All Cash Homebuyer(s) & Stats

I wanted to share the following report by foreclosureradar.com, which speaks to all-cash sales in California:

Since 2008, total cash sales have increased dramatically.  From 2001 through 2007, cash sales ranged from a low of 27,381 to 51,387 per year and represented only 6.2 percent to 8.4 percent of total market sales.  In 2008, as the housing market collapsed and prices plummeted, real estate investing became more attractive and cash buyers returned to the market.  In 2008, cash sales were 57,019, or 15.9 percent of total sales.  By 2012, cash sales had swelled to 116,549, or 29.2 percent of total sales.  So far in 2013, cash sales are 30.2 percent of total sales (which is also the case in San Francisco, specific).

In the San Francisco Bay Area, all-cash or high-downpayment transactions generally involve four kinds of buyers:

1. Downsizing seniors who have major equity in their present homes
2. Stateside and foreign investors
3. Individuals who have inherited money
4. ‘New Money’ coming out of Silicon Valley, driven by the biotech as well as the high tech industries

Naturally, Sellers prefer offers with strong (all) cash positions as there is no (little) hassle of dealing with a bank / lender, and potentially having the sale not close due to lender underwriting and bank requirements.  For those of you, who are not flush with cash and need to leverage, do not let the competition discourage you, as “where there’s a will there’s a way.”  You will simply have to offer stronger terms and find a way to differentiate yourself from the pack (tug at the heartstrings of a Seller with a personal letter, as an example).  Feel free to reach out to me to discuss other strategies I employ: 415-317-4546.     

Real Estate Bubble in SF?

Is the San Francisco real estate market experiencing a bubble (again)?  Buyers vying to own a place who are being out-bid a fifth or sixth time may argue that we are.  Let us discuss a few reasons why this market is behaving the way it is:

1.       Incredibly low interest rates:  this comes thanks to Mr. Bernanke.  Credit is not the same thing as leverage: today we have available credit, while bubbles feed on excessive leverage.

2.       Market technicals (supply): low by historical standards – sellers already acknowledge that the ability to sell a home is at their discretion.  Sellers are in the driver seat on most exchanges, while bubbles are driven by the demand side. 

a.       Limited land (real estate) in San Francisco, and constant influx of domestic and international people moving to this extraordinary city.  We all know rental rates have hit all-time highs, which will naturally spillover into the ownership category.  At what point does it make sense to call oneself a homeowner and stop contributing to another property owner’s (mortgage) investment?

3.       Market technicals (demand): The technology and financial sector – these sectors continue to prop up real estate via demographic pull.

The above points outline why I do not believe we are currently experiencing a real estate bubble in San Francisco.  More importantly, and the biggest differentiator from the bull market of 2003 – 2007 is that the lending criteria of banks is very tight and ‘money is not looking for people’, but instead people are working hard to qualify for money (a loan). 

The Great Debate: Buying vs. Renting

Could you imagine getting into the shower and instead of having only two variables to control—turning the water on and temperature adjustment—there were fifteen!?  Well that is actually quite comparable to how many factors need to be weighed when making the decision to buy versus rent a home.  One of the most common anxieties surrounding the decision sounds like this:

            ‘Boy, I can’t believe I am paying (insert frustrating amount) in rent each month! Why don’t I just own something and build equity, etc, etc…’

And that is a perfectly legitimate concern.  However, let’s take a look at this single line of reasoning with some objectivity.  **Note, numbers must be adjusted to specific cases – this exercise is merely to make a point:

Someone discovers that financing a $750,000 property at 4% over 30 yrs amounts to a fairly comparable monthly chomp--$3,600 versus $3,200 (lets ignore taxes for now).  Before you read on you must digest the fact that the value of a model is reliable in proportion to the value of assumptions.  Using linear projections, one’s instincts are to find a property up to the $750K threshold that wouldn’t make it embarrassing to justify to our cocktail-party-contenders that, “…no, I didn’t get ripped off…” 

Let’s think of just a few of the other “knobs”:

A.    Ownership is leverage.  The most robust characteristic of renting, and why you pay a premium to retain freedom is because you have increased the frequency of decision-making—whenever you renew a lease.  Make sure that your lifestyle, by which I mean job, will afford you the ability to leverage your time.

B.     The first-half of ownership feels more like renting anyhow.  It generally takes fifteen to twenty years (with one re-fi) to actually pay more on the principle component than the interest on even today’s cheaper mortgages.  In the above example, recognize that even though the “total cost” is fairly comparable, off by ~$10K, the total equity built is only $27K, or 4% of the value of the property.  So the effective or economic-rent are the numbers you see at the bottom.  In English: don’t buy a home without expectations to live there for at least eight to ten years.

C.     Measure the intangibles.  The truth is that the home decision drives and is-driven-by dozens of factors!  The best heuristic in my experience is to make the purchase after you know the constants in your life; don’t let the property be the dictator. 

Knowledge brings reassurance.  It’s worth a conversation to sit down with someone to review all of this.  Feel free to call me to discuss: 415-317-4546.             

Challenging, Chasing Yield

A very good friend of mine who is a money manager for high-net-worth individuals and families passed along this comic.  I found it entertaining, and wanted to simply share it with my readers.  There is a lot of truth to what the artist is illustrating (both in the stock / bond market and real estate realm) – I’ll let you draw your own conclusions.  Enjoy!

