Archive for the 'Market Trends' Category

Buy a Rental: Loan Formula

said on August 24th, 2012 filed under: Market Trends, Negotiating, Real Estate Nuts and Bolts

This is the second of three formulas for buying a rental property.  In this version the rental is purchased with a down payment of 20% and a fixed rate loan of 80%.

Here are the assumptions:

  • You have $50,000 sitting in a non-productive instrument, perhaps a savings account, mutual fund, low-yield bond, or your funds are in a CD that is getting ready to mature, or the cash is buried in a coffee can in the back yard.
  • The tax benefits or liabilities are not computed (see your CPA or tax lawyer).
  • The purchase price and  rent are hypothetical and will vary by location.
  • The property will need some fixing prior to renting.
  • Property taxes are based on the California ad valorum 1% rate plus a bit of miscellaneous supplements.
  • Closing costs are customary for northern California for a loan-financed  purchase and include inspections.


Here are the Assumptions

Purchase a Rental with a Loan Formula
Purchase Price 150,000
Loan @80% 120,000
Down payment   @20% 30,000
Loan costs (1 point + $1500) 2,700
Closing costs   (escrow and title) 3,500
Fixup and holding costs 13,800
Total Cost to Purchase 50,000
Rent earned on the property 1,430
Monthly principal and interest @4% 30 year fixed 573
Monthly property taxes 150
Monthly property management 95
Monthly insurance 85
Monthly maintenance 100
Total monthly expenses 1,003
Monthly net 427
Annual Gross 17,160
Annual Net 5,124


Summary: If you can buy the property for $50,000, fix it up for $13,800, and get $1430 rent, you will net $427.00 per month.  (Remember, income taxes on the net are not computed in this formula, nor are the mortgage tax deduction and business expense deductions calculated).





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Lake of the Pines Real Estate. How Are We Doing? Part 5

said on May 22nd, 2012 filed under: Lake of the Pines, Localism, Market Trends, Neighborhood Profiles, Real Estate Nuts and Bolts


This is the fifth of a five-part analysis of real estate at Lake of the Pines, California.   In this fifth analysis, we’re going  to examine the most expensive group of homes at Lake of the Pines, the “lakefronts.”

We will look first at the lakefronts that sold one year ago (May 23, 2010 through May 22, 2011) as compared to lakefronts that sold during the past 12 months (May 23, 2011 through May 22, 2012).  Then we will look at the lakefronts that are for sale right now, also called the “actives.”

                                                          5/23/10 thru 5/22/11           5/23/11 thru 5/122/12

Number of lakefronts sold                                9                                                   13

Highest price sold                                    $1,095,000                                      $915,000

Lowest price sold                                        $450,000                                      $400,000

Average price sold                                       $736,702                                      $598,576

Median price sold                                        $735,000                                     $625,000

Average  list price                                         $773,944                                    $637,107

%sold price/list price                                       95%                                               94%

Price/square foot listed                                 $258                                              $227

Price/square foot sold                                    $246                                              $212

Average days on market                                  172                                                161



The number of lakefront homes sold rose from 9 to 13, or 31%.  The sample, however,  is too small for this increase to be especially meaningful.   Better than a poke in the eye, but don’t get too excited, because . . .

Prices fell off a cliff.

Based on average sold price, prices declined 19%

Based on median sold price, prices declined 15%.

Based on price per square foot, prices declined 14%

No way to mince words, spin it in a positive way, squint at it through rose-colored glasses and make it look better.  The lakefront homes at Lake of the Pines are taking a royal beating at the real estate  marketplace.  No, it’s not that lakefront home prices are being dragged down by foreclosures and short sales.  In the first period, 2010/2011, there was only 1 distressed sale out of 9, and that one sold higher than the other 8  in price per square foot ($285  per square foot vs. the group average of $246 per square foot).  In the second period, there was only 1 distressed sale out of 13, and that property was only slightly below the group average ($202 per square foot vs. $212 per square foot).

No, don’t try to blame the decline on foreclosures and short sales.

