The problems are the Path: Recession, SBA Loans for Income Property
As I look at the commentary from Media I am reminded of the research articles while in the investment business. If the Firm had a good relationship in investment banking the Stock Brokerage firm involved never had a bad commentary. They had a hold or accumulate. Never a Sell was issued unless the firm were no longer investment banking clients.
To me the same is true for real estate commentary. When one looks at the various papers that service a local market will never have anything negative. One can only look at the advertisements and find the dominance of realtor adds. To say the least, keep the clients happy!
With the advent of internet news and the various services that provide us with updates and commentaries we now get some news that puts a true light on our real estate market. Now, that is not to say that real estate is not a good investment or should be looked at as a negative for home residential purposes. It only means that sellers need to become aware of the real value of their homes and buyers should also be aware of what the true value of the home will be. This especially the case when appraisal and loan contingencies are part of a purchase offer.
The FED recently made some changes in bank reserve requirements. A 20% increase in reserve requirements will and have an affect on the criteria lenders will use in providing loans for housing. There will always be a loan available for Real Estate. The exception being that the value and lender criteria will be a higher than it has been in the past.
Yahoo Mail recently had a post that should catch the eye of every buyer and seller.
Home Values In 2 SMC Cities Cooling More Than Most
Two cities in San Mateo County are among the top 25 where home values have declined most over the last year, according to a new report.
The investment firm SmartAsset analyzed Zillow's Home Value Index, tracking the fluctuation in values for single-family homes, condos, and co-ops from May 2022 to May 2023.
Researchers found Bay Area homes experienced the most dramatic drops in the nation, claiming the top four spots on the list. Dublin comfortably led the pack with a whopping 15.4 percent decline in typical home value, shedding nearly $230,000. San Francisco was second, where values tumbled 13.3 percent."
"Some parts of the Peninsula saw some significant movement, too, led by San Mateo. Prices there tumbled just over 12 percent — ranking eighth nationally — and the typical home was valued at $1.5 million in May, down about $200,000 over the year. Redwood City also made the top 25, shedding $166,000, 9 percent."
I realise that many of the buyers today have been frustrated with higher than list sales and multiple offers. That is to due to the lack of inventory. It does not mean home prices have returned to what many think of previous periods. We are faced with higher interest rates as the Federal Reserve keep the fight against inflation in their targets.
I look at the daily 7-day average of listings, price cuts. pending, contingent and sold homes in the Peninsula. On average 1/3 of the new listings will see older listings cut prices. Why? Overpriced, unaffordable, buyer qualifications are just some of the reasons.
I also keep track of home prices across the US in places like Oahu, outer areas of California like El Dorado, Fulson, Placerville and outside the State in Arizona, Texas, Florida and North Carolina. All the areas that outbound Bay Area residents have sought for affordability and new work environments. The price cuts are just as noticeable as they are here.
What I have discovered is many Peninsula residents who work from home have found better environments at affordable prices in the areas to the east of us in California. There have been some that sought the northern areas of California; as Redding, Red Bluff for an example.
There is a major issue I take exception to is in the Fix and Flip homes up for sale and for rent. These homes have been part of the Speculator movement to create value. Unfortunately these Speculators are not national home construction firms which have a reputation to protect and will be there long after the home is purchased to back their 10-year home contractor warranty. Once the Fix and Flip are sold the LLC or Corporation that sold them fold and there is no recourse for the seller if they discover that the home was not built to standards and or in some case with only minor permits.
It is very important that the buyer have a knowledgeable and experienced agent to represent them that works on those issues or permits and compliance to living standards are per the Uniform building Code in acceptance at the time of construction, remodel or purchase.
Real Estate has a business cycle just as our economy has a cycle. 1. Development, where values increase, 2. Maturity, where values stabilize, 3. Decline, where values decrease, 4. Revitalization where the life cycle begins again.
The question is where are we in the cycle? The cycle is not the same for all areas. Some areas of California are in the Development Phase, as in towns to the east of the Peninsula into the Central section of California. Some are in the decline phase as in San Francisco. Others are in the Revitalization Phase, as it may apply to parts of the Peninsula. So far it has been hard for me to find areas of Stabilization. Stabilization is what we all would prefer. A market where both buyer and seller feel they have gotten a fair price for their home.
The condition of the Commercial Market makes me tend to feel that we are at a point that we may see lower prices in Commercial Properties at the Declining Phase. How this will affect residential is something we will soon experience. The major difference in Commercial Real Estate is Cash Flow. There is a point in valuation of Commercial Properties that the Cash Flow becomes competitive to the Risk Free Rate of Return of Treasury Bills and Bonds. When that happens the buyer sees a rate of return with some potential for appreciation. Then comes Revitalization.
That is why in my last blog I made the case for Car Washes for income buyers.
The best partner in buying a car wash is the SBA, Small Business Association of the US government. They have the tools that become essential for buyers to determine value.
The SBA qualified lenders will require P&L statements accompanied by Federal Tax Returns to base their loan. The lenders will then determine what is a fair price for a qualified loan to pay for a property; such as a car wash, with a down payment of the buyer. The buyer will then know based upon the SBA lender evaluation if they will receive and positive return on their investment and how long in the future that return can be counted on.
There are no guarantees in the life of any investment as recessions and natural events cannot be forecasted. At least a buyer will have an experienced partner in the SBA lender to give the the buyer a "What If" evaluation.
The SBA will not help you buy the Bank America Building, if it is for sale. The SBA and lender will work in an up to $5 million loan for the development of Small Business formations. They will not help the buyer to accumulate a string or properties. The SBA will generally stop at 3 properties.
Recently the SBA has liberalized and changed criteria to help in the development of Small Businesses. It is a worthwhile investigation for those of you looking to diversify your investments or start a new career.
As before, call or write for any question you may have and think of me of your "in the know real estate agent".
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