experts: real estate column Tuesday, February 12, 2008

Another Look at the U.S.

Ozzie Jurock offers advice for savvy investing in the U.S. property market

By Ozzie Jurock

The old saying for investors is: "When everybody else is yelling buy, you should be selling, and when everybody yells sell, you should buy."

Well today there are a lot of people yelling SELL in the United States. Talk about bad news! Not a day goes by when we are not bombarded with the 'terrible U.S. housing markets' - falling housing starts (any thinking builder would slow housing starts now), 10-month inventories (so what, six months is normal) and crashing prices. Crashing prices? Latest statistics show that prices on average in the U.S. are down 4.6 per cent year over year. Of course there are cities far worse off than the national average but according to the National Association of Realtors (NAR) some 21 major cities in the U.S. actually are seeing increases in house prices like Salt Lake City, San Jose, Buffalo, N.Y., Pittsburgh or, closer to home, Seattle.

So, why this preoccupation with that minor average number? All excessive booms are usually cleared out ... real estate and stock markets. After all, we've been there before. The Dow Jones in 1974 crashed by 40 per cent, it did it again in 1987, then again in 2002 and often these debacles were followed by reversals in housing markets as well. San Diego prices collapsed by some 35 per cent from 1989 to 1992 for instance. But prices always recovered after a time. Financial stocks in the U.S. fell 21 per cent from its high this year. Now that is something to talk about.

Now, of course, to the extent that 'markets become the stories people tell about them', I would not be surprised if in the U.S. people will literally talk themselves into a recession, into further problems with housing before prices will bottom ... but bottom they will.

Savvy investors look at the fundamentals: a good marketplace, a good employment base, low vacancy rates and they LOVE to buy when everyone yells: SELL! In fact, the best deals come about in tough markets.

So, the bottom may not be in place in the U.S., but with the strong dollar, reversing prices and confidence that the U.S. will turn around - naysayers be darned. We like the idea of investing in the U.S., just not all of the U.S.

I do not care how many houses there are for sale at $50,000 in Detroit and Cleveland, you should NOT buy them. There are deep structural problems in many of those cities (manufacturing problems, high unemployment rates, etc.) and even a $50,000 house will not rise in value.

Remember that real estate markets are always local in nature first. Never mind the dire news, the terrible forecasts. There are many areas in the U.S. that have fantastic upside and will get oversold in the general paranoia.

I like cities that have both a local market (inward migration remains strong, employment base is good, vacancies are low) AND a snow bird market - a Canadian buyer market. Who hasn't dreamed of owning in Phoenix or Scottsdale?

So, my investment group (still cautiously but actively) is looking at three markets primarily: Phoenix, Scottsdale and Las Vegas - yes, Nevada has a high foreclosure rate, but 5,000 people a month move to Vegas and prices are (now) cheap and locals depressed. We also are looking at Austin and Houston.

Things to watch out for:

Just because the price is right (i.e. $25,000 for a house) stay out of the troubled areas - like Detroit.

U.S. dollar is a gamble - if it goes back up, quick flips will not work.

Whatever city you pick buy only in A or B areas. Avoid tough areas (even foreclosures that sound cheap, are likely in awful parts of town).

You are not allowed - as an investor - to do any renovation yourself. You can't paint, cut the grass or even collect the rent ... yep.

You may have to declare your world income (in California).

You may have trouble getting financing. Canadians will NOT get an investment mortgage from a regular financial institution. You can get a second home mortgage (you must have a home in Canada) but then you must stay in that second home at least three weeks a year.

Stay out of limited partnerships where you have not researched quality of owners/operators.

Watch for half empty condo buildings or subdivisions. Are there enough owners to keep the building up?

Whatever you buy - go see it!

Major Point: Looking at current worst markets and current best markets may not mean that one should not buy in the worst markets or even buy in the best. In fact, some of the worst may well be where the 'shark' and the 'flipper' should roam.

Important to do your research, take your time, get familiar with areas, get a quality realtor in the area you pick, get good professional tax advice (the U.S. is a foreign country after all) and you may well get rewarded.

Special to the Vancouver Sun
Published: Thursday, January 31, 2008

Ozzie Jurock is president of Jurock Publishing Ltd. and is known as one of Canada's leading business motivators.

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All articles by Ozzie Jurock

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