Were lakefront homes wildly over-valued and still correcting?

Are buyers still too tight to spend on “luxury” homes?



Number of Lakefront homes for sale                   7

Highest price                                                    $1,549,000

Lowest price                                                        $799,000

Average price                                                    $1,076,142

Median price                                                       $998,000

Average days on market                                         235

Average price per square foot                              $312


The price per quare foot of the homes on the market today ($312) is almost exactly twice the price per square foot of homes sold in the past 12 months ($161).  Yes, there is 1 home out of the 7 (the most expensive) that is pulling the price per square foot up a bit, but even taking that one out of the sample, the other 6 current actives are way above the average price per square foot of the sold homes.


Based on price per square foot, lakefront homes at Lake of the Pines declined 14-15% during the past two years, and yet based on price per square foot, current sellers are asking almost twice as much for their homes.  Does this give you some idea why lakefront homes are a tough sell right now?





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Distressed Sales vs. Regular Sales in Grass Valley, California

said on May 14th, 2012 filed under: Grass Valley, Market Trends, Real Estate Nuts and Bolts

Do foreclosure and short sale homes (distressed) sell for less than regular homes? 

Of course they do.

How much less?  Let’s examine the “sold homes” market in Grass Valley, California for two different periods:

Dec 22, 2010 through May 13, 2011 with the period of Dec 22, 2011 through May 13, 2012.

I selected houses between 1000 and 1500 square feet sitting on parcels less than 1 acre that sold during these two periods.

                                                     12/22/10 thru 5/13/11           12/22/11 thru 5/22/12        

Number of distressed sales                           22                                                    26

Number of regular sales                                 13                                                   15

Highest distressed sold                             $225,000                                      $220,000

Highest regular sold                                  $320,000                                      $300,000

Lowest distressed sold                                 $45,000                                        $55,850

Lowest regular sold                                    $147,000                                      $122,000

Average distressed sold                              $140,140                                      $132,478

Average regular sold                                   $213,223                                      $185,450

Median distressed sold                               $157,500                                      $137,250

Median regular sold                                    $200,000                                     $169,000

Average distressed list price                       $147,770                                      $135,292

Average regular list price                            $221,569                                     $196,213

%sold price/list price distressed                    95%                                               98%

%sold price/list price regular                         96%                                                95%

Price/square foot listed distressed               $118                                              $108

Price/square foot listed regular                    $166                                              $154

Price/square foot sold distressed                  $112                                               $106

Price/square foot sold regular                       $160                                              $145

Average days on market distressed                 78                                                  60

Average days on market regular                      100                                                80



No surprises here.  Distressed properties sell quicker and for less money.  How much less?  A lot less.  Distressed markets and regular markets are like two separate realities within the same town.  Using “price/square foot sold” as the basis of comparison, distressed homes sold for 30% less than regular sales in 2010/2011 and for 31% less in 2011/2012.

In my previous blog, we learned that the overall market in Grass Valley, California (based on price/square foot sold) declined from 2010/2011 to 2011/2012 by 7.8%.

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How Are We Doing? An Analysis of Real Estate in Grass Valley, CA.

said on May 13th, 2012 filed under: Grass Valley, Localism, Market Trends, Real Estate Nuts and Bolts

This is the house we bought in Grass Valley, California as an investment on December 22, 2010. We called her “Grizabella.”  She was built in 1887 with 2 bedrooms and 1 bath.  She was 1176 square feet in size and sat on a generous .3 acre city lot near downdown Grass Valley.  How is “Griz” doing as an investment?

But first, let’s look at the Grass Valley real estate market as a whole for properties of this size.  For my study, I compared the period of Dec 22, 2010 through May 13, 2011 with the period of Dec 22, 2011 through May 13, 2012.  I selected houses between 1000 and 1500 square feet sitting on parcels less than 1 acre.

