All Forum Posts by: AJ Wong

Quick end of season update for the Oregon Coast..

The challenge is not so much quality investors or even interest rates (as we've seen a considerable drop in lending rates since the peak in September) but a lack of quality investment grade inventory. 

On the Oregon Coast in particular there are VERY few multi unit properties on market and those that arrive are often under heavy consideration by multi potential investors/buyers. 

We have, somewhat paradoxically, also noticed that sellers are increasingly flexible with terms, notably on properties that do require additional investment. I have personally negotiated several recent sales at +25% less than initial asking price and several owners that would consider or even prefer owner financing to simplify the transactional process. 

Financing terms have been somewhat restrictive, it is increasingly difficult to find a net positive single family residence over $250k but there is considerable value for the second home owner, or investors looking to safe guard some assets with a lot of upside potential. There are several $500k homes that are impressive value for a coastal turn key home. 

We have seen a considerable drop off in bookings for short term rentals both in quantity and average nightly rates. My assumption is that the pandemic fueled vacation rental boom, both in terms of users and owners is going through a bit of a rebalancing. Too many new vacation rentals to the market, and too few people traveling. It could be a slowish winter but expect activity in all areas to accelerate in the spring. Although AirBnB'ers will need to get more practical and realistic with their nightly pricing, I mean cleaning fees right? 

Maybe there is a brightside.. as in part of the deflationary trend?  I highly suggest some coastal owners look into offering medium term tenancies such as 30-90-180 day rental periods. Lack of quality furnished rental options and lack of management fees can yield some quality and less energy intensive returns. 

If you're looking for an end of the year deduction or two, I have a few quality investments on the radar that can close quickly. 

I'll try to post a final year end summary for lazy holiday reading. 

Cheers! 

I heard someone notable, I think Patrick David say if you're thinking about buying a house or investing today, invest but make the offer you would make a year from today. 

A lot can change in a year ie: home appreciation of 10%+ and interest rates doubling. Assumedly things will one day move the opposite direction..Sure, not all sellers are of yet of a similar mind set or need to sell, but generally it's a buyers market. Property for sale is inventory. An inventory that's value is predicated on what a buyer is willing to pay. Over the most recent property appreciation cycle there were apparently a few two many buyers willing to pay too much. 

There are currently robust and strong sales occurring daily along the entire Oregon Coast, but in many recent transactions, my buyers or sellers were only evaluating one offer, and all sellers were at least receptive to a conversation. The reduced demand at least provides more time for identification, education, evaluation, consideration and negotiation.

Also many sellers I've worked with are often invested in the property longer term and so a fair but aggressive or fairly aggressive offer  (especially if it's the ONLY offer) is generally well received. Others that have previously been resistant to seller financing have softened or accepted mutually beneficial terms. 

Investors and buyers certainly have more options in comparison to recent memory but dare I say... some leverage? A desirable property will always attract quality buyers, but as investors we're trained to reveal potential others don't see, or create opportunity through preparation. 

With so many local and external variables, if anything is certain, a good deal on US real estate is, and there seems to be a growing window of actualization for the prudent investor. 

The past few week's we've seen overwhelming demand for residential coastal cash flow properties of all valuations with multiple over asking offers. Very strong demand for buildable and affordable lots in the $75-175k range and slowing interest in commercial, retail and industrial. 

What are you all seeing and looking for in your market? And do you agree? Is now a good time to buy if the price, terms and property are right? Anyone get a good deal lately? I certainly 'feel' all of my recent buyers and seller are accomplishing their goals safely and profitably. I've even seen a few listings that almost forced my hand. 

Perhaps a much more credible and notable investor said it better..

"The BIG thing is that almost no investor has enough money relative to their needs." - Ray Dalio

#3- I read somewhere recently that a considerable percentage (15-20%+) of AirBnB stays are 30 day or longer... Great insight. Thanks for posting. 

Quote from @Dan H.:

I enjoy visiting Baja.  The desolate coast, the mountains of San Pedro Martir, the whales of Scammons Lagoon (Oro de Liebre), the hot springs of Guadalupe canyon and Puertocitos, the party atmosphere of San Felipe, the remote desert terrain, the missions, and the fishing and diving.

