Month: January 2016

Why Sky High SoCal Housing Costs Just Keep Rising

re4Any SoCal Resident Can Tell You Rent is High,

But did you know the average cost of a home in Los Angeles ($658,000) is more than double the national average for houses of the same size? Real estate experts say that the gap between the cost of living in LA and the rest of the country will continue to get larger, all the way through 2018. When gainfully employed, educated people with salaries hovering around $250,000 a year are looking to move to nearby cities due to the inability to find a home within their budget that meets their standard of living, it is clear that California is pricing out its own residents. And the truth is – there isn’t really much anyone can do about it.

The Cause

While no single problem is exclusively to blame for the incredibly inflamed housing cost in Los Angeles, the generalized answer is that there are not enough houses to meet the demand, and in addition to that, the cost to build more housing keeps developers away. It is a vicious cycle of economics – people want housing, construction companies can’t fill that demand because the cost to them