Archive

Archive for April, 2010

Perfect Foreclosure storm for Investors?

I found this great news article at Forbes.com that I thought everyone should read as soon as possible to get an insight into what is continuing to take place in the housing market.  There is a sense of relief being perpetrated in the media including right here in Memphis that the worst of the housing crisis is behind us.  Let’s hope that is true, the worst is over.  But don’t mistake that for a recovery.  Most economists agree that a prolonged, painful recovery in the housing sector might be the best thing for which we can hope.  As real estate investors, that is fantastic for the prospects of continuing to purchase great investments deals.  When investing in Memphis, because we tout the long-term benefits of buying and holding, the long, drawn-out process of recovery is a non-factor in our buying plan.

Read the story below and leave me a message about when you think the recovery will truly come.  Until then – all the best in your investing!

Chris

——————————

The Great Housing Recession Continues
Thomas F. Cooley and Peter Rupert 04.21.10, 6:00 AM ET

A kind of silly debate has broken out among economists over whether our recent downturn deserves the label “The Great Recession.” We’ll leave it to others to sort this out. But we would argue that the downturn in the housing sector is pretty “great”–far worse than in past recessions. Periodically in this column we have presented a visual assessment of where we stand in the current recession, with a focus on consumption, investment and employment. This week we look at housing.

There were suggestions in the media this week that there might be a turnaround in housing because there was a slight drop in delinquencies and total foreclosures–but you really have to be an unconstrained optimist to see the housing market as anything but dire.

The behavior of the housing sector over this recession is unlike anything in recent history. This can easily be seen in the first figure below, which shows the percentage increase in foreclosures over the past several recessions. The housing meltdown started with a vengeance; in less than a year the percentage increase in foreclosures since the previous peak was already twice as high as during any other recession in recent history.

0420_foreclosures-started-us_398.<SPAN id=gif” width=”398″ height=”398″>

The current housing downturn has been particularly acute in several states–California, Nevada, Arizona and Florida–but it isn’t confined to them. Ohio, Michigan and many states that did not have huge housing price increases have also been hit hard. What is different about this cycle isn’t that housing prices declined. And it isn’t that foreclosures increased considerably. It is that while previous housing cycles were, more or less, regional phenomena, this one is far more universal.

In the 1980s there was downturn in the housing market in Texas, associated with falling oil process and a sharp decline in the energy industry. In the late 1980s and early 1990s there was a sharp decline in housing in Massachusetts associated with a decline in much of the technology sector. In the early 1990s there was a sharp decline in the housing sector in California, associated with the recession but also compounded by the cutbacks in the aerospace industry. Those cycles were more localized and associated with specific shocks to specific regions.

These regional cycles show up in the second figure below that plots foreclosures started for several states as well as for the U.S. as a whole. What is striking is that these regional cycles do not show up very much in the aggregate data. But when we get to 2008 the story changes. This cycle shows up in all of these states and the national data.

0420_foreclosures-started_398.<SPAN id=gif” width=”398″ height=”398″>

The Perfect Foreclosure Storm
In the current recession several factors have aligned to drive the large and rapid increase in foreclosures, and it appears likely that foreclosure rates might stay high for some time. What leads to increasing foreclosure rates during some recessions and not others? In the perfect storm scenario what happens is that falling house prices (leading to a negative equity position in a house) combined with a job loss can lead to default and a foreclosure. So here it is because of both negative equity and unemployment that foreclosures rise.

The third figure, below, shows the dramatic fall in housing prices associated with this business cycle. In previous business cycles the downturn in prices was barely noticeable or non-existent. The decline in the employment population ratio in this recession has been equally dramatic.

0420_us-housing-prices_398.<SPAN id=gif” width=”398″ height=”398″>

Advertisements
Categories: Investment News

Real Estate Investors are thanking me now for their future returns

By Marq Cobb

Director of Sales

You think the numbers are good now? Your assets will bring higher returns with the rebound of economy.

In the last few weeks I’ve focused on why I think now is the absolute perfect time to throw cash into hard assets like income-producing real estate. I’m not going to deviate from my pattern just yet, but I am going to dial in on an idea that is fairly obvious when you think about it but one that no one else is talking about on any of the blogs or forums I read everyday.

The idea is based around the thought that although Memphis properties provide astronomical net cash flow and cash on cash return, can you imagine how great the returns will be when the market rebounds and the rental market goes back up to the levels of 2005-2007? I’m not a big fan of the abstract, so let’s talk about a house that is still listed on our website, although a contract is pending to an investor who is a native New Yorker living in Israel.