I do not like the extortion, RE financing, difficulty obtaining reliable RE team. In addition the safety risk in mexico fluctuates dramatically.   Every time someone in mexico has attempted to extort me personally it has been within about 1 hour of the border (I do not worry about extortion attempts after exiting Ensenada).   However I hear tales for developers it is everywhere in Mexico.  Drive down Baja and there is always a large development somewhere that the developers bailed prior to completing the development.  These incomplete developments depict the challenges.  Similar, stay at hotels and you see issues finishing things whether it is electrical work that is not complete, stairs without guardrails, holes in walls or roofs, etc.   there is also a lot of shoddy work.  Incomplete and shoddy work depicts challenges getting reliable, qualified help.

The financing alone kills it for me as the leverage I achieve local allows returns that are virtually impossible without the leverage. 

Not sure how reliable the 15-20% return you indicate is but if I assume it is on par with a good syndicator, investing in Mexico still loses as it is not as passive as joining a good syndicator.  

I will continue to invest in the good old stable US, and rent at a very reasonable price when I go to Mexico.

Good luck

All great points. We whole heartedly can’t wait until the right opportunity presents  itself on the US Pacific Coast :) 

Quote from @Lumi Ispas:

@AJ Wong, 

Good job on researching what's happening on the market, and you always want to read into the info a bit more. Here's an article showing that the amount of foreclosures in 2022 are the same as in 2020 and about half of 2019. The foreclosure levels today in US are actually below the average foreclosure rate in USA over the last 100 years! 

The numbers look so high percentage wise as banks put most foreclosures in hold after Covid started and now they are processing them. A lot of people that are in foreclosures are the ones that took advantage of not paying their mortgages as the banks allowed it. A lot of these owners are working out payment plans with the banks or selling their homes for a profit, meaning they won't be foreclosed on.

You always want to read three sources of information, and try looking for data articles, not articles that interpret the data as most writers don't understand Real Estate and they are just looking for sensational information.

https://www.attomdata.com/news/market-trends/foreclosures/attom-midyear-2022-u-s-foreclosure-market-report/#:~:text=Nationwide%200.12%20percent%20of%20all,the%20first%20half%20of%202022.

This time around the market is so far different than 2008:

1. The market is flashed with cash, meaning lots of buyers looking to buy, 

2. Owners have so much equity that most sellers in foreclosures if they would even want to talk to a Realtor could sell the property and walk away with money

3. Inventory is so tight due to landlords securing interest rates at less than 50% of today's rates, and not willing to sell them 

4. Wealth in general had increased for RE investors due to Inflation, savings, age, so more investors are buying a lot more properties without selling

5. Real Estate market is local. The only markets that will have a correction will be the ones where Real Estate prices went up very fast and unsustainable, which is less than 10% of USA.

 With other words, the sky is not falling people. While you will always find a deal, don't panic. 

Lastly, commercial interest rates are about 2% under the conventional rates, and in the conventional market there is a bunch of new programs to buy down the rate, ARMs, or seller pay 2-1 buys down. The banks finally have fun and can play in the market as they can start making money on loans.

With other words, what change will you make in WHAT you buy, WHERE you buy, as construction costs are not really coming down and most properties can't be rebuilt today with the new construction cost. 

I agree there are cash buyers but that doesn’t make up for the historic quantity of buyers that are in the sidelines. This is not 2008, yet and real estate is local but 10% of markets will see a downturn? That’s optimistic on any level. On the OR Coast the market is well insulated as there is a demand that outstrips supply but sellers are reducing unrealistic valuations by the breath. 

We all have been through enough markets to know that the game goes on, but the game HAS changed…and is changing with each transaction or lack thereof. 

Quote from @Jason Wray:

AJ,

Those rates are high in comparison to other banks especially if you compare them to a Fully Delegated Banks Portfolio Program. Depending on the the occupancy type if you are talking about Second Homes, or Investment properties the down payment should be 5% for Second Homes 95% LTV and 85% LTV with 15% down for SFR or (2-4 Unit) multi-family rental purchases.

