The Art of the Deal

I was communicating with a client who has been "gauging" the market by sitting on the sideline and just watching for nearly a year. He just wrote to me asking about the impact of the sub-prime market on the local market. In responding to him, I asked him a question about his plan, since we hadn't communicated in a while.

My response was edited to leave out personal detail.

Buyer:

I've been hearing a lot about the "crisis" with the sub-prime lenders/borrowers... has that started to effect the market yet? Negatively? Positively? I haven't seen any prices going down recently or a real flurry of activities; just a lot of panic. Any feedback you can provide would be appreciated.

Silicon Valley Realtor:

..... I know you are trying to gauge the market and figure out when is the best time to buy. The answer to when is the best time and how do you get a deal? Depends on your plan.......

Let's take an example from your world. Which customer gets the best overall deal? A customer who comes in with no formal plan and just asks about prices of piecemeal step motors and controllers every few months without giving you a plan of what he is trying to accomplish? Or a customer who has a written plan with all the details, including time frame, drawings, and budget showing what he is trying to accomplish? With all that information aren't you even able to provide solutions that the customer did not even consider?

What is your plan?.....

After I sent out the response, I realized my buyer was not alone in his thinking, there are many people out there who want to buy a home and are trying to gauge the market, but have no plan set up to facilitate a good deal. Buyers think they can simply wait and jump in any time when a "deal" accidentally falls into their lap. They want to benefit without doing any of the prep work in the form of a plan. Unfortunately, that is not how good deals are found in the real estate marketplace. Far from it: No pain, no gain.

Let's use another analogy: Do you go on vacation without a plan? Does simply trying to "wing it" make sense in this situation? Hoping you will get a great deal on plane fare and then hope to get a great deal on hotel when you get to wherever you my end up; and then again hoping to get a great deal on the return fare? How enjoyable, relaxing and full of value will that vacation be?

Great deals do not simply fall into a buyer's lap by accident (even if they did, the buyer with no plan will be unable to respond in time). Deals happen as a direct result of well thought out plans. This is especially true in the real estate market, they are the by products of a well thought out plan which takes into consideration 1) timing, 2) finances, 3) market conditions and 4) seller situations. The amalgamation of these elements, results in a unique situation for each property, or the so called "deal." A buyer must be fully prepared to react if a "deal" comes his/her way; they cannot hope to delay the deal until they get their act together; it will have simply passed them by. The next buyer in line who was prepared with a plan will be the beneficiary of that deal.

What have we learned? Real Estate market is no different than any other industry or market. The people who benefit the most are the same people who are well prepared with plans. If a buyer wants a real estate deal in Silicon Valley, they must be fully prepared with a plan and be able to react. Remember, there are many engineering and technocrat types who have their plans laid out and are waiting on the sidelines ready to pounce. Who do you think has a better chance of facilitating the deal?

Steve Mun, Silicon Valley Realtor
http://www.stevemun.com/

2nd installment of property taxes due by April 10!

Reminder for everyone.

Please remember that the 2nd installment of your property taxes is due by April 10. If you pay after the aforementioned date, you will incur penalties, so please make sure you take care of this matter, if you have no done so already. Who wants to pay penalties?
For those of you living in Santa Clara County, if you have any questions, you may contact the County Tax Assessor's office.

Steve Mun, Silicon Valley Realtor
http://www.stevemun.com/

1031 Deferred Exchange

Everyone wants to make money. How do investors make money in Real Estate? By using the power of leverage! Best ways to make money are 1) deferring payment of taxes on your capital gain and 2) taking said tax-deferred money and re-investing it into a larger or more properties, so you can further leverage to gain equity. This is what is known as a 1031 (IRS code) Deferred Exchange.

As the property is an investment property and not your primary residence, you cannot avoid paying taxes on your gain. However, because you are able to utilize this IRS code, you can defer (not avoid) paying taxes over and over until you decide at some point to cash out.

