Seb Frey
Balloon_Talk


Subscribe via Email



Receive updates of this blog via e-mail!

Santa Cruz MLS Map Search

Balloon Talk

Hot New Listing
Hot new Santa Cruz Real Estate Listing


The Broker's Record

News and Views about Life, Liberty, and the pursuit of Real Property in Santa Cruz, California

Speculating on Santa Cruz Real Estate

April 02, 2009

I got a phone call the other day from a lady who was interested in one of my listings in Capitola. Unfortunately, the property had just closed escrow the previous day, and I let her know…being the good Realtor I am, I quickly brought up the MLS and tried to find some good “switch” properties for her.

I found one, and during our conversation, it turned out she was an investor, looking to buy a property for investment purposes. This came up because the “switch” I had found for her had higher HOA dues than the property she was originally calling on, but I explained that the “switch” would rent for considerably more than the property which originally interested her, and would in fact provide much better cash flow.

speculation.jpg

These days, though, the people who are investing for cash flow are not buying in the mid-county area (Capitola, Aptos, Soquel, etc.) – because the properties there do not cash flow without a huge down payment- and even then, if you were to put a huge cash down payment, you would have a poor cash-on-cash return of your investment. I suggested to her that she take a look in Watsonville, because there’s a place where you can get good ROI (return on investment) with a relatively low down payment.

She wasn’t interested in buying in Watsonville, though. Her feeling was that Watsonville would not be appreciating in the future, and that she felt that Capitola, Aptos, and Soquel would have much better appreciation in the future.

Ahhh. Here is an important distinction to make: this lady is not truly an investor. Real investors are in fact snapping up properties in Watsonville in droves. This lady is a speculator – she speculates that the values in Capitola and such will be going up farther and faster than they will in Watsonville.

We then spoke for a few minutes about future price appreciation. I indicated that it will be some time before prices start rising in the mid-county area, and that before they do, prices will continue dropping for some time to come – whereas Watsonville has fallen farther, faster, and is closer to the bottom. However, to an investor, it does not matter so much that the prices in Watsonville will continue to fall for some time to come. When a property is truly providing positive cash flow, it does not matter much that the value has dropped, if it costs you nothing to own it and instead reliably kicks off money every month that ends up in your pocket.

I don’t see the sense in buying something in, say, Santa Cruz that requires a large down payment, which does not provide much in the way of cash flow (and probably has a negative real cash flow, considering vacancy factor, maintenance, etc.), and will be heading steadily down in resale value for some months (or years?) to come, before someday eventually climbing back up to the price you paid for it, and then jumping high enough up over that price to justify the money you have spent on taxes, insurance, maintenance, and of course, the cost of the eventual sale (let’s not forget that 6% commission!).

On the other hand, it is patently sensible to me to buy a $250,000 3-bedroom house in Watsonville, put down 20% ($50,000), rent it out for $2000 a month, make $500/month after principal, interest, tax, and insurance – and assuming a 10% vacancy factor, you’re making a 10.8% return on your money every month. Now that is what I call investing! Who cares if the property drops in value the next 1-2-3 years? You’re making a 10.8% return on your $50K, where else are you going to get that? OK, I didn’t factor in maintenance and whatnot, but even so, you’d still be looking at a return that’s much better than you’re going to get in today’s stock market.

Having said that, there are investors who do work in the mid-county area and do well – however, these are people who invest in properties that are, typically, not in a condition that can be financed. They pay cash for the properties, do the repairs necessary to put them into a livable, easily-financed condition, and turn around and flip them in a short period of time. Typically, they are contractors, or investors paired with contractors. There are very few investment-grade properties in Santa Cruz county outside of Watsonville where you can buy, hold at a profit, and sell down the road for a net profit – without speculating on an eventual price increase to make it all worth the considerable risk.

Posted by Administrator at 12:01pm
Comments Off on Speculating on Santa Cruz Real Estate

It’s Nigh Time to Buy in Santa Cruz

March 14, 2009

A few days ago, after about a month’s silence, I wrote something of a “doom and gloom” blog entry about Santa Cruz real estate – in fact, I’m proud to say, the entry was even picked up on the HousingDoom.com blog, which I read now and again to stay in touch with my darker side. You see, I felt the need to vent about what I see as a lot of hype by various individuals and organizations saying what a great time it is to buy some real estate.

balloon.jpg

As I’ve said before, it may in fact be a good time for you to buy some real estate here in Santa Cruz. In any market, it really depends on your situation. All I’m saying is, don’t buy into the hype – positive or negative – about the current real estate market. Do your own research, make up your own mind. Make an informed decision, and be prepared to live with the consequences.

It may be that you decide that it makes sense for you to buy some real estate right now in Santa Cruz. Over a hundred people bought property in the county in February – and did all of these 100 people make a horrible mistake? Indubitably, some of them did. Just as indubitably, some of them made very shrewd investment decisions which will yield rich rewards down the road. After all, let’s not forget the golden rule of real estate: you make money when you buy, you reap the cash when you sell.

