Multi-Family Strong Sales - in 110 Degree Temperatures!!!

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Multi-Family in the Palm Springs area (Coachella Valley) of California remains strong even during our high temperature season.   Many folks have the idea "they get a better deal" in the summer because there are less buyers.    We do not have the vacationers here that we have in the winter season but for investment property, demand remains consistent.     Hotels have great summer rates and many restaurants have "summer specials".  It's a good time to check out the Coachella Valley for investment as well as have a great time at economical prices.

Multi-Family Palm Desert and Cathedral City

The end of the year has the usual hectic schedule with many closings.    78923 Avenue 42, BermudaDunes closed with income of $3000 per month for just two units.     Thsi building was a beautiful property, recently renovated, 100% occupied.  Demand was strong, we had many offers from qualified buyers.   Beautiful property had a lower cap rate, but this bulding was a "10".   The higher quality property always has a lower cap rate than one in a lesser area with deferred maintenance.

I'm receiving many many inquiries for multi-family buildings through out the area.   Not enough inventory and multi-family enjoys a much higher return that can be achieved with most income generating investments.

5 Units on Larrea South Palm Desert

Just closed escrow on 5 fabulous units in South Palm Desert.   These units were in great condition, older with lots of charm.  Beautiful courtyard and the new owner from Los Angeles is very satisfied with these units.

Cap rate was a 4 which may seem low, however this is the going rate for quality units in the Coachella Valley in a storng rental area.    Multi-Family in Palm Desert remains a very strong investment for long term investors.   Where else can you earn 4% solid on your investment with future appreciation also possible?     Multi-Family units in the Coachella Valley are still selling for under replacement cost.   

Multi-Family Palm Springs Area

The Multi-Family market is very strong, with multiple offers occurring in a matter of days for a property that is priced reasonably in the current marketplace.       Very few properties are available and inventory is at an all time low.

The Cathedral City area has many small multi-family units, mostly duplexes, triplexes and four plexes.  There have been twenty (20) closed escrows for this area since January 1, 2012. 

The rental market has enjoyed an increased demand for units.   Many people are relocating to the Palm Springs areaas well as folks that have lost their homes to foreclosure are now in the housing market for rental property.    One day alone our management company held an open house and had nineteen different families come by to view the unit.  

Prices have appreciated nicely in the last eighteen months, however almost all buildings are still selling for under replacement cost.  Most sales are for cash to investors from all over the United States.

Economy Update

I think that one of my primary duties to my commercial brokerage clients is to give them as true a picture as I can of what’s going on in the real estate marketplace. The newspaper columnists and TV pundits seem to focus on the latest sensational (usually bad) news, and this often distorts our perceptions when we are looking to buy or sell.

As a result, I spend a considerable amount of time doing research on sales statistics, market trends, inventory levels, foreclosure rates and the like. I spend a lot of time getting feedback and insights from other brokers in the field, and dry economic reports have become my light reading material.

So I feel that I have a pretty good idea of what is really going on, locally, regionally and nationally, and I hope that, after reading this, some of you will pitch in and join me in a dialogue. I’d be glad to publish some of your thoughts in future blog articles.

Here’s the way I see it, “traditional economics” no longer works. If it did, interest rates would have started rising in 2006, and the market would have slowed sooner that it did. The slowdown, however, would not have been nearly as steep, nor lasted nearly as long. These changes came about due to both government intervention and lack of government oversight, as evidenced by the deregulation of the banks that created conditions leading to the high-risk mortgage fiasco and its ongoing saga. Additionally, we are more and more a global economy and so totally unforeseen world wide events now directly effect us, e.g. the Greek and Italian debt crises, manipulation of oil prices, various moves by the Fed to manipulate the economy. For an investor, this creates additional variables that have to be considered in making long term decisions.

