The conversation I want to have today is about why it makes so much sense to invest in the Sacramento Real Estate Market.
When researching a new investment area, I would recommend that you start by determining the current stage of recovery the proposed city is in and the predictions for future growth?
If you are looking at Detroit, Michigan for example... you should not solely focus on the huge drop in prices. You should really look at the cities ability and resources to "take their lumps" and get back on track.
For the last several years, Sacramento has seen home prices soar and bloat as we headed into our current economic slump.
As many of you heard, we have had a harsh correction to our Sacramento Real Estate Market and many families lost their homes and/or rental properties over the past 4 years.
So where are we now?
Right now we are seeing inventory slowly decreasing to 35 days. This means in 35 days there will be no homes left on the market. Many sources will report that we have seen an increase in sales and purchase prices. They even report that this may be an indication that we are out of the woods.
Although all those facts are true... I am afraid it does not mean we are out of the woods yet.
There is another part of the story... 
What about the Sacramento Shadow inventory? The what?
According to Lori Mode at Keller Williams Realty...
"Realty Trac is reporting as of 8/12/09 5220 bank owned homes in Sacramento, CA. According to Metrolist, we currently have 1240 REO or bank owned homes either active or pending on the market in Sacramento. It appears that this leaves a difference of 3,989 bank owned homes still to come on the market. In addition, Realty Trac reports today a total of 5151 Preforeclosure in this same area."
Real more about the shadow inventory numbers >>
Yes we have seen an improvement in our market, but we have not seen the last of the foreclosures.
Look at the ADDITIONAL... 5151 homes currently in pre-foreclosure in our Sacramento Real Estate market!
What is pre-foreclosure? For the purpose of these statistics... these are homes that are currently behind a minimum of 60 days and are in the process of being taken back by the bank.
This confirms 8,000 plus opportunties are right around the corner.
The question you need to ask yourself...Will you have all of your ducks in a row in order to take advantage... to benefit?
Well wait a minute! How do I as an out-of-town investor know if Sacramento has reached the bottom of the market when this next wave of Sacramento foreclosures hits?
Well I don't have a crystal ball , but I can share with you what I do know.
Here is a graph provided by www.credit-suisse.com and is taken from a report that inventoried all adjustable rate mortgage in the country and graphed out when they were scheduled to reset. 
What does reset mean?
Most adjustable rate mortgages are fixed for a specified term when originated. This graph plots when these mortgage will no longer have the fixed payment option and the borrowers interest rate will adjust to the current market pricing. This new interest rate is determined by the index the loan is tied to and the margin the bank put in place when the borrower signed the loan paperwork.
According to this graph it looks like we will not see a recovery of the real estate market as a whole until 2011 and/or 2012 (when looking at the effect of potential default due to adjustable rate mortgages).
In addition to issues with reseting adjustable rate mortgages, there are several other factors that impact our Sacramento real estate market.
Factors like future job loss and increased furlough days (not just state and county workers) will continue to impact our area.
Wait a minute!... Isn't this an article about why you would want to buy in the Sacramento market! Yes... I am getting there, but you will want to know the down side of any investment!
The good news...
Since 2005 we have seen a decline in value of more than 68% in the Sacramento Real Estate Market. This information is based on statics provided by the Sacramento Association of Realtors. You can access the statistics by visiting their website.
I have sumarized their findings below:
Keep in mind these numbers are only factoring single family homes that were sold through our local MLS system. For-sale-by-owner sales for example, would not be reflected.
Please note: Looking at the median home price is not always the best measure to use, but will give you a broad overview of what our market has been doing in the last several years.
Not only have the price of single family homes decreased in value over 68% since 2005, we have now dipped to a point where Sacramento real estate is undervalued.
So what does undervalued mean?
Right now prices have dropped to the point where it is cheaper to buy a foreclosed home than it is to build it. Our clients are having to insure their homes based on the replacement cost which is much more than what they paid for the home.
Another plus...Our rental rates have held steady (or slightly declined) for the most part in the last couple of years. It will be important that you investigate your particular target neighborhood if you wish to proceed. I will address how to research that in another post.
So the bottom has literally dropped out of the Sacramento Real Estate Market and homes are now undervalued, but the rent...for the most part... has held steady (when you compare it to the drop of our home values).
Another plus that you can not graph or predict... is what I am calling "The Room for error factor"!
The Room for Error Factor?...
Right now all conventional loans have to go through a process to meet the new HVCC requirements. Investors have to order an appraisal through the lender's assigned third party management company. This company pools together a group of appraisers and randomly selects one for the job.
