The REAL Estate Market – September Review

Well, it looks like I waited until the very last day to post my September article, but better late than never.  After all, unlike in Information Technology, there is no such thing as a Real Estate Emergency.

This month we experienced a bit of a slowdown, mainly attributed to the many Jewish Holidays that are in September.  Now that the holidays have come and gone, I expect an exciting end-of-the-year run towards closings to begin and run up until  Thanksgiving/Hanukkah, which coincide this year.  Despite the slowdown, a number of events this month are demonstrating, in my opinion, that we are at the top of a market and significant change is forthcoming in the next 6-8 months.

For example, we (Metro International Realty, PLLC) saw a major deal we were working fall apart for an unexpected reason.  Back in June, a major name in the South Florida real estate market was exploring the possibility of selling a 400+ unit multi family property in Miami-Dade County with us.  The original ask was 45 Million USD.  Within 48 hours we brought in an offer at 43 Million, direct from a senior VP at a major real estate corporation.  Our seller (and this is one of the pain points of “Off Market”), not being under any obligation, immediately raised his price to 50 million USD.  Our Buyer, flew down from the midwest, met with the Owner/Seller to negotiate, not once; but twice.  47 Million (which placed that asset at a 5.25 CAP on a Class B/B+ property requiring 15K per unit in upgrades/renovation) was tentatively agreed upon and the original thought was the Owner/Seller would take the deal back to his accounting team and see just how much money they wanted/needed right now, and how much they would want to carry as a note.  Our Buyer was willing to construct the deal in ANY fashion they wanted.  [The apparent “Greed” of the Seller (and others we have been working with who are countering offers at higher than their original ask price and NOT getting it), is one thing that is telling me that we are due for a turn in the RE Market.]   Last week, we received an email from the Owner/Seller that the tax implications of selling the property were far too great for them to move ahead with the deal.  Considering that we happen to know that this Owner/Seller could really use the extra cash right now, this was a very surprising outcome to what appeared to be, in virtually every way to even the most skeptical of businessmen, a “slam dunk”.  The fact that “Taxation” is creating an obstacle for deal flow just goes to show how screwed up the thinking is in Washington.

Which brings us to the next development of the month, the so called “Government Shutdown”.  Every year it seems we have a budget battle between the President and Congress.  I find this kind of funny given that the President has not actually proposed a real budget since he took office 6 years ago.  However, he has issued more “Executive Orders” during his tenure as President than all other Presidents before him combined (Dictatorship?)  Further, I was watching his address to the nation, today, and he specifically states “One House, of one branch of government, should not be permitted to…” essentially get in the way of his Left Wing Agenda.  My answer to that is a question:  Is this not a Democracy?  And, is it not the very “House” that, arguably, most closely resembles the voice of The People, ie: The House of Representatives, that is getting in the way?  The President even suggesting that the Legislative Branch’s powers/checks/balances be (or should be) more limited should be of grave concern and raise the question of just how “American” is this President?  But I digress…..

Another supporting factor to my thesis is that interest rates are up, and will be going higher.  California Beach Pundit wrote an article, early in the month, suggesting that interest rates were rising because the economy was stronger.  What I found most compelling about his article, was not the article, because most of his stats are based on Government Massaged Numbers, but the responses to his article by Stanley J G Crouch; who writes:

Absolute nonsense completely unsupported by the facts.

Interest rates are up because the Chinese and Japanese are huge net sellers of Treasuries and have completely swamped “QE Now”. The Fed would do well to double “QE Now” just to stay even.

“Loan demand” is poor for mortgages, corporates, muni bonds and U.S. treasury ‘supply’ is much lower due to sequestration and higher collections through the tax increases. So, higher rates are not “demand driven” at all.

