Archives for July 2009

Dear Bay Area Real Estate Investor,

If you are reading this and you still have equity in your real estate investments, Congratulations! (I apologize if that offends others of you.) You have managed to buy at the right time and have kept your property performing well.

However, at the current time you face an important juncture. What will you do with that equity?

Will you allow your equity to ride? Or will you cash in your chips to play at another table?

What Do You Believe About the Future?

Your decision whether to stay in the properties you currently own or leave for greener pastures will likely be based on your perception of what the future holds.

You are likely to stay in your current properties if you believe that:

• Real estate in California is the best and always goes up;
• You need to drive by a property to “sniff the dirt”;
• Rents and vacancy are stable and will go up;
• Appreciation is not important, only cash flow;
• Inflation is nothing to worry about, I have a fixed rate amortized mortgage; or
• Cap rates won’t go higher.

However, you might be ready to move if you believe that:

• Cap rates are headed up;
• Inflation is coming and interest rates will go up;
• Rents are declining in the near term and vacancy is rising;
• Other states may provide a greater return on my capital; and
• Appreciation is important to you.

The Open Window

If you find your beliefs more closely aligned with the second group, I want to offer you a reason to move your hard earned real estate equity now.

For Multifamily Owners

There is a window now before vacancy peaks, rents bottom, and cap rates rise to sell your Bay Area property and transfer your equity into a property that will appreciate faster than California properties.

Currently, commercial real estate has begun its slide to a new normal. Vacancy is rising and rents are decreasing as companies lay off employees and those laid off move back in with Dad and Mom.

As well, cap rates have begun to increase. As they do so they erode the value of a property as investors consider alternative investment returns. If inflation finds a foothold, interest rates will rise taking cap rates with them.

This leaves a brief window when vacancy hasn’t soared and rents haven’t bottomed to sell your property before inflation takes cap rates higher.

For 1-4 Unit Owners

If you have equity in a single family home, a duplex, a triplex, or a fourplex, now may be the time to move that equity to another property in an area that will provide above average appreciation in the coming years.

It is likely that the value of your rental property will further decline for two reasons.

1. Expect to see rental rates decrease and vacancy increase as more investors purchase single family homes as rentals increasing the supply.
2. As well, California has imposed a temporary moratorium on trustee’s sale. The Contra Costa Times reported that while foreclosure filings are piling up, actual trustee’s sales are slowing. This could mean that another wave of foreclosures is yet to come to market, further driving down prices.

Why Move Now?

Moving your equity now is a chance to preserve your equity and invest in in a location that will offer you above average appreciation in the coming years.

However, moving your equity is not the best option for every individual. You need a personalized investment strategy tailored to your needs, desires, and situation.

If you would like help evaluating your situation and charting a course to retirement freedom, please give us a call at (925) 385-8798.