Based on all of this, my advice to investors is to seriously consider the use of debt leverage. Interest rates are lower than they have been in sixty years, and must eventually rise. Coupled with todays low property prices, there are some truly great opportunities out there. Real estate can now be purchased for 40 - 60 percent of what it would cost to build that same property today. Obviously, no significant levels of new construction will occur while this imbalance exists. This means that either property values on existing real estate will have to rise, or the cost of building materials and labor will have to decline by 30 - 50 percent. Take your pick, but I’m betting on an increase in property values. Especially will this be true for rental property as the demand continues to increase, spurred on by foreclosed owners now becoming tenants and the plain old birth rate which continues to bring new families into the rental market.

Consumer confidence also plays its part. Today, news reaches us in real time, and there is a tendency to react the same way. Remember what happened in October 2008…...everything stopped while we watched the stock market tumble. In the spring of 2011 we had started to see some bright spots and hear some positive economic news. Investors were actually coming back into the market. Then the brouhaha over the debt ceiling hit and it was deja vu all over again. Not unexpectedly, many investors have been sitting on the sidelines due to the uncertainty. I think that a stretch of positive news will bring them back in.

This is vividly demonstrated in the huge swings of the stock market.......one day it's the DJIA is down 300 points because of the European Debt instability, the next Monday it's up 300 points because Holiday Sales were booming!

And the news is becoming more positive. Unemployment claims dropped slightly; home prices rose slightly in the Palm Springs area.. Our local real estate inventory has declined over 50% from three years ago. I have recently observed that any property which comes on the market that is a really good value will have multiple offers within days.

For the first time in my twenty five years of commercial brokerage, I am observing true 6% - 8% cash earnings on rental property. In my opinion, and that of most of my clients, ownership of residential income property currently provides the best overall income in the marketplace.

I invite your comments, even if you disagree with my observations (honest). I hope to hear from you. Let me know what you think.

-- Jeannie

 

No Waiting for Cash Out Refinances

Buy a property for cash and get a discount, then put a new loan on the property without waiting for seasoning! Until now, it was necessary to wait a year (at least) to put a new loan on a property you just purchased and paid cash for or any other property that you own free and clear. I was just notified by my mortgage broker, Sean LaRue at Franklin Loan Center in Palm Desert, California that cash out refinance loans are now available with no waiting time. For those of us that purchase fixer properties for cash, renovate it and want to keep the property this news is HUGE!!! For the last three years we have had to wait at least a year or sell the property to get our cash out in order to move on to the next deal. Rates are great also...only 1/8% higher than a regular purchase money loan.

-- Jeannie

Real Estate Sales On the Way Up!!

Daily Real Estate News | April 25, 2011 | Analysts Say Housing Is on the Way Up Analysts at both Standard & Poor's and Barclays Capital agree that the uptick in home resales last month is a favorable sign of things to come. Because pending home sales — an indicator of future activity — were up in February, S&P believes transaction volume will rise for April. Barclays, meanwhile, says March's 3.7 percent gain in existing-home sales merely reinforces its position that the housing market actually hit bottom in late 2010. Source: “Monday Morning Cup of Coffee,” Housing Wire, Jon Prior (04/25/11)

-- Jeannie

Multiple-Family Cathedral City

Multi-Family Inventory has continued to decline. A great area for multi-family investment is Cathedral City. At present, there are only 12 available properties! Four are regular sales, three are short sales and five are REO's. When a property is priced aggressively, there will be multiple offers in a matter of days. Most sales are now for all cash.

Great Buy - Rancho Mirage Four Plex

I located a great 4 plex today. Price was just reduced to $490,000. The building has plush landscaping, with citrus trees. Pool, spa and one car garages. Each unit is a very large 1300+ square feet. Cap rate is 6 to 7%!!!! Built in 1985. This building has lots of charm and very upscale over the standard two bedroom two bath plain apartment building. Increase your earnings over your Bank CD's and savings accounts. Earn 6 to 7% rather than 1 to 2% on your money. Walking distance to restaurants and shops in Rancho Mirage, California.

Great Buy - Rancho Mirage Four Plex

I located a great 4 plex today. Price was just reduced to $490,000. The building has plush landscaping, with citrus trees. Pool, spa and one car garages. Each unit is a very large 1300+ square feet. Cap rate is 6 to 7%!!!! Built in 1985. This building has lots of charm and very upscale over the standard two bedroom two bath plain apartment building. Increase your earnings over your Bank CD's and savings accounts. Earn 6 to 7% rather than 1 to 2% on your money. Walking distance to restaurants and shops in Rancho Mirage, California.

