A cool website for you potential RE investors

I ran across this website several months ago and then forgot about it. Tonight while searching an address I ran across it again. It's called Krunching.com and it analyzes properties based on rental value. Basically you type in an address and it tells you what you need to pay for it based on average rents of comparable homes in the area. It's pretty cool although it uses only numbers to calculate the data. It doesn't know if a home is up in a glitzy area on a hill or in a ghetto behind a sewage treatment plant. So your results may vary depending on what you are looking at.

I typed in that house in "The Retreat" from the last post and got this.

Investment Summary

This investment summary assumes a 30-year fixed loan, 20% down, 7% APR. It uses operating assumptions of 10% management fees, 9% vacancy allotment, 3% repairs. This investment summary assumes that rents increase each year by 5%. This property would need to be purchased for $267,520 in order to generate a break-even cashflow based on prevaliing market rents.

	1 Year	2 Year	3 Year	4 Year	5 Year
Break-even Purchase Price	$267,520
Rents	$25,140	$28,332	$34,131	$36,251	$38,773
Cashflow Before Taxes	$-2,238	$252	$4,776	$6,429	$8,397
Cash-on-Cash Return	-4.18%	0.47%	8.93%	12.02%	15.69%

The above purchase amount is based on a rent of $2095/mo. That is the average for homes it used as comparables. I think this home would rent higher. The high rental value in the comparables was $2900/mo. I'm not sure if you could get that or not but if you could fetch that kind of rent then this home would be priced about right. Using the asking price, the numbers come out similar to those above when the rent is $2900/mo and the purchase price is $380k.

Cashflow

	1 Year	2 Year	3 Year	4 Year	5 Year
Net Operating Income	$20,384	$25,080	$30,588	$37,049	$44,628
Debt Service	($24,264)	($24,264)	($24,264)	($24,264)	($24,264)
Cashflow Before Taxes	$-3,880	$816	$6,324	$12,785	$20,364

I don't totally agree with their assumption that rents will increase 5% per year however. I think rents are more likely to go the other direction in the near future. Those numbers look great but only if the rents go up. If they go down or stay flat then you start to bleed red ink.

The site is cool and offers a wealth of information. Some of it good and some fairly useless. But it does offer a glimse into the probable future of prices. Chances are they will fall to, or close to comparable rental values.

The Retreat goes Sub-400K

My favorite bubble whipping post has gone Sub-$400k.

Last week before hitting the high seas I saw this listing. I honestly figured it would have sold by the time I got back. But it hadn't and there was an open house on it this weekend. I drove over to take a look with my wife. I expected a stripped home or another thrasher where the owners trashed it on the way out. But no, the home was actually quite nice. The fixtures and flooring were all basic stuff. No upgrades here folks. But the house was in good shape. The only bad thing was the back yard was tiny and I do mean tiny. I think you could stand in the door and touch the back wall with a broom.

The home is 8775 Gentile Wind drive. An address my wife found strangley amusing. Gentile Wind she said with a snicker.... "that's a perfect address for you". The home is a 4 bedroom 3 bath with 3333 sq/ft of living space. This is a KB home built in 2005 and selling new for $718K. They tried to get $390k for it on the courthouse steps but there were no takers so the bank now owns it. There asking price is $380K. A couple of months ago I would have said this will sell in a heart beat. But there are several other homes in this tract listed very close to $400k. If those are upgraded or have larger lots then this home may still have trouble at this price. Another huge problem for this tract is the ungodly high property tax. On top of the normal CA property tax you have about another $4500. If that's not bad enough the HOA is currently running about $120 a month ( I was quoted $230 by another agent at another open house). All together that adds another $500 to $600 a month to the monthly nut. (the picture above is the home next door but they look alike and are the same basic floorplan. This one is listed at $417k as a short sale).

I've received a few nasty-grams over the months about me being a poor, bitter, jealous renter who can't afford "The Retreat". They said sales were picking up and prices would soon recover, etc, etc. Funny stuff really, obviously from homeowners in "the retreat". Please if you feel the need to send me another one, just go get a stiff drink and skip it.

Charge it!

Today I was looking at some 3rd quarter numbers and I started to wonder why they were not as bad as I expected. Where is all this spending coming from. Unemployment is way up, especially in California. Mortgage equity withdrawal is way down, down about 95% from over 200 billion per quarter in the bubble years to 9 billion last quarter. That's a lot of billions to take out of the economy yet sales only drop a tiny bit.

