[Deal of the week] The Sonora Condo 2/2, $427K

This week we have come across a condo in The Sonora.  This is a 3 year old complex built near the San Jose airport comprised of just over 300 one and two bedroom units.

MLS #779379 (SOLD for $435K)
1550 Technology Dr, #2044, San Jose, 95110
3 year old
1264 sqft

Why is it a good deal:
This is priced at least $50,000 to $75,000 below other units on the market.  This unit is specially located within the complex – it is an end unit that only shares 1 wall with the next unit and there is no upstairs unit, which means this has vaulted ceilings higher than in normal units.  This is a bank-owned foreclosure but it needs a little clean-up work.  The carpets and kitchen appliances need cleaning, but nothing major.  It’s an easy fix.

In this complex, it is common to see a one bedroom rent for $1,650/month so I have to believe that a two bedroom unit of this size would likely rent for $2400 or more.  As an investor purchase, even if you are under water $1000 per month before tax and depreciation advantages, I’ve got to believe that this is a great time to lock in this purchase price for an equity growth play!

What is the risk:
I can see very little downside risk.  Since this complex was built and sold in 2005, it is possible that some owners used high-risk adjustable loans to buy these homes.  As their loans adjust, these homeowners may face an inability to pay.  So there is some risk that future short sales and foreclosures lead to other units at reduced prices, but my feeling is that this is already so low compared to other sales that this risk is minimal.  The optimist in me would also want to pick up other units if their prices drop into the low $400k range!

To buyers and investors: If you are considering a 2/2 in the $400k-$450k range, I really recommend that you take a look at this unit.  Give me a call if you are interested!

-mark 408-887-1821

Building Wealth – Part 1

I used to believe that working hard will bring me a comfortable life and the stock options I receive would bring me even more money if I work for a good company.  I have been working for nearly twenty years but I didn’t get rich, not even close. 

If you have been living and working under the assumption that income from your job is what will lead you to true wealth, like I used to believe, then you have been misled.  Living in the Bay Area, most people go through their hectic lives believing they will find the next Google, or Ebay, or Yahoo so it’s the stock options that will make them rich.  Yes, that does happen, and you may be fortunate to make the right moves and be in the right place at the right time.  In fact, that goal is what drives quite a lot of the Bay Area.  However, when I review the path taken by most multi-millionaires to get to the point where they are quite wealthy, it’s not their job that got them there – it’s their investments!

My parents have never taught me about the values of the money or how to manage it and I didn’t learn that while I was in school either.  Fresh out of college, I was so into my job and building a career that the only thing I did it right was saving some of the money that I made.  And then I started learning how to use my savings to invest in stocks.  Overall, I did make some money over the years but not enough to make myself rich.  As time went by, I gathered all my saving and the money I made from the stock market to buy my first home — which was another good move I made.  Not until I started reading books like “The Millionaire Mind”, “The 5 Lessons a Millionaire Taught Me”, and “The Richest Man In Babylon”, etc or the workshops and seminars that I attended over the past few years did I discover the real path to true wealth.

The definition of “True Wealth” — the point at which your passive income is at such a level that it can be used to support your life’s mission without the need to work at a job.  “Passive Income” is the income generated from investments, not from your job; and “Life’s Mission” is the motivation and passion that drives the reason why we work to make money today.

First and foremost, save, save, save.  This may sound simple — or maybe it even sounds impossible.  It is non-negotiable.  If we want to get to true wealth, we must start and continue to live off less.  The rule we MUST live by is 70-30.  Out of our gross income each month or week, we need to live off of 70 percent (used to pay housing, food, entertainment, etc) and save 30 percent.

There are different theories as to what to do with the 30%.  Depending on your beliefs, you may want to give 10% to charity or the church; 10% to aggressive investments; 10% to stable investments.  Another theory is to put 10% into savings for a rainy day; 20% to all types of investments.  It’s really up to you but my key point here is that we need to adjust our personal living standard to only use the 70%.  Make it a habit.  This is a rule – no matter how much money we make.  Even if you are making a lot of money, the rule stands – live off 70%, save and invest 30%. 

I would like to share a story of a multi-millionaire that I know.  He and his family had saved enough to move up to a huge multi-million dollar home.  Usually the first thing people do after getting a new home is go out and buy a bunch of new furniture!  Of course, his wife wanted nice, expensive furniture – but they had a deal, as long as they were sticking to their budget, they would not buy anything now so they could save money for the furniture she really wanted.  Here we have a guy worth millions of dollars, making millions of dollars, and even he has the constraints of a home budget.  He and his wife stayed within their budget plan.  For months they would have friends over to entertain and show them around the big new house, but everyone would comment – “why are so many rooms empty, are you guys can’t afford furniture?”  Then the day came – an entire freight container arrived with one-of-a-kind custom made furniture from Europe.  Their budget allowed them to save for the day when they could buy exactly what they wanted.

Next time I’ll post some ideas about the basics of Home Budget to help define living off the 70%.  Don’t worry, we’ll get the part where we are investing the 30% – after all, we are in the Real Estate business!


2008 Keller William Family Reunion

You have to picture the scene.  Over 8300 Keller William Agents from all over the United States – most of them wearing some kind of red clothing (the KW’s color) – most of them somehow trying to emphasize their area of the country (like the team from Texas carrying a pair of longhorns mounted high on a sign post) – all gathering for the 9th annual Keller Williams real estate conference known as Family Reunion.  This year it was held in the Atlanta Conference Center.  The energy and excitement was palpable.  Why?  Keep reading.

