1. It is going to be a tough year, so safety first;
2. Local RE market is going to drop, probably faster and more than people think;
3. Global economy is a worry;
4. Bank cuts LOC? This is a big concern;
Plan for 2009:
1. Continue buy/sell foreclosures, not so much as a way to make money, but rather to preserve cash.
2. Improve occupancy in B town; Maybe change PM?
3. Get out of foreclosure and into multifamily toward the end of the year if multifamily cap rate and down payment requirement reaches expectation.
4. Look at buying a small business.”
- It was a tough year indeed. But I survived.
- Local RE market dropped until April. Then, to everybody’s shocking surprise, the market rebounded. By the end of the year, it has already reached the peak of 2008, and surpassed the peak in some areas. Why? Because the low interest rate, combined with low Canadian dollar vs Chinese Yuan, made the RE 40% cheaper than the peak of 2008. So there was huge number of foreign buyers coming to the market. But the recovery is only limited to the core market; in the suburb, volume went up, but price did not.
- Global economy was a worry, but the depression did not come. So, it is just another crisis. The new cycle already began.
- I was very worried about bank calling LOCs, considering the amount of LOCs I use. The LOC of a friend of mine in US got frozen, that was an alarming signal for me. In the end, there was no calling. But the credit union I did most banking with did try to raise the interest rate on LOC. The members fought back, and eventually won the battle. The CEO had to issue an open apology and sent an apology letter to every member for trying to do that.
Plan for 2009 summary:
- It proved very hard to sell real estate in US. I managed to sell only one house, making minimal money. Banks are very tight giving out mortgages, so there are not many buyers for normal properties. Buyers want to buy REO properties first, but quite often they have to buy with cash.
- I changed PM in B town. Things improved immediately. But it went bad again, because of the oil and gas low cycle. Toward the end of the year, things seemed to have improved some. Did a lot of improvements to the building since changing PM: new appliances, new flooring, etc.
- Multifamily cap rate continued to go up, and price continued to go down. I have to do the foreclosure thing for some more time.
- I looked various small businesses, and even made an offer on one with no result. Now I kind of gave up the idea.
Overall, 2009 was a tough year. Vacancy went up in B town, rent dropped in T town. As a result, total rents were lower than that of 2008. But the interest rate was extremely low during the year, and huge interest payment was saved as a result. At the end of the year, the total financial picture on the rental side was actually brighter than 2008, although it was dismal on the sale side.
- I am going to make two trips to two places: 1) Florida; and 2) Arizona/Nevada.
- Sell two existing houses in the first half of the year. Maybe go to more foreclosures with changed strategy, but it depends on the outcome of my new trips.
- I have kept my eyes on a couple of multifamily properties. If the prices drop to a point that is attractive, I may make offers on one or even two of them.
- It is refinancing time on B town building. The total payment will be lower than right now, although the interest payment part will increase. It gives me much needed breathing room as I have to constantly throw in money for it during the year, although all the money thrown in went to the principal pay down. The beginning seems promising, because last month there were three new tenants, and another couple of new tenants will make the building full or just one empty unit this month.
- Rent dropped big in T town. I hope coal and natural gas prices will rebound to the point that rent will rebound. But with low interest rate, the current rents cover all the expenses, jut no positive cash flow. It used to be a big cash cow.
- I need to figure out the details on the hostility of FL against non-residential investors on property tax, insurance, and any other fees/charges.
- There will be modest and careful expansion of portfolio this year. But leaving enough reserve is always important. I hope I can add one multifamily property this year, with odd condos and SFHs on the side from either REO/Short sale or trustee auctions. The altimate goal is to increase size with healthy cash flow.