($C) Why It’s Time to Buy – or Flip – Your Dream Home

December 22nd, 2009

by Alexander Green, Chief Investment Strategist
Tuesday, December 22, 2009: Issue #1163

If you’re financially strapped right now, feel free to skip today’s column.

But if your finances are solid and you’re liquid (i.e. you don’t need to rely on bank borrowing) you can buy a dream home… at undreamed of prices.

Recently, for example, The Wall Street Journal relayed the story of Jon Mirmelli, a Phoenix real estate investor. Late one morning two months ago, he learned that a never-occupied custom house in his Phoenix suburb was going up for auction around noon that day.

The six-bedroom home, built on a three-acre desert plot, had a kitchen with two dishwashers, four ovens, “antibacterial” copper sinks, and a master “spa” bathroom with space for a flat-screen TV visible from the tub.

Citigroup (NYSE: C), which had a $1.3 million mortgage on the home, set a minimum bid of $379,900. After a few minutes of furious bidding, the auctioneer lowered his gavel…

Got Cash? Then Grab the “Deals of a Lifetime”

Mr. Mirmelli won the house for $486,300. Then promptly sold it for a $200,000 profit just one week later. (Even his buyer got a steal.)

“People with cash to invest are getting the deals of a lifetime,” insists my brother Braxton, who has more than 25-years experience as one of central Florida’s leading homebuilders.

Of course, he doesn’t build homes anymore. In his neck of the woods, there’s simply no demand for them.

Instead, he makes his living doing exactly what Mr. Mirmelli does – buying distressed properties cheap and then turning them over for a quick profit.

Whether you’re looking for your dream home – or just a quick capital gain – there is no shortage of opportunities.

Forget Subprime… This is A Jumbo-Sized Problem

All over the nation, overleveraged homeowners are flying the white flag, even at the high end of highly desirable areas.

“I would say we’re 40% off 2007 prices for everything,” says broker Chad Rogers, who covers the area from Malibu to Hollywood Hills for Hilton & Hyland.

Homes bought at the peak in Miami for more than $1 million are routinely selling for less than $400,000.
And $3 million homes in the Hamptons often change hands for half that.

The fastest-growing default rate in the nation right now is not for subprime mortgages, but jumbo ones.

A lot of these sellers held out initially, insisting they weren’t going to “give” their trophies away. Unfortunately, markets don’t bounce back when they still haven’t hit bottom.

As Brett Arends of The Wall Street Journal noted recently, “During – and after – a bubble, investors often hope that ‘quality assets’ will hold value. It’s usually a vain hope. Just ask people who owned luxury condos in Tokyo in 1990, or investors in Cisco Systems after the tech-stock bubble popped. Real estate is not that different.”

So what’s the key for investors?

Seek “Distress” and Practice Patience

Seek out bankruptcies, foreclosures and other distressed housing situations. And don’t be dismayed by unmotivated sellers – there are plenty of them out there.

A year and a half ago, for instance, I made a reasonable, all-cash offer – well above what the seller initially paid – for a nice lot in my neighborhood.

The seller sniffed, refusing to counter it. “She wants you to know,” her realtor insisted, “that she doesn’t have to sell this lot.”

“I understand,” I said. “Just as I don’t have to buy it.”

And I didn’t. Last week, however, I bought another lot nearby, more than four-times larger and with a far superior view, for less than I offered her a year ago.

Sometimes patience is a virtue.

Good investing,

Alexander Green

View original at: Investment U

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