We are having another event Sunday night at JT Schmids at the district. I will be addressing interested parties on how they can invest in the trustee sale market. I am expecting a smaller turnout, and I should be able to give each attendee individual attention to ask questions.
As always, we encourage everyone to attend and enjoy an evening of comradery and conversation about real estate. Appetizers and drinks will be served.
Huge Price Reduction
The burgeoning inventory in Irvine is starting to frighten buyers who really want to sell. Today's featured property was originally profiled on March 4, 2010 when the owner was asking $629,000. I noted back then that they were not likely to get their asking price. A few days ago, they lowered their asking price from $559,900 to $499,900 — a decrease of more than 10% and more than 20% from their original asking price. At its current price, and 4.5% interest rates, it is quite affordable.
This is exactly what the banks fear. If too much inventory hits the market — and it is still steadily climbing — sellers will start to lower price to find a buyer. If a great deal of inventory hits the market, the price reductions may get quite aggressive like today's featured sellers. That is how a market price drop happens.
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From the previous post:
HELOC dependency
Day after day, I see sellers who have spent their home price appreciation as it came in as if it were a source of managed income. I believe this practice is so widespread that many who live in California consider it an entitlement; buy a house and you automatically get to double your spending power. With entitlement comes a social acceptance of the means to obtaining that entitlement — taking on excessive debt. To the chagrin of lenders, borrowers have also figured out that if things don't work out it is easy to walk away from debt and start over, and any social stigma associated with foreclosure and bankruptcy has vanished.
Today's featured property was purchased on 10/1/1999 for $276,000. The owners used a first mortgage and a $50,000 down payment — well, kind of…
On 10/13/1999 a stand-alone second for $50,000 was recorded on the property. The real down payment was $0.
On 5/9/2001 they refinanced with a $273,000 first mortgage reflecting a $3,000 decline in their mortgage balance.
On 2/13/2004 they went over to the dark side and refinanced for $313,000.
On 1/3/2005 they opened a stand-alone second for $90,000.
Total mortgage debt is $403,000.
Total mortgage equity withdrawal is $127,000.
I gave these owners a "D" because the $90,000 stand-alone second is more than just paying off a few credit cards; that is simply adding to a mortgage to get the money to spend which crosses the threshold of knowingly spending anticipated appreciation which is a "D" by definition. Since their withdrawal was relatively small by Irvine standards — $127,000 — and since they paid down the mortgage at times, one could argue for a "C."
Not a bad take for a $0 investment — plus, if they get their asking price, they stand to make another $200,000. They won't get it.
I have been inside both neighboring properties 1 Fern Canyon and 3 Fern Canyon, the latter in particular was much larger and very nice inside. It appears that the original listing was for $529,000 — a more realistic although still inflated asking price. Perhaps the owners feel they added $100,000 in value by installing an over-the-top Thomasville kitchen. ~giggles~
We are having another IHB party on Sunday August 22, 2010. The party on August 1 was attended mostly by investors, and we anticipate many will attend the event on Sunday, but I want to make clear that it is open to everyone. If perhaps you are looking to buy in Orange County, and you want to meet an IHB agent. or if you simply want to hang out, have a drink, and talk real estate, we encourage you to attend.
For those of you who previously expressed an interest in the fund (this is not a solicitation), the fund will be closing to new investors on Friday, September 17. I know that seems like a long way off, but it often takes time to free up investment capital, and I don't want you to miss this opportunity. Also, the fund is only open to 35 "Sophisticated" investors, and these slots go in the order I receive the paperwork. If you are planning to invest under the sophisticated investor category, the fund may not have openings through September 17.
I now have over $1,000,000 in firm commitments to the fund, so it will definitely be going forward.
This delinquent owner may be having unemployment issues. The property was purchased on 4/27/2005 for $615,000. The owner used a $492,000 first mortgage and a $123,000 down payment. People generally won't walk away when they are just on the cusp of going underwater and they have such a large down payment. The NOD was filed in April.
According to the listing agent, this listing may be a pre-foreclosure or short sale.
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I was recently asked in the astute observations for an update on the operations of the IHB.
