Reno Home Blog

Cont..An investor's $204,000 mistake (Part 4)

  Click here to read PART 1

Click here to read PART 2

Click here to read PART 3    

"Learn from the mistakes of others. You can't live long enough to make them all yourself"

              -Eleanor Roosevelt US diplomat & reformer  (1884 - 1962)

" In the stock market, history repeats itself. This is because human nature rarely changes"

               - William J. O'Neil (Founder of Investor's Business Daily)

 

        The Challenge: To predict major turning points in the Real Estate Market

So my challenge became this:  'Would it be possible to predict these major trend changes in the real estate market...before they become obvious to all?

Frankly.....I didn't know, but it got me thinking.

While attending college,  I had developed an insatiable interest for learning how to make money in the stock market.  I was fascinated by the strategies used by the professional traders for knowing when to buy and sell for large and consistent profits.

After years of study, I had learned many of the 'secrets' of these market wizards

One secret, however, stood head and shoulders above the others: the most successful
traders would watch certain key market indicators that would tell them- in advance- what direction the stock market was likely to go.

Armed with this market direction information, these skilled Wall Street traders were then able to position their capital for profit while at the same time avoiding most of the risk.

What an incredible advantage for making money in the stock market! and while many of these 'forward-looking' indicators were not always perfect- their batting average was sufficiently high to make these savvy traders very, very wealthy.

I wanted to see if the same formula used in the stock market could be applied in trends in the real estate market. If it was possible, I could profit from the market up-trends....and then sell to avoid the market downtrends.

To be continued...

Resource: 'Timing the Real Estate Market' By: Robert Campbell pages 42-48

Cont..An investor's $204,000 mistake (Part 3)

Click here to read PART 1

Click here to read PART 2

 

"Learn from the mistakes of others. You can't live long enough to make them all yourself"

              -Eleanor Roosevelt US diplomat & reformer  (1884 - 1962)

" In the stock market, history repeats itself. This is because human nature rarely changes"

               - William J. O'Neil (Founder of Investor's Business Daily)

         

  I Made a Promise to Myself: No More Big Mistakes in Real Estate

I vowed this kind of real estate disaster would not happen to me again. Unlike the General Custer at the little Big Horn, I promised myself never to be lulled  into a false sense of security about real estate uptrends.   Never again would I be so sure about rising property values that I would become mentally lazy and forget how the market can crash and burn like any other market, as the ancient Greeks so wisely observed, I was living proof that....

" Whom the gods would destroy they would first make over-confident"

Furthermore, I promised to never rely on the real estate 'experts.'  Based on population and job growth in California, the experts had all predicted continued 'good times' in San Diego real estate right up to the time the bottom fell out of the market in 1990.

To add insult to the injury, guess what the experts said after the market crash?  "You should have sold last year" Great advice, huh? this kind of astute financial insight reminds me of Wall Street analysts who- seemingly without fail- tell you to 'sell' only after the market (or a stock) has already plummeted.  In either case, advice like this is like a doctor recommending medicine after the patient has died.

What it all comes down to is this: with 20/20 hindsight we are all experts.  Then, it is easy to be smart.  But 20/20 hindsight doesn't help you in the real world.  To manage risk and protect profits, you have to look forward and make decisions.  You have to anticipate real estate trend changes-and sell- before the boom turns into a bust.

to be continued..

Resource: 'Timing the Real Estate Market' By: Robert Campbell pages 42-48

Cont..An investor's $204,000 mistake (Part 2)

Click here to read the first part of this post.            

"Learn from the mistakes of others. You can't live long enough to make them all yourself"

              -Eleanor Roosevelt US diplomat & reformer  (1884 - 1962)

" In the stock market, history repeats itself. This is because human nature rarely changes"

               - William J. O'Neil (Founder of Investor's Business Daily)

                             The 1990's California Real Estate Crash

Prior to construction in early 1990, the possibility of failure never crossed my mind.  The eight homes I was building were appraised for $2.2 million in 1989.  However, by the time all the homes were built and sold in 1991, the total sales price of all eight homes had dropped to $1.8 million. In other words the average value of each home had dropped from $275,000 to $225,000 in less than two years!