There are four basic requirements (simplified for explanatory purposes) to keep in mind when doing a 1031 exchange:

1. Like kind property/ies – the property that you want to next acquire with the proceeds from the sale must be of ‘like kind” meaning it/they should be used for the same purpose. Hence, all real estate (within the U.S.) fall into the “like kind” category.
2. Timeline – there is a requirement that the purchase of the next property/ies must be completed within 180 days from the sale of the original property.
3. Identification Rule – within 45 days of selling the original property, you must identify 3 properties of any price within the U.S. (of which you must purchase at least one) then complete the purchase by the end of the 180 days.
4. 100 % tax deferral – to get the full deferral, two requirements must be met:
a. Reinvestment - all of the cash generated from the sale must be reinvested into the like kind property.
b. New property must be equal to or greater in value than the property just sold.

The key to remember here is utilizing the power of leverage. The money that you would have to turn over to the IRS as capital gains tax is being reinvested and further leveraged to increase your purchasing power.


Let’s see this in action.


Investor A sells his investment property and received $800,000 for the sale. He will pay his capital gains tax (45% [both state and federal] for purposes of simplicity) and be left with $440,000 which he then can use to acquire another piece of property. Requiring 20% down to acquire another property, he can leverage his $440,000 and at most, purchase a property worth $2,200,000.

Investor B sells his investment property and received $800,000 for the sale. He decides to do a 1031 exchange, so he does not touch any of the proceeds and reinvests the entire $800,000. Using $800,000 as a down payment, he can acquire two properties at $2,000,000 each or $4,000,000 in total.

By utilizing the 1031 exchange, Investor B was able to purchase $1,800,000 more in property, starting with the same $800,000 in proceeds. Imagine the next exchange; Investor B can easily purchase 4 properties from the sale of his 2 properties.

Get the idea about how much more property an investor can acquire by deferring the capital gains tax?

To learn more in detail about 1031 Exchanges, please contact me.


Steve Mun, Silicon Valley Realtor
www.stevemun.com

Scam Spam

You heard about them on T.V. and you read about them in the newspapers or on the internet, and you wonder (at least I did): do they really think that people will fall for those idiotic scams? Well, I was the recipient of such a scam spam recently. Lucky me….. J In case you are not fortunate enough to have received one, I wanted to share my experience with you. Here is the email. This is not the traditional Nigerian scam but an offshoot of it coming from Ivory Coast apparently.

Of course the hook for me was that the wealthy African young man is supposed to buy real estate through me and also offer 20% of the $9.5M as compensation for acting as guardian and all in exchange for my bank account information. What a deal! Who wouldn’t jump at such a sure thing? Why bother buying lottery tickets when you can get $1.9M for doing nothing? FREE MONEY. Yahoo!

I started doing a little research just to find out more about this phenomenon and discovered that it is apparently serious enough and effective enough that people are actually victimized by these scams. Some people apparently are put in physical danger by being conned into traveling to Africa and are put in further jeopardy and even murdered. These scams are severe enough that people are trying to fight them at their own game.


So there it is, don’t fall victim to such hoaxes, but as amazing as it sounds, apparently lots of people are falling prey to these scams. It says something about the greed factor in our society….. Please keep your greed in check, and all jokes aside, don’t ever contemplate traveling abroad to collect money that sounds too good to be true.


Steve Mun, Silicon Valley Realtor
www.stevemun.com

Santa Clara County Market Conditions 02 07

Single Family Market

Both the number of properties hitting the marketplace and the number of properties coming off the market (pending) increased in February 07. As you can see from the graphs below, we should be facing a steady increase in volume of properties, but much of the focus will be on the volume of properties taken off market. If you look at 05, there was a steady increase of properties taken off market from February through September and a decrease from October through January (which is the norm). However, if you look at the same period in 06, the increase was much less dramatic compared to the same period from the previous year. Remember, last year was when there was most talk of the real estate bubble supposedly bursting. So the obvious question will be whether we are out of that worrisome phase.

