5-Unit Apartment Building

Last week I closed an escrow that had gone on for quite some time. It's actually the third time I've sold the building (it's a 5-unit apartment building) and the fourth 'side' I have represented since 2003. The city bought it for redevelopment purposes, and I thought I'd share some words of advice, in case you are a landlord or aspire to become one.

In this case, my client lives in a different town and had not kept very thorough rental agreements or security deposit receipts. He had kept his agreements a little bit loose, and that worked well for him over the years, but that can cause difficulty at the point of sale, when those agreements become very important. When a rental property is sold, estoppel certificates become part of the escrow. These are certificates that the tenants fill out and sign to verify who is living in the property, the amount of rent they pay, how much they have given for a security deposit, the length and terms of their lease, etc. The purpose is to verify that the rental agreements the landlord is providing through escrow are in alignment with what the tenants are disclosing, and vice versa. In our case, this became a problem. We were given different statements, and we had to sort it all out and get to the bottom of who was living in each unit, dealing with language barriers in the midst of it all, and what to do from there.

If you are a landlord, be sure to keep all your agreements up to date, in writing, and accurate. Record your receipts. It's best not to handle things verbally. And when necessary, utilize a management company. Even I had to learn this the hard way! It's wonderful to own investment properties & it's another to manage them properly. Be sure to do both. It's worth the time and effort.

April 2009 Statistics - Santa Barbara Real Estate Market

January 1 - April 30th, 2009 (Carpinteria, Summerland, Montecito, Hope Ranch, and Goleta)

April 2009 revealed some closings with the many escrows that had piled up in the previous months. The month showed an improvement in the level of closings we had seen so far this year. The median sales price for April went up slightly from the previous month, but was still in the low to mid $800,000 range. The number of homes that went 'pending' in April was approximately 10% higher than what we saw in March, and the median list price for those pended properties was about $50,000 above the previous month’s figure of $849,000. This means that the median sold price should begin to rise. The inventory also continued to grow throughout the month and is about 10% above where it was in March. It looks like we are currently at the bottom of the price swing for the market under $1M, but prices above $1M could still adjust a bit more.

For condos, just like with homes, there have been a lot of escrows piling up for the first few months and now they’re starting to close. The median sales price dropped to the mid $400,000 level for April ’09 compared to $610,450 in April ’08. This decline can be attributed to a near complete lack of activity for higher priced condos and is more of a shift in the type of condo that has been selling ~ not a large drop in the prices of condos. Comparing April ’09 to April ’08, the pending numbers for condos are up about 35%. The inventory for condos declined slightly from March to April & the median list price for the inventory stayed stable at about $600,000. The condo market is starting to rebound because the lower priced single family homes that were available in Goleta and Carpinteria are basically gone at this time, making condos look more appealing. Unless we see a lot of new foreclosures going for sale, the condo market should continue to move forward with prices starting to stabilize.

Caravan on a Vespa? Fun!

Lately I've noticed two agents caravaning (defined below) on vespas & not in their cars .. and that looks like more fun than driving my stick shift up and down and in and out of driveways and winding streets all over Santa Barbara and Montecito. I drive a fun car, so I'm not exactly complaining but just seeing room for adventure. Can you imagine showing up at a house on the Riviera where it's steep and windy - say you have 15 realtors who happen to show up there all at once, all only planning to do a 10-minute run through of a house before they're off to the next architectural gem of the day? Do you know what type of cluster that causes in a driveway?? It's pretty entertaining. Not all realtors are good drivers.

'Caravaning' is a real estate term we agents use for the time agents have our open houses during the week - in the Santa Barbara area, this is Wednesday, Thursday, and Friday from 10am-1pm. This is our chance to see the inventory, while the public open houses are typically Saturday/Sunday 1-4pm. If I get started at 10am, I can usually squeeze in 4-6 properties per hour, so that means I can see an average of 15 properties per day. I'll have to do the math and see how quickly I could recover my cost. If I went two days per week, that would be 30 properties per week and about 40-50 miles per day. I'll have to compare that to the gas mileage I get on my car and see how it turns out .. Right now I have to run to an appointment but TBD later on.

Weekly Snapshot Statistics - Santa Barbara Real Estate Market

Weekly Snapshot for 5/11/09-5/18/09:

New Listings: 54
Price Changes: 56
Pendings: 45 ($0-1 mill 39!!, $1-2 mill 5, $4-8 mill 10)
Closed: 25
Off market: 37 (18 expired, 6 withdrawn, 13 canceled)
Back On Market: 18

William McDonough speaks at Campbell Hall on Cradle to Cradle

Last night at Campbell Hall, William McDonough spoke on Cradle to Cradle / Remaking The Way We Make Things. I'll be honest and say I arrived 30 minutes into his talk. But from the time I arrived and grabbed a seat in the packed hall, I couldn't help but be inspired. McDonough was born in Tokyo and has lived in many parts of the world. Per UCSB's Arts and Lectures, McDonough is an internationally renowned architect and Time magazine “Hero for the Planet." He is recognized as one of the leading proponents of practicing ecologically, socially, and economically intelligent architecture and planning in the U.S. and abroad. He is also a recipient of the Presidential Award for Sustainable Development--the nation's highest environmental honor—for his groundbreaking efforts in designing profitable and environmentally intelligent solutions for client companies around the world.