The house is located 6298 Brightwood, in an area known as Bartlett. It’s a no-brainer investment b/c it’s a 3/2 brick house with car storage in a fantastic area that will provide about $275/month of net cash flow for its investor. The rental rate on this house is $850-950, so let’s call it $900/month. Guys, a few years ago when I joined MemphisInvest,, a house of this caliber in this area would never go for any lower than $950. I think it’s safe to say that rental rates are down $50-100/month in most areas in which we invest, but that all points to greater profit margins for investors as the rental market rebounds.  Mr. New York is sitting on a gold mine, and the beautiful thing about it is he knows it.  He’s a smart, savvy investor who had a very easy decision to make once I told him about how this house is zoned to excellent public schools and how he would have both immediate equity of over 20% and cash flow $275/month. And oh yeah, don’t be surprised if you look up in 5 years and your cash flow is $150 higher.

One of the market trends that I have noticed since I’ve been running our sales department, as I pour over the details of each house, is that our cash flow and IRR numbers really haven’t changed much as the prices have fallen over the last year or two. In fact, it’s been pretty consistent. Our average cash flow is still somewhere around $250 at 75% LTV and our rate of return is generally in the 9-13% range, but if you’re buying these properties right, that is, buying today and locking in the lowest prices and rates on record, then I’m betting on the horse that says your returns and cash flow are going to skyrocket with the rebound in the economy and the re-stabilization of the rental market, whenever it may come.

Sure, your portfolio of 5 houses that all cash flow $250/month is impressive, but don’t tell me the thought of all of these houses cash flowing $400, reapplying half of that back into your mortgage and paying your note off in half the time doesn’t pump you up.

In short, is now the best time to go buy 10 properties and beef up your portfolio? Well, yes it is actually, but it’s not for today’s enjoyment. You’ll thank yourself and you’ll be glad you listened to me 15 years from now when you’ve paid them all off and you own them free and clear.



Categories: Tips & Advice

Memphis investment real estate is a much better alternative than these cities

Why Memphis makes sense for real estate investing and the ‘Hot’ areas don’t!

Do you read the daily articles in Yahoo real estate news?  How about DSNews.com?

These are two great real estate sites for keeping up with the everyday news and I happened across two articles today that I thought everyone should know about.  I will link them at the bottom of the page.

The basics of the two stories cover a couple of themes that we have known for a while and sometimes have to discuss with investors from outside of Memphis.  So many are enamored with the bigger cities, the more glamorous cities or the cities that sometimes get a little more national news face time.  Everyone tries to paint the rosiest picture possible of their city including us.  But sometimes, the facts are laid out against a city and it’s up to us to point them out.  Besides, when comparing Memphis to other cities for investment real estate opportunities there are few equals.

The DSNews article talks about what soe economists predict will be a long, long, long recovery for some major metropolitan areas.  It is predicted that it will take 15+ years for some areas of the country to return to pre-bust pricing.  So everyone speculating again that Las Vegas, San Fransisco, Miami or Phoenix will be rebounding really soon…..think again.  While other markets, like Midwest cities (i.e. MEMPHIS) will see quicker recoveries and some could happen as early as this year (MEMPHIS).

Markets taking 15+ years:

Los Angeles, CA
San Fransisco, CA
Las Vegas, CA
Phoenix, AZ
Miami, FL
Detroit, MI
Indianapolis, IN

And I don’t want to rain on anyone’s parade, but the Yahoo article sites the same Case-Schiller index report, but highlights that soe major metropolitan areas are expected to experience a double dip in this current recession.  Pricing may have flattened out and home sales may have increasesd in the past year while rates were low and incentives were in place.  But now that those incentives to buy are gone and the rates are starting to increase, these areas will actually see value losses this year which will hit many real estate speculators very hard.

Areas getting hit hard with double dip recession pricing:

Denver, CO
Dallas, TX
Austin, TX
Charlotte, NC

I have always believed and still do to this day, that the slow and steady market in Memphis, TN. provides the BEST real estate investment opportunities in the country.  With stats like these continuing to come out, why invest anywhere else?  Stick to a reputable, large company if you are investing from far away and you should be able to navigate away from trouble and build a nice long-term investment portfolio.

Chris

Categories: Investment News

When investing in real estate – lending should not be an obstacle

Last week I dove into the subject of pricing and how you can buy high quality investment properties at price points that would have been impossible two or three years ago.  However, that’s not the only reason now is the time to jump in the water whether it’s your first or fifth property; in the last 3 months we have seen investment property financing open back up from several of our lending partners.