When comparing data from 05 to 06, we can see the following differences: 1) the total volume of properties coming onto the marketplace was again higher from March 06 - February 07 (33,018) versus March 05 - February 06 (23,360) or an increase of 41%; while during the same period the volume of homes sold during March 06 - February 07 (11,703) versus March 05 - February 06 (15,076). The March 06 - February 07 had a pending/list ratio of 35% while during the same period from the previous year, it was or 65%, or a decrease of 54%.

Continue.....

Steve Mun, Silicon Valley Realtor

www.stevemun.com

Here we go again.....

The newspapers are at it again, proclaiming that the real estate market gloom and doom headlines like: “February Bay Area Home sales at 11 year low, prices flat.” Trumpeting this bit of news it as if it were the gospel truth. But look closer at the sub-headline in small print: But Santa Clara County resale home prices up 4%. Now why would they put the second part of the headline in tiny print like they did? To sell papers through sensationalism! They are not mis-reporting the news, but rather, they are just focusing their attention on the bad news and down playing the good news (or bad news, depending on whether you are a buyer or seller). If you read the full article you will learn that not only Santa Clara, but San Mateo and Alameda Counties also enjoyed increase in sales price. This is generally seen as being good news for home owners in the area.

If you were just glancing over the article, you would have walked away thinking that the prices are flat and sales are dropping, when in reality if you live in Santa Clara County, the market started to explode early in the year and is continuing to be hot. Aren’t you glad you live in Santa Clara County? And shame on the newspapers!


Steve Mun, Silicon Valley Realtor
www.stevemun.com

Heard on the street

The results are out. I wrote about a couple of hot properties a few weeks ago on Heard on the Street. They both have closed, so I can reveal the sold prices now.

The property on 5095 Elmwood was listed at $749,000, it sold in 11 days for $815,000 with 18 offers.

The property on 5119 Yorkton was listed at $750,000, it sold in 6 days for $821,000 with 10 offers.

Both of these homes fit right in the heart of the medium price point for single family homes in this area.

Continue...

Software updates for Daylight Savings

Don’t forget to set your clocks forward 1 hour this Sunday at 2 AM, with the exception of a few states.

It’s that time of the year again. Well, almost…. This year we are changing the time three weeks earlier by order of the U.S. Congress. Why? Because we need to save energy, according to the Energy Policy Act of 2005. We need to lengthen the daylight to curb our domestic energy consumption. Meaning if it is brighter outside, we will use less electricity to light up buildings. And the timing seems to be perfect too. Have you seen the latest gas prices? $3.21 for a gallon of premium unleaded and $2.98 for regular unleaded in Cupertino!

Pulling up the date has caused some difficulties for our electronic devices, especially for us here in Silicon Valley. It is not as severe of a problem as Y2K was a few years back, but there are some software updates available to insure things will run smoothly. Here are some sites which will help you keep all of your electronic devices in order: Palm devices, Microsoft, Apple, and Blackberries.

Good luck.

Steve Mun, Silicon Valley Realtorhttp://www.stevemun.com/

Return on Investment on remodeling jobs

Have you wondered whether it would be worthwhile to remodel certain areas of your home prior to sale? Wondering with the finite amount of money available, would it make better sense to spend money on a new roof or to upgrade the kitchen (you can find the answer below)? Naturally, the big question is: what type of ROI am I looking at? There may be confusion out there because different people have different opinions on this subject. Yet, in order to make an informed decision, you need data for guidance.

If you want a lot of activity in your listing - who doesn't - you must drive buyers to your property by modernizing it and making it more desirable for the average buyer. Wouldn't it be nice to get some quantifiable numbers to help with your decision making before laying down your money?

There was an article from in our trade magazine called the Realtor a couple of months ago, which annually addresses this question and reveals what types of remodels are the best. They took data of 25 different types of remodel jobs from 60 cities and quantified the rate of return. The article helped shed some light on the questions we raised above or question you may have about what to do to your own home next.

Here, in the remodeling arena, we do better here in the West Coast than the rest of the country. In our region, the top five best returns are on: minor kitchen remodel (106.4%), bathroom remodel (103.2% ), mid range wood window replacement (102.2%), upscale siding replacement (101.8%) and second story addition (101.5%). Concurrently, the worst five returns are: sunroom addition (70.6%), home office remodel (77.7%), family room addition (81.8%), upscale master suite addition (83.3%) and upscale roof replacement (84.9%).