                                                     12/22/10 thru 5/13/11           12/22/11 thru 5/22/12        

Number of homes sold                                  36                                                    41

Highest price sold                                   $320,000                                      $300,000

Lowest price sold                                       $45,000                                         $55,850

Average price sold                                    $169,722                                       $151,858

Median price sold                                      $175,750                                      $144,000

Average list price                                       $177,398                                      $157,580

%sold price/list price                                     96%                                               96%

Price per square foot listed                         $137                                              $125

Price per square foot sold                           $131                                               $121

Average days on the market                          84                                                  67



You can see that more houses (41 to 36) sold this year, and faster (67 days on the market to 84).  But (and it’s a big but), prices have fallen.

Just comparing price per square foot of sold properties ($131 to $121) you can see that the value of small homes in Grass Valley market has declined about 7.8% in one year.

If you compare median price of homes sold a year ago ($175,750) with the median prices of home sold this year ($144,000) you would think the Grass Valley market has declined about 18%.  Let’s not do that.  Yuck.

The first calculation, price per square foot, is the more accurate, and less scary, “but it is what it is,” as we say in this crazy game.  The market continues to drift downward.

So, how did Grizabella do?

We bought her for $92.69 per square foot.  She was a bargain at 71% cost of the other homes sold,  based on price per square foot.  So, we were already ahead of the game.  But by the time we fixed her up, we had brought her cost up to $161 per square foot.  Now we cost more than the other homes sold during the first five months of this year, almost 19% more than the comparables.

Did we overspend, or more precisely, overimprove?


There are numerous variables in play (depreciation, tax advantages, and the real value added by remodeling or improving property), but the most important variable is this:  after property management expenses and maintenance, we are netting $1250 a month in rent.  That’s $15,000 a year.  That’s about 8% return on investment.

Of course, Uncle sam wants a piece of that, but doesn’t he always?


In an upcoming blog, we’re going to get even more sophisticated.  We’ll look at the same Grass Valley market for the same two periods of time, but we”ll compare conventional sales with homes sold as foreclosures and short sales.  Do you think we will see a marked difference?  Do you think there are really two different real estate worlds out there?  Let the truth be told.  Next time.





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Lake of the Pines Real Estate, Highs and Lows, 2011

said on December 9th, 2011 filed under: Lake of the Pines, Localism, Market Trends

First, we’ll compare Lake of the Pines sales for 2011 with last year, 2010, then we’ll take a closer look at this year.

2010     70 total sales

2011     78 total sales

(Note that there are 11 pending sales as of this post with about 3 weeks left in 2011 .  There is no way to tell how many, if any, will continue reading…

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Why You Must Stop Paying Rent and Buy a House Today

said on November 23rd, 2011 filed under: Localism, Market Trends, Real Estate Nuts and Bolts


I believe with all my heart that renters should become home owners, as soon as they possibly can, and that the very best time to do that is right now.  There are three reasons for urgency:

NUMBER ONE.  Loan money is cheap.  Today, you can get a lower mortgage interest rate than at any time in living memory.  This means you can buy continue reading…

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Return on Investment (ROI) for Residential Rentals

said on November 14th, 2011 filed under: Localism, Market Trends, Real Estate Nuts and Bolts

There are four reasons you should be buying rentals right now.

  • Money is cheap.  Interest rates, even for investment properties, are at all-time lows.
  • Home prices have fallen, great deals are everywhere.
  • There are plenty of renters (former owners who have lost their homes to foreclosure)
  • The money you have sitting on the side in fading IRAs, money markets, mutual funds, etc. is evaporating right in front of your eyes.

Let’s say that you do have some money tucked away in an unproductive portfolio, and that you have decided that it will generate a larger and safer return in rental properties.  How much cash should you use as down payment? How much should you borrow?

You want to make a maximum Return on Investment (ROI).  Right?

Let’s say you can find decent rental properties from $150,000 to $200,000 (ready to rent total costs–purchase + fixing up + holding costs + etc.).

You will be able to rent these properties for $1200 per month.

