Best Place Real Estate

Lake Forest consistently ranks as one of the safest cities in America. According to a survey done by CQ Press City Crime Rankings, Lake Forest is the 8th safest city for cities with populations of 75,000 to 99,999 and 10th safest city overall.

At the time I saw this article in the city’s newsletter, I was reading The Tipping Point by Malcolm Gladwell. If you have not read The Tipping Point, I highly recommend it. In one chapter, Gladwell discusses the “Broken Windows” theory and the sudden drop in crime in New York City that occurred in the 1990’s. In essence, the theory is that if a city does not address seemingly minor problems, such as graffiti, panhandling, and buildings with broken windows, it is giving the impression that no one really cares and that no one is in charge. A city that can’t control minor crimes may give criminals the idea that they have less of a chance of getting caught in that city for more serious crimes. While it seems that concentrating on serious violent crimes is more important, getting control over minor crimes can be the “tipping point” for controlling a city’s crime overall.

It is this theory that is credited for significantly reducing crime in New York City. In about 1994, New York City started to really crack down on minor crimes and the overall crime rate dropped dramatically. (For a more in depth explanation, refer to The Tipping Point.)

As I read the article in The Leaflet, I couldn’t help but think that part of the reason that Lake Forest is consistently one of the safest cities is because our city is clean and well-maintained. In addition, minor crimes such as graffiti are not tolerated. While I can not say that we have no graffiti, I can say that when it occurs, it is removed promptly. (Graffiti Hotline)

Lake Forest never had the severe crime rate that New York once had and I’m not comparing New York and Lake Forest. They are like apples and oranges (excuse the pun) in many ways. But after reading The Tipping Point I think the “Broken Window” theory has merit.

There are two upcoming workshops for people who are worried about foreclosure or are going through the foreclosure process. The event is presented by OC HOPE (Orange County Home Ownership Preservation Collaborative) and sponsored by the Orange County Association of REALTORS. The workshops are free and will be in both English and Spanish. You will have an opportunity to speak to lenders and housing counselors in a confidential one-on-one meeting.

Please refer to the event notice to see what documents you should bring to the workshop. Also, please note that they will only assist the homeowner whose name is on the loan. Therefore, please do not send someone else in your place.

The workshops are open to Orange County homeowners and reservations are recommended. RSVP by emailing myhousingforall@aol.com.

Going through a divorce is a very tough and emotional experience. Decisions regarding your house are part of this emotional upheaval. Typically your equity is calculated using appraised value less the outstanding loan balance. However, if one spouse decides to keep the house, appraisal minus mortgage does not equal equity. I have heard horror stories of damaged credit, default, foreclosure, and bankruptcy after the divorce that resulted from decisions made regarding the marital house.Many of these problems could have been prevented during the divorce, but can’t be fixed after the divorce. Even though the family home is often a couple’s most valuable asset, many divorcing couples are not doing their due diligence when it comes to determining its value. They are overlooking factors that can cause serious problems for both spouses after the divorce.

I recently completed the course work to earn the RCS-D designation as a Real Estate Collaborative Specialist - Divorce. My intention is to assist couples during the divorce process with the necessary due diligence regarding their house. They will then be able to make an informed decision and avoid problems that could haunt them for years after the divorce.

I have had this conversation with several clients recently regarding bank owned listings. When you make an offer, it must be your “highest and best”. While it is understandable that buyers do not want to pay more than they have to for a property, the old days of making a low offer and expecting a seller to counter do not apply in today’s foreclosure market. A good percentage of foreclosures are in the lower price tier and first time buyers and investors are all over them. Most listings receive multiple offers shortly after they hit the market and sell for at least full list price if not over.

There is so much in the news about the terrible housing market, all the foreclosures, and declining prices. So it is very understandable that many buyers think they can come in way lower than the asking price. But the truth of the matter is that usually the asking price is the low price. Some of the comments I get from many buyers are:”Is the listing agent lying about having all those offers just to apply pressure and make you offer more?” or “What if the lender would have taken less than my offer and I end up paying more than I needed to?”