A true Portfolio rate is actually 2-3 point's under what you have listed above. Those rates lean a little more towards Non/Qm and lower fico's scores. Unless your pricing with a mortgage broker, mortgage lender then they are accurate. A bigger FDIC bank that offers a true portfolio is well under that rate margin and much lower in down payment in order for the portfolio to be a NICHE program.

 Happy to provide a few client profiles. If terms are decisively better I have a quintuplet of well qualified clients looking for second home purchase in Oregon. 

Quote from @Zach Smith:

@Drew Sygit makes a good point about Dodd Frank. I would caution anyone from jumping into private lending on owner-occ. There are reasons most private/hard money lending companies avoid it by focusing on business/investment purpose loans. 

Another idea would be investing in a Real Estate Debt Fund. Our Fund (near you in Eugene) has received a large influx of capital this year. If you find a private lending company with conservative underwriting backed by a Fund with good management, investing in a pooled fund can offer returns like you’re aiming for with less risk because your investment is diversified across many loans across many assets classes, locations, project types, etc. This is a far more passive investing strategy, but it can be a great place to park funds right now. 

 @Drew Sygit Thanks a lot..we should definitely connect and chat. 

As a realtor, investor and 'developer' on the Pacific Coast, I sold several properties at or close to 'peak' pandemic boom in March. 

Since we felt that the timing for re-investment was not ideal, my fiancé and I decided to venture down to Northern Baja Mexico until the market tides turned more favorable... So we did what all people do, turned to craigslist and secured a $675 monthly Ocean View apartment for the foreseeable future. 

A couple weeks later our Oregon property closed we headed south for an adventure and recuperation from 4 years of non-stop remodeling on fix and flips. Fast forward six months and we closed and are preparing another remodel for our dream second home Ocean View Casita. 

After swearing off construction or home buying for at least a year, we found the investment potential and quality of life too attractive to ignore. Having lived in several foreign countries, Baja Norte offers many of the advantages of foreign investment, with one key obvious and outrageous differential ingredient...location. 

Our home and business are now located just 45 mins from downtown San Diego and 3 hours from south Los Angeles, or what were formerly known as areas of...Baja Mexico. 

Crossing the border is remarkably simple. Ownership is a bit different but ultimately provides one rights to the property for as long as they would like them. 

As home and investment affordability and opportunity for proper returns have diminished in America, there has been a somewhat forced and somewhat elected migration to the Mexican Dream. Not only are many locals migrating to the coast but our entire area is essentially an extension of San Diego in terms of it's demographics. The majority of our neighbors have license plates from California, Arizona, Nevada, Texas, Washington and for some reason South Dakota. 

At least from my humble perspective the metrics are tantalizing. Our total investment for our custom dream second home will cost the equivalent of one year's rent for a  completely inferior and non-comparable 1/1 in San Diego or Los Angeles.  Meanwhile the projected short or long term rental income return could be near 75-100% of the TOTAL capital investment in one year. 

My thought was when I do decide to rent or re-invest in the States, the majority of the carrying costs would be paid for with foreign rental income. It used to be quite the opposite. You invested in the States to retire in a foreign and affordable land. At least that's what most of my somewhat older neighbors have done.

But what if with remote work and rapid development and integration of technology, infrastructure and regulation here in Mexico the reverse could be possible? 

I'm certainly not suggesting that investments are anywhere near as safe or secure as America, but all investments come with inherent risk and investors fiduciary responsibility is to analyze where to get the best bang for their buck. 

Personally, I'm doubling down. Here's a secret..since we closed in July, Starbucks recently tried to lease space about 200 meters from our front door. Say what you will of Starbucks but their Real Estate team probably has good insight and data to forecast where the next ripe areas for growth are. 

Organizations have to adapt and evolve in order to provide their investors and shareholders returns. Individual investors have to do so with limited self secured resources and usually with more on the line to lose. 

One way of mitigating those potential loses is to lower the cost of entry. For a 1/10 of what it now costs in America, you can 'own' a superior property 15-20 mins way , with identical amenities, AND can reliably return 10-20%+ annually. 