Ultra-luxury (& Affluent) SF

Have you ever driven through Pacific Heights and wondered who owns the ultra-luxury real estate in San Francisco?  We certainly have, which is why Coldwell Banker Previews International conducted an ultra-luxury survey (full report here: Previews Luxury Market report), which examined current data on today’s wealthiest homebuyers and sellers who have either listed or sold a property priced at $10 million or more.  Here is what we learned:

• The ultra-luxury sector is generally defined as properties in the top 1 percent of a given real estate market.
• The golden rule of real estate, “location, location, location,” is still true at the top of the market: 79 percent of agents said that the single most important property feature is location for their clients.
• Cash is King - most deals are made with no bank or personal financing involved.
• Despite a growing number of international buyers entering the market today, 72 percent of the ultra-affluent are still local to the area in which they are buying.  Of the 28 percent of international buyers, 39 percent come from Asia and 20 percent come from Western Europe.
• Real estate agents interviewed for the survey noted that 44 percent of their clients in the $10 million and up price range are entrepreneurs and 62 percent are between the ages of 45-54.  For that reason, very few are single: 54 percent are married with children and 38 percent are married.
• In San Francisco, the typical ultra-affluent buyer is younger - between the ages of 30 and 45, given Silicon Valley’s presence and booming high-tech sector.  Malin Giddings, a Previews Specialist and Top Producing agent in my office, estimates about 90 percent of her clients in the $10 million and over range work in the tech industry or investment banking sector. 

In the survey, Malin Giddings further noted that it is all about the views and location for these ultra-affluent Buyers in San Francisco – encouraging most to Pacific Heights and Presidio Heights.  A new phenomenon was also observed among this profile of buyer: a very strong interest in mid-century architecture.  Specifically, this group is not interested in traditional, ornate or Mediterranean style homes; rather, they want a clean, minimal palette with high ceilings, large glass windows for the views and big, open rooms.

I hope this gives you a sense of the upper echelon and the stats surrounding their real estate activity.  As an aside, you may be wondering how you find out about available homes at this price point.  The majority of the $10 million plus homes are sold privately or off-market given the profiles of the individuals and their preference for a confidential sale.  At TRI Coldwell Banker, we have insight into these off-market opportunities.  For more info feel free to call me at 415.317.4546 or email dino@dinozuzic.com.

Home Improvement: Are You Up for it?

Being the son of a developer, I have gone through my own share of do-it-yourself home projects, and am a promoter of taking home improvement into your own hands.  However, there are several questions you will need to address before committing to such an adventure: 

• Aesthetics: Are you up-to-date with the design and finish selection that best suites the style of your home (its location) and optimizes value?  In the same vein, will the finish selection you go with compromise the property’s re-sale value in any way?  Would a bumpy stucco job or slight unevenness in the hardwood floors bother you, for example?
• Skill: Do you have the necessary skills to frame out a room, and do it safely while being mindful of the local building code?
• Scale: Is the size of the project one you can handle in a reasonable period of time?
• Bottom line: When factoring in the value of your own time, can the project be completed for less cost by a professional?  Do you have the tools, and understanding to utilize the materials needed?

The points above are all very important questions to consider before taking-on a home project.  Ultimately, one of the main differentiating factors in determining whether to do the work yourself or hire a professional is whether the work is structural in nature.  Specifically, structural elements of a building (i.e. beams, footers, headers, certain walls) play a critical role in the integrity and safety of a property’s very existence.  As such, any alterations made to the structural makeup of a property should be deferred to an architect, structural engineer, and trusted contractor.

Aside from structural modifications, it may be prudent to engage a professional when updating or modifying the ‘Systems’ of a home (i.e. the electrical, plumbing, HVAC).  Such components require proper, certified training as taking-on such work could be deadly if not done properly.

I hope I haven’t scared you, as saving money and having fun with a home project is still within reach.  There is always something to address or fix-up; and changing fixtures, refinishing hardwood floors, or installing a surround-sound speaker system can be easily handled by you with a quick reference to an online resource or call to your local hardware store.  Please feel free to contact me for recommendations on qualified tradesmen and various other resources (i.e. inspectors, designers) pertaining to residential and multi-unit properties.

The Beauty of Color… Paint!

Painting is the fastest and easiest way to transform your home.  A coat of fresh color on the walls breathes life into any space - and decorative paint techniques go a step further, adding dimension, drama, and distinctive personality.  

Color is key to your room’s personality and combining new colors and decorative techniques will make your home and rooms come alive.  I am sure we have all painted a room whether it be in preparation of a newborn coming home, or getting a home ready for sale.  Here are several tips to keep in mind when taking on this fun project:

1. ‘Preparation’ is the key to any great paint job.  For starters, sand away any flaws and create a smooth surface to work with
2. Be sure to fill holes and patch cracks with joint compound prior to slathering your color of choice
3. Use tinted primer: Tinted primer does a better job of covering the existing paint color than plain primer, so your finish coat will be more vibrant and may require fewer coats
4. Eliminate brush and lap marks with paint extender.  The secret to a finish that is free of lap and brush marks is mixing a paint extender - also called a paint conditioner, such as Floetrol into the paint
5. Finish one wall before starting another: Pros get a seamless look by cutting in one wall - painting along the edges - then immediately rolling it before starting the next.  This allows the brushed and the rolled paint to blend together better
6. Box the paint for consistent color: The ‘same’ color of paint can vary between cans.   To ensure color consistency from start to finish, mix the cans of paint in a five gallon bucket, a process called ‘boxing’

You are now ‘armed and dangerous’ to give your place a fresh, new look.  If you do not feel comfortable and prefer to delegate the task, feel free to reach out to me and I will give you some strong recommendations of Painters in the City.