Many of you reading this remember being stuck in hard money loans for three, six, even twelve months as lenders were dropping like flies and no one was stepping up to the plate to take on investment loans. I was at lunch one Sunday afternoon with the Clothiers and we ran into a lender we had once sent referrals to who told us that investment loans were illegal.  Well, he was wrong, and now his company is asking us for our business again.

We had to get away from hard money for a few reasons.  Mainly, finding lenders to refinance was too difficult, but also appraisals were falling faster than prices and the numbers were no longer as attractive to a hard money investor.  Gone were the days of no cash out of pocket.

Looking back now, getting away from the private financing model may have been the best thing that has happened to us as a company so far.  We began to partner up with self-directed IRA companies, namely Equity Trust, to provide investors with an investment opportunity that provided a much higher return than they were getting in other markets.

We reached out to our local lenders to provide conventional financing for our investors on 20% down, fixed rate mortgages, and that appealed to many of our investors because of the ease of going through only one closing instead of a refinance that would require two closings.

Finally, in January and February of this year, we were able to all but clear the board of the investors stuck in private financing, as several of our lenders once again welcomed these refinance loans.

The verdict is still out on some of the changes our company has gone through, but the early returns look very good.  By providing our clients with several purchase options, from cash purchases (including self-directed IRA), to conventional mortgages, and finally coming full circle to purchase and refinance, we have become a much more agile company.

March was a great month for our company.  We will carry over 20+ contracts that will close in April, which is by far the most contracts we’ve ever carried over.  Our goal has always been 30 closings in a month.

You’ll notice that there is more inventory than ever on the website today and you may wonder why that is.  The truth is that David Meeks and I have convinced Brett to buy and don’t stop buying, because our clients are ready and willing to let us help them build the portfolio that makes sense for them.  They see not only the tremendous quality of return that our properties provide, but also the level of commitment our company has to our clients in providing them with a truly turnkey experience for real estate investors.

I have to give Brett credit- it takes a ton of guts to sign your name on 20 contracts in a month and hope your sales department can move the inventory!

Marq Cobb

Follow successful real estate investors to find the clues to your own success

What’s on your bookshelf?


You have to expand your reading list if you want to expand your success!

Bookshelf Having been an entrepreneur for so many years has given me many more benefits than I first imagined.  A lot of my personal growth as a business owner and leader has come from my experiences through the years and the people I have met.  I learned early on in my working life that modeling my actions after highly successful people was a great way to develop my leadership skills.

But, I also owe much of my success and growth to the personal commitment to always be seeking new ways of doing and thinking.  The best resource I have found for doing this is reading.  I devour as many books and articles on every subject that relates to success and strategy that I can get and I pay close attention to what others who are having success are reading.  For me, it’s the same technique of modeling that I used early in my career, only in this case, I model what others are using to grow and develop my own growth and development.

I had the pleasure of meeting several highly successful people over the past few months as I have traveled the country speaking about investing in real estate.  From California to Massachusetts to Florida, I have had the opportunity to speak to huge crowds and sit in Mastermind meetings with some of the brightest minds in creative real estate investing.  Many of those who I have had the pleasure of meeting are having tremendous success in investment real estate.  During the course of our meetings and talks, my eyes were opened to some fantastic, inspirational business books like “Crush it” by Vaynerchuk, “TheAlchemist” by Coehlo, “The Go-Giver” by Burg & Mann just to name a few.  I have already purchased and begun reading each along with several other titles.  They are fantastic!

I came back to Tennessee and decided to share the list of books that are in my library, including my new additions, and challenge each reader to expand their outlook and achieve great success!  I am a firm believer in sharing not only my time, but more importantly my experience and knowledge and this list of books has helped to propel my business to new heights.

I created a list of the BEST business books I have ever read as well as the most inspirational “make-it-happen” books that make up my business library…..and I want to share that list with you!  If you are interested in the full list of titles that are must-have additions to your business library, email me at Kentsr@memphisinvest.com and I will forward you a complete list!

Best Regards,

Kent

Categories: Tips & Advice

Beautiful Memphis Investment rehab property showcased by Ryan Flannery

Ryan Flannery has been running the Memphis Invest rehab teams in Memphis, Tennessee for the last 3 years and continues to a fantastic job rehabbing distressed, discount properties into beautiful cash flow investment properties.  While we wouldn’t call rehabbing an art, it definitely takes skill, knowledge and a little flare to make properties shine on a budget.

Check out Ryan’s latest video of a property he just completed in March of 2010.  1496 Marcia, Memphis, Tennessee investment real estate rehab property.

Contact Ryan with questions, comments or requests for service at 1-901-502-8835.

Categories: Investment Properties