With the recent “shift” in the market, you would think that attendance would be down or the mood being somewhat subdued since most agents have been dealing with lower incomes on a lower number of sales.  But no — this place was rocking!  Here you have 8300 of the most fired-up Realtors in the business.  Think about it.  When the market shifts like we’ve been talking about for the past year, who is going to spend the money and time on a 4-day trip to Atlanta when people are supposed to be working on their business?  Only the ones who are serious about thriving no matter what the housing market looks like, that’s who!  These are the people who are fired up about the opportunities this market is creating, not sitting around the coffee machine complaining about how bad the economy looks.  This is who we spent the last 4 days with – learning, socializing, mentoring, laughing, and even crying.

Gary Keller, founder of Keller Williams is an amazing speaker.  He is a very low-key and low-energy style speaker but he brings such profound thoughts to the audience that we all have to recognize we are in the presence of greatness.  It is in his matter-of-fact delivery of both basic and advanced guidance for business management, emotional grounding, client care, family importance, and all points related to being a thriving agent.  It really hit home for me.  It was an inspiring joy to be with him that I will never forget.

Other highlights include a party for 8300 people (if you can imagine that) with live music and dancing; an awards ceremony to recognize the most successful teams; hundreds of exhibitors showing us products we can use to grow our business and serve clients better; a silent auction that will raise money to benefit a Keller Williams charity; an inspirational brunch that introduces people who have overcome incredible obstacles in their lives and demonstrated amazing accomplishments; and hundreds of breakout sessions for opportunities to learn from mentors and leaders who are part of the most successful teams all across the country.

What did I take away from Family Reunion?  Stay tuned for future posts because there is too much to go over right now.

For me, it was a big dose of enthusiasm.  We work for a great agency, and we work with the best people in the business.  It is an honor to bring this strength to each of the clients we serve.


Conforming Loan limit increase, TEMPORARILY

We’re now being asked quite a few questions about the upcoming movement of the conforming loan line from the current $417,000 to a newly proposed $729,000.  What does it mean to me?

You need to look at it from the overall loan market point of view.  When you get a loan from a bank, or credit union, or whichever lender you pick, it will most likely be resold to another investor somewhere in the future.  This happens in what is known as the “secondary market”.  In order to fairly evaluate each of the loans being resold, a standard was established, which contains a limit of $417,000 for loans that FNMA can purchase in the secondary market.

So loans above that line were termed “Jumbo” or “Non-conforming” and investors who buy them consider them more risky.  Since last August when the fallout of the sub-prime mess became front page news, buyers of these Jumbo loans have been few and far between.  Risk has cost, so the interest on jumbo loans grew very quickly.  The interest rate difference between Conforming and Jumbo is 0.5% to 1.0% now.  That makes a big difference on your monthly payment!

For our Bay Area clients who live in one of the most expensive areas of the country, almost every property you buy will require a loan greater than $417,000.  When the jumbo and conforming interest rates were close to each other over the last several years, we couldn’t really feel a difference.  Now we do. 

So when the stimulus package is signed later this month and the jumbo line increases, I expect we will see a jump in home-buying and refinancing activity.  This is why they are calling it a “stimulus”, right?  It should make lower interest rate loans available to Bay Area buyers, which could increase your buying power to afford a slightly more expensive home while keeping the same payment.

One last thought to keep in mind, this is a TEMPORARY change that is due to reset back to $417,000 at the end of this year.  If you’ve been waiting to buy a home or refinance your loan, this seems like one more positive indicator that makes it an attractive time to make a move.


Recession Shmession

It’s all over the news – signs of “The R Word” are on the horizon.  But I want to look at this a little differently by asking you to ask yourself a few questions.

How are you doing?  Are you working harder, the same, or less than a year ago?  Are you making more, the same, or less income than a year ago?  Do you feel you are paying more or the same for household expenses like gas, phones, PGE, food, and insurance than a year ago?

How stable is your job and your company?  Are they still hiring and growing and gaining more customers?  Is it easy for you to find other job if you wanted to?  If you honestly look at your situation without reading or hearing what the media is saying about the economy, I think you’ll see that you are actually quite stable.

Maybe your stock portfolio has decreased over the last several months.  If you typically maintain a 60-40 balance of stocks to bonds (or cash) then doesn’t it sounds like it’s time to buy more stocks to get your portfolio rebalanced back to 60-40?!

It may take a few months before the fed rate and liquidity actions begin to show tangible evidence that the economy is stabilizing, but by that time will you still be able to find that great investment opportunity?  Will you be able to take advantage of the uncertainty in the market?

Don’t you want to buy (something) when it’s being discounted?  Just as an example, think about changing your job or investing in Yahoo or Google today.  Ignoring the underlying technology, just think about the direction of the company and products, and the upside opportunity or downside risk.  Do you believe Google is going from a $550 stock to an $1100 stock first, or do you believe it is more likely for Yahoo to go from $18 today to $36? My point is that something that has been beaten-down may represent an opportunity for a bigger recovery and being part of that can be very exciting.

This is exactly the same way we view residential real estate in the areas we serve.  Amid the chaos lies the greatest opportunity. The “R” word has many people concerned about the future and this has created a window for those who are thinking clearly to jump on these opportunities.

If you find the answers to the personal questions above tell you that your job/company is stable, then it should be the time to take advantage of the market uncertainty and get some great investments planted for the next growth cycle.