This market downturn caught practically everyone by surprise- including the so called 'experts'.  It was the worst real estate crash since the Great Depression. Home prices plunged by 25-40% during the next five years.  Land prices fell as much as 60%! Many real estate owners lost everything.  Even those that survived the 'crash'- and avoided going broke- still suffered huge financial losses.

Personally, I lost $204,000 of hard-earned capital.  I also lost over three years of time during which I earned absolutely no income from all my hard work and had to live off my savings.  The loss caused from building these eight homes,coupled with the huge loss I suffered from my two vacant land partnerships mentioned earlier, caused a negative and far-reaching ripple effect.  It created a major financial setback that would take me years and years to overcome.

However, after witnessing and surviving this real estate lapse, I did learn a valuable lesson.  I learned that working hard was not enough to be successful in life.... or in real estate.  It is more important to work smart.

To be continued...

Resource: 'Timing the Real Estate Market' By: Robert Campbell pages 42-48

An investor's $204,000 mistake (PART 1)

"Learn from the mistakes of others. You can't live long enough to make them all yourself"

              -Eleanor Roosevelt US diplomat & reformer  (1884 - 1962)

" In the stock market, history repeats itself. This is because human nature rarely changes"

               - William J. O'Neil (Founder of Investor's Business Daily)

Learning from others has not always been a strong point in the early part of my life. I was (and sometimes still is) the type of person who makes rash decisions based on emotions -maybe because I  have always been a very passionate and emotional human being. So naturally it trickled into my decision-making.

I am not saying that being passionate & emotional is necessarily bad for us but as I have 'aged' I have learned that 'There is a time for everything', There is a time to be aggressive and go against all odds, and there is a time to back off. A time to be 'super' pro-active  And a time to be sit still and not do, literally, anything- "Wisdom is to know the difference on what to do in a particular situation"

Asking and listening to the wisdom of people who have 'been there,done that' have saved me a 2 tons of heartaches. "We can't live long enough to make them all yourself".

Here is the personal story of the author of the book,  "Timing The Real Estate Market" ( a book that found me). He talks about the mistakes he made while investing in the San Diego Real Estate. Later on in the book he will also talk about 'lessons learned'  and the solutions he discovered through that experience.

  While reading it, I couldn't help but nod my head and agree to the things he said in this book.  Many of his mistakes were also my mistakes and much of what he described about the events that took place in the booming San  Diego real estate market also happened in the Reno-Sparks market.

Note: I am not in any way connected to Robert Campbell or any of his products. I am simply an avid fan of the principles he laid out in his book.
 
This is an excerpt from his book- pages 42-48

                                                        Good houses, Bad timing
                                                                         By : Robert Campbell

With a successful background as a real estate broker.investor and homebuilder since 1972, I was building an eight-home subdivision in San Diego. The year was 1989 and the real estate market was going like gangbusters. Home prices climbed by 20% in 1988 and were doing even better in 1989. Speculation was rampant. Prospective buyers for new homes often camped out for days-sometimes weeks- in front of builder sales offices for the 'opportunity' to buy a home. Some people camped out so they could sell their positions in line for $5,000 to $10,000 to even more eager homebuyers.

This new home development looked like it was going to be my most profitable real estate investment ever. By all appearances, I was in the right place at the right time with the right product to sell. If everything went perfectly, I was going to make a killing.

But things did not go perfectly. Times were good... but times change.

Instead of a big winner, my eight-home real estate development turned into a big loser. The market was booming, but as history shows us over and over again, a pin lies in wait for every market bubble. San Diego real estate prices peaked out in 1989 and started a rapid downhill slide. "The boom of the 1980's"   turned into the   "Bust of the 1990's."

A relentless five to six year downtrend in property values brought on deflated hopes, failed dreams and new realities for almost everyone who owned real estate in California.  Instead of making a killing, I got killed.  The 'bigger fool' theory was over. How bad was it? let's put it this way: If it were a fight, somebody would have stopped it.

And I found little consolation in the fact that self-help books told me it is your failures-not your successes- that make you strong.  While I am sure there is some truth to this, given the choice, I would rather skip this method of education.  Frankly, I believe it is smarter and less expensive to learn from people's mistakes and failures.  It is devastating to lose a lot of money.  And for 44-year-old Robert Campbell- with a wife, two children, a dog and a home with a big mortgage- this was no ordinary failure. It was an extraordinary one.