The real reason is the BRICs trading away from the $ as sole reserve currency in increasing ways. Hardly bullish, and in fact, the pre-cursor to quite a ‘risk asset’ collapse.”

and by William McKibbin who responded:

“I agree that the macroeconomic data indicates the US economy is edging upwards, albeit at a glacial pace — however, when I consider fundamentals in the US, a am not so sure — for example, Sears, JC Penney, and Barnes & Noble stores are essentially insolvent — moreover, the city of Detroit is lost in a municipal bankruptcy of unprecedented scale — the US is still engaged in lost military expeditions overseas that are costing hundreds of billions of dollars — finally, we simply cannot ignore long-term declines in real working wages, real home values, and the employment to population ratio — thus, while I agree that the macroeconomic indicators are showing an “uptick” of sorts, the fundamental indicators are dire — said more specifically, the technical indicators do not reconcile with the fundamental indicators in the US — folks, that’s troubling — in fact, very troubling…”

I do appreciate the charts and commentary of Scott Grannis (AKA California Beach Pundit); however, we can agree to disagree on the hows & whys Scott!

With interest rates going up, regardless of the reasons, asset values must come down.  I have a residential customer, newly engaged as of yesterday (congrats Vanessa & Kevin!), who are in the market for a home.  They want to put 10% down, and finance the rest.  My customer has an 840 credit score (I swear…they DO exist it seems!).  I gave them the following advice given the budget requirements they gave to me.  I recommended we look at distressed assets through the Fannie Mae program via HomePath.com.  Given their credit, and the incentives Fannie Mae has for Buyers/First Time Buyers and the special Renovation Mortgage option/possibility with some properties, I could put them into a near ideal home (in terms of price), but it will be a Fixer Upper (something they actually would like to do).  I also explained to them that if they were ALL CASH, I would recommend they hold off on a purchase unless it was their intention to secure a low, loan-to-value loan against the home.  This is because asset values WILL drop as interest rates go higher, and CAP rates on both residential rentals and commercial assets will have to go higher as a result.

Lastly, if you are a Seller, do a quick, objective check of your mindset and finances.  Now is absolutely the time to start considering selling some assets and taking profits.  If your “mental state check” comes back as even being remotely Greedy, then you should probably call a Broker and have them QUIETLY assess/value your assets for possible sale and give you a professional opinion rooted in logic, reason, facts & fundamentals.  If you are unable to check your greed and/or ego now, you might be kicking yourself this time next year.

This coming month I expect to see quite a bit more activity, both on the big commercial scale, such as the forthcoming Hilton IPO, as well as at the small, residential level.  During October I will make several posts with some useful information pertaining to the Miami Market and hope you find it interesting.

On to Q4!

Cheers,

Christopher Lazaro

I can be reached at:

Advertisements

Removing Fear & Greed from the Real Estate Investing Process through Education

I am entering the below article into the PG Real Estate (http://www.RealtySoft.pro/realestate) article competition.  I have been looking at their software for a long time and would love to build a quality real estate website using their platform!

On RealtorMag today I spotted an article that states the obvious, but in my opinion does not go into any detail on WHY the point of the article is true.  As a reference, here is the linked to the original article:

http://speakingofrealestate.blogs.realtor.org/2013/06/12/young-adults-sour-on-buying-study-says-no/

My Response:

    This article is stating the obvious. Anyone, such as a real estate student, will be more likely to want to pursue purchasing real estate once they have become educated. Education dispels fears by providing facts rooted in logic & reason. The two most powerful forces in any market are Fear and Greed. Fear is more powerful. It takes a stock, and typically Real Estate, a long time to appreciate in value relative to how fast it can crash when people lose confidence, fear takes over and everyone heads to the exits at the same time. Markets ALWAYS overshoot more to the downside than they do to

Miami Realtor, Miami Real Estate Professional
Christopher Lazaro, MBA – International Realtor of Miami

the upside. The educated people who had the cash during the real estate bust were the very first into the market in 2008 & 2009, and since 2011 have been reaping the rewards of the opportunities provided by the Greedy; many of which got gutted financially.

