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 SantaCruzBroker at 6:06pm
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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 SantaCruzBroker at 9:02pm
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Notes from the Foreclosure Auction
February 24, 2008
So yesterday I took several hours out of my busy schedule to go to the foreclosure auction up in San Mateo, at the event center. I’d turned my brother on to the foreclosure auction some weeks ago, and he’d actually taken the time to drive around to quite a few of the properties on offer, to verify their condition, at least visually. I was going because I wanted to see how much the six properties in Santa Cruz county would go for.
I went with my wife, and we got to the San Mateo Event Center around 11 AM. The auction was already in full swing, and they had several halls packed with potential buyers and lookie-loos. There were thousands of people there. All of the properties were numbered, and that day they started with number 627 (the auction ran for multiple days). The properties my brother had been interested in (mostly in San Jose, Daly City, South San Francisco) had mostly been auctioned off in the first couple of hours. All of them had sold a fair bit over his maximum bid price.
Of course, his bid price was set at the maximum price he could pay and be cash-flow neutral on the properties were he to rent them out. It’s a tall order to get a property that cheaply in California, where you can put just 10% down and get it to be at least cash-flow neutral. Really, this was a retail auction. I don’t think there were a lot of professional investors there. There may have been a few flippers out there, but most of the excitement seemed to come from nicer homes in the nicer Bay Area neighborhoods, and people were looking to get into the market for a bit less than full retail value.
Yeah, the death of the Bay Area Home Market is pretty exaggerated. There is still a lot of demand for real estate out there. It didn’t look to like the Bay Area homes were selling all that cheaply - especially not considering that the buyer has to pay a 5% commission on top of the auction price. Really, the prices seemed to be about the same as the MLS/REO price (I think all of these properties were previously for sale on the MLS as bank-owned real estate).
It’s hard to generalize, but I’d say that most properties went for at least twice the opening bid. The more desirable properties sometimes went for as much as three times the auction price. Factoring in that five percent add-on, and I’m not convinced that the average buyer was really saving all that much money going the auction route.
Unfortunately, I didn’t stick around til they made it to property number 789 - the first one in Santa Cruz county. We calculated that it wouldn’t be before 7 PM that they would get to that property. Maybe a lot of other people ended up losing patience and wouldn’t have been around towards the end of the auction, and could have picked up some of these Santa Cruz properties for a song. I’m going to make a note on my calendar to check the sale price of these properties in six weeks or so, to see what they actually ended up selling for. I’m really curious to know.
I took some video of the California Foreclosure Auction - if you’re curious, check it out!
Posted by SantaCruzBroker at 3:22pm
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Santa Cruz Real Estate Investment Club
February 19, 2008
Today I had the honor and privilege of making a presentation at the Santa Cruz Real Estate and Investment Club. They hold weekly meetings, every Tuesday at 6:30 PM at the 41st Avenue office of Santa Cruz Title Company. They also have a Santa Cruz Real Estate Investment Yahoo Group on-line.
I cobbled together a PowerPoint presentation, about 20 slides or so, about some market statistics and the opportunities that are there for investors in Watsonville who want to buy short sale or REO real estate. I had 30 minutes to talk, it actually ended up being closer to an hour because there were a lot of questions from the people who were there.
It’s kind of amazing how much opportunity there is for investors down in Watsonville, but there’s so few people right here in Santa Cruz who know what’s going on down there. I think it kind of speaks volumes about the schism in our beautiful little county here.
Anyway, I had fun doing the presentation, and I’m going to try to do some more such presentations at other investment clubs in the area. I’ll keep you posted.
Posted by SantaCruzBroker at 10:57pm
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Introducing Zilpy.com - Rental Info
February 11, 2008
I just heard about a fascinating new web site, called Zilpy.com - it’s like Zillow for rentals. I don’t do rentals, but the rental rates are very important to me, because I need to tell my clients what a property would rent for. That’s the #1 question that needs an answer for an investor, so they can calculate how much the property would be worth to them.
For example, I have a listing at 262 Sunnyhills Drive, in Watsonville. I think it would make a fantastic rental for an investor. After perusing Craigslist.com and the Santa Cruz Sentinel On-Line classifieds (as I talked about in a previous blog entry), I figured it would rent for $1,250 or so per month. Let’s see what Zilpy says:
Zilpy’s Estimate for 262 Sunnyhills Drive in Watsvonville
According to Zilpy, that place could be renting for $1,441 per month - cool. It should be noted that I had to tweak the info that Zilpy had for that property, by adjusting the number of bedrooms, bathrooms, and square footage. Curious, I went on to see what Zilpy figured I could rent another of my listings for, 140 Weeks Drive in Watsonville:
Zilpy’s Estimate for 140 Weeks Drive in Watsonville
Zilp comes in at an even $1,200 a month for that place. That’s pretty suspicious, given that it’s a much nicer property than Sunnyhills - it’s got a 1-car attached garage, an extra bathroom, and about 20% more square footage, but according to Zilpy, it would rent for about 17% less money, even though it’s a superior property.
Given these surprising results, I had to ask myself - where does Zilpy get its data from? I couldn’t actually find out, but here is what their knowledgebase has to say on the subject:
Zilpy employs a comprehensive array of data sources, both online and offline, to gather the most complete rental market activity.
Spare me the details, please! Well, part of the problem may be that Zilpy is apparently using some kind of proximity factor in its algorithm, as well it should - but in the case of Weeks Drive, it comparing it to a couple of rentals in Adult Village, an “adult community” where at least one occupant must be 55 years old to live there, and the other occupant (if any) must be at least 45. That keeps a damper on home values in that area (which is kind of the idea), and it likewise has a depressive effect on rental prices, thus throwing off Zilpy’s estimate for home values.
Jut for grins, I put in another listing I have at 216B Green Meadow Drive, in Watsonville - also a condo. Here is what Zilpy says:
Zilpy Estimate for 216B Green Meadow Drive in Watsonville
According to Zilpy, this unit (a three bedroom, 1.5 bathroom, 1 car attached garage) ought to be bringing in $1,737 per month.
As an investor, I’d take those numbers and do some back-of-the-envelope calculations. First thing I would do is take the HOA fee right off the rental amount. That’d help me with an apples-to-apples comparison. Here’s how it breaks down:
The bit of data I’m after here is in the last column, the GRM, or Gross Rent Multiplier. This is the number of years it would take to pay off the mortgage, assuming 0% interest, if the property were rented 100% of the time. At 16.11 years, 216B Green Meadow Drive takes the prize. Of course, the data is flawed - 140 Weeks Drive would rent for more than 262 Sunnyhills, etc.
Even though it is flawed, Zilpy.com is an interesting web site, and if you are considering doing some real estate investing, I encourage you to take it for a spin.
Posted by SantaCruzBroker at 12:44am
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