Airbnb's and rents in general here are paid in USD. It might not be the same quantity, but that's the point. A $1500/mo ocean front house here is $8K+ in San Diego or LA. And a $425k house in a private, gated, ocean view surf community with $200/night vacation rentals is $5M+

Additionally with the recent agreements between all North American nations and the cost of energy only expected to remain elevated, Mexico in general is poised for a continued increase in foreign investment and high tech manufacturing near shoring by global companies including the likes of Samsung and Toyota.

I've personally gone so far as to get licensed as a real estate broker here and have begun working with one of the top brokerages in the area, with plans to join a local Realtor Board soon. 

I was wondering if anyone had any thoughts on foreign investment, real estate transactions or even own any properties in North Baja or beyond?

We've done considerable due diligence and have established excellent relationships with local friends, real estate brokers, attorneys and accountants but wanted some real life examples or tales of success or caution by someone who has owned or invested in foreign property before. 

Cheers! 

HI Frustrated, 

Ditto..as I understand it BP is still working on that section of the site..way more deals on craigslist. 

Buy quality real estate in quality locations, or at least that's the advice. 

Although the injuries from the current housing 'correction' and 'bubble' in other areas are not as severe as those inflicted in 2008 there will be pain and some suffering. https://fortune.com/2022/10/21...

At most risk are more recent home owners, specifically first time homebuyer's that took advantage of lower lending rates, but at increased asset valuations, many with limited down payments and even more limited disposable income and reserve liquid assets. A notable percentage likely would not have been able to afford to purchase a home or property if not for the low cost of borrowing and due to increased pandemic reserves, may have have even been overly confident and competitive during the price 'wars.' 

Undoubtably in many areas valuations are declining rapidly and will continue to do so where there was a significant disconnection of income to home prices. Just because a $500k home costs under $2-2500 in mortgage payments, doesn't mean it's not an expensive asset that requires maintenance and upkeep to sustain value. 

Assuming the recession and job losses are as anticipated by many 'economists' there will be an increase of distressed and defaulted properties. Bank repossessions are up nearly 40% YTD. https://vermontbiz.com/news/20...

Also weighing heavily on lender and investor balance sheets are commercial and office space leases, the majority of which would face increased vacancy rates and downward pressures on rents as economic activity slows. Compounding this sector is that commercial mortgages are often of shorter duration and more sensitive to rate increases than residential securities. 

The costs of refinancing and/or purchaser's proposed borrowing costs of these commercial properties are likely to be significantly higher than in recent memory and particularly limited in areas of steep price declines. 

As options for buyers and sellers become more limited there is likely to be more competition for quality 'deals' and increased due diligence and analysis on behalf of investors, lenders and those associated with the transaction. 

Creativity and experience in structuring transactions becomes more paramount. For example many sellers that can afford to do so could potentially offer buyers, seller carry terms that are significantly more incentivizing than what banks are offering. All while earning a significantly higher rate of return than the same bank would offer the seller for their significant deposit. 

In times of fear, uncertainty and stupidity lies intelligent opportunity. 

If quality real estate is an excellent inflation hedge and secure asset, perhaps both parties can benefit from maintaining an interest in it?

Also, when markets shift, prudent investors shift with it. Their longterm strategy and investment parameters might stay focused, but they're aware enough of their surroundings and apply their insight to capitalize on the information digested. 

Conditions have changed but the playing field has only leveled. There are half of the buyers there were a year or two ago and the 'easy' and 'good' deals might not look as rosy in the coming months and years. 

Good relationships will be more valuable and indispensable than in euphoric market upswings. Knowledge is power especially as dumb money leaves the marketplace. Recent examples? Meme stocks, crypto, NFT's...please. 

For the past year I have been cultivating a relationship with the head of business development at my local personal credit union. As a member profit share and oriented community lender they lend their own capital to their own members. They make in house credit and property decisions and make sense mortgages. I figured a 25-30 relationship has some incentive to the local lender and as a result they are willing to offer qualified borrowers and properties well below market rates and favorable terms, AND are happy to do so. 

It is very likely this strategic and relational advantage will result in profitable transactions for my clients, as they are able to analyze returns on considerably more favorable terms, while sellers have fewer offers to entertain. 

The market will always shift, evolve and move...will you?