California Real Estate InvestingThe California Real Estate Investing market is a dynamic creature. Many people were able to ride and tame this animal. It was truly a great day a few years ago when a guy in San Diego bought a condominium for $495,000 and sold it a few months later for $725,000. So many people actually became "millionaires" because of the California Real Estate Investing market. They had purchased homes for over half a million back in 2001 or 2002. Appreciation plus the market frenzy had those same homes being valued for three-quarter of million to over a million dollars at the height of the frenzy. On paper, many of these homeowners were now considered "millionaires". Of course they would have had to sell their homes to actually 'realize' this millionaire label but I'm sure it felt good to at least have the label of "millionaire". I was very happy to have the frenzy also because I saw the condo I had purchased back in 1997 reach a skyrocket value. My condo had cost me $25,500.I remember talking to several real estate agents during the frenzy when they said I could probably sell it for $180,000. I was receiving phone calls and mailed flyers almost every day from real estate agents who wanted to sell my condo.At this time, real estate agents were making a killing in the California real estate investing market. Everyone jumped on the "I want to be a real estate agent" wagon so that they also could make a 6% commission on every house they sold. That's good money when you're talking about homes starting at $200,000. And if you could sell two or three a month, you were sitting pretty. So, many of these agents found my name and mailed me letters with their business cards included. They were vying for my listing and I didn't even want to sell. But I'm sure other people who received their letters maybe were convinced that the time was NOW to sell and make their money. Don't get me wrong. If you look at the numbers you can easily see that if I had sold for $180,000, I would have made a huge profit. ($180,000 - $25,500 = $154,500). But I chose to hang on to my little condo. Do you know that at the height of the California real estate investing frenzy, my little condo was worth $280,000?? Yes folks, that would have been a profit of $254,400.So many people were trying to "time" the California real estate investing market. They were saying "You better sell now before the air is let out of the balloon" or "Prices won't go up much more than this, so you better sell now".I remember telling one agent "When you can sell my condo for over $200,000 call me". And you know what, almost a year later, he called when he thought I could get $210,000. Unfortunately, by that time I had other agendas and chose not to sell. You see, I had been taking advantage of the California real estate investing market in a different way. I was using the investing strategy "Refi-around-the-rosy" to expand my real estate portfolio. Plus my mentor had told me "Don't sell your property. Always keep it for the long haul." My Uncle Louie is not my real uncle. He is a fireman who works with my Dad who always gives me advice on real estate based on his experience. (He even said I should become a real estate agent like his daughter but that would've conflicted with my goal at the time which was completing my PhD). Anyway, the California real estate investing market had officially gone crazy. At one point, all you needed to be able to buy a house was a pulse. I was talking to a fellow investor in Indiana recently about how the lending industry requirements had changed from several years ago. He stated "Yeah, the only requirement to get a house back then was being able to fog a mirror".My, how times have changed. The California real estate investing frenzy has now fizzled. Today, you need a credit score of 750. (Last month it was 740 and back in February it was 720.) The lending institutions got burned by writing all these bad loans that people just walked away from. So, now that the banks are holding all of these foreclosures on their records and getting financially penalized for them, they are making it extremely hard for anyone to get a loan.My broker recently told me about how another client of his, a dentist who had been in business for 20 years and who had stellar credit (which before the sliding scale occurred was 730) could not get a loan. The loan underwriters basically discounted the dentist's income to $1,800 per month. My broker said he tried to reason with the underwriter by saying "My client is a dentist who has been practicing for 20 years and you're telling me that he only makes as much as you?" (I thought, "Good one, Mike!") But that just goes to show how critically these loans are now being scrutinized. While I'm on the topic, let me also mention another current industry standard. Lines of credit and credit card lines are being reduced. Again my broker told me how he had secured a half million dollar line of credit for one of his clients a year ago. However, recently, when the client chose to utilize his credit line, he was told that it was no longer available. The credit lender had secretly reduced the amount that was originally extended!So, my broker told me to take out all the money on all my lines of credit and just have the money sit in a bank account for when I needed it. Luckily (I hope it was luck) I had already maxed out many of my lines of credit. But, interestingly enough, I did receive a couple letters from credit card companies (American Express and Capital One) saying they had reduced my line of credit. If I originally had available let's say $6,000 and was carrying a balance of $3,800, the credit card company had reduced my line of credit down to $4,000. If Mike, hadn't told me about this a month before, I would have been wondering why this had happened out of the blue like that. I think that's a pretty dirty trick they pulled.The California real estate investing market today is a gold mine for bargain-seekers. You can now pick up a property that three years ago was $200,000 more. As an example, my parents just lost their best tenant, Sid. (I wanted a tenant like Sid!) Every year for the last three years, Sid would send my parents a letter at the beginning of the year. In that letter were 12 checks. He had written out and dated each monthly check for the upcoming year!!! So all my parents had to do was go deposit the March 1st check on March 1st or the October 1st check on October 1st. Well, at the beginning of this year, Sid's letter included the monthly rent checks but also stated that he was going to buy his own home and would be moving out sometime during the year. Last month he closed escrow on his own home and told my parents that the house he purchased cost him $385,000. The California real estate investing frenzy was over. (Last year, that same house was $585,000.)My parents were very happy for Sid and of course returned all his leftover rent checks. Of course that also means that they are looking for a new tenant and will have a hard time finding another Sid. Responsible tenants like Sid eventually do want their own homes and now that the California real estate investing market is once again affordable, all the "Sid's" will be buying and not renting!In my area, I also see homes going for almost half of what they were going for a year ago. I've recently seen properties selling for $117,000. Just last year, the lowest price house in the area was probably $280,000. Another crazy thing I've seen recently is a house for sale for $399,000 and the one right next door selling for $150,000. As you can imagine, the $150,000 was a foreclosure. I called the agent on the house listed for $399,000 and nicely asked the agent if she was serious. She said that the owners told her that was the price they wanted despite the change in the California real estate investing market. Basically, they had waited too late to sell. They could have sold it for $399,000 last year but this year, it is highly unlikely. If they haven't changed their asking price, I'm sure that house is still on the market. Time on the market is another factor that has drastically changed with this dynamically changing California real estate investing market. In its heyday, a house could be on the market for three hours and have five offers submitted on it with each potential buyer submitting a higher and higher purchase amount. Today, a house can be on the market for a month and maybe get a single offer which is usually for far less than the owners want to sell it for. Again, why should anyone pay top dollar for a home if they can get the one next door for half that amount? So as you can see, the California real estate investing market has tanked. There are some awesome deals out there because every other house on any given street is a foreclosure. Investors can pick and choose and possibly create some fantastic DEALS! Texas Real Estate InvestingTexas might be the next area that is going to hit. I remember a few years ago when one of the gurus mentioned that he was changing his focus from Arizona to Texas. I thought to myself, if he's a billionaire and he's investing in Texas, maybe I should start looking into Texas also.So, I kept my eye on Texas for the next year or so. When an investment opportunity came up in Texas, I was ready to jump on it. I found a good deal that I was able to add to my real estate portfolio. It is an excellent rental property and it brings in a nice positive cash flow. Eventually I want to use this property for one of my favorite real estate investing strategies but with the changes in the lending industry and the hardcore approach being taken by the state of Texas, which has proven to be a bit challenging.
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