To be continued..

Resource: 'Timing the Real Estate Market' By: Robert Campbell pages 42-48

How to win in The Reno-Sparks Real Estate Market: Existing Home Sales

Some of you might be thinking, " Why do you have to make it so complicated Ian?"  What is an existing home sale? Why do we have to study this?

I almost feel as if I want to say sorry to you my reader. But this is good for you. This information when understood and observed carefully, I believe, can greatly help you make a better investment decision in the Reno-Sparks area. And that is the primary reason why this blog exists. So I am taking my chances. Feel free to call or shoot me an email if you get confused. I will be more than happy to help.

Why Existing Home Sales is a vital indicator of market health:
This is an Excerpt from the book," Timing the Real Estate Market" pages 54 & 55
By: Robert Campbell. He explains it better than I can.

Home Sale activity is the best leading indicator of real estate price trends. This is because buyers create the demand for housing and as a result it is directly linked with price movement. When the trend in existing home sales is increasing, more and more buyers are coming into the marketplace. This increasing demand causes real estate to rise. Conversely, when the trend in existing home sales is decreasing, less and less buyers are coming into the marketplace. This decreasing demand causes real estate prices to fall.

This is not to say that sellers aren't a factor in the supply & demand dynamics of real estate trends, but only that buyers play the more dominant role. The reason for this is that sellers can ask whatever price they want for homes, but until a buyer is willing to pay the price, they don't have a sale. This explains why home prices tend to go higher with increased buyer demand, and prices tend to fall with decreased buyer demand.

The laws of supply & demand are the determining forces behind the price of almost anything you can think of. It is one of the few examples of practical,logical, and common sense principles to ever come from the study of economics.

For this reason, if you only track one vital sign indicator, pay close attention to the trends in existing home sales. This is one if the true cornerstones for determining the direction of real estate prices.

A key point to understand is that real estate prices don't go down because property owners decide to sell. Prices go down because people stop buying. That's why you should pay close attention to the volume of existing home sales, especially after a long market uptrend when real estate is high priced and expectations are that prices will rise even higher.

  -Robert M. Campbell, 'Timing the Real Estate Market' pages 54,55

After reading this from Robert Campbell's book. I decided to investigate the Reno-Sparks existing home sales for the past years. This what I found out.
(I created this graph yesterday with the numbers supplied to me by the Bureau of Business and economic research. Thanks for the info!)
The graph shows you the Reno-Sparks-North Valleys existing home sales between years of 1993-2006. Let's take a look.

• 1993-  3,315 sales
• 1994-  3,285 sales
• 1995-  3,498 sales
• 1996-  3,717 sales
• 1997-  3,432 sales
• 1998-  3,700 sales
• 1999-  4,070 sales
• 2000-  4,391 sales
• 2001-  4,795 sales
• 2002-  5,334 sales
• 2003-  5,939 sales
• 2004-  6,717 sales
• 2005-  7,384 sales
• 2006-  5,144 sales

Data provided by the Reno-Sparks Association of Realtors

It's hard not to notice the steep market fall from 2005-2006. This explains the FF:

• Why currently,The Reno- Sparks market is still going South.
• That the Reno-Sparks Real estate market topped in 2005
• Why the Reno-Sparks market was one  of the hottest cities in the United States in price appreciation in the years of 1999-2005.

I cannot help but wonder when the market will start to reach its bottom. No one really knows. But we sure will have a good look once if we continue to follow the Existing home sales numbers.

This is an invaluable tool for those of you who are serious in making the best possible decision in investing in the Reno-Sparks area. Feel free to call or send me an email for additional questions or clarifications.

A book that will help us win in the Reno-Sparks Home Market

It has been said that certain books 'choose' us. It cannot be more true while I was walking in the always interesting streets of Berkeley, California.

I have always been a Barnes and Noble guy when it comes to bookstores. But this one bookstore that I have passed by at least half a dozen times have long intrigued me because of its laid-back,welcoming exterior design.