The second quarters numbers were helped by the "stimulation" package that uncle George and the Congrettes mailed out. But the 3rd quarter numbers are a little confusing. After all, stores are closing, companies are going belly up but the sales numbers are only down a few percent. What gives?

Poking around I think I have the culprit. People still have credit cards, and they are using them at an alarming rate. Credit card use is way up (WAY, WAY UP!). In addition credit card defaults are now starting to soar. It's looking more and more like those people that lived off home equity have now turned to credit cards. In addition the people being squeezed by the increasing cost of food and energy are also turning to plastic to make ends meet. I think we all know where this will end up. Like the equity fairly, the credit card fairly will eventually run out of magic pixy dust. Then the banks will get stuck with another round of defaults. These may be much smaller than the trillions lost on home loans, but when you are on life support already a tiny infection could mean the end.

What does this have to do with housing you ask? Know anyone paying the mortgage with credit cards? I do! That same person is paying credit card bills with other credit cards. How long can that last?

There's now talk about another stimulation package. That would help the numbers for another quarter but then what. What are the 4th quarter numbers going to look like or the 1st quarter next year. How long before the credit card users start to max out their cards and start defaulting in droves.

I hate to end this on such a pessimistic note so here's a picture of doggy saying it's bedtime prayers ;-)

Building Equity?, don't count on it for a while

The Center for Economic and Policy Research has released its latest report. It's a good read and perfectly illustrates what I harp on about on this blog. It reaches the conclusion that prices still have a way to fall in the bubble markets because they are still out of line with traditional ratios of price to income and price to rent.

The Changing Prospects for Building Home Equity: An Updated Analysis of Rents and the Price of Housing in 100 Metropolitan Areas

The Prospects for Accumulating Equity

Despite the collapsing housing bubble and consequent fall in house prices in bubble markets, the prospects for accumulating equity still look grim for homeowners as prices are still far from reaching their historical norm. The relative merits of owning and renting will be affected by the extent to which homeowners can accumulate equity. Even with the general increase in house prices at the same rate as the overall rate of inflation, homebuyers are at risk of facing plunging home values in bubble inflated markets.

Table 1 below shows that more than 60 metropolitan areas will accumulate less equity in 2012 for a recently purchased home than a home owned from six-months ago. Out of 100 metro areas, 33 are projected to accumulate negative equity in 2012, as opposed to 34 metro areas in our previous report. In fact, all 33 metro areas are in bubble markets as indicated by Table 1 below. They will generally accumulate slightly less negative equity in 2012 than our previous report predicted, due to the decline in house prices and the modest increases in rents assumed in this analysis which is returning the annual rent to price ratio to historical levels. Nevertheless, house prices across the bubble markets still have a long way to fall. In comparison, metro areas without housing bubbles will likely accumulate positive equity in a relatively short period of time.

(part of Table 1)
Major Metropolitan Areas Projected to have Negative Equity in 4 years (2012)

San Jose-Sunnyvale-Santa Clara, CA
San Francisco-Oakland-Fremont, CA
Los Angeles-Long Beach-Santa Ana, CA
Bridgeport-Stamford-Norwalk, CT
Oxnard-Thousand Oaks-Ventura, CA
Riverside-San Bernardino-Ontario, CA
Honolulu, HI
Sacramento-Arden-Arcade-Roseville, CA
Seattle-Tacoma-Bellevue, WA
San Diego-Carlsbad-San Marcos, CA
New York-Northern New Jersey-Long Island, NY-NJ-PA
Portland-Vancouver-Beaverton, OR-WA
Washington-Arlington-Alexandria, DC-VA-MD-WV
Salt Lake City, UT
Baltimore-Towson, MD
Fresno, CA
Stockton, CA
Bakersfield, CA
Boise City-Nampa, ID
Modesto, CA
Poughkeepsie-Newburgh-Middletown, NY
Boston-Cambridge-Quincy, MA-NH
Worcester, MA
Ogden-Clearfield, UT
Providence-New Bedford-Fall River, RI-MA
Denver-Aurora, CO
Minneapolis-St. Paul-Bloomington, MN-WI
Madison, WI
Chicago-Naperville-Joliet, IL-IN-WI
Colorado Springs, CO
Allentown-Bethlehem-Easton, PA-NJ
Phoenix-Mesa-Scottsdale, AZ
Miami-Fort Lauderdale-Pompano Beach, FL