Since I returned from vacation on July 6th, blog traffic has been tremendous. We are now averaging between 3,500 and 5,000 unique visitors each weekday. On July 29th, the post Another Ignorant and Misguided Attack on the 30-Year Fixed-Rate Mortgage was picked up by a major political blog and we set a four-month traffic high with 6,696 visitors on that one day.
July's traffic will surpass June's. Below is a modified screenshot from Compete.com. They have only recently begun tracking the individual blogs at the OC Register, and I have no idea how accurate their data is.
As you might expect with a name like Irvine Housing Blog, the majority of the traffic is local readers. The traffic stats below come from Clicky.com, and they reflect unique visitors over the last 30 days. Interesting that the blog is popular in New York City.
Ideal Home Brokers has been doing very well this year — thanks primarily to the good work of Shevy Akason, George Ross and Rana Swedan. Shevy, George, and Rana have closed 15 sales for IHB readers and referrals this year, and as our testimonials relate, their work is well received. Additionally, Shevy, George, and Rana currently have 16 escrows scheduled to close in August and September. I am thrilled with the work the team is doing, and we are all looking forward to continued growth in that business.
The poorest kept secret on the blog is the formation of an investment fund composed primarily of IHB readers. I am pleased to announce that I have enough cash in the fund account to buy the first property — not that I am planning to buy one before September — so the fund is large enough that it will certainly go forward. Last Sunday's event was attended by about 40 people, and 25 of them signed up to receive more information on the fund, and most stayed through at least one of my informal presentations. Further, I have answered over 40 email requests for information on the fund and I have personally met with about a dozen potential investors individually. Two of my advisor-friends have congratulated me on the fundraising efforts. As professionals in finance and law, they both have relayed the difficulty many hedge funds have experienced raising capital over the last 18 months. Perhaps the success in fundraising signals the bottom of the recession. Let's hope so. BTW, this report is in no way a solicitation to anyone to invest in the fund. I am merely reporting the facts.
I have not reserved the room yet, but we will probably have one more IHB event on Sunday, August 22nd. Stay tuned for more details.
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We are hosting a new event on Sunday, August 1, 2010. I will informally address all interested attendees on how they can profit from opportunities in the trustee sale market. I have already met with many people individually, and there will be plenty of time and opportunity to talk with me one-on-one to ask questions. At this event, I will have a calendar for people to sign up for individual follow-up meetings on Tuesday or Thursday evenings where you will have a half hour of my undivided attention.
I have profiled dozens of trustee sale flips. It is obvious that investors are operating in this market through purchasing properties with cash and flipping them to buyers who require financing. There are ways that individual investors can band together to participate in this market and diversify their risks and lower their capital requirements. I will describe one particular method in detail.
I have arranged to have an appetizer station set up for us at JT Schmids. If you provide some basic contact information, I will give you a card for a free drink at the bar. Technically, that means the drink isn't free, but as any economist would tell you, there is no such thing as a free drink.
There is no shortage of accelerated default in Irvine. Today's featured property was purchased in 2004, and after the owner extracted what he could, he is leaving the rotting carcass for the lender.
This property was purchased on 3/26/2004 for $645,000. The owner used a $516,000 first mortgage and a $129,000 down payment.
On 3/22/2005 he obtained a HELOC for $150,000, but he didn't use it.
On 3/15/2007 he refinanced the first mortgage for $552,500.
On 3/27/2007 he obtained a $200,000 HELOC.
On 6/8/2007 he obtained a third mortgage for $125,000.
Total property debt is $877,500.
Total mortgage equity withdrawal is $361,500 including his down payment.
According to the listing agent, this listing may be a pre-foreclosure or short sale.
This property is in backup or contingent offer status.
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In Friday's comments, I was challenged by a reader who feels that I have lost my objectivity because we now sell real estate. Another reader seconded that concern so I want to address it directly in this space.
I think prices are too high. I also think prices will soften, particularly this fall and winter as the inventory continues to mount and buyer demand wanes. I don’t think buyers should purchase at prices above rental parity which most properties in Irvine still trade at.