So I came in and got some books to read for the rest of the afternoon.(I think 5 hours isn't enough time to spend in a bookstore )

After a few hours of reading random titles I decided to check some business books. The store had about, give or take, 30 books about business. Not a very popular subject.

Then I saw a title that caught my Attention, " Timing The Real Estate Market" the subheading was,"The Campbell Method: A proven system for buying and selling real estate for maximum profits". Honestly, I didn't want to open it. 'You're in vacation Sir, no business ideas/problems/talks for the next 48 hours!' that was my inner voice talking to me. Plus, the title of the book sounded too good to be true.With much hesitation, I opened the book. The dedication read, "To the Millions of home buyers and sellers who-every year- regretfully say:

    " If I had only bought (or sold) a year or two earlier....I would have made a killing."

Hmm interesting. Without even thinking I can name at least 5 people who is saying that same phrase.

This is what urged me to read further. I found this in the Introduction.

" The Campbell Method asks you to look at the market objectively, not emotionally. It requires that you step away from your own personal beliefs,opinions and biases about what you would like the market to do, and focus instead on what the market is telling you to do."

If you have been reading this blog, or if you have met us personally and have asked us questions about the market. The above introduction from the book pretty much summarizes our belief about the market. "Study the facts, instead of listening to your friend's advice on investing in real estate, listen to the market. Do what the market tells you."

To tell you honestly,There have been times when I felt unsure and uneasy with how I approach the market or the things I tell people when they ask me about the market. It can be a lonely journey . 

But Joe and I have always stood by the principle of " Studying the market is 100% better than listening to the 'experts' opinion" Maybe because I was once in that position (Losing in the Real Estate market). And I pray to God I never make the same mistake again. It is not a fun place to be. Also, by studying the market (with the help of my friend Dan) I have been blessed to be the one to urge my family and a friend to cut our losses short- "folks, its time to sell our investments!" This was in summer of 2006. No one in any major news networks (as far i can remember) warned the people about the possible dangers of the impending crash in the real estate market. Everybody thought we were crazy, the neighbors of the homes we sold were quite unhappy by our reduction in prices. We had no choice. The market was crystal clear in its warning of the impending crash. We lost a huge amount money by doing this. We could've lost twice as much if we have waited longer. 

Studying the market has surely been a great help for me and many others.

That is why this book is going to be a big part of this blog. I have been reading it and I am planning on using the principles.

The author gives Five Key Vital Sign Indicators that track the trend of the real estate market:

1) Existing Home Sales

2) New Home Building Permits

3) Mortgage Loan Defaults

4) Foreclosure Sales

5) Interest Rates

I have posted some articles about some of these points. But I plan on digging deeper.

Just in case anyone is interested in the book. You can find more information here.

What's up with the United States Real Estate Market? : Building Permits & Housing Starts 2007

This is an update on our previous post on the Housing Starts & Building Permits for the United States Market. We updated the numbers on the three previous months of June,July  & August.

What is this post about:

Housing starts- are a measure of the number of residential units on which construction is begun each month. A start in construction is defined as the beginning of excavation of the foundation for the building and is comprised primarily of residential housing.

Building Permits- are permits taken out in order to allow excavation. 

(Excerpts from briefing.com)

How can this post help me: There is a saying ' The Apple Does Not Fall Far From The Tree' This information is for those of you who want to know the 'Big Picture' on the Real Estate Market. You might say to me, 'But Ian I just want to know about the Reno-Sparks Market, aren't markets better judged locally?'

Yes, markets are indeed better judged locally. But it is also good to know what is happening in the bigger market (United States). This has a few advantages. This can be a good source of knowing what the future holds .

1) If they are not building as much homes then maybe the builders don't see much demand in the near future.

2) Or if the statistics say that they are building  at a rapid pace there is reason to assume that the future looks better(there is a strong demand) thereby giving us more confidence in our investing decisions.

