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The Colossal Fail: How a Hard Landing Can Make You a Better Investor

Learning to land an airplane was an incredible experience. On the other hand, I did nothing wrong because I did what most students do when they are learning and lack experience. In just the past few years, I’ve raised over $60 million, so you can imagine that I’ve talked to my share of investors. The Rookie Mistake If you’ve read my articles on Multifamily Myths, you know that there are many things about investing in income property that new investors don’t yet know (think: student pilot). And my apartment building had just hit 99 percent occupancy, and stayed there—for about a week. That’s where this old saying comes in: “Half of the units are empty, and the other half aren’t paying.” Economic vacancy is made up of several components: Loss to lease (the difference between market rent and the actual rent on the lease), physical vacancy (empty units), concessions (discounts or free rent given to attract a tenant), bad debt (the half that aren’t paying), and non-revenue units (down units, models, employee units, etc.). During an adverse economic cycle, it’s hard to raise your tenant’s rent—you don’t want to rock the boat on those below-market leases. I was definitely behind the power curve now, and applying full throttle to go around and try again wasn’t an option. Your job as a syndicator does not end once you raise the funds and close the deal. Your hard landings will make you a better operator and allow you to add extreme value to your investors.

Yes, I’m Afraid of a Real Estate Bubble—But I Continue to Invest Anyway. Here’s...

over the next 18-24 months.” It seems like pundits have predicted a price squeeze or bubble that was two years out on average every single year out of the last five. If you believe that a market crash is coming, you are either right—or else you might be waiting a long time to get started in real estate investing. Let me ask you this: When the next crash comes, will prices drop below 2013 levels? The thing is, I don’t think anybody knows when the market is going to crash. I’m afraid that the market will climb much higher and that I will miss the ride if I don’t buy more. I believe that over a long time horizon, say 20 or 30 years, that prices in my market will appreciate at a rate equal to or greater than inflation. If you don’t own real estate, you lose if the market continues to appreciate. I believe you have a reasonable chance at winning if the market goes down if the following are true: A: You have the personal financial position and stability in your portfolio to make it through even serious market drops, particularly in rent. And that is what I’ve done and plan to continue doing. If I wasn’t able to do that, I’d be finding another market to invest in, developing another investment philosophy, or working on my personal financial position outside of real estate to the point where I thought I could sustain my approach in an up, down, or sideways market.

How Much Commute Is Too Much Commute?

Rising home prices send buyers further out of the city in search of an affordable home - or more home than they can swing closer to where they had rather be. WNYC's cool commuter map allows you put your cursor on different cities and areas throughout the country and see its average commute time, like the 60.5-minute average in Sonoma County, CA and the 18.3-minute average for North Canaan, CT. Overflow Data's similar interactive map uses census data of the average commute times throughout the U.S. "Zoom in on a state, or check out the range within each state," said Lifehacker. And the worst commutes of all are in Pike County, PA, a three-hour drive from New York." "That translates to 3.9 million workers, or almost 3% of the total U.S. workforce, working from home at least half the time in 2015, an increase from 1.8 million in 2005." Negotiating some flexibility into your schedule or new job offer could reduce the number of days you have to drive to work and make a longer commute easier to deal with. The question of "How much commute is too much commute?" "That works out to more than a full month out of the year commuting," said the Washington Post. "Imagine spending the entire month of August - 24 hours of every day - stuck in your car or riding the bus." "They made up about 12.4% of all new construction in the single-family home market last year, according to U.S. Census Bureau data," proving that many homebuyers are seeking out attached residences that are often well-located for their needs and more affordable than single-family homes in the city. Just plug in your home and work address and see how good - or bad - it's going to be.

What Is a Carriage House? Horses Not Included

What is a carriage house? If you're thinking this sort of building has something to do with horses, you're essentially on the right track. https://www.houzz.com/photo/847024-carriage-house-traditional-shed-boston Contemporary examples of carriage houses The carriage houses you see today are either updates on the old structures or new homes built in the style of a carriage house. The living space will be in either the actual carriage house on the second floor, or an adjacent building. "The carriage house really gives homeowners the opportunity—architecturally or designwise—to have some fun," Kallos says. The words "house" and "home" are often used interchangeably, but if you come across the term "carriage home" in a listing, don't expect to see a carriage house when you roll up to the showing. A carriage house and a carriage home are very different structures. While a carriage house is large enough to accommodate a horse-drawn carriage, a carriage home is a single-family dwelling that sits on a lot not much bigger than the structure itself. They're structures that are sometimes called patio homes or zero-lot-line homes. "Generally, there is a small private patio that serves as the only outdoor living space," Smith says.