Shevy is out working with buyers every day. Both he and I tell them they should not buy a property today unless they are prepared for continued weakness in pricing and they are in for the long haul. There are many properties that are trading for less than rental parity (mostly outside of Irvine), and for some buyers who plan to live there for a long time, they can save money versus renting if they buy today. If they need to sell in three years, they will have problems, and unlike many realtors working Orange County, we are telling clients this truth. There is no real urgency to buy property right now. Prices will likely go down and affordability will likely improve. That is the message we tell buyers because that is what we believe is true. If anyone reading this has heard anything else from me or Shevy, please post it here or email me.
If I am selling anything, it is the truth about profits to be made in the trustee sale market. I will continue to bring this fact to readers attention as I am trying to generate interest for that part of our business because I believe in the opportunity. I am not exaggerating or relaying anything other than factual observations. People who are active in the trustee sale market are making money, and anyone who wants to participate in this market can do so with our assistance.
Some of you may not believe this, but it is possible to be both an objective blogger and a salesman. If the sales opportunity is real and backed by observation of verifiable facts, I can objectively report on it. Sales doesn’t have to be sleazy manipulation and lies. Sales can be exposing a truth and detailing exactly how people can take advantage of it. I feel very comfortable with what I am doing.
Expect to see more trustee sale flips as property profiles in the coming weeks.
Writer's Corner
I have enjoyed a wonderful emotional state and clear frame of mind since coming back from my vacation. When I went, I spent the first few days alone walking in the woods and doing those things that calm and ground me, but that isn't what really cleared my mind. Playing golf did that.
I played several rounds of golf on my trip, and given how little I had played leading up to the trip, I expected very little from my performance. Once I got there and teed off on the course where I learned the game, many of the old thoughts and habits began to return. I shot 78 on my first 18 holes, and I was pleasantly surprised with how well I struck the ball. But more important than that, I was keenly aware of how my own self-confidence had a direct bearing on the level of my performance. The link between golf and life was direct.
As I pondered the link between confidence in my golf game, my performance on the course, and the rest of my life, the purpose of my trip became clear: the spiritual center I was looking for was not going to be found in the woods or climbing the mound, it was going to emerge on the golf course through confident play and solid performance.
On my second round, I accomplished something I have been frustrated with for 25 years: I broke par on my home course. The nine-hole course I grew up playing in Wisconsin is not particularly challenging, and shooting par or better there is within reach of any single-digit handicap player. However, I had not managed to do it since I first began playing there at age 9. I knew the course was in my head when I was 18 years old. In one round I was 1 under par after 8 holes and managed to double bogey the ninth to shoot a 1 over par 37. I have tried off and on for the last 25 years to get past this psychological barrier to no avail.
During that second round, I holed my wedge approach shot on the par 4 third hole for an eagle, and I birdied the par 5 fifth hole to put myself in a solid position. When I holed out my putt on the ninth hole, I had gone around in 35 strokes and bettered par by a shot. In my own mind, I had accomplished far more than that; I had broken through a mental barrier I had for many years. And in doing so, I rediscovered a fundamental truth about confidence in myself and the direct link to my own performance.
Since I have returned from my trip, I have found my heart has been more peaceful, my mind has been clearer, my stress level has been lower, and I have been happier. I am excited about the future, and I am feeling as confident in my own abilities as I ever have. And I am looking forward to my next round of golf, and I am looking forward to the next challenges in my life.
The Northwood II neighborhood was developed near the peak, and there have been a large number of distressed properties in this neighborhood. The previous owners paid $964,000 on 4/13/2005. They used a $770,950 first mortgage and a $193,050 down payment. They obtained a $250,000 HELOC on 8/8/2005, but there is no evidence that they withdrew their down payment with this HELOC. There are two other loans recorded later, but they appear to be in error. He did manage to squat for about 18 months.
Foreclosure Record
Recording Date: 09/10/2009
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 08/21/2009
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 04/27/2009
Document Type: Notice of Default
Foreclosure Record
Recording Date: 03/16/2009
Document Type: Notice of Default
When this property went to auction, the opening bid was $629,516, and the current owner-flipper paid $750,000. The profit margin does not look very enticing, and if they end up discounting this property to sell it, the flipper may not make any money at all.
This property is in backup or contingent offer status.
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