 

Housing Starts 2007 (Thousands)

• Jan-1408K
• Feb- 1525K
• Mar- 1518K
• Apr- 1528K
• May- 1474K
• Jun-  1468K
• Jul-    1367K
• Aug-  1331K

Building Permits 2007 (Thousands)

• Jan- 1568K
• Feb- 1532K
• Mar- 1544K
• Apr- 1429K
• May- 1501K
• Jun-  1413K
• Jul-    1389K
• Aug-  1307K

Highlights:

• We are in a 12-year low for both starts & permits.
• The National Association of Realtors expects the bottom in mid 2008
     

Additional Resources:

• census.gov
• briefing.com economic calendar
• Renohomeblog.com 2006 Housing Starts/Building Permits graphs
• Renohomeblog.com 2005 Housing Starts/Building Permits Graphs
• wikipedia.com 'what is a housing start?'
• wikipedia.com 'what is a Construction/Building Permit?'

More than the money...

Sometime last month I think it was a Monday or a Wednesday ( my gym nights ) I was debating with myself if I should go workout because it was already getting late, around 8pm. My wife was of no help in my 'struggle' to go to the gym. She wanted me to stay home and do some stuff around the house. ' But not tonight Honey '. And so I went. Victory.

My plan was simple. 30 minutes to shoot hoops. An hour to lift some weights and  be home by 9:30pm.

I Got to the gym with a mission and a time limit at that. I started shooting some hoops when all of a sudden I saw a friend of mine and said the usual, "What's up? how are you?" So I figured that would just last, at most, five minutes because remember I had a "time situation"

Then my friend asked me some questions, "How's the market? is it still going down? is it the right time to buy now?   Now if you have been reading our blog and know what we are about. You know that I cannot leave those questions unanswered and the answers cannot be just yes or no.

To make a long story short I ended up shooting for 10 minutes, lifting for 20 minutes and talking about the Market for ONE FULL HOUR .  I also found out that he was already in contract with a builder at Sparks, closing on November. Which, I admit was disappointing  (Why didn't you wait for me before going to the builder!) . But Just like everyone else he wanted to find out if he got a good deal and that he won't be losing money on this property. I told him that he should NEGOTIATE the price because by the time the home closes the price would be LOWER.

I did my research the next day and it seemed that for the size of the property, he was getting it at the current market value. Which is ok if the market was more stable. But because the market is still going down I knew that by November the price of the home will be lower.

I went to the builder in the afternoon and asked them about any standing inventory. Sure enough they did have a few. And what's more amazing one of which is exactly like my friend's property (that he is already in contract with) but only CHEAPER by $20,000.

The home was scheduled to close on October so they want this home GONE. I took the print outs and immediately called my friend. He was there the next morning to negotiate the price. But the builders refused to give in to the $20,000 discount we were asking for "There is no way we would lower the price " is what they told him.

Hmmmm.. ok.

My friend and I reviewed the print outs (the standing inventories) and thought about what to do. We decided that he would go back there and NEGOTIATE the price that he wanted ( - $20,000) and to tell the builders that he will be calling the deal off if they do not give it to him for that price.  I told him to MEAN it.

During the waiting game I was traveling the city to see if there was any competitive or comparable property that would attract my friend. I wanted to show them some houses in case the builder does not call their bluff, at least they have an alternative.

It took the builder three weekends before they agreed to lower the price by $20,000. The Same as the standing inventory. Mission Accomplished.

My friend got the house that they wanted. But for the price that they should've gotten it for in the first place. And as for me, I lived my PASSION once again.(I know it almost sounds too melodramatic)  Get the best deals for my clients, in this case to get the best deal for a friend. That feeling of satisfaction makes my job just a little bit more meaningful.

What I did for love...

It's 7:21 PM in my watch. I just got home from the Peppermill   Handing out about a hundred flyers to advertise this blog.

Man, I can never get over the 'salesman' fever. Can anyone reach a point where you just feel perfectly natural and confident when handing out flyers or knocking on someone's door? I wish I can . I  wish I have.

Joe and I have pretty much done everything a Realtor can do to 'advertise' ourselves. I once Door-knocked in one of the most prestigious community here in Reno. Every house it seems,felt like a kilometer apart. I'm fairly athletic, I swim and play basketball regularly but working that neighborhood definitely wore me out.

I remember when I got there I didn't even want to think of thinking, " Should I do this? would anybody even open the door?"  As soon as i parked i ran outside to go 'my' first home. "Don't think Ian, just do it" I kept telling myself.  And I did,  drinking half a gallon of cold water two hours later after I got done.
But you know what? After every time I door knock or stand somewhere with a stack of papers to hand out- I feel fulfilled. Maybe because I know i went out of my comfort zone. And I won. I won over myself. The fear of of the unknown was defeated. And that feels good.