  • At 100% cash purchase (ready to rent) you will generate a ROI of 4% to 5%.  Not bad, and better than your money market.
  • At 50% cash and 50% loan (ready to rent) you will generate a ROI of 6% to 9%.  That’s a lot better isn’t it?

If you would like an excel spreadsheet showing how the calculations work, get in touch with us and we’ll be glad to share with you.

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Getting Off the Ropes with Foreclosures

said on October 30th, 2011 filed under: Market Trends, VA Loans

Lose your home to foreclosure, short sale, or bankruptcy?  Credit trashed?  How long will it take you to get off the ropes and back into the ring?

When will you be eligible to get a loan for a new house?

In the list below I’ll give you the simplified version, a snap shot.  There are “extenuating circumstances” that can shorten the waiting periods, but I’m going to describe the maximum penalty period, your “standing eight count” before the referee let’s you back into the fight.

For Conventional Loans

Foreclosure                          7 years

Short Sale                             7 years with less than 10% downpayment

4 years with 10% down payment

2 years with 20% down payment

Bankruptcy (Chapter 7)       4 years

Bankruptcy (Chapter 13)      2 years from discharge

4 years from dismissal

For FHA  Loans

Foreclosure                              3 years

Short Sale                                 3 years with less than 10% downpaymt

Bankruptcy (Chapter 7)         2 years

Bankruptcy (Chapter 13)       1 year if all re-pay conditions are satisfactory

VA and USDA loan waiting periods are similar to FHA guidelines


Two conclusions can be drawn from this data:

  • It is quicker to get back into the game after a short sale than after a foreclosure.
  • FHA is more forgiving than conventional lenders.


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California Foreclosure Update

said on May 17th, 2011 filed under: Market Trends

(compiled from Foreclosure Radar, May 17, 2011)

Foreclosure filings in California fell to lows not seen since the fall of 2008.

Notice of Default filings were down 28.5 per cent.

Notice of Trustee Sale filings fell 10.9 percent from March, 2011.

Notice of Trustee Sale filings fell 31.2 percent from April 2010.

Foreclosure sale cancellations rose 27.0 percent from March. Activity on the courthouse steps slowed from the prior month, with 17.2 percent fewer continue reading…

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Annual Real Estate Report

said on January 16th, 2011 filed under: Market Trends, Neighborhood Profiles

From January 1, 2010 to December 31, 2010, here is your report for homes sold in the Nevada County side of our Golden Hills real estate zone.  This area is north of the Bear River and up to Nevada City.  In the report I have used the median price of homes sold, not the average price.  Median (an equal number of homes above and below the median) is a more accurate depiction of the market.

Area                                Median Price       #homes sold        price of homes

Alta Sierra                     $255,125                     -8%                            -8%

Grass Valley                 $215,000                   +7%                           -11%

Lake of the Pines        $275,000                   +4%                            +4%

McCourtney                  $260,000                  -32%                           -43%

Nevada City                  $292,550                 +17%                          -10%

Peardale                        $297,500                  -20%                          -24%

Penn Valley                   $279,000                 +24%                          -13%

South County                $365,000                  +1%                              -9%



The higher median price of South County sold homes is an aberation caused by the fortunate sales of a few very high-priced homes.  With that South County exception, the median price of sold homes in all areas is under $300,000.  Five years ago, who would have believed that?  Nevada City?  Under $300,000?  Get outta here!

The most affordable area is Grass Valley.  You can believe that.  I just picked up an investment home there myself, putting my own dollars where my advice is.  Yes, that’s my advice–buy investment homes in Grass valley.

As usual, Lake of the Pines is the most stable, most conservative area, the modest-yield certificate-type of real estate.  Number of sales went up a bit at 4%, and median prices went up a bit at 4%.  Nothing sexy, but the 14% differential between LOP’s modest +4% and Nevada City’s -10% is significant. 

This is probably the very best time to buy large rural parcels in the McCourtney area.  Not only is it beaten down in price and sales, but some of the finest, most beautiful land in the area is out in McCourtney.  Hmmmm?  Let’s go look at farm land in McCourtney.

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