What is happening is these appraisers in the new pool are not all qualified to give an estimate of value for the Sacramento market. A large portion of them are new to the industry in the last 6 months, they live 45 minutes away and don't understand our market, or just plain don't know what they are doing in general.
This has reeked havoc in our area... across the country for that matter.
I will give you an example of what is happening. The random appraiser selection process picks a total yahoo appraiser out of the hat. This person performs the appraisal and comes up with a value that is 50k less than what the buyer has it locked up for in contract because they used comparable properties from a totally different neighborhood. Now what?
You can choose to argue with the appraiser (through the third party management company) which is a 50-50 shot based on my experience. Often times the Seller is forced into a position of making a choice. Do they reduce their price by $50k and get the deal done or do they risk putting the home back on the market and running into the same value issue 60 days down the road.
The vibe I am getting from my own pipeline and other REO agents in the area... some banks are just cutting the price to get the deal done.
So again what does that mean to you as an investor. Lets say you have a home locked up for an already good price that will provide you with immediate cash flow.... Now you have an opportunity to get a BIG FAT DISCOUNT because someone screwed up.
Now I am not telling you to invest in Sacramento based on something that might happen. What I am saying is that this HVCC process is also contributing to our decline in value. Every time a bank drops the price to get the deal done, the next borrower who buys in that neighborhood has to use that reduced price home (because of a mistake) as a comparable property when they go to do their own appraisal.
It is happening folks!
The room for Error Factor is not just tied to the HVCC drama! IT could be an REO listing agent who is assigned a property where they did not realize the actual value of the home because they are not familiar with the area. It could be a bank who is tired of dealing with a particular property who lists the home low to finally get rid of it.
Trust me... the Room for Error Factor is huge right now in our current market!
By the time you hear about our Sacramento Real Estate market recovering in the news... it will be too late and we will have already hit the bottom. Why? Because they are using statics that are already several month old.
I can tell you based on the inventory of homes as of today... our Sacramento market has quickly shifted to more of a Seller's market. That may change again once the shadow inventory is released.
So I guess the thing you need to ask yourself is...
If we have seen a 68% decrease in value over the last several years ... you have to ask yourself.. how much more could it possible drop?
That is something you will need to get your head around and is a decision you can only make for yourself.
For me..
If I can get a discount on today's prices... and the home cash flows... and does not cost me too much out of pocket... what is my downside?
As a speculator all of this can be overwhelming and fear an take over!
We investors are a different breed. When everyone is running for cover, we can pick up deals where others could not get out of their fear mode.
Under valued real estate + cash flow + potential future appreciation +"room for error" = A REAL DEAL!
Another quick note I want to mention... There are are serious flippers in our area turning homes for a profit in today's market. As active member in our investor community, more and more Investors are getting into the flip game. This is not something I would recommend to an out-of-town investor... but it indicates that there are are really good deals right now in Sacramento.
I hope this information helps you to further investigate Sacramento as a place you want to bring your investment dollars!
Thanks for reading my 2nd installment of my article "Why should you bring your investment dollars to Sacramento, Ca.?:.
This series will include:
Would you like to subscribe to our blog and receive this series delivered to your in-box?... SUBSCRIBE NOW >>
This blog by:
Team Newington
Sacramento Mortgage Planners
First Priority Financial
(916) 687-6868
Do I have you excited about Sacramento Real Estate Market yet?
Enlist for our next Sacramento Investor Boot Camp and Foreclosure Tour!
We will take you out in the streets and look at the opportunities in our Sacramento Real Estate Market.
www.SacramentoInvestorBootCamp.com
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Last weekend we finished up another successful Sacramento Investor Boot Camp where we took several investors out into the streets to find the best deals in today's market.
We generally do a 45 minute classroom style training where we discuss Sacramento investment market details and facts. We also discuss the power of leverage and show attendees some examples of what we can do for them as a service provider.
After reviewing the video I took during our Sacramento Investment Boot Camp, I realized how many juicy tidbits come out during the drive between properties. I am really enjoying the smaller groups as opposed to the 55 person bus scene.
Stories like...
Here are some pictures from our last event!
If you are interested in attending our next Sacramento Investment Boot Camp and Foreclosure Tour, please enlist today >>!
This blog by:
Team Newington
Sacramento Mortgage Planners
First Priority Financial
(916) 687-6868
Register for our popular event....
Real Estate Investors Forum at the Rental Housing Association on September 16th 5:30pm - 7:30pm!
