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Why It’s Time to Buy – or Flip – Your Dream Home
by Alexander Green, Chief Investment Strategist
Tuesday, December 22, 2009: Issue #1163
If you’re financially strapped right now, feel free to skip today’s column.
But if your finances are solid and you’re liquid (i.e. you don’t need to rely on bank borrowing) you can buy a dream home… at undreamed of prices.
Recently, for example, The Wall Street Journal relayed the story of Jon Mirmelli, a Phoenix real estate investor. Late one morning two months ago, he learned that a never-occupied custom house in his Phoenix suburb was going up for auction around noon that day.
The six-bedroom home, built on a three-acre desert plot, had a kitchen with two dishwashers, four ovens, “antibacterial” copper sinks, and a master “spa” bathroom with space for a flat-screen TV visible from the tub.
Citigroup (NYSE: C), which had a $1.3 million mortgage on the home, set a minimum bid of $379,900. After a few minutes of furious bidding, the auctioneer lowered his gavel…
Got Cash? Then Grab the “Deals of a Lifetime”
Mr. Mirmelli won the house for $486,300. Then promptly sold it for a $200,000 profit just one week later. (Even his buyer got a steal.)
“People with cash to invest are getting the deals of a lifetime,” insists my brother Braxton, who has more than 25-years experience as one of central Florida’s leading homebuilders.
Of course, he doesn’t build homes anymore. In his neck of the woods, there’s simply no demand for them.
Instead, he makes his living doing exactly what Mr. Mirmelli does – buying distressed properties cheap and then turning them over for a quick profit.
Whether you’re looking for your dream home – or just a quick capital gain – there is no shortage of opportunities.
Forget Subprime… This is A Jumbo-Sized Problem
All over the nation, overleveraged homeowners are flying the white flag, even at the high end of highly desirable areas.
“I would say we’re 40% off 2007 prices for everything,” says broker Chad Rogers, who covers the area from Malibu to Hollywood Hills for Hilton & Hyland.
- Homes bought at the peak in Miami for more than $1 million are routinely selling for less than $400,000.
- And $3 million homes in the Hamptons often change hands for half that.
The fastest-growing default rate in the nation right now is not for subprime mortgages, but jumbo ones.
A lot of these sellers held out initially, insisting they weren’t going to “give” their trophies away. Unfortunately, markets don’t bounce back when they still haven’t hit bottom.
As Brett Arends of The Wall Street Journal noted recently, “During – and after – a bubble, investors often hope that ‘quality assets’ will hold value. It’s usually a vain hope. Just ask people who owned luxury condos in Tokyo in 1990, or investors in Cisco Systems after the tech-stock bubble popped. Real estate is not that different.”
So what’s the key for investors?
Seek “Distress” and Practice Patience
Seek out bankruptcies, foreclosures and other distressed housing situations. And don’t be dismayed by unmotivated sellers – there are plenty of them out there.
A year and a half ago, for instance, I made a reasonable, all-cash offer – well above what the seller initially paid – for a nice lot in my neighborhood.
The seller sniffed, refusing to counter it. “She wants you to know,” her realtor insisted, “that she doesn’t have to sell this lot.”
“I understand,” I said. “Just as I don’t have to buy it.”
And I didn’t. Last week, however, I bought another lot nearby, more than four-times larger and with a far superior view, for less than I offered her a year ago.
Sometimes patience is a virtue.
Good investing,
Alexander Green
Editor’s Note:If you’d like to get an early jump on the investment crowd in 2010 and receive investment recommendations, insights, tips and strategies from Alex and the team for an entire year, then we invite you to become a member of The Oxford Club.
Ranked among the top five newsletters in the nation by the independent Hulbert Financial Digest over a five-year period, it’s the best way to start the New Year. And even if Christmas has taken a bite out of your wallet, annual membership is just $79. Check out this link to see the extensive list of benefits that you’ll receive – many of them for free.
- Home Ownership: How to “Buy on Fear” in Real Estate
- The Housing Market: Three Strikes Against Buyers
- The Housing Market: The Disappointment Of The Decade
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Alexander Green is the Investment Director of The Oxford Club. A Wall Street veteran, he has over 20 years experience as a research analyst, investment advisor, financial writer and portfolio manager.
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December 23rd, 2009 at 2:30 pm
Mostly good info, but for the idea of sinking your cash into these hot deals. Better to hoard your cash at 10-15% and buy on credit (low still, and will be below inflation rate very soon). If you dont have the income to support the loan, you REALLY need to keep your liquidity.
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