       So what really creates the opportunity?  It is a combination of the Fear/Greed paradigm, combined with a general lack of education & sophistication in the general populace.  As soon as something, ANYTHING, starts going up and looks promising, people with any kind of cash start to pour into it, regardless of whether they understand the business or not.  Don’t just take it from me, take it from the most successful investor in US History, Warren Buffett:
1)    One of Warren Buffett’s biggest rules is to never invest in anything you do not fully understand.  If you cannot figure out how a venture makes money, don’t walk…RUN!
2)   Another rule of the great Warren Buffett is a contrarian rule “Be Fearful when others are Greedy, and be Greedy when others are Fearful”.
3)   And according to Warren, the number one rule for building success, wealth and prosperity is NO DEBT!  I, personally, don’t have billions of dollars at my disposal, so for the majority of us, a reasonable amount of debt incurred to accomplish a real estate purchase is often necessary.  I try to keep debt as low as possible and make sure that any debt incurred is for tangible investment and not superfluous, materialistic, nonsense.
      Most people fall into middle & lower income brackets.  They have more of an emotional attachment to their money, and generally speaking,  therefore have a greater predisposition to Fear & Uncertainty, which certainly clouds judgement.  This is not to say that more wealthy people do not share this trait too; after all, these are HUMAN characteristics.  These emotions are experienced the moment an opportunity to either

Miami Realtor, Realtor of Miami, Miami Real Estate
Christopher Lazaro, Miami Real Estate Professional

Buy or Sell occurs while the market is in a state of turmoil (or not, but opportunities generally occur when there is an “inefficiency”, typically created by turmoil), be it on the way up or on the way down.  If you are a person investing in real estate, you should have a long term approach.  It is easy to still get sucked into the mentality of the 2000-2007 market, where people were trading real estate almost as quickly as they could buy and sell a stock.

         As Michael Douglas points out in the movie Wall Street, “Greed is Good”, or at least it can be.  We all desire more money and greater prosperity for ourselves and those we care about.  The very idea of investing is to, bottom line, make money; even if that investment is tied to something “Socially Responsible”, which is completely secondary in the majority of people’s minds.  It is Greed that puts us into a position where we are presented with an opportunity to make an investment.  Without the desire to make more money, there would be no desire to consider making an investment in the first place.  It is at that point where people not only feel the emotions of Fear & Uncertainty, because they are emotionally tied to their money, but while they are sorting through those emotions, they are also trying to contend with what is known in Economics as “Opportunity Cost”; meaning, if I spend my 100K in savings on buying this investment property, I will be giving up the ability to put that 100K to work elsewhere should an opportunity avail itself, or already be considered as an alternative.
      It is here where emotions must be put to the side and the would-be investor needs to perform an analysis (actually a set of them).  Generally speaking, they should be performing a SWOT Analysis:  Strengths, Weaknesses, Opportunities & Threats.  If you do not understand HOW you will make money, scrap the opportunity until you fully understand How and all of the Issues, Risks, Actions & Obligations that will come with the investment.
      In order to answer under each of those columns in SWOT, additional analyses are needed, such as Market Analysis: pulling comps, doing inspection(s) of the property and getting a rock solid idea of what it can rent for and/or sell for versus the total cost of ownership.  You must know what your ROI (return on investment) and your CAP rate (Capitalization Rate is what you get to keep after Taxes, Dues and other expenses on the property are paid for) will be.  Be sure to include the cost(s) of Commissions, Rehab and Satisfaction of any Liens associated with the property. This is typically done via a Pro Forma.
     While considering the choice (or choices, in which case you may have several Pro Forma documents in front of you) of an investment, you then need to compare it to other types of investments.  For example, if I take my 100K and buy an investment property with it, my ROI might be 10% and my CAP rate might be 7%.  I might weigh similar opportunities with similar numbers.  But I also should look at the “What if I simply invest it in an REIT (Real Estate Investment Trust), that pays a Dividend of 10%?  Right now (2013), that looks “better” because even if I am making over the 400+K a year where the tax becomes 20%, I still get to keep a full 1% more (meaning it would be an 8 CAP) than if I owned property and I have none of the management & ownership & general upkeep headache of a property.  However, the savvy investor should consider that a physical piece of property can be borrowed against (so I can invest in yet another property, possibly as much as doubling my ROI and absolutely increasing my ROE (Return on Equity).  The additional “cost” associated with this would be whatever the mortgage debt associated with the borrowing would be and this too, can be clearly put on paper and calculated in a Pro Forma.  In addition, income generated from the property or properties, can be offset with not just taxes & other expenses, but rental properties can also be Depreciated (this is an additional “Deduction”).
      The vast majority of would-be investors, in my experience, have little to none of the above knowledge or expertise, and while I have given a pretty solid synopsis, it is simplified and incomplete.  A complete dissertation on the subject itself is beyond the scope of my response.
      Circling back to the original point, and concluding: given all of the above that I have written about proper investment analysis, there is no mention of emotion playing a role in the decision making / evaluation process, and “gut instinct” has absolutely nothing to do with a legitimate analysis; NOR DOES LUCK! This is where the value of a qualified (and by qualified I mean BEYOND simply licensed to practice real estate) Real Estate Professional can be of tremendous value to an Investor; and a be a provider of “Luck”.
Note:  Be prepared to either pay a TRUE real estate professional for properly done Analyses & Pro Forma, or at the very least sign a Buyer-Broker Agreement.  As a Real Estate Professional I get paid Fees as well as Commissions, and dependent on the transaction at hand, I have deducted my fee(s) from the total Commission(s) paid on property closings.  Be wary of agents “working for free” or not requiring a commitment.  The best Brokers & Agents I have met in the business get paid, one way or the other (or both) for their services; and they have a lot of repeat business.
Cheers,
Christopher Lazaro
I can be reached at:
************************************************

