Monday, March 16, 2009

You're Crazy if You Buy Real Estate

I hear that a lot from people I run into. I hear from people I don't run into. Just mention real estate anywhere and someone has an opinion. The majority of them use the same quote: "You're Crazy if You Buy Real Estate" I then have to stop and give them the same speech I will paraphrase here. Let's look at the facts; I will take my area - Modesto, CA because I know it better. You have to admit that it is by far the worst area to buy real estate in or is it.

First the bad news:
1) The median sales price for homes in Modesto CA for Dec 08 to Feb 09 was $130,000. This represents a decline of 8.5%, or $12,031, compared to the prior quarter and a decrease of 42.2% compared to the prior year. Sales prices have depreciated 43.9% over the last 5 years in Modesto.

The average listing price for Modesto homes for sale on Trulia was $229,216 for the week ending Mar 11, which represents a decline of 22.1%, or $65,042, compared to the prior week and a decline of 1.5%, or $3,578, compared to the week ending Feb 18. Average price per square foot for Modesto CA was $104, a decrease of 32.9% compared to the same period last year. (Source taken from

2) Modesto also has been overwhelmed with about 5,200 foreclosed homes, more than 8 percent of its total housing market. The new foreclosure statistics, provided exclusively to The Bee by MDA DataQuick, show how widespread the crisis has become. Every ZIP code in the region has been hit, from rural hamlets such as Keyes (14 percent) to commuter meccas like Lathrop (21 percent). Homeowners defaulted on nearly $3.9 billion worth of mortgages in Stanislaus since 2007. (Source taken from Article Date Jan 18, 2009)

If you bought a home in 2006, it doesn't get much worst than that. So while this affects current home owners it represents an opportunity for new homeowners and investors.

Now some good news:

Affordability is up:

Stanislaus County (which Modesto is apart) homes are the most affordable in California, followed by Merced and San Joaquin counties, a study released this morning showed.

The new calculations show that Stanislaus's median-income families now can afford to buy 71.1 percent of homes on the market. Three years ago, just before the housing bubble burst, only 3 percent of Stanislaus homes were affordable to median-income families. (Source taken from Article dated Feb 19, 2009)

With the median price of homes down (as shown above) more people can afford to buy a home. Homeowners get a tax credit of up to $8,000 is now available for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009. Unlike the tax credit enacted in 2008, the new credit does not have to be repaid.

What is not to love about buying real estate. While I took the Modesto market, the price slide has hit every market. Lets look at it from the investor side. The median price of a home in Modesto is 130,000. We would buy a home like that for $81,000 (assuming repairs on a foreclosed home), pay a private lender 8% interest only ( loan amount would be $100,000) $667 per month. We could rent the house out for $1150. A positive cash flow from a house in California, WOW!. We could pay a higher price purchasing it from a seller with equity if they could wait for their money, but that is another blog post. We are not selling any property to a retail buyer (Are You Expecting a Retail Buyer). All of our properties are available as either Owner Financing or Lease Purchase Option. This helps fill our properties much quicker.

So the next time someone says to you: "You're Crazy if You Buy Real Estate" just refer them to this post. Now go out and buy some property. Email any questions you have.

See Ya,

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