“Everything You Wanted to Know About Making an Offer on a Short Sale Property”
The program features the advice of a Sacramento real estate agent who is one of the area’s leaders in short sales. Learn what it takes to get your offer accepted and the time line for completing the transaction.
REGISTER today! This class fills up fast and last month we had to stop taking registrations!
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Why should you bring your investment dollars to Sacramento?
It occurred to me recently after our recent Sacramento Investor Boot Camp and foreclosure tour, that I should write a blog to educate out-of-town investors about why the Sacramento Real Estate Market is worth checking out!
I thought the best way to share this information with you is through a series of blogs... I don't want to overwhelm you with facts!
In the past couple of years, investors were forced to take their investment dollars out of California, so they could get cash flow.
One of the benefits of our current Sacramento Real Estate Market... Our prices have corrected to a point where we can now obtain cash flow and seasoned investors are flipping property.
In fact, we are seeing a migration of out-of-town investors who are shifting a portion of their their portfolio to the Sacramento Real Estate Market.
Did I mention?... For as little as 10% down, investors can get positive cash flow before tax benefits are calculated.
It is a great deal... I am certainly thrilled that we work in such a great market!
INVESTING OUT-OF-TOWN - Do your Due Diligence!
You will need to do your own due diligence to determine if Sacramento is an area you want to place your investment dollars.
Base your decision to invest on your own confirmed and/or researched facts.
At the end of the day it is your money going on the table and it will be up to you to verify all information you are given by your real estate investment team. You should be careful of numbers that are presented based on best case scenarios. As we all know ...if you look at the last 3 years of historical value drops... even our worst case estimates can be way-off!
Leverage your team in the field
If your agent or mortgage professional is not closing several deals a month in the market you are looking to invest in, you may want to keep looking. You want to make sure your investment team has a pulse on the Sacramento market in order to locate great cash flow deals.
These folks will know which neighborhoods are the most desirable and produce the highest net rent.
If you are interested in investing in Sacramento, make sure to enlist for our next Investor Boot Camp. It is a great way to get to know the area and see what you can get for your investment dollars.
Enlist at our website www.SacramentoInvestorBootCamp.com >>
This blog series will help you determine what to research and how to find the real numbers you need to make a solid decision.
The series will include:
Would you like to subscribe to our blog and receive this series delivered to your in-box?... SUBSCRIBE NOW >>
I love Sacramento cash flow homes and by the time you are done reading this series I hope you will feel the same!
This blog by:
Team Newington
Sacramento Mortgage Planners
First Priority Financial
(916) 687-6868
Register for our popular event....
Real Estate Investors Forum at the Rental Housing Association on September 16th 5:30pm - 7:30pm!
“Everything You Wanted to Know About Making an Offer on a Short Sale Property”
The program features the advice of a Sacramento real estate agent who is one of the area’s leaders in short sales. Learn what it takes to get your offer accepted and the time line for completing the transaction.
REGISTER today! This class fills up fast and last month we had to stop taking registrations!
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Applying for a Sacramento Mortgage will take a little longer... at least until we get this mess straightened up!
Starting with applications taken on or after July 30, 2009 the new Federal TILA disclosure procedures will take effect. The new rules are designed to make sure that the borrower is 110% informed and aware of all features and costs associated with their loan request. Although the intent is good, the delivery continues to add costs and time to an already slowing process.
This is a very new rule and I will attempt to explain it to you... although it is somewhat of a moving target right now!
New 2008 additional clarification, requirements & restrictions
(Mortgage Disclosure Improvement Act of 2008)
Initial disclosures must be delivered to borrowers within 3 business days of application/contract for all mortgage transactions. These must detail the material terms of (a) finance charges; (b) APR; (c) amount financed; (d) schedule of payments; (e) total payments.
OK... that is normal.. no changes there!
If the borrower is physically handed the disclosures, they are considered received. If the disclosures are mailed they are considered received 3 business days after the date mailed.
OK... that is doable
Prior to these disclosures being "received" the only fee that can be imposed on the borrower is the cost of a credit report.
Ohhh that is a problem!
So what you care telling me is if I am working with a borrower out of town, I can't order the appraisal for 3 days from the time I mail the disclosures. Ahhh come on! You couple this with the already screwed up HVCC process and now we have a real issue.
Most contracts written in California have a standard 17 day contingency release period for loan and/or appraisals. So let's count it down shall we!
Let's use the scenario above..
