All Forum Posts by: Leonard L.

@Michael DelpierYou say you don't know who can afford a small condo for $825k.  Perhaps that is because you are in Texas?  Everyone is waiting for Silicon Valley to crash, but as long as the tech industry continues to boom and hire thousands of the country's best and brightest right out of college at $80k, there will be a parade of people lined up to pay $825k for condos and $1.4m for starter homes.  I used to buy land up there for a big builder, and I still have many friends up there.  I also know many young people, my daughter included, getting fantastic job offers there right out of college.  

I keep waiting for prices to slow too, but there is such an imbalance between the employment situation, which is the best in the country by far, and the housing situation, which is quite limited in supply, that I actually foresee continued gains in real estate prices until tech finally crashes.  

Just look at the news - Google and LinkedIn asked for 5M sf of new development in the City of Mountain View, and last night the City awarded only about 2M, essentially turning down Google's expansion request.  My takeaway from this is that the major employers are planning to continue their torrid rate of hiring well paid new employees, and they want this employment growth to occur largely within Silicon Valley.  

@Matt R.

Your Santa Monica data point may prove something that was true in the past down cycle, i.e., that a grade A coastal market did not seem to react (crash) as expected.  But your youth may have you drawing incomplete conclusions from that data.

I bought in 1995 in Santa Monica, and two of the houses on the street that had each crashed from about $600k at the prior peak (1990) to $300k.  I bought one of them.  In 1998, a mere 3 years later, I sold that house for $500k.

So I agree that the core coastal markets did not react as expected in the last down cycle.  That was also true of other A markets, like Newport Beach.  But if you extrapolate from that data that coastal A markets have never crashed in down cycles, you would be mistaken.  Whether the next down cycle will be like the 2007 crash or the 1991 crash is, at best, uncertain. 

If there was a widely held consensus, I would be worried and go the other way.  Glad to see opinions all over the map.  Even with history rhyming (rather than repeating), no one really has any idea how long this unusually slow expansion will last.  I am not pegging any certain year, but watching for huge increases like we saw Spring 2013.  One more of those and I am out.  Otherwise, I think the growth path we are on is largely sustainable nationwide.  That doesn't mean we won't see localized corrections.    

I have multiple insurance agents for my residential properties, but none of them are able to provide insurance for a small commercial wood framed building I bought recently in the Inland Empire.  It is very old, dated back to 1940s?  Currently used as auto repair.  Tenant has liability insurance and I am additional insured on that.  But I need my own liability insurance and fire/structure insurance.  Not sure I can even get it since it has no sprinklers, but after striking out with Farmers and my other residential insurers, I don't even know where to start.  HELP!  

@Julio Contreras As others have said, a seller or broker can calculate NOI however they want. In my experience, most buyers discount rent that is received from units that are known to be illegal. But in a hot market, there are often the "greater fools" who discount it very little, and those are the people you are competing against. I would definitely say if you are competing against bidders who are willing to pay 100 cents on the dollar for the illegal income, walk away.

You are in a tricky situation.  You want to know how likely it is that the municipal government will intervene in the future, but bringing it to their attention would obviously kill the deal (since it is now on their radar and much more likely to result in later action against the unit).  Plus, you need to be cautious of claims by owner/seller that you interfered with their economic advantage, breach of contract if contract does not allow government contact, etc.  

The way I look at it, I would only buy at a price that if the illegal unit gets shut down, the deal still makes sense.  Not a great deal anymore, but not one that you consider a stinker either.

@Shawn Couch

were you trying to hide and not name the market you ultimately decided to invest in, or were you implying that you are investing in all the markets you named (Florida, Alabama, Detroit, etc)?

@Robert Sepulveda

 are you saying no one can address this issue, or you cannot because you are in industry and that would be advertising?  Because this is a great question and I eagerly clicked on thread hoping to see a robust conversation on it.  Many of us in So Cal are probably in same boat.

For myself, I have a portfolio of about 18 doors in Inland Empire, mostly debt free, and would be interested in an asset based lender who would do debt for low points/fees/rates. Fine with very low LTV, but prefer no personal guaranty. I have not really looked because I assume most asset based debt would be above 7%, which would not really interest me since I am buy/hold. Most of my properties have several years seasoning with excellent tenant histories.

Would hope to see lively discussion of borrower experiences, although I understand there may be rule against lenders jumping in and trying to steer traffic to their own companies.

Anyone?

He is probably talking about the recently approved Prologis industrial project.  But like the new Sketchers factory, Aaron is probably right that it will rely heavily on automation and generate relatively few permanent jobs.

With due respect to @Aaron NorrisI have a different view of the Inland Empire.  I think it is still fairly cold for this point in the cycle, as least compared to other up-cycles.  In the last up-cycle the number of jobs created in Inland Empire exceeded all jobs created in LA/OC/SD counties.  That was phenomenal.  The home builders followed the jobs and the cheap land, and the buyers followed.  All of the major builders were heavily invested in Inland Empire, much more so than any other area of SoCal. 

In this cycle, the big builders have followed the jobs and buyer preferences and have shifted their focus to the urban core and in-fill markets in LA/OC/SD.  While there is still have some new home construction activity in Inland Empire, it pales relative to last up cycle.  Inland Empire's relative weakness shows in home prices too.  Yes, it participated in massive Spring 2013 run up like other areas of California, but since then has flattened.  And prices are WELL below last peak, whereas in many areas of LA/OC/SD, prices already exceed last peak.  

Don't get me wrong.  I am still heavily invested in Inland Empire.  But relative to other SoCal markets, it is more Cold than Hot. 

If you go back and read my post, I said AT LEAST A YEAR.  So there is no assurance after the year that you can get title insurance.  You may have to bring a quiet title legal action, which is costly and also has an uncertain outcome if the prior owner decides to fight to get his property back.