Mortgage Rates Report

Have you considered the 92057 zip code in Oceanside for your next investment property?  We think there is a compelling argument for the long-term property investor.  Consider this question on Trulia Voices:

I said:

Do a home search for properties in the 92057 Zip code, on Trulia- keep it to under $225,000.  Most of these properties sold north of $400K, in 2005. While that was overblown, you can see that there is a lot of room there for growth over a 5-10 year period.  They were once valued that high, now they're about half of the 2005 values.   Now, click this link- Marine Corps NCOs receive about $1,500-$1700/month for housing (and they spend it).

$20% down on a $200,000 home will have a PITI of about $1,550.

That's positive cash flow, ladies and gentlemen.  The challenge for this investor will be that most of the homes were built in the 1970's so he can't get a newer home.  He will be able to avoid the Mello-Roos tax so that will make his cash-flow all the more juicy.

Will the property rise to its 2005 values?  It may take ten years, like the recovery from the last distression, or longer.  However, a down payment and closing costs would be about $45,000 to own this home.  The rents will cover the payments and a depreciation tax break wil be available to the owner. 

How will the investor receive a 10% return, over a ten-year period?  The Rule of 72 says that if the $45,000 doubles, to $90,000, in 7 years, the return will be a skosh over 10%.  This means that a sales price of $275,000, by 2015, will get the investor a 10% return.  Admittedly, 5.2% appreciation is a healthy return but we think an investor is buying the property right, at these prices.

Positive cash-flow mitigates a helluva lot of risk.

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Scripps Ranch REALTOR Kris Berg gives us the single best explanation of Mello-Roos fees I've seen:

In 1982, the Community Facilities District Act was approved by the State Legislature. The bills coauthors were Senator Henry Mello and Assemblyman Mike Roos -- Get it? The impetus for the bill was our famous Proposition 13 which was enacted in 1979 and severly limited the amount of property tax revenues which our local governments had previously enjoyed. With tax revenues limited, revenues which could be earmarked for public improvement projects and new infrastructure, a new source of funds was needed.

Spend five minutes reading Kris' conversational tutorial, at San Diego Home Blog,  and you'll never wonder what Mello-Roos fees are again.

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Oceanside real estate investors have a long love affair with the Marine Corps.  Camp Pendleton (home to the First Marine Division) supplies a steady stream of young families with a need for off-base housing.  With the average housing allowance of about $1,700 (for an E-5 with a family) and dropping home prices, great opportunities are available for investors.

I'm bullish, long-term, on coastal California real estate- that's no secret.  The underlying demographics are still positive for California; more people will be moving in than moving out, over the next 20 years.  Aging baby boomers yearn for warm climes in retirement.  While California has its share of problems, it is still the "promised land" for many Americans.  The presence of the Marine Corps, in Oceanside, just makes the job of a landlord more palatable during this decline.

One investor purchased a townhome for $180,000, near the Vandergrift gate,  last month from the REO department of a mortgage lender.  This property sold for over $380,000 in 2005.  With 20% down, a mortgage of $144,000 has a PITI (including HOA) of about $1450.  Market rents are about $1500 and well within the reach of a Camp Pendleton Staff Sergeant.  The property needed some $8,000- $10,000 in repairs but we think the $50,000 required to own and renovate the property.  We think that property can be worth $275,000, in a five year period, and effectively return 15% on the original investment.

Have we reached bottom in the San Diego County housing decline?  It's too early to tell but cash-flow positive real estate investments, like we're seeing in Oceanside, certainly take the guesswork of that answer.

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Benjamin Bach is Canada's "Wealth Planning Guy" and a Sales Representative with The Wealth Team at Keller Williams Golden Triangle Realty.  His website is http://www.kitchener-waterloo-real-estate-investments.com/.  Benjamin responded to my prediction that the Canadian mortgage and housing markets were ready to crash.  Rather than bury the comment in the old article, I asked him to write it as a guest author.   Here it is:

"Real Estate is all LOCAL"

Parts of Canada's RE market have appreciated at *very quick* rates in the past few years. Certain parts of Alberta have seen huge rises in prices, and I was amongst those that thought the run up in prices was not sustainable.

