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First post of 2012. Some review and some previews:

01/02/2012

Jan 2, 2012

Good morning everyone. Let’s talk a little. Remember, I use this blog as a way to compile my ideas. Of course I appreciate feedback and anyone who is a usual reader, but gathering either is not my primary purpose. I think it will be useful to discuss 2011 and some about where 2012 will take me.

With that in mind, welcome to 2012. I hope 2011 turned out to be a good year and wish everyone all the best in the upcoming year. For me, I am glad to see 2011 happily departed, but can definitely classify it as a fairly good (if somewhat transitional) year.

There should be some changes coming from my blog this year. I will be posting more market updates and mid week follow-ups. In addition, I look forward to sharing more exciting ideas about the markets, trading, psychology and investment philosophy and opportunities both in the Forex and Real Estate markets.

As many of you know, I started off in Real Estate and had the lack of foresight to buy quite a few apartment units back in 2006. I spent 2006 until mid 2010 managing contractors, employees and maintenance staff. The largest place was a distressed 112 unit apartment complex. When I bought it, occupancy was at 10%. Just before the crash, we were over 90% occupied, had a waiting list and were doing fairly well. When the market took a nose dive, so did this and all the other properties. While I sold the 112 unit complexes just about two years ago today (for a healthy loss by the way), there remained quite a lot to deal with. Even now, I am highly involved in real estate but things are much more manageable and, with some exceptions, should be relegated to a part time basis.

I did not trade or update the blog as much as I would have liked in the second half of 2011. Starting in July and not to end until probably Feb this year, Real Estate took, and will continue to take, nearly my full attention. This started with a trip back to Memphis to oversee minor renovations to a house I picked up, rebuilt and leased in ’07. From there, I had to manage renovations in a few apartments here in San Diego. Finding myself without full time employees and a maintenance staff I did much of the work myself. I’ll update some before and after pictures and videos here on this blog and on my company website http://www.corinthianequity.com So stay tuned.

In August, I closed on the first purchase since 2007. I picked up a 3 br 2 ba on about .5 acre in Riverside. As an example of how much the local market has changed, this property had been financed to nearly $400K prior to the crash. I bought it for significantly less than $100K. On an ROI basis, it provides an incredible return. This deal is in no way unique (though it was very good) so let me know if you’re interested in cash flow properties in Southern California and I’m sure we can help you find something. I’ll talk in more depth about the market, financing, renovations and return in later posts.

September was a little slow, but October was the best month in quite a while. On the same day (and coincidentally on my mom’s birthday), I completely extricated us from any further liability in Memphis. There are still a few accounts receivable outstanding that will likely require attorney intervention to collect, but it’s nice to have no outstanding liabilities.

On October 28, I closed on both the aforementioned house – for less than I had hoped, but still at a decent profit and a 98 unit complex. We initially sold this complex in May 2010. We remained on the hook for the in place financing. (For anyone interested about technicalities, we wrapped the financing into the 2010 sale). This means I remained responsible for the loan from the bank. The 2010 buyers turned out to be less than honest regarding their capitalization and management ability. In effect, the property was theirs and the loan was ours. If they didn’t maintain the property and loan, we could (and eventually did) take the property back from them.

From January last year we had been in negotiations with the lender and the owner regarding the property. In July when I visited the city, it became apparent the owners would not be able to fulfill their obligations. We took the property back from the buyers and began managing it again. This was a headache, as the gross income was down 50% from when we sold it. On October 28 we finalized negotiations with the bank and a new buyer to completely get rid of the property.

It’s interesting to note, that we negotiated the original loan from Imperial Capital Bank. This is one of the banks that went under in the crash. Their assets were acquired from the FDIC by City National Bank. As it turned out, City National was very accommodating in negotiations. I would highly recommend doing business with this bank if the opportunity ever presents itself. When picking a lender for commercial properties, open communication on both sides is important. The people we sold the place to in 2010 didn’t appreciate or understand this.

In general, there are some amazing deals in Real Estate. For example, with conventional or even hard money financing, you can cash flow single family properties in Southern California and even San Diego counties. In San Diego, properties that last sold or refinanced in the 350 range can be acquired in the mid 100’s. In Riverside County (just north of San Diego) things are even worse – or better depending on which side of the contract you find yourself on.

I ended 2011 with a fairly significant renovation on a 1 br. single family house in Ocean Beach (a neighborhood in San Diego). We have had this leased for quite a while and it needs a lot of upgrades. I will be spending at least the first half of January finishing up work on this property, so blog posts will probably pick up around Feb 1. We’re painting the exterior later this morning. I’ll be sure to post some videos and pictures when the work is done. It should turn out very nice.

At least locally, the market remains depressed and will remain so for the foreseeable future. There is an excess of inventory in Southern California. There are incredible deals out there for the individual who purchases well. There are flipping opportunities here and there, but you have to be careful. In my opinion, the decent money will be for people who can buy and hold properties for the long run. I’ll talk more about the RE market and how people are able to take advantage of very good passive income returns in future posts. This means, there are great buying opportunities, but there should be no rush to buy. Seldom is there a deal that should be considered too good to pass up as there will likely be comparable properties around. So, don’t find yourself in a rush to act, but have the conviction to act when the opportunity is there. That sounds rather like trading doesn’t it.

That’s about it regarding real estate and my recent absence from general updates. As always, I appreciate your feedback. Lets work to make 2012 a good year.

Kosentrade

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2 Comments
  1. Darryl permalink

    I agree totally with your market analysis in SoCal. Memphis I know zip about. Probably won’t be any lines (in the near future) waiting to purchase new or existing home inventory. The basic market cycles that have been in place since about 1960, in SoCal, came to a screeching halt recently, and may never reappear again.

    Although a Calif address is still sought out by folks all over the world, it has a rapidly changing infrastructure on most levels. Still, the weather can not be denied. No humidity, few bugs (except for the Argentine black ant, which is insidious) and very moderate winter temps in most areas.

    I grew up in SoCal in the 50’s. I consider myself Extremely fortunate for that. What I see now only depresses me. From serious overbuilding, to some of the worst traffic and road conditions in the country. With the local economy being totally messed up, none of this will get fixed on the near horizon. By this time I thought I would own at least 3 properties, generally in Riverside county. 2008 changed that dream, or at least put it on hold for a good while. Guess I’m not alone on that front.

    Thanks Tim, for your blog.
    Darryl

  2. Richard Trefflich permalink

    Nice work Tim. I still have some faith in the So Cal RE market, but I think there are ways to make money on two fronts. First of all the buy and hold scenario. There are ridiculous ways to cash flow in So Cal and that is the longer term. People, although considerably less, are still looking to own their own home. This creates the “flip” model, which would allow one to maximize his rate or return over the shorter term, and then purchase the buy and hold during 2013 or further down the line. I see a basically flat real estate market in terms of appreciation, however if you can purchase a home at auction, or on a short sale for a great price, add value to that home and then flip it for a profit you can make a great chunk of cash and then purchase the long term holds later on.

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