Why Doesn’t Cap Rate Include Mortgage Interest?

Cap Rate is an investment tool for analysis that enables an investor to compare one investment to another. The investment creates “net income” and that is the important factor……what leverage an investor chooses to utilize is a totally different decision.

Using Cap Rate I can compare an investment in real estate to a CD at Bank of America or Dividends earned in the stock market. The degree of risk always increases the cap rate.

Always check the itemization of expenses. Many, if not most of the time the expenses will be understated. Understated expenses overstates net income, thus overstating value.

On a newer building in a stable area, expenses should be 32 to 35%. On an older building in a management intensive area, expenses can run as high at 60%.

Indian Creek Villas Palm Desert, CA November '09 UPDATE

As an indication of the strength of the real estate market: six months ago there were very few sales and over 10 properties on the market.

Currently there are three properties on the market priced at 72,500, 103,000 and 109,900. The 72,500 and 103,000 properties are shortsales with the $109,900 property being a regular seller.

Four properties are currently in escrow and there have been 10 closed escrows since 9/1/09.

Sale prices have been a low of $65,000 to a high of 98,900 for a unit that had been totally refurbished. Majority of sales prices are high sixty’s to low 70’s.

Unit 1’s are the front unit, all on one floor and seem to be the most popular model since it’s similar to “a little house”.

Why Doesn’t Cap Rate Include Mortgage Interest?

Cap Rate is an investment tool for analysis that enables an investor to compare one investment to another. The investment creates “net income” and that is the important factor……what leverage an investor chooses to utilize is a totally different decision.

Using Cap Rate I can compare an investment in real estate to a CD at Bank of America or Dividends earned in the stock market. The degree of risk always increases the cap rate.

Always check the itemization of expenses. Many, if not most of the time the expenses will be understated. Understated expenses overstates net income, thus overstating value.

On a newer building in a stable area, expenses should be 32 to 35%. On an older building in a management intensive area, expenses can run as high at 60%.

Indian Creek Villas Palm Desert, CA August '09 UPDATE

Indian Creek Villas
Palm Desert, CA
Update 8-13-2009

Five condos have gone into escrow since my last report in July.

Listing prices of properties placed into escrow were $64,900 for a fixer with mold to a high of $98,900 for a renovated unit. Market times have declined to an average of 20 days when properly priced!

There are two REO’s for sale. There are two Short Sales available. One Regular seller for a renovated unit at $119,000.

Closed Sales ranged from $77,000 for a unit need renovation to $125,000 for a completely renovated unit.

This condominium complex has great opportunities for an investor.

Cap rates for this complex currently exceed most multi-family buildings. A condo can be purchased for approximately $80,000. Estimated rents of $775 to $825 per month will generate annual net income of $5800(+-).

This is a 7.4% cap rate!

The rental market is difficult at present because of unemployment issues. Be prepared to have some vacancy for the next 12 months most likely. Make sure your unit is the nicest available and $25.00 per month less expensive.

In 2005, a unit could be purchased for $210,000.
In October 2007, a unit sold for $155,000.
In February 2008, we started seeing properties selling for $115,000.
August 2009, properties can be purchased in the $80,000+ range!

I expect prices to continue to increase in this development. This project is the least expensive in Palm Desert for a two bedroom unit! It’s a great location, and walking distance to El Paseo.

In the Coachella Valley, inventory has declined 41% since 1/31/09. It’s a great time to buy as these opportunities will decrease as more investors return to the marketplace.

Rents have decreased due to rising unemployment. Rental income will be $775 to $875 depending on the level of renovation in the interior. These units were built in 1971 and most have been partially or completely redone. 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.

There are four units to a building. Unit 1 is all on one floor at ground level. Units 2 and 3 are two story and Unit 4 is a one story upstairs. Square footage ranges from 840 to 924. All units are two bedroom, one bath.

