Personal Real Estate Investor Magazine

I went to the Phoenix Home and Garden Show yesterday and picked up a couple of copies of a magazine called Personal Real Estate Investor. The cover price is $5.95, but they were giving them away for free at the show. I must say, I was pretty impressed with it. The magazine focuses mainly on the Phoenix area and it run by people who actually a real estate investors. They have good articles about the Phoenix market and emerging growth areas, as well as buying properties for flipping and for renting. There is an emphasis on buying properties below market value. They also have fix up tips and stories. Another plus for the magazine is its advertisers. You'll find plenty of companies who will do investor loans, 100% LTV loans, property management services, 1031 exchanges, and other real estate related activities. (I found a company that will install new carpet and doesn't require payment until the property is sold - very nice for conserving cash during rehabs!) But what I think is the best feature is on the last page of each issue - their "Little Black Book." This is a list of companies that the editors recommend. The recommendations are based on personal experience - not all companies are advertisers and the editors have personal experience with all the companies listed.

The magazine's website is at www.prepmag.com. Unfortunately, there aren't articles on the site, but you can order back issues and subscribe. Their Little Black Book, however, is online. If you are interested in real estate investing in the Phoenix area, this magazine is worth a look.

Buy A Put On Your House?

The current issue of Fortune Magazine has a cover story on the real estate bubble. The article is pretty decent. It points out that there has never been a decline in the housing market without a recession. It also talks about people buying new houses and reselling them a few months later to make huge amounts of money in places like Las Vegas, San Francisco, etc. It calls these people "speculators" and I would agree. They are buying at full price and hoping the price will go up. They have been lucky so far. When the market starts to drop, these people will go away, causing a glut of housing to come on the market, depressing prices, etc. The article also mention interest rates and ARMs and how foreclosures will likely rise because so many people have bought homes they can barely afford. All in all, if you are a wise investor who buys below market value, the collapse of the bubble shouldn't be anything to worry about. Indeed, it might be something to look forward to.

But what really struck me was a sidebar piece. The magazine talked with someone, I forget who, that said they were in talks with the American Stock Exchange (AMEX) to create stocks that tracks the housing markets in various areas of the country. Then, if you think you might have overpaid for your house, you could short this stock or buy a put to gain some protection from a possible decline. Interesting concept. I'm not sure if it will get off the ground, but it's something to think about. Since something similar has been done with gold, who knows...

The article can be found online at Fortune's website.

On a related topic, a newspaper article here recently talked about how developers in the greater Phoenix area are not selling new homes to investors, only to owner occupants, because the demand is so great.

(The original version of this post referred to Forbes magazine. In fact, it is Fortune.)

Fannie Mae problems

A story about the financial troubles at Fannie Mae I mentioned in my last entry is on MSNBC. The headine is Regulator: Fannie Mae accounting flawed.

Not much to report in the area of real estate dealings right now. I might be getting another LLC together sometime soon..

What could pop the real estate bubble?

I've been thinking lately about what might pop the real estate bubble and how it would affect me. I think there are a couple things that might do it:

Another scandal like the S&L mess a decade or two ago. This is probably unlikely, although there are signs of trouble at Fannie Mae and Freddie Mac (or if not trouble, at least suspicious financials).

I don't think raising interest rates will do it. I think raising rates are inevitable and yes, there will be people who will default and perhaps an increase in the foreclosure rate. However, I don' think it will be widespread enough to make a huge difference (except to those investors that recognize it and act on it).

But I think the biggest threat is the mushrooming federal deficit, coupled with the Republican tax agenda. More tax cuts for the wealthy. More tax burden on the middle class. Increased spending. The tax code will need to be changed to support the increased spending. There are proposals out there that have been looked into by the GOP (and others) to radically overhaul the tax system - create a flat tax, a national sales tax, etc. (See this Seattle Times article for details.) What these proposals have in common is "simplification." If you examine them, you realize "simplification" means eliminating deductions. And that means no tax deduction for mortgage interest.

That will kill housing. Millions of people will no longer be able to afford their homes. The market will be flooded with houses for sale and prices will plummet.

Now, to be sure, there are many interests against these plans. However, the GOP is quite good at sneaking legislation into law through misdirection, lies, and spinning the truth. These proposals bear watching.

My next project: flipping houses

My rental sold about two weeks ago and now I'm without any investment property. I feel strangely naked. I do have other passive investments, but I just feel like I'm really at the mercy of my job without some rental property. I guess that's a good thing, since it provides an incentive to get more properties.

My next project will be flipping houses. I've set up an LLC, of which I am the manager and two other investors are the main shareholders (read money suppliers). I will be buying properties, most likely foreclosures, doing minor fix up work, and reselling them. The majority of the profits will go to the investors, but I will retain a percentage of the profits as payment for my work.

The investors are currently waiting for another house to sell in California to provide me funds to get started. It's been delayed for a couple months because the house is in Leisure World, a private retirement community, and that presents all sorts of problems. There are strict regulations about what can be fixed, who has to do the fixing, how the house can be sold, etc. It looks like those have finally been cleared up though and the house can be listed fairly soon. I hope it will sell quickly, but one of the rules of Leisure World is that you cannot put the property in the MLS, nor can you put up For Sale signs or flyers. You must list the house with their agent and they get 5.5% commission. Since it's not in the MLS, I'm not sure how quickly it will sell.

My plan is to use the funds from this venture, together with the leftover funds from the sale of my last house, to get another rental property.