PG Real Estate Solution – script for creating a real estate site.

Why some Home Buyers are feeling like they missed out!

Why some Home Buyers are feeling like they missed out!

I am forwarding this article to every Buyer who argued with me and wasted my time over the past 2 years. They believed things would go lower while all the data, and logic, suggested a bottom had already been reached in the local market. They sent me out to get a deal, and once I found it sat their blinking in disbelief and never pulled the trigger. Nothing is more frustrating than putting in many hours of work for someone and ultimately not getting paid. I still have all cash Buyers calling me to ask me if I can get them a 2009,2010,2011 deal and I am literally telling them I can do it if they provide me with a Time Machine.

At least my best friend, Steven Bielik, took my advice and locked in a new mortgage at a historic low when I told him to do so. My worry was that he would continue to “shop” and miss the opportunity.

Article on RealtorMag.Realtor.com regarding Shadow Inventory – My Commentary

Regarding the article posted on RealtorMag.Realtor.com:

It’s Not Over: Report Warns Shadow Inventory Threat Remains

DAILY REAL ESTATE NEWS | MONDAY, JUNE 03, 2013

Foreclosures have been falling in recent months, but two government watchdogs warn that the foreclosure crisis isn’t over yet. About 1.7 million borrowers have missed more than one payment on their government-backed mortgages, according to a newly released report by the inspectors general of the Federal Housing Finance Agency and Department of Housing and Urban Development. 

The shadow inventory is made up of loans that have been delinquent for at least 90 days. If these delinquent loans become foreclosures, they could pose significant financial challenges to mortgage giants Fannie Mae, Freddie Mac, or other federal housing agencies, the report notes. 

“Not only are current REO inventory levels elevated … they may rise over the next several years depending on the number of shadow inventory properties that are ultimately foreclosed on,” the report stated.

According to the report, the shadow inventory is more than seven times the inventory of REOs that Fannie Mae, Freddie Mac, and HUD currently own. 

“Even a fraction of the shadow inventory falling into foreclosure could considerably swell … inventories of REO properties,” the report notes. 

My Response:  

I work with large institutional buyers wielding, in some cases, billions of dollars in investment capital. I am told by the “smart money” that not all is as it seems and that the US is only about 1/3 or so of the way through the “shadow inventory” glut. There is a widely held belief that the government has brought the flow of these properties to the market down to a trickle in order to boost home prices and stage a recovery. I am also told, and this could simply be hearsay, that Fannie Mae is still sitting on over 3 Trillion USD in bad loans (i.e.: assets, essentially) and the banks, using the wide berth the Generally Accepted Accounting Principals give them, have been shifting tons of these bad mortgages around while they scramble to recapitalize. This, however, can only go on for so long and I expect at least one major bank to either fail (or have a serious problem) within the next 12 months. My sources of information are generally people who are 60+ years of age and been in the real estate investment & brokerage business for 30+ years. They cannot ALL be wrong…