Indian Creek Villas Palm Desert, CA July '09 UPDATE

Indian Creek Villas
Palm Desert, CA
Update 7-07-2009

This condominium complex has great opportunities for an investor.

Cap rates for this complex currently exceed most multi-family buildings. A condo can be purchased for approximately $80,000. Estimated rents of $775 to $825 per month will generate annual net income of $5800(+-).

This is a 7.4% cap rate!

The rental market is difficult at present because of unemployment issues. Be prepared to have some vacancy for the next 12 months most likely. Make sure your unit is the nicest available and $25.00 per month less expensive.

In 2005, a unit could be purchased for $210,000.
In October 2007, a unit sold for $155,000.
In February 2008, we started seeing properties selling for $115,000. 
July 2009, properties can be purchased in the $70,000 to $80,000 range!

One unit that needs renovation is currently offered for $64,900!!!!! This property has been on the market for a long time and the bank should be anxious to accept an offer.

In the Coachella Valley, inventory has declined 38% since 1/31/09. It’s a great time to buy as these opportunities will decrease as more investors return to the marketplace.

Rents have decreased due to rising unemployment. Rental income will be $775 to $875 depending on the level of renovation in the interior. These units were built in 1971 and most have been partially or completely redone. 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.

There are four units to a building. Unit 1 is all on one floor at ground level. Units 2 and 3 are two story and Unit 4 is a one story upstairs. Square footage ranges from 840 to 924. All units are two bedroom, one bath.

Interest Rates Going Down? UPDATE

I see interest rates staying low for the foreseeable future. Mortgage rates should stay in the range of 4.5% to 5.5% for residential income properties, one to four units. I have a duplex closing this week and the borrower got a 5.25% 30 year fixed rate loan, paying two points.

Problem with obtaining this loan is the new underwriting criteria. 

 

February 2009 Multi-Family Report

City Type # of Properties Indio REO 2 Cathedral City REO 1 Cathedral City Short Sale 1 Cathedral City Regular Sale 1 Desert Hot Springs REO 6

Only two of the above properties were built after 2001. The majority of the properties were built prior to 1990. Most of the properties, especially in Desert Hot Springs are boarded up, need serious repair and would be management intensive.

Most of the above properties are selling for 55 to 70% LESS than they sold for three to four years ago, especially in Desert Hot Springs.

Income property is back to being “income property”. Investors are unwilling to purchase a property for anticipated speculation profits.

There are some fabulous buys in Cathedral City. Cathedral City is a great rental area, close to the Freeway, has a larger tenant radius than most cities. There are also some fixer properties available that can be purchased at an even further discount. Contact me if you would like addresses and further info.

Indian Creek Villas Palm Desert, CA UPDATE

Update 2-25-2009

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.

There are four units to a building. Unit 1 is all on one floor at ground level. Units 2 and 3 are two story and Unit 4 is a one story upstairs. Square footage ranges from 840 to 924. All units are two bedroom, one bath.

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.

February 2009:
Unit #4 for sale $99,000. (Bank Owned)
Unit #4 for sale $103,000 Has a tenant for 8 more months at $825.
Five other units for sale….$129,800 to $208,000.

Two condos are in escrow.

Unit #3 sold 80,325. (major fixer…sold at auction) 11/08
Unit #3 sold 95,000. 12/08
Unit #3 sold 104,000 11/08
Unit #3 sold 120,000 12/08
Unit #2 sold 120,000 11/08

 

Rents have decreased due to rising unemployment. Rental income will be $775 to $875 depending on the level of renovation in the interior. These units were built in 1971 and most have been partially or completely redone.

 

Additional Loan Requirements

Fannie/Freddie/Other Banks Increase Loan Fees and Downpayments!

After anxiously awaiting Obama’s housing stimulus, we find out most lenders are going to increase downpayment requirements, loan points and costs and require a FICO score of over 740 to obtain “premium rates and terms”.

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/02/15/RE3F15Q74A.DTL

This will have a negative impact on the housing stimulus anticipated by the Administration.