home, Desert Hot Springs, 1500 square feet, 15 years old, excellent condition.

Two Bedroom, One Bath “Indian Creek” Condo, Palm Desert.

Three Bedroom, Two Bath Single Family Home, Cathedral City, 1750 square feet, 15 years old, excellent condition.

The sales prices reflected above are under replacement cost. I would not anticipate prices falling much further.

-- Jeannie

Have you noticed how quickly we find out who the political winner is on election days? In times past, we waited late into the night while ballots were tallied.

With the efficiency of technology including the rapidity of information we now learn who the projected winner is within 10 minutes of the polls closing.

The stock market also encounters more volatility again because of information being so readily available.

When the news became negative every single day starting the second week of August 2007, the number of sales rapidly decreased. The decrease in sales further allowed prices to fall because of burgeoning inventory. More bad news comes on the internet and people become more and more fearful.

I believe this trend will continue until the news starts turning positive. I hope the prices come back as rapidly as they fell…….always a possibility!

-- Jeannie

Why I have Closed almost ZERO Real Estate Transactions Since October 2005.

I will never make a recommendation to anyone to buy/sell real estate or do a transaction that I would not do for my own portfolio.

If a client wants to buy/sell property that I disagree with, I will always try to discourage them as well as provide my logical reasons why I feel the timing is incorrect or the property is not going to perform the way they want it to.

After working almost non-stop from 2002 through mid 2005, I was exhausted.

In 2005 I tried to position all my clients as well as my own portfolio for a downturn of 20%. We did a lot of refinancing at favorable rates and accumulated cash to benefit from the downturn I was predicting. The year 2006 was great because I enjoyed the freedom of not working very much. 2007 had further declines: the mortgage meltdown, the subprime debacle that supposedly “no one knew anything about” including all the hedge funds on Wall Street. Again, not much work for me.

I am now probably the most BORED REALTOR in Southern California.

But things are picking up. I am now starting to see the light at the end of the tunnel. I feel this is the beginning of a great buying opportunity era. We are very close to again having the lowest interest rates since 1971. * Prices are being reduced dramatically, especially with Bank REOS.

Two years ago, to have a break even cash flow for investors, you needed to put at least 50% down. I am now seeing properties having a breakeven cash flow with 20% down and sometimes even less.

Let’s hope this continues and I am correct.

*
http://www.freddiemac.com/pmms/pmms30.htm

-- Jeannie

I chart various statistics and what is happening in the current real estate market…and the market is improving. I think once the positive news starts hitting the mainstream media, the improvement in the market will accelerate.

Indian Creek Villas is a 300+ condominium project in South Palm Desert…one mile from the shopping area of El Paseo….”the Desert’s Rodeo Drive”….

Indian Creek is a basic, no frills, bottom line project that is very well maintained by the Homeowner Association and enjoys home owners, second homes and investors that rent their properties to quality tenants.

In 2005, a unit could be purchased for $210,000. In October 2007, a unit sold for $155,000. In early February 2008, we started seeing properties selling in the 115,000 range very quickly with multiple offers.

This trend has continued with the number of sales increasing in the development. These are great investments that are very solid. Rental income will be $850 to $925.00 per month.

-- Jeannie

San Diego was the only city in the United States named to the “top ten list for 2008” by Concierge.com

Check this out:

http://www.concierge.com/ideas/styledesign/articles/detail?id=1685&mbid=hl&page=6

-- Jeannie