Exceeding Inflation, Home Prices Rising Swiftly

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index’s 10-City Composite, which is an average of 10 metros (Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington, D.C.), rose percent 6.1 year-over-year, up from 5.9 percent in October. The 20-City Composite—which is an average of the 10 metros in the 10-City Composite, plus Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, Phoenix, Portland, Seattle and Tampa—rose 6.4 percent year-over-year, up from 6.3 percent in October. Month-over-month, the 10-City Composite and the 20-City Composite both rose, 0.3 percent and 0.2 percent, respectively. “Home prices continue to rise three times faster than the rate of inflation,” says Blitzer. “The S&P CoreLogic Case-Shiller National Index year-over-year increases have been 5 percent or more for 16 months; the 20-City index has climbed at this pace for 28 months. Given slow population and income growth since the financial crisis, demand is not the primary factor in rising home prices. Construction costs, as measured by national income and product accounts [Commerce Department data], recovered after the financial crisis, increasing between 2 percent and 4 percent annually, but do not explain all of the home price gains.” Blitzer explains that because of costs, fewer homes have been manufactured, pressuring prices. “From 2010 to the latest month of data, the construction of single-family homes slowed, with single-family home starts averaging 632,000 annually,” Blitzer says. Email her your real estate news ideas at sdevita@rismedia.com. For the latest real estate news and trends, bookmark RISMedia.com.

Pending Home Sales Edge Up

Pending home sales edged up in December, 0.5 percent in the National Association of REALTORS® (NAR) Pending Home Sales Index (PHSI). Two of the four major regions in the U.S. saw increases in the PHSI in December, with the South up 2.6 percent to 126.9 and the West up 1.5 percent to 101.7. “Another month of modest increases in contract activity is evidence that the housing market has a small trace of momentum at the start of 2018,” says Lawrence Yun, chief economist at NAR. “Buyers throughout the country continue to be hamstrung by record low supply levels that are pushing up prices, especially at the lower end of the market.” Additionally, sales could be slowed by the Tax Cuts and Jobs Act, according to Yun. “In the short term, the larger paychecks most households will see from the tax cuts may give prospective buyers the ability to save for a larger down payment this year, and the healthy labor economy and job market will continue to boost demand,” says Yun. Just how severe is still uncertain, but with homeownership now less incentivized in the tax code, sellers in the upper end of the market may have to adjust their price expectations if they want to trade down or move to less expensive areas. This could in turn lead to both a decrease in sales and home values.” Realtor.com® Senior Economist Joseph Kirchner, Ph.D., said the following about today’s Pending Home Sales numbers, which foreshadows a very competitive spring buying season. “Today’s 0.5 percent increase in December pending home sales shows just how far buyers are willing to go to close on their dream home. Holiday plans and winter weather usually result in a December real estate slow down, but not this time. For more information, please visit www.nar.realtor.

2.3% GDP growth held back by new-home shortage in 2017

The current-dollar GDP increased 5.0 percent to $19,738.9 billion. Overall, real GDP increased 2.3 percent in 2017 — 0.8 percentage points higher than 2016’s growth (1.5 percent), and the current-dollar GDP increased by 4.1 percent to $19,386.8 billion. But housing construction still did not fully get back to historically normal levels,” Yun said in an emailed statement. “Only 1.2 million housing units were constructed compared to the historical average of 1.5 million starts a year. This underproduction is the principal cause of the ongoing housing shortage, and why the economy did not fully get back up to 3 percent GDP growth possibility last year.” “Even in the private business sector, spending for equipment and software soared, but not for commercial building constructions,” he added. But Yun is optimistic about 2018, saying tax reform should get the U.S. economy back to 3 percent growth, or even 4 percent if residential construction gets back up to historic norms. This would in turn lead to a spectacular gain of near 4 percent GDP growth in 2018.” Other data from the U.S. Department of Commerce: Current-dollar personal income increased $178.9 billion in Q4. Disposable personal income increased 3.9 percent ($139.0 billion). Real disposable personal income increased 1.1 percent. Read the full report here.

How much do millennials have saved for a down payment?

Despite driving much of buyer demand and activity, this group of 18- to 37-year-olds still faces a number of roadblocks on their way to homeownership — namely student loan debt and rising home prices. According to a recent study by Apartment List, since 1980 the median home value has jumped by 60 percent and the average cost of undergraduate tuition has grown by 160 percent. On average, and taking into account expected down payment assistance from family, recent college graduates (those surveyed were renters between the ages of 22 and 35) with student debt are managing to save $6,500 toward a down payment on a home — double the amount of high school grads ($3,400) and half the amount of college graduates with no debt ($13,900). At that rate of saving, Apartment List found it will take college graduates with no debt 7.9 years to save a 20-percent down payment for a median-priced condo. Apartment List says saving for a down payment in an expensive city could take more than 20 years for someone without a college education. SmartAsset’s latest study drives this point home since no “big cities” made their top 10 list of cities with high millennial homeownership rates. SmartAsset notes that millennials can circumvent the long down payment savings process by taking advantage of 3.5 percent FHA loans and first-time buyers programs that many states offer. Average down payment savings and estimated years needed to save a 20 percent down payment are based on data from only those respondents who stated that they plan to purchase a home in the future. Survey responses to questions on down payment savings are stated in ranges (e.g. “$100 to $199”). First, we ranked each city in each metric.