He asked the questions, "How do we love all the children of all species for all time?" and "What is our intention as a species?" His answer to the questions is truly 'changing the design of the world.'

The projects he has created are so exciting to see. You can view some of what he discussed at www.mcdonoughpartners.com. He went through a slideshow and gave us pieces of information on the projects and the thought/intention behind them. He trashes all patterns of thinking we have seen before and creates buildings that have changed the codes .. buildings that are so cost effective, beautiful, natural, nutrient-filled, and intelligent - it would blow your mind (or that's what happened to me, anyway). New designs for air conditioning, buildings that become energy exporters, rather than energy importers, grass and food growing on rooftops, and building with a mind for the future.

One thought process I found particularly interesting is that through this new design process, we will want to shorten a product's life cycle and this will actually begin to make sense. For example, take a 5-year car. We won't want that car to last for 30 years. A car would be built to last 5-6 years and then be recycled into something else. We will be improving so quickly that we will want the old models to be turned in and created into even better cars. In a whole new way, we will celebrate change and consumption. This stimulates jobs and innovation. It won't be recycling but upcycling. So .. does this mean I will be able to shop with out guilt? Coming soon...

I don't know about you, but I think we need more McDonoughs in the world, and I plan to buy & read his book very soon.

Santa Barbara Oil Derrick

Santa Barbara Oil Derrick
By Emily McBride
Oil on Canvas
36" x 48"

Update on Mortgage Climate

A couple weeks ago, I sat down with two mortgage brokers, Tim Taylor and Maddox Rees, of Prospect Mortgage (formally Metrocities Mortgage). They shared some great information, and I thought I would share it with you, since things are changing at such a rapid pace these days. A lot of the major changes in lending are less than six months old, and they are very different from the last 20 years in finance. Also, these things are not going to be changing anytime soon, so read on ...

Some bullet points on Standard and FHA loans:

• There are three main areas lenders consider when approving consumers for a loan: FICO score(s), Income, and Assets (Down Payment + Reserves).
• The conforming loan limit will go up to $729,000 by May 14th, 2009. This is great news for anyone shopping in this price range. (If you purchased a home at $911,250 and put 20% down, your loan amount would be $729,000.)
• There are still some 'stated income' loans out there, but very few and with tough restrictions.
• Paying points isn't necessarily a bad thing, but you do need to do your numbers and look at your return on income (ROI) to see whether or not paying points is beneficial to you. Loans are priced on a sliding scale these days, and rebate pricing has thinned out dramatically on these loans. A bank has to hold a loan long enough to make it worth the risk it takes on when giving out a loan. They are not as willing to give risks away at reduced prices, because now it is too risky.
• If you have less than 20% to put down, you may want to consider an FHA loan. Per Tim and Maddox, they will lend based on a 620 FICO score with 3.5% down. You would pay PMI (Private Mortgage Insurance) of 0.55% of the loan amount, and you can finance this for a fee. Even if you get to 20% equity, you cannot get rid of PMI for the first five years. FHA rates are 1/8 to 1/4 percent higher on rates but a good option to consider if you do not have a large down payment.
• Another type of FHA loan is called a 203k. This loan is only good on a primary residence - not on an investment property or vacation home. The rates for this loan are higher, because you can finance some construction or completion costs up to $100,000 (i.e. stove, windows, roof, misc. construction costs).
  
• If you are planning to get an FHA loan and you are looking for a condo, you want to (hopefully) find a complex that has FHA approval. It will make your life easier. FHA can do 'spot approvals' but they do not want more than 10% of the units in any given complex to have spot approval. Usually a development gets FHA approved when it's built. If not, it costs about $10,000 to get the FHA approval for the complex.
  

Jumbo Financing:

• There are good sources available for jumbo financing.
• Currently jumbo financing represents about 10-15% of the funding that goes on.
• Tim and Maddox do have programs where you can go stated income and 20% down (if you are approved) up to $3M, and there are portfolio loans up to $5M. The portfolio loans up to $5M have all sorts of great options (ARMS with two sets of 5 years of interest-only on a 40 year term, then 10 years later you'd have a 30-year amortizing loan OR a 40-year loan that has 15 years of fixed interest-only and amortizing over the next 25 years, etc.)

Private Bank Brokerage:

• To be eligible for private bank brokerage, you must have $1-2M liquid post-closing and $5-10M of total net worth. Great options available and very competitive.
  

**I am a Realtor and not a mortgage broker. I am here to share information with you.
*If you want to speak with Tim Taylor or Maddox Rees, they can be reached at 805.898.4222 or 805.683.7350, respectively.