REALTORS are required to abide by a Code of Ethics and lying about multiple offers, or anything for that matter, is unacceptable. And, I can tell you from experience, multiple offers on bank owned properties is common place in today’s market. As far as the purchase price the lender will accept, the bank’s goal is to get the highest price with the best terms. That does not mean that the highest offer always gets it. In addition to price the bank considers the terms of the offer as well as the financial soundness of the buyer.

My advise is to offer a price you feel the property is worth to you, but it should be the highest price you feel you are comfortable with for that property. Offering a lower price and expecting the bank to come back with a counter is usually a waste of time. It really wouldn’t make good business sense on the part of the bank to spend time countering one buyer when they already have a better offer from another buyer. Your offer should be contingent on an appraisal, so if the appraisal comes in much lower you can renegotiate.

Lake Forest is a great place to live!!!  It will be 30 years this April that I have lived here.  The community is safe (see page one of The Leaflet Newsletter, Jan.-Feb 2009), the schools are great, and it is close to just about everything.  According to a recent survey, I’m not the only happy camper.  The survey done in November 2008 found that 92% of residents and 87% of businesses are satisfied with the services provided by the City of Lake Forest ( page 4 of the Jan-Feb 09 Leaflet).  And it keeps getting better.

We now have an excellent variety of restaurants as well as plenty of shopping.  One way our residents can keep Lake Forest such a delightful place is to shop and dine locally.  Doing that not only keeps money in our community and supports local businesses, but also encourages more retail and eateries to consider Lake Forest in their search for new locations.  To get an idea of some of our local establishments, go to www.city-lakeforest.com/shopdinelakeforest.

In a recent Orange County Register article, “O.C.’s Expert Observers Tell What’s Scary“, REALTOR, Steve Thomas comments on “herd mentality”.  This is similar to what Donald Trump refers to as “group think” in his audio book, Why We Want You To Be Rich, co-authored with Robert Kiyosaki.  Herd mentality or group think is when people do things because everyone else is doing it. Trump encourages people to “think for themselves” rather than just following the herd.

A few years ago when the market was rapidly appreciating, it seemed like some people were buying just because everyone else was.  Many didn’t do their homework and just assumed the market would continue to appreciate indefinitely.  They just figured it was the right thing to do because the rest of the herd was doing it.

But, the real estate market is cyclical. It has its ups and downs, just like most everything else.  Now that we are in a down market, I think that much of the herd of buyers think that prices are going to continue to go down indefinitely. After all, that is all you hear about in the media. Now it seems that a lot of buyers are actually waiting for the prices to start going up before they are comfortable buying. In my article, “Should I Buy Now Or Wait for Prices to Go Down More?“, I discuss trying to time the exact bottom of the market.

However, some people, particularly investors, are taking advantage of our current market.  Those who have strayed from the herd and who can “think for themselves” understand real estate cycles. They know that this down market will not last forever and that we are now somewhere near the bottom.

When the market turns around and starts to appreciate again, people who buy early will eventually make money.  But the buyers who strayed from the herd and bought when others were afraid to buy will be the ones who profit the most.

The steep decline in housing prices has brought investors to the market in full force. Many are buying in the bottom price range of the market. In Orange County that consists of primarily of low to mid-priced condominiums. These homes were hit really hard by the demise of the real estate market. Now we are seeing tons of short sale and bank-owned condominium listings and investors are scooping them up as fast as they can. While many buyers and real estate agents do not want to bother with short sales, bank-owned listings are receiving multiple offers and many of the offers are cash offers. Remember, this is Orange County and despite what you read in the papers about all the job losses and foreclosures, there are still a lot of people here with a lot of money.

The opportunity we have now is that the decline in prices combined with very low interest rates has made single family detached homes possible for many investors who otherwise could only purchase condos. When I make an investment decision, I like to look at the long term and I think that in the long run, a single family home is a better investment than a condo.  Therefore, I believe that the current market is not only an opportunity for investors, it is also an opportunity to make a really good long term investment. Consider these points:

• In many areas, like Lake Forest, Mission Viejo, and Laguna Hills, you can now buy a single family house for about the same price as some of the condos a few years ago. These are generally small entry level homes, but ones that would make excellent rentals.
• While single family detached homes lost value in the market down-turn, they weren’t hit quite as hard as a lot of condos and therefore I think they will recover more quickly.
• When real estate is in an upward cycle, detached houses typically appreciate at a little higher rate than condos. So this is something to look forward to.
• Interest rates. What an opportunity, low prices and low interest rates! You must be able to qualify for the loan and provide documentation supporting your income and assets, but it should have been that way all along.
• Again, looking into the long term, when the market does turn around, we will probably reach a point where first time buyers will again be priced out of the market. (History has a way of repeating itself.) This will keep the rental market strong and I think single family houses will be more appealing to families than condos.
• As I mentioned above, investors are all over the bank-owned condos, particularly in the lower priced complexes. This could be a potential problem down the line. Lenders do not like to make loans in complexes that have a high percentage of absentee owners. Therefore, units in these complexes may be harder to sell in a few years because it may be difficult for buyers to get financing.

Please note that I am not suggesting that condos are a bad investment. They can actually be very lucrative. What I am suggesting is that the current market has given us other opportunities to consider.  As with any investment, you need to do the research and do the math, and I suggest doing it for both the short term and the long term.

Although a lot of people are taking advantage of this buyers’ market, others are unsure about buying a house as they are concerned that prices may still be declining.  It almost seems as if some people are waiting for prices to go up before they will feel good about buying.  However, when prices do go up, some people who are qualified to buy now will be priced out of the market.

If we all had a crystal ball we would know exactly when to buy and when to sell.  But we don’t and it is nearly impossible to perfectly time the market, whether it is the stock market, the real estate market, or really, anything.

Rather, you are probably better off buying when we are some where near the bottom.  Imagine real estate prices as being represented by a “V” or a “U”.  It would be really nice to buy at exactly at the bottom of the “V”.  The only thing is that we usually don’t know exactly when we are there.  There is no bell ringer who rings a bell announcing we have hit the very bottom.  But, buying when we are near the bottom of the “U” puts you in a much better position.  Yes, prices may go down a little, but they will more than likely start going up again soon.

Also take the interest rates into consideration.  Prices may go down a little more, but if interest rates go up, it may be more difficult to qualify for a loan.  Even though the price of the home may be less, the monthly payment for the loan could be higher because of a higher interest rate.  So again, some people who are qualified to buy now, may be priced out of the market by higher interest rates.

Real estate is a long term investment.  Most people stay in a home for at least 5 to 7 years.  Rather than concentrating only on prices and trying to buy at the bottom of the “V”, I believe it is better to consider all parts of the formula for a successful investment.  That formula not only includes price, but also includes loan rates and terms, tax advantages, length of the investment, and resale value.  For rental property, the formula also includes rental income and the increase in the income over the years.

Apparently the Orange County Board of Supervisors is now branding Orange County as the “OC”.   The thing is, I have never heard anyone from Orange County refer to it as the “OC”.  Maybe the Supervisors got the idea from the TV show, “The OC”.  I never saw the show, but I heard that it gave a very false idea of what people here are like.

We now have departments such as OC Public Works, OC Waste and Recycling, OC Community Resources, OC This and OC That.  It seems they were building on their new slogan “OC: Our Community, Our Commitment”.   While I don’t know about the commitment, I do know that our community calls it “Orange County”.  It is like San Francisco.  People who live in San Francisco don’t refer to it as “SF” or “Frisco”.  They call it “San Francisco”.  When I tell people where I live or where I am from, I say I live in Orange County or I am from Orange County.  I like the name “Orange County”.

The title of my blog site is “Best Place Real Estate”, “because Orange County is the best place in the world to live”.  And that is  “Orange County”, not the”OC”.

My sister who lives up in the San Francisco Bay Area called me yesterday.  Her oldest son is a junior in high school and they are coming down to Southern California this week to look at colleges.  We have so many great universities here that it would be difficult to see them all in a week.

But, what a great investment opportunity for us.  Universities are always short on housing.  Even if they have on campus housing, the students usually like to move off campus after a year or so. With housing prices down and mortgage rates low, an investor has the perfect opportunity.

We did this when our daughter moved off campus a UC San Diego.  And, what a great investment this has been for us.  She graduated several years ago and we still rent to students.  Many people worry about the kids destroying the place.  Don’t worry.  They are not bad at all and we have never had a payment problem.  This investment has been one of our best, if not the best!