Response to a Response: Defining 21st Century Real Estate – On Purpose Magazine

On the wonderful website On Purpose Magazine, I just replied to a response by a Keller Williams Realty Associate (but I have no way to truly confirm that they are indeed working for Keller Williams) and it seemed more promotion; but also the person indicated that, in a nut shell “all we do is real estate”; and I believe the antiquated models of the Old World of Real Estate are becoming increasingly difficult to survive in.  I published this response:

Christopher Lazaro | February 27, 2013 at 9:08 pm 

We are more of a boutique brokerage than Keller Williams and as such have expanded our interests to finding sources and buyers of hard/physical commodities such as Iron Ore, Sugar, Gold, Silver & Oil. We have repeatedly come across the opportunities while working with investors seeking to sell/acquire large commercial real estate assets.

We also have no problem brokering legitimate business opportunities and joint ventures regardless of whether they are real estate related. We are more than simply real estate agents; we are trusted business consultants with decades of expertise in banking & finance, information technology, commodities, and energy as well as residential & commercial real estate.

The global nature of the market place has shown us new avenues for growth both personally and commercially speaking and in our view we can provide our clientele a greater scope of opportunities and possibilities by having this flexibility.

It was for this reason that our group came together to form Metro International Realty (and the DBA, Metro International Investments). Our transition to the new company/venture from TM Realty Associates. Inc is nearly complete and we are very happy that our fearless leader & commercial broker, Mark Moldoff, a 42 year veteran of real estate development and brokerage opted to partner with us and continue leading the group 

Cheers,
Christopher Lazaro

It is about time….

Hello and welcome to RealtorOfMiami.com.  If the link http://www.RealtorOfMiami.com does not yet work; it certainly will soon enough (DNS Propagation takes time).

As my subject line says: “IT IS ABOUT TIME”; and by that I mean it is about time that I finally got around to doing what I have been meaning to do for a VERY, VERY long time; WRITING.  One would think that a person who has an excellent command of the English language and a significant collection of credentials would have leveragedit  into quite an amazing blog by now; especially if that person has more than 30 years experience on a computer system and a noteworthy career in Information Technology.

I am originally from New York and have been living in the Miami/Fort Lauderdale area for 10 years.  I hold a Bachelors degree in Computer Science and a Masters degree in Business Administration with specializations in Economics and Global Management.  Given that more than 80% off all real estate transactions begin on the Internet; Real Estate is a natural fit for me as a career.

I believe Real Estate is one of the few ways both institutions and the private individual can build true wealth; especially in light of what I am certain will be an unprecedented wave of inflation in the future due to the fiscal irresponsibility of our government and the entitlement culture it has established.

My chosen specialization within the field of Real Estate is Off Market Commercial Real Estate.  This is not to say that I will not take a residential listing or sell a home; however, experience has taught sophisticated Buyers & Sellers are the only worthwhile candidates to work with.  Hence, I will only work with institutional buyers & sellers, and private investors & groups of a net worth exceeding 1 Million USD, preferably more than 5 Million USD.  The vast majority of opportunities my firm holds in our inventory require the ability to prove funds in excess of 30 Million USD, with some of our assets carrying 300 to 600 Million USD Ask Prices.  If you are a representative of an institution or a high net worth individual who meets my criteria, contact me and I will be happy to show you our unique way of investing in the global market.

I have begin two blogs.  This blog, RealtorOfMiami.com, will have a primary focus on topics of interest within the Miami-Dade, Broward & Palm Beach counties; occasionally extending outward to cover the State of Florida.  My other blog, InternationalRealtor.WordPress.Com will be more global in scope and have a more macroeconomic scope.

There are innumerable opportunities in the real estate market and it is to the advantage of any potential investor of any size to have as many knowledgable and discerning eyes working on their behalf as possible.  We are clearly, at the time of this writing, in a Sellers Market and there is absolutely, positively no shortage of qualified buyers.  What there is a shortage of are unlisted assets and opportunities; and I am thankful to have been able to partner with skilled brokers & professional networkers to build our new company, Metro International Realty PLLC.  The corporation itself may be new, but between our two brokers alone there is more than 80 years of professional experience in the real estate world.

Cheers,

Christopher Lazaro