Other areas have been very flat for the last while. There are cities where a duplex has been $80,000 for the last 10 years, and probably will be for the next 10 as well.

Toronto, the economic centre of the country, continues to sustain prices that, to me, seem high. Condo's for 500K are the same size as what I buy 1hr away for $170K. BUT - ~80,000 people are moving to Toronto a year (that stat was current as of a couple of years ago), and they need to move somewhere. I don't think Toronto's prices will continue to go up as much as they have in recent years, but I don't see them going down. The high end of Toronto's condo market, specifically new non-Name Brand condo's over $1mil (i.e. NOT Ritz, Trump etc), feels a little more inflated by speculation to me.

That brings me to my little gem, Kitchener Waterloo. Our economy continues to grow, unemployment and vacancy (2% !) keep going down, and we have one of the youngest and highest paid workforces in Canada.

The manufacturing sector has been hurt by the currency exchange, but is still profitable. Old plants close down, but Toyota (among others) opens new ones. Old plants - 1 million sq ft last year - get sold or leased, absorbed back into the market.

There are three major post secondary institutions in Kitchener Waterloo, with a medical school almost completed.

We were recently voted the world's most intelligent community

We are the heart of Canada's Hi Tech sector (the Blackberry everyone loves is made in Waterloo, 5 minutes from my office)

We have a very strong FIRE sector.

A VERY diverse economic base.

When I spoke with Benjamin Tal last month, a head Real Estate analyst in Canada, he singled out Kitchener Waterloo as the bright spot for Real Estate investors in Ontario. I agree, and my clients do too - voting with their wallets.

Clients from Toronto, Montreal, Vancouver, Calgary, New York, California and recently even Kuwait are attracted to our low prices and great economy. Condos from 130Ks (they're nice - we own a couple), newer single detahced homes in *nice* areas from the $230,000s - and we're less than 1 hour away from Toronto, and Pearson International Airport.

Just like in the US, there are some areas where, to me, prices feel high. But Canadians as a whole have not embraced the sub prime lending that the US has seen in recent years, and *most* canadians aren't buying huge homes they can't afford, without equity. Clearly, there are always some who do, and independant of the economy, they'll get burned, almost every single time.

Investors in Canada should be looking to areas where they can get a great, reliable, steady return on their investment - Kitchener Waterloo fits the bill in every regard, and you don't need to plunk 35% down like most of us Canucks would have to when buying stateside.

Information is believed to be accurate but is not warranted

Thanks for the contribution, Benjamin!  Your perspective is helpful.

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Wachovia Bank CEO, Ken Thompson, played the pass the buck game last week at a shareholders’ meeting.  Rather than admit he got blindsided (like all banks did by the housing decline), he played the typical corporate game; he blamed Golden West, the parent of World Savings.

Morgan Brown thinks World Savings imploded Wachovia’s earnings but I think differently.  I’ve worked with World Savings for 14 years.  I haven’t seen a better underwriting department in my career.  Their common sense approach to evaluating borrowers combined with their conservative valuations allowed for the lowest loan losses in the industry.  World Savings was one of the original innovators in lending with their negative amortization product.

That was before neg-am was cool.  In the early part of this decade, originators abused that product and sold it to borrowers without fully disclosing the risks.  Still, World Savings managed their risk well.

I still recommend negative amortization loans to the suitable client.  They are simply the best financial product available for  responsible borrowers who understand the benefits of arbitrage.  If you’re looking to build up your liquidity, this product is hard to beat.  I know, I know…it’s not “fashionable’ to recommend negative amortization loans now.  It’s almost politically incorrect to say you recommended a negative amortization loan.

Well, I funded two last week.  One to an investment adviser and the other to a real estate broker- I used World Savings Wachovia, also.  Sometimes, you have to adnit that fashionable doesn’t always equal appropriate. Pick a mortgage adviser who isn’t afraid to teach you something about finance and investments (assuming you find one who knows something about it)

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