Continue to work with Realtor to find investment properties
Q: I have a question that may be a little beyond your expertise as a lawyer, but I have been reading your column for over 10 years now and you are obviously very knowledgeable about real estate.
My question has more to do with investing than with the law, but I would appreciate any help you can give me.
I’m 43 years old and recently received an inheritance worth a few hundred thousand dollars. I want to invest it in real estate. Everyone knows the market is going up. There have been few homes for sale in my neighborhood and they don’t seem to stay on the market for very long. Zillow and other online real estate trackers are showing the rapid rise in house prices and I really want to be a part of it. I know you always recommend using a real estate agent and I have worked with an agent that I really like. But even with all the work she’s done, I haven’t been able to find any residential investment properties that seem like a really good deal.
What I would like to do is put 20-30% down and finance the rest. That way I could buy four or five properties up front. I experienced the crash of 2007 when house prices started to drop like a rock. My real estate agent says prices just haven’t come down at all recently and many forecasters believe the California housing shortage will keep them going. What do you see happening to the local residential real estate market in the near future? Do you have any advice on how I should proceed? I would appreciate any help you can give me.
A: Regarding the help, I can comment on some things.
First, it seems like you’re doing whatever it takes, especially using the services of a real estate agent to help you find and acquire properties. Your real estate agent should be able to advise you on everything you need to know to negotiate and buy the properties you are looking for.
But when it comes to market prediction, I’m just one voice among many trying to figure out exactly what’s going on.
I’m not an economist, so let’s talk about this right now. I know that the political and financial interests of Fairfield and Solano County in general are working to increase the number of homes that can be built.
Using the basic principle of supply and demand, this should ultimately lower house prices and rents. At least theoretically.
We know much of what caused the real estate collapse almost a decade and a half ago.
During the 2001-2005 boom, property values ââincreased so much that lenders collapsed trying to lend money to buyers.
As a result, many buyers have taken out loans for 100% of the home’s current value. Many loans had variable interest rates, which eventually went up. Others not only had variable interest rates, but were negative amortization loans where the borrower’s upfront payments weren’t even enough to pay the interest, so the loan principal balance grew every month. .
When the market fell slightly, these people suddenly owed a lot more on their home than they could sell it. At the same time, their payments were increasing.
The owners who found themselves without equity simply left in droves and the banks began to collapse.
This market is clearly different from the 2005 market.
Interest rates are historically low and the days of easy qualifying are over, at least for now. Most researchers believe California’s notorious housing shortage is to blame, but the same market surge is occurring in states where there is absolutely no housing shortage.
So, is it a bubble? Historical data suggests this is the case, simply because house prices are rising too quickly. But housing markets do not always follow economic models and historical data.
Whether it’s a good time to buy or not, your guess is as good as mine. The only thing I’m sure is that time will tell. And since the experts can’t agree, I’m not going to publicly risk a guess.
My best advice is to just ask your real estate agent to keep looking until something comes up that says “Buy me!” “
Tim Jones is a real estate attorney in Fairfield. If you have real estate questions to which you would like to have an answer in this section, you can send an e-mail to [emailÂ protected].