Day 1: In contract /Review client file and request items from client
Day 2: Waiting for clients documents
Day 3: Clients documents in/ Print and mail disclosures to client (out of town)
Day 4: Waiting to order appraisal/Continue to track down contract and preliminary title report
Day 5: Waiting to order appraisal
Day 6: Waiting to order appraisal
Day 7: Yeah! We get to order the appraisal/All items in and ready to submit the loan for approval
Day 8: Waiting for appraisal and approval
Day 9: Waiting for appraisal and approval
Day 10: Waiting for appraisal and approval
Day 11: Waiting for appraisal and approval
Day 12: Waiting for appraisal and approval
Day 13: Waiting for appraisal and approval
Day 14: Waiting for appraisal and approval
Day 15: Approval in/Conditions requested from the client/Still waiting for appraisal
Day 16: Appraisal in/Still trying to gather conditions
Day 17: Conditions back to the lender with appraisal
Day 18: Waiting for the final approval...
**** Keep in mind...Often times when buying a Sacramento bank owned home, it can take much longer to get the contract and preliminary title report. I have also optimized the time it usually takes to get client's information back. All of these small delays just push this time line out further to get your Sacramento mortgage.
BUT DO YOU GET MY POINT THOUGH?
By the time you get to the contingency release deadline for the loan and/or appraisal...you never really got any where. Yes you have confirmation your borrower is solid, but just because the appraisal came back at value does not mean the underwriter won't rip the report to shreds and kill your deal.
So based on this scenario... How can a borrower release their contingencies comfortably?
The biggest problem we have seen since this new rule is that the lenders are running around with their heads cut off trying to implement these new procedures. I have a couple of files that came in last week and I have yet to be able to order my appraisal on some of them.
Here is what happened to one of my files...
First, I was told to upload my file to start the time clock... OK
Then when my 3 days were up... I went to order the appraisal... I was told I now needed to fax in my approval, credit report, disclosures signed by the borrower, and then the time clock would start. What! ?You just told me....
To say the least this last week has not been much fun as I am juggleing what the lender are telling me and trying to relay bad information back to all parties involved. Ahhhhh... but in the end I still love what I do!
The moral of the story?
Ask for a 45 day escrow and ask for more than 17 days to release your contingencies (loan and appraisal). Be safe! You can always close early. Trust me... any Realtor selling a lot of homes in Sacramento area is running into this same problem. How do I know? Because I have been on the phone with them all week!
There is more to this story...
If the loan fees becomes inaccurate by more than 1/8%, new disclosures need to be signed and the borrower must wait at least three days before signing docs. However, that assumes personal delivery of the corrected disclosures. If the correct disclosures are mailed, then assume they are received 3 business days after mailing which means the borrower can't sign their loan docs for 6 business days.
The tough part about this is there are fees involved that we as the mortgage pro can not control!
Fees like...
Talk about hitting a moving target!
I am sure I will have more to share as the first round of these files hit this next stage... but I will leave that for another day!
Happy Hunting!
This blog by:
Team Newington
Sacramento Mortgage Planners
First Priority Financial
(916) 687-6868
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Sacramento Investor News
The California region's home prices are 16% undervalued, says IHS Global Insight, an economic forecasting firm. It bases its calculations on the historic norms of home prices, interest rates, area incomes, populations and past discounts.
However, the company says prices still may not have reached the bottom because of job losses, weak consumer confidence and surplus inventories.
Many of you are waiting for the bottom...
As an Investor, if you buy an investment home today at below current market value... doesn't that mean you got the market's bottom price (or close to) TODAY? Most investment homes in our area get the best cash flow at a purchase price up to $150,000.
This section of our local real estate market is on fire right now as many of you know!
The current Shadow Inventory (homes that have been taken back from the bank but have not been put up sale) are being held back by the Banks and that leaves us Investors with less deals to choose from! It is also drives up prices in that price range.
What have you done to prepare for the next wave of bank owned homes?
Now is the time to pick your neighborhoods so you can start watching for deals. I am talking about pin pointing the exact cross streets that you are going to become an expert in (or find a Realtor who is).
Contact your Realtor and have them set you up for automatic email notification when homes come on the market and are sold in your target area.
As always... I recommend that you meet with your Sacramento mortgage professional to get pre-APPROVED! It will strengthen your offer and having your duck in a row will allow you to take the home down quickly.
Happy Hunting!
Want to get out in the streets and look at real estate? Join us this Saturday for our Sacramento Investor Boot Camp. We will take you out in the streets and look at all of the Sacramento real estate opportunities currently available!
I think we may have room for 1 or 2 more...
ENLIST TODAY>> www.SacramentoInvesorBootCamp.com
This blog by:
Team Newington
Sacramento Mortgage Planners
First Priority Financial
(916) 687-6868
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