Average U.S. home has gained $55k in value since housing bust

Furthermore, the average U.S. home is now worth $55,200 more than it was at the bottom of the housing bust. On the other hand, The Sand States (California, Florida, Arizona and Nevada), excluding California, have yet to fully recover from the disproportionate impact the housing bust had on them. Meanwhile, the median home price in San Jose is $615,000, three times the value that was lost. During the recession, San Francisco homes lost $225,000 in value, but now, homes have gained 91.7 percent of their value back from the December 2012 crisis low, bringing the median home value to $435,700. Los Angeles and San Diego have experienced relatively strong recoveries with homes gaining back 64.5 and 62.6 percent of their value from the crisis low, respectively. Meanwhile, Zillow classifies Denver as an outlier that didn’t experience much of a housing bust, since home values only fell 9 percent. But Denver median home values have climbed to $379,500 — 61 percent higher than the highest value reached during the mid-2000s bubble. “A decade after the financial crisis, the scars of the housing bust are still with us,” said Zillow senior economist Aaron Terrazas in a press release. “The gap between the metros with the strongest and weakest housing market recoveries is as wide as it has ever been.” “The California Bay Area’s housing recovery stands out when compared to other markets that saw similar home value appreciation because it has more than regained all of its lost value,” Terrazas added. “Strong, high-paying job markets and persistently limited inventory sent prices skyrocketing, leading to the Bay Area having the most valuable housing markets in the country.” See the rest of the list here.

SEC accuses California men of running $2.18 million home flipping scam

The Securities and Exchange Commission is charging two California men with running a home flipping scam that defrauded dozens of investors out of their retirement savings. According to the SEC, Daniel Vazquez serves as the CEO of Hoplon Financial Group. Through Hoplon, Vazquez created the “New Economic Opportunities Fund,” an entity that purported to buy and flip residential real estate using investor funds. These investments were made on the basis of “misrepresentations” about how much compensation Vazquez and Hoplon would take for running the operation. According to the SEC, Hoplon and Vazquez, with the aid of Hoplon’s then-chief operating officer, Gilbert Fluetsch, allegedly misused most of the investors’ funds funds to pay unrelated business or personal expenses, including approximately $780,000 that was misappropriated since January 2013. “Vazquez and Fluetsch perpetrated this deception by raising money from investors with promises that investor money would be used to purchase and renovate real estate and that Hoplon’s compensation would be strictly limited, while in reality they were draining most of the money from (New Economic Opportunities Fund) accounts for their own purpose,” the SEC alleges in its complaint. According to the SEC complaint, Vazquez and Fluetsch actually did purchase some properties, and were actually successful in turning a profit by flipping those properties, but did not make enough money to cover the money they took for their own use. “Despite its failure to fully invest offering proceeds, (New Economic Opportunities Fund’s) real estate transactions did turn a modest profit. However, the profits obtained by (New Economic Opportunities Fund) were not nearly sufficient to cover the amounts being diverted to Hoplon, Vazquez, and Fluetsch.” The complaint alleges that, by promoting and selling these securities, Hoplon, a state-registered investment adviser, and Vazquez, a registered representative of a broker-dealer, violated federal broker-dealer registration provisions. The SEC charged Hoplon, Vazquez, and Fluetsch with a number of securities law violations.


Why Now Is The Time To Act In The Manhattan Real...

Philosophically speaking, real estate investment, like any type of investment, is all about the flow of time. Investment is the art of learning from the past to define the action to be taken at present, so that you can benefit from it in the future. We can’t know the future with certainty, but we can predict it with a degree of probability based on the historical data, and execute an action today based on our prediction. There’s no way for this tendency to not continue. This doesn’t seem like a lot, and yet, residential sales decline, and the prices are plunging for the third quarter in a row, showing 16.6% year-over-year decline, and even the top-tier luxury apartment sales are plunging, according to a report by MarketWatch. Some Manhattan real estate experts see the change in the property taxes as the possible cause of the decline, but that decline is likely to continue for another reason: the overabundance of inventory. Since the market is already slow, and the incoming over-supply is inevitably going to soften it further, the condos and co-ops will spend increasingly more time on the market, giving buyers a wider range of choices and higher negotiating power. — but while the market continues its drift toward buyers (it may last the next three months, or the next 18 months), that’s the best time for a proactive real estate investor to take initiative and make the investment, because the prices are no longer in balance, and can be swayed (controlled through negotiation by a skilled broker). Also recently finalized was the $43.79 million condo purchase in a paparazzi-proof building favored by celebrities. Similarly, my company recently conducted a sale in a popular building in Battery Park City where the seller gave us about 20% off, which allowed the buyer to make their move.