2010 Reflections

It was the best of times, it was the worst of times. . . . Corporate earnings skyrocketed, stock markets hit 2 year highs, but the real estate market in the South Bay stumbled along, not sure if it was coming or going. We saw some real steals this year - mostly the result of distressed sales. We also saw things drag along painfully if you were not willing to sell your house in a fire sale. What does all of this mean. I'll sum it up by simply stating, we're still in a great buyer's market. Why?

First, affordability. While you would likely be able to rent a home on the walk street of your choice for less than the cost of a mortgage payment, there are many neighborhoods that call for careful analysis. Many neighborhoods in Torrance, North Redondo, Lomita and Hawthorne are seeing prices that would have a mortgage payment lower than rental costs if you can afford a down payment. This leads me to my second point, it's the interest rates, stupid. That may be my greatest understatement. Clearly, the general economy isn't helping, but with historically low interest rates and increasing signs of a recovery underway, this buyer's market may be a lot like a green traffic light - it won't stay green forever. Third and finally, inventory. Sure, we're not shooting fish in a barrel, but that's part of the reason you have great opportunities. Most families don't want to pack up and move in the middle of a school year, but there are still many other "special cases out there." People still get new jobs, get married, get divorced, and of course, "move on" - all of which can create a buying opportunity. No matter what the situation, I don't tell anyone to buy something that they don't want to live in for at least 5 years and don't turn green every time the mortgage is due; but if you look closely, you just may see that there is a diamond in the rough.

Finally, let's take a quick look at investment real estate. In 2010, we saw the following listings close: 1) 2204 CARNEGIE LN , Redondo Beach 90278; 2) 4717 W 164th ST , Lawndale 90260; and 3) 948 Cedar ST , El Segundo 90245. 2204 Carnegie was one to remember as these units sold for $1,270,00 in 2008. It featured 4 upgraded 2/1 units with a garage for each totalling 2900', this one sold in October for $849k. Figuring a conservative $1400/unit/month and a 30% expense ratio, the cap rate is 5.5. Not bad for North Redondo Beach. 4717 W 164th was another diamond in the rough. This one needed some work, but with a reported NOI of $22.8k and a selling price of $359k, this gives you a 6.4 cap and with 25% down, you're pretty close to breaking even each month and maybe even seeing a small cash flow. Finally, El Segundo has some gems. 948 Cedar is clearly a functional updated triplex and conservatively has a 5.4 cap rate and likely a steady demand for rentals. With low rates, foreclosure pressure, and an overall increase in the renter pool as a result of foreclosures, those who patiently waited are seeing solid investment opportunities ripe for the picking.

If you haven't figured it out by now, I'm an optimist. The way I see it, there's always an opportunity somewhere, you just need to spend some time and hard work and find it.

Stay dry. Kd