Can anybody blame me if I open my doors for vacuum salesmen? or when I gladly accept every flyer  handed to me in the mall? you know what they, " Sales people are the ones easiest  to sell to" I now know why.

Here is the flyer I was handing out to the Joggers an hour ago. Let me know what you honestly think.

Can You Handle The Truth?

RenoHomeBlog.com “ The Truth and Nothing But On The Reno-Sparks Real Estate Market”

13 Facts About RenoHomeBlog.com

 

A blog (short for weblog) is a personal online journal that is frequently updated and intended for general public consumption

 

• Our slogan for the blog is “The Truth and Nothing but on the Reno-Sparks Real Estate Market.”It Is not just a sales pitch . It is ‘The’ foundation of our blog.
• New posts every business day.
• It contains graphs (local and national) that the authors personally created to better aid readers in their understanding of the market.
• It Contains important data about the U.S Real Estate Market: Existing Home Sales, New Home Sales, New Home Permits. ‘The apple does not fall far from the tree’
• Crucial local market information like Existing Home Sales are constantly examined.
• It is the author’s hope that the blog will be a place where people can share their own experience (success and/or horror stories) for the greater good of the people who are in the same or will be in the same situation.
• We believe in an environment of open & free exchange of ideas 
• We encourage dissenting or contrarian points of view because our industry is better served by continually examining the status quo.
• We long to build a community that is focused on educating one another.
• The authors were investors themselves. Who lost a good amount of money because of lack of ‘market guidance.’
• The authors spend  10 hours/week (minimum) in researching and posting of articles.
• The authors are neither optimists nor pessimists about the real estate market. We are realists.
• We long to deliver real value to our community through abundant sharing of crucial real estate information.

                      www.RenoHomeBlog.com

Latest Reno-Sparks Housing Sales Report! 2nd Qtr. 2007

What You can get from this post: Know what the Reno-Sparks home market did on the 2nd Quarter of 2007. Based on the most current housing sales I could find.

Alright I am back to business my dear friends.  I told some friends of mine  a couple of days ago that ' My occupation is my recreation'  I am not kidding. 

It is 1:32 AM.  I find it amusing that people can spend hours and hours rehearsing a performance for a Stage play, dance number  or a music gig and not feel tired or even cranky .
They are just 'Feeling' it. Their eyes burn with passion for their craft ' Ian, I can do this all day and not be paid a cent and I can sleep with a smile on my face' And I look at them and think, ' Wow! wish I could do that'  Now, that is WORK for me.

But on the other hand, give me a stack full of good, raw local real estate data and I could read every single one till' I fall asleep. I love doing those kinds of stuff. I am lavishly motivated by the challenge of finding the next  big clue to a better understanding of the Reno-Sparks home market. I am a rare bird. (be the judge if its for the negative or the positive).
And the odd part of it is, Math was never a favorite subject. I was below average in my analytical skills.  I was the one who wanted 'group' projects so I can speak in front of the class for my teammates while they do all the research (the hard work). I guess people do 'evolve' one way or another.

Ok friends back to business..

*

• RENO NUMBER OF SALES: *We are down -31.5% from the 1st Quarter of 2006 VS 2nd quarter of 2007. Median  sales price went down -11.4% in the same time period.

• SPARKS NUMBER OF SALES:  * We are down -27.5% from the 1st Quarter of 2006 VS 2nd quarter of 2007. Median  sales price went down  -18.2%

• For some good news in Sparks: There were 441 homes sold in 2nd Quarter of 2007 VS. 375 in the 1st Quarter of 2007 a 17.6% increase.

• For some good news in RENO: There were 852 homes sold in 2nd Quarter of 2007 VS. 815 in the 1st Quarter of 2007 a 4.5% increase.

* New & existing home sales were added up together.

Click here for the complete report for Reno-Sparks Housing Sales 2nd Qtr. 2007

Hope this post answered some of your questions about the current state of our market. Feel free to ask some questions if something is not clear.