The thorny question of how to handle cases when wrongfully foreclosed-upon properties were sold to unwitting homebuyers is starting to surface due to a host of legal issues, and it will only get worse as the pervasiveness of improperly transferred notes and flawed mortgage documentation becomes clearer.
New consequences from the failures of banks and their attorneys to follow the law during the real estate bubble keep surfacing every day.
There are already some Title insurance companies that have stopped insuring Foreclosed homes.
What happens to the innocent buyers of those foreclosed-upon properties?
I've enjoyed reading these posts so far. Just out of curiosity , Jim or anyone else, have you sold any of your US properties? If so, what have you encountered good or bad that may be of help or interest to the rest of us ? Thanks!
[quote user=dplummer]I've enjoyed reading these posts so far. Just out of curiosity , Jim or anyone else, have you sold any of your US properties? If so, what have you encountered good or bad that may be of help or interest to the rest of us ? Thanks!
Hi Doug! I haven't sold any U.S. property. I only just started buying them. They're all cash flow positive (20% gross margin) and I have no vacancies. I am still shopping for more.
With regards to what happens when you sell, you may want to order a book from Altro & Associates LLP. The book is free. Enjoy!
"U.S. retail estate is a 'screaming bargain' for Canadian investors and will be for some time, said BMO economist Douglas Porter. 'It's the investment opportunity of a lifetime . . . But there's absolutely no rush because it will take a number of years to stabilize and improve.'"
"Mark Rose, chief executive officer of Avison Young: 'The No. 1 theme I see in Canada is Canadian investment in U.S. real estate. It started last year, when there was $2-billion invested. The Canadian dollar is at a premium and could go higher, and there are opportunities in the distressed market to achieve double-digit returns. Last year you saw companies such as Brookfield, RioCan, Artis, CPPIB [Canada Pension Plan Investment Board] and Manulife down there ` this year, you`ll see them and maybe some others.'"
In the end, just as it was during the stock market collapse of 2008 (and previous asset busts), only a small handful of Canadians will invest. Individuals generally do not like buying assets where the price has collapsed dramatically.
As an aside, it's good to see that my post is still attracting attention even after being put up here in the summer of 2010!
Philip McKernan, author of South of 49 and Fire Sale: How To Buy U.S. Foreclosures:
"He`s not against investing in the U.S. but a vacation property you are going to visit a couple of times of year and try to rent out the rest of the time is going to give you negative cash flow. He`d rather see people do some research and buy a $50,000 property in Michigan that generates $600 of rent a month.
'If you are sitting around a dinner party in Toronto, you don`t want to talk about your three-bedroom house in a dodgy area that has positive cash flow. You want to talk about the golf course and the lakes. It`s not sexy but they are choosing sexy over security,' says the author."
"There are tons of foreclosures and short sales on the market. And there are plenty more sitting in the wings. Banks are holding back big shadow inventories of homes. And that means you can get a great deal. They have to sell. You don't have to buy. You hold all the cards. Remember, the name of the game isn't "let's make a deal." It's 'take it or leave it.'"
"...in many places rental yields are terrific. It's cheaper to own than to rent. There have been some forced sales in my building in Miami. Based on my math, the latest buyers have bought condominium units for six times gross annual rents, and maybe 12 times net rents. We're talking net yields of 7% or more. And rents are rising, because so many former owners are now renters."
As a semi-related aside, MoneySense magazine just finished interviewing me for their summer 2011 edition about investing in U.S. real estate. It should be out in newsstands in a couple months. I declined to answer some questions due to the fact that I am still buying.
"As the nation's housing market shows signs of
bottoming after years of declining prices, many first-time buyers such
as Dorado are getting a rude awakening. Instead of having their pick of
homes to buy in some markets, they're losing houses to cash buyers and
bidders with bigger down payments, or they're facing bidding wars
spurred by shrinking numbers of homes for sale.
competition can be most evident for lower-price homes in markets
hard-hit by foreclosure, such as Phoenix, Miami and parts of Southern
California, or those with relatively strong economies, such as
Washington, D.C., and San Francisco, Realtors say."
I started looking into buying U.S. property during the fall of 2009. I started buying at the start of 2010 and I provided some of my experiences at the start of this thread. The following is a short update.
The 2 bed 2 bath condos that I was purchasing at an average price of $40k are virtually impossible to find now. Although I continue to have a couple of people looking out for properties for me, I haven't bought anything in Phoenix, AZ since the end of 2011. Good properties in low crime areas has been virtually mined out. Cash buyers are bidding prices up to unreasonable levels. USA Today reports that cash buyers from Canada and China are flooding the market.