If you were to ask any my buyer clients about what I’ve been telling them in person as we’re out looking a property, I bet they’ll all tell you I said this: “Be patient, time is on your side.” I have some clients with whom we’ve been looking, on and off, for many months. With each passing month, the properties that are in their price ranges just keep getting better, and better still. The problem right now isn’t so much the price of the homes – it’s the idea that a better home for the same price is waiting just around the corner.

The truth is, while the median price in Santa Cruz county is now down to a “wow I can afford that” $429,000 – there are not many of these homes for sale in the central parts of the county (e.g. Santa Cruz, Soquel, Capitola, Aptos); the sales are for the most part happening in areas where the sellers are more motivated – and that means, the areas with a high percentage of foreclosures, or distressed homeowners who need to (try to) sell quickly to avoid foreclosure.

However, the sharp rise in unemployment, rising foreclosure rates among Alt-A and Prime borrowers, coupled with pent-up seller demand (sellers who really want to sell, but have been waiting for the market to go back up) means that every day, prices of real estate even in prime locations continues to drop down to where it is within reach of the average Jane who has a good credit score, low debt, and a good enough, fully-documentable income. Jane, your time is coming.

I ended my previous blog entry saying:

It’s quite a bit more challenging to buy real estate today that you won’t regret having paid so much for a year from now.

Buyer’s remorse is, of course, a terrible thing. I think you can have buyer’s remorse in a market even that is appreciating strongly, because remorse can come from a variety of factors. Feeling that you have overpaid, or regretting that you didn’t wait to buy as you watch prices in the neighborhood into which you have bought keep tumbling lower can be, to be sure, nauseating.

For that reason, I caution my buyers: be patient. Wait, until you find the house that you love, at a price you can comfortably afford. This is not the market, or the economic cycle, in which you want to be stretching. If the house you want to buy is a stretch – don’t buy it now, this isn’t the time. If you wait just a bit, a very similar house will come on the market in another six months which won’t be such a stretch.

Even then, “six months from now,” I wouldn’t be surprised if prices keep right on dropping. Might you still be a happy homeowner, even so, having not bought at the rock bottom of the cycle? If you are patient, and you buy the right house, in the right location, that fits your lifestyle, your plans, and your budget comfortably, then I expect that you’ll continue being happy in your new home, even should it drop in value over the next year or two. And, down the road, you may be pleasantly surprised to find that the house you bought because you loved it and it was affordable at the time turned out to have been a great investment. Imagine that.

Posted by Administrator at 2:47pm
Comments Off on It’s Nigh Time to Buy in Santa Cruz

Santa Cruz Median Home Price: $475,000 in Sept. ’08

October 12, 2008

My Santa Cruz sales numbers for September 2008 are in, and they are nothing less than shocking. The median home price in Santa Cruz county in September 2008 was $475,000. This is compared to $702,500 in September ’07. That is a drop of some 32%. You can get the complete scoop in my monthly newsletter.

sos.jpg

Of course, a big reason for this is the amount of bank-owned real estate being blown out in Watsonville, and to a much lesser extent, the San Lorenzo valley and the rest of the county. There were 37 sales of houses in Watsonville in September, and just 29 sales in the city of Santa Cruz. The median home price in the city of Santa Cruz was $675,000 – that’s down just 8.7% from last year, and down only 5.5% from August, the month before.

Still, though – if you have a house in Santa Cruz, you’re looking at it being worth about $58,725 less than it was this time last year, if your house is something like the median house. That, combined with recent and staggering losses in the Stock Market, adds up to greatly diminished (paper) wealth. Of course, don’t we all buy houses with some kind of paper? Exactly.

In looking at these numbers, you might be thinking one (or perhaps both!) of two things: now that prices are this low, is this a good time to buy – and – will prices drop much further?

Those are some good questions! I’ve been telling folks for a while that Watsonville has already dropped really far really fast, I don’t see it dropping much more. For the past several months now, the median price has been rumbling along around $350,000 – give or take $10-$20K. So let’s assume that Watsonville has found its footing, and that this is the bottom, the trough if you will.

So I think it will be interesting to look and see where Watsonville and the rest of the county were at in the Summer of ’99 (them were the good ol’ days, eh folks?), and compare it to where we are today. This is a completely unscientific study, of course, because I just used the MLS (most, but not all, sales go through the MLS). I looked at Sold Single Family Residences:

Median Price of Sold Houses in June & July of 1999

Watsonville: $247,000 (1.0)
East side Santa Cruz: $390,500 (1.58097)
West side Cruz: $395,000 3/2 1486 (1.59919)
Capitola: $360,000 (1.457489)
Soquel: $379,000 (1.5344)
Felton: $310,000 (1.2551)

What this says is that back in the summer of ’99, the median-priced house in Capitola cost about 1.457 more than the median-priced home in Watsonville.