So there you have it. If you are going to do some work on your home, might as well work on the kitchen and bathroom. And as you will get more money than you put into it anyway, might as well consider getting it done about a year before you make up your mind to move and get some use out of it for your family rather than doing it for the benefit of the new owners. That will truly be a win - win situation.

Steve Mun, Silicon Valley Realtor

www.stevemun.com

Heard on the street......

I was sitting around today and talking with a few colleagues about the market condition in Silicon Valley. Eventually, the talk turned into an "oh, yeah...." contest. The topic was: what we actually participated in, or knew of someone in the office having participated in a multiple offer situation with the highest number of participants within the past few months. We were lamenting that the market was changing faster than people realized, because they still rely on newspapers and other media for their inaccurate information. People were not getting the true picture out on the street. These are all matters of public record now, so I can post the stories behind the stories.
As I have mentioned previously, real estate industry is a locally driven business.

Click below for the full article.

http://activerain.com/blogsview/51658/Heard-on-the-street


Steve Mun, Silicon Valley Realtor
www.stevemun.com

Let me entertain you, let me make you smile.

Well, well, so far, I've been writing primarily about market conditions and what's heard on the street. Definitely important and relevant information for the local real estate market, as most would agree, but I’ll be the first to admit that it can get pretty dry. And that is why sometimes it takes me a few days to think up something about which to write.

People read blogs (I certainly do) to learn but also to get entertained. You can only stare at your computer for so long and read about sales volume and dollar figures. I’ve been thinking about how to freshen up and liven up the content of my blog for some time now. The other day, my wife was watching one of her shows and I overheard for the umpteenth time about the crazy antics of Britney Spears and about Anna Nicole Smith’s death and the saga behind that story. One story was about how Anna’s boyfriend and baby were going to be kicked out of their mansion.

What type of home did she live in? What type of home does Britney live in? Naturally, I had visions of their homes looking something like this.

The house in the photo above is my hero, Tiger Wood’s House, by the way. Geez! How lucky. I gave up looking for Britney’s and Anna’s homes because it was taking way too long for me to find them on the net. Besides, for some reason, I have a sneaky suspicion that neither was/is considered to be the bellwether of tasteful elegance. ;-) I would be quite disappointed, I think; but I could be wrong.

But I discovered there are sites precisely dedicated to stuff like this, a blog about celebrity homes and a site about celebrity cars. In fact, I was so amused by the celebrity homes blog, I even included that as a link on my website. After all, don’t you want to know about Bon Jovi’s negotiations on his new penthouse? I do.

I realized that people (even me – and I’m sure a lot dudes out there also, although they probably won’t admit it) are crazy for celebrity gossip. In my case, it’s my wife Susan’s fault really, because she’s always watching that stuff when I get home (how many of you guys live the same scenario). :-) Ah, our collective obsession with celebrity lives….. Isn’t that why such wonderful music video channels like MTV and VH1 – that I grew up with - are now all celebreality shows? I can’t remember the last time I saw a music video (perhaps that can be a topic of another blog). Do they even have music videos anymore or do you have to go to Youtube?

I decided this is what I will do from now on. I will inject some humor (hopefully) and entertainment by writing about non-real estate related topics. So consider yourself forewarned. You don’t’ know what I will be rambling about in the near future. This was my disclosure package to you. This must be an As Is offer, no contingencies permitted.

Yes, this was a fluff piece and didn’t really contribute much in terms of valuable information about the real estate state market in Silicon Valley, but it kept you entertained long enough for you to read it all the way through didn’t it? Then I have done my job for today, I’ve contributed to your entertainment and hopefully made you crack a smile, so turn off Entertainment Tonight or The Insider or perhaps Access Hollywood. You’ve had your fill.

Steve Mun, Silicon Valley Realtor

http://www.stevemun.com/