Some investors who were purchasing at the same time as myself are now flipping their properties at a 50% mark up with "tenant in place"/"turnkey" benefits (which is no benefit at a 50% mark up). I'm happy to keep all my units since they cash flow well and I see no reason to sell since it is very unlikely that I will be able to buy property at such a low price ever again (I can still hope, however).
During the last 3 years, the USD:CAD has been fluctuating around parity, so there is little change there.
In 2010 and 2011 the income statement looked like this:
Expenses: $175/mo HOA, $40/mo home warranty, $40/mo home
insurance, $55/mo property management, $950/yr property taxes.
Assuming that maintenance (above and beyond HOA), miscellaneous, legal, accounting, bank, etc. add another $50 a month (add whatever additional costs you want), the total expenses come out to $440 (i.e. expenses ate up 63% of gross rent) a month. This gave an operating profit of $260 per unit (i.e. 37% operating margin).
To jack up returns, use leverage. I decided not to. I have no mortgage or liens on any of my properties.
A year later the financials have strengthened. In my limited experience, the U.S. consumer has become extremely adverse to homeownership. The needle has swung violently in the opposite direction. Americans appear to want to rent at any cost. Even now, when it is far cheaper to buy, they want to rent. Actually, even if the locals want to buy they will have a hard time competing with all-cash offers from foreigners so some may be force to rent. At least for awhile.
Here is how things look now (mid-2012):
Rent: $750 (7% increase in 2012; no rent control in Pheonix I can charge whatever I can get). My PM company also charges a $300 pet deposit which is allowed in the landlord-friendly state.
Again, the $50 per month misc is for maintenance above and beyond HOA, legal, accounting, banking, etc.
I also removed home warranty because I wasn't using it. To be fair I was warned that this was an unnecessary cost by my insurance broker, but being that I was dipping my toe in the water I decided to pay it. I have since removed it on all my units.
Property taxes have also collapsed from $950 a year to $450 a year as the condos went from $145k to $80k to $40k.
Total expenses are now around $360 a month (48% of gross rent). Expenses have fallen almost 20% year over year because of the factors mentioned above. My operating profit is now $390 per unit. The profit was good before, but it's very good now.
Detached homes rent for more money, but don't provide me with the same operating profit. In general, I paid 38% more for detached homes (i.e. ~$55k), but received only 15% more in gross rent ($850 v $700). Still, if I was able to secure a detached home @ $40 per sq ft. (compared to the condo @ $50 per sq ft.) I did it. I've been told that detached homes supposedly offer better future appreciation. I guess we'll see.
A year or two ago, after purchasing a condo the PM company would find a tenant in approximately 1-2 months. Right now, finding a tenant takes 2-3 weeks. My PM costs come in at around 7.5% of gross rent because of the number of units. It can be as high as 10% or 12% if I only had 1 unit.
Rent appears to be going up, so I look forward to renewing leases to mark-to-market.
So far the 4+ million residents of Phoenix are still getting water. I hope this continues. LOL
What am I doing now? In short, nothing. I alternate between the stock market and the real estate market and my abilities haven't been able to identify any significant opportunity in either arena. I purchased some stock in a well-known retailer last month when things got bad (or should I say good? It was good for a buyer anyway) but that's about it. I'm back to waiting. Thankfully my 8 month old daughter keeps me busy or I would be bored out of my mind. All the best.
Thanks Jon. I only managed to pick up a few. In retrospect I should have been more aggressive. I guess hindsight is 20/20.
The following speaks to my experience bidding in Phoenix right now:
"Metro Phoenix home prices continued to rapidly climb in May. The median sales price of a home in the region is up 32 percent from
May 2011, according to the latest report from the W. P. Carey School of
Business at Arizona State University...More regular buyers and investors coupled with a shrinking supply of
homes for sale are propelling metro Phoenix home prices higher."
"I am working on the CMA info and I ran a market stats report on the activity from 1/1/2012 to today compared to 1/1/2011 to 6/26/2011. I have it attached. It shows our inventory down 47% and prices up 30%.
Meghan A. Thomas
GPCI AZ, LLC
Although I don't really need the help, if the following article comes true, my profit will absolutely skyrocket (we can all dream can't we?):
[quote user=Rickson9]As a semi-related aside, MoneySense magazine just finished interviewing me for their summer 2011 edition about investing in U.S. real estate. It should be out in newsstands in a couple months. I declined to answer some questions due to the fact that I am still buying.