Now, let’s look at sales data from September 2008:

Watsonville: $352,000 (1)
East Side Santa Cruz: 615,500 (1.74857)
West side Santa Cruz: 702,500 (2.0468)
Capitola: $711,000 (2.01988)
Soquel: $610,000 (1.73295)
Felton: $486,500 (1.3821) (* August 2008)

You’ll notice that compared to the 1999 ratio, the sampled areas in the county appear considerably higher relative to Watsonville than they have been historically. If we use the same ratio from the summer of ’99, here’s what prices in the rest of the county should look like today:

Watsonville: $352,000
East Side Santa Cruz: $556,501
West side Santa Cruz: $562,914
Capitola: $513,004
Soquel: $540,108
Felton: $441,795

What does all this mean? Probably nothing, because I’m not a statistician or an economist. But from my armchair analysis, it looks to me like either a) Watsonville is cheaper than it should be, or b) the areas I sampled are still too expensive, or c) both A and B to some extent.

It does make me feel better about something I’ve been saying for months, though: buy in Watsonville. Prices there are low, and even if you don’t want to live there, with a reasonable down-payment, the properties will break even on a before-tax basis.

These sure are interesting times we are living in!

Posted by Administrator at 9:15am
1 Comment »

Watsonville Foreclosures Meet the Press

March 03, 2008

Hey, I’m famous! Kind of. On the eve of our tour down to Watsonville to look at some REO foreclosure opportunities, I got a call from one of the staff writers for the Register Pajaronian. He asked if he could come along on the foreclosure tour. I said sure, no problem…

[From the Register Pajaronian – Foreclosed homes lure investors to local tour ]

Members of the Santa Cruz Real Estate Investment Club took a whirlwind tour Saturday through Watsonville, looking at six properties placed on the market as a result of foreclosure.

OK, so it’s not Sixty Minutes. But everyone has to start somewhere. The reporter from the RP (David Carkhuff) was very nice guy, visited a couple of houses with us, took some photos, and went on his way.

The Foreclosure Tour itself was pretty fun, and the folks who came along seemed kind of surprised at how cheap everything was in Watsonville. Afterwards, there was a debriefing back at Thunderbird Real Estate’s office, and a comment was made that prices aren’t quite there for investors yet.

Well, that’s as may be. However, from everything I have heard and read, most professional investors never pay list price. They may write up 10 or 20 offers for each one that actually gets accepted. I don’t know that you’d need to write up 20 offers to get a decent price on a place in Watsonville, but It’s true that the asking prices are not quite to the point where they are obviously a screaming deal for a true, pure investor. But they are very close, and in many cases, it’s possible to negotiate a price down to the point where it does make sense.

There were recently a couple of listings in Watsonville where the asking price did make sense to investors – and those properties sold in under a week. That’s the thing – when something is blatantly cheap like that, don’t expect it to sit on the market long. There is money around, but it’s smarter money than it used to be. It’s also faster moving money, so if you want to take advantage of this market, you’ve got to be fast moving, too.

Posted by Administrator at 6:06pm
Comments Off on Watsonville Foreclosures Meet the Press

Watsonville Foreclosure Tour

February 26, 2008

No, we won’t have a cool bus like the guy in Stockton did as seen on 60 Minutes. But here’s what we do have: a bunch of folks interested in buying some investment-grade real estate down in Watsonville. We’re going to meet at my office in Capitola on Saturday, March 1 at 11 AM, and then make our way down to Watsonville. So far, most of the folks who are coming along are from the Santa Cruz Real Estate Investment Club, which I mentioned a few blog entries ago. If you’re not a member, this might be a good chance to meet some of the people involved and see if maybe you’d like to join too.

We are going to see about a half-dozen different REO properties that are presently for sale, all of which represent good opportunities for investors. I just spent the last hour or so going through every house and condo listing from Larkin Valley down through Watsonville, and I found that there are seventy listed REOs in that area.

Most of these REOs are not what I’d call investor grade – most of them are consumer grade, which is to say, they are priced for owner-occupants, not for investors. Investors need to pay less than retail consumers, because a true investor is looking for cash flow with a relatively small down payment – that is, he’s looking to actually get a return on his investment month to month, just as if he had it invested in an IRA or something.

But there are a few investor grade listings out there, and that’s what we’re going to be seeing this coming Saturday, March 1. If you are interested, just meet us outside my office at 3555 Clares Street (Suite WW) – next to the Fresh Choice Restaurant. We’ll probably want to carpool, but if you want to follow along, that’s fine – we will make copies of the properties we are going to see, if you have a GPS unit in your car or know Watsonville well, feel free to drive by yourself and just meet us at each property in turn.

I hope you can join us!

Posted by Administrator at 9:02pm
Comments Off on Watsonville Foreclosure Tour

Subscribe

RSS ChicletBlog Entries

March 2024
M T W T F S S
« Apr    
 123
45678910
11121314151617
18192021222324
25262728293031
ActiveRain Real Estate

design by Brass Blogs
powered by WordPress