For those who don't get Moneysense magazine. Here was my interview:
On an unrelated aside, what I learned about people after investing in the U.S. stock market (almost 15 years ago) and reinforced after investing in the U.S. real estate market (almost 3 years ago), is that those with the strongest negative opinions against what I was doing (e.g. "stocks sucks, real estate is better", "you're making a big mistake, U.S. foreclosures will eat you alive", etc.) usually have no experience and no financial success in that particular arena. Funny that.
One night last spring, David Hall returned home to his studio
apartment outside Boston to learn that his monthly rent had spiked from
$725 (U.S.) to $995.
It would be much cheaper for the maintenance
manager to buy a nearby starter house than to stay put. But his mortgage
broker told him that while his credit score was good, it was not high
enough to meet banks` tough standards, he said.
With credit tight, many consumers have no choice but to rent. Others who
can afford to buy are also renting, because they view real estate as a
lousy investment (irony). As demand has increased, rents in some cities have
jumped by double-digit percentage rates.
`We have falling incomes, rising rents and nothing but substantial
upward pressure on those rents,` says Chris Herbert, director of Harvard
University`s Joint Centre for Housing Studies. `And nothing in the
cards suggests it will turn around anytime soon.`
A recent Morgan Stanley research report states that the average credit
score is 762 for a consumer securing a mortgage backed by
government-sponsored enterprises like Fannie Mae. But 65 per cent of
Americans have scores below 750.
Consumers who cannot buy must rent, and that is where many Americans are
feeling the pressure. A rent index from real estate data provider
Zillow shows year-over-year gains for 70 per cent of the U.S.
metropolitan areas, while its home value index rose in only 7.3 per
Only a few years ago, landlords in cities like San Francisco and New
York were tossing in a month or two of free rent, sometimes with
parking, to lure tenants into signing leases.
are showing up at apartment viewings with copies of their unblemished
credit reports and letters of recommendation from bosses and prominent
friends, in the hopes of snatching up a place to rent.
Residential, one of the biggest apartment owners in the United States,
has more renters with high credit scores than ever, vice-president of
operations David Santee said on an April conference call with analysts.
Disclosure: Just put in another bid on a short sale property in Phoenix, AZ. Price isn't as good as what I was buying similar properties for in 2010 and 2011, but it should cash flow well nonetheless. I informed the bank that if they counter at a price higher than my bid that I will walk. #notbluffing
"Home prices across the nation continued their upswing in June, according
to a new report from CoreLogic. Including sales of foreclosures and
short sales (selling for less than the value of the mortgage), prices
rose 2.5 percent from a year ago. That is not quite as high as the
annual increases seen in April and May. With the first half of the year
now on the books, analysts are asking if prices can sustain...
"Asking rents rose in 24 of the 25 largest rental markets from a year
ago, according to a new report from online real estate company Trulia.
Rents are pushing double digit gains in San Francisco, Miami, Oakland,
Denver, Seattle and Boston, and rents are rising faster than asking
prices in 21 of the 25 largest rental markets year-over-year."
If You Can Pull It Off, A House Is A Smart Investment
"Investment opinions are like, um, noses: Everyone has one. Buy stocks, sell bonds? Go long steel and short copper? Buy sheep, sell deer? It's pretty easy to see both sides of an investment argument. But it's hard to argue against buying a house now, assuming you can get a loan.
There is a strange thing happening to my properties in Phoenix at the moment. Specifically that property prices and rents are rising faster than I anticipated. A year ago I thought that I had all the time in the world to collect property - I was wrong.
From my limited understanding one reason property prices are rising is the fact that banks are unwilling to lend money to prospective homebuyers unless they have spotless credit rating. Although there are many investors who are flocking to Phoenix with cash-in-hand, it hasn't been enough demand to offset ostracizing the locals.
Rent is rising for a couple reasons including 1) Americans have been shell shocked by the real estate meltdown and are literally fearful of owning a home and 2) Americans who aren't afraid to buy a home can't qualify for a mortgage under the new stricter lending rules.
I can't see this continuing, but I don't know how (or when) it will end. Either way, I think any investor who picked up U.S. real estate in 2010 and 2011 (and I know there are a few on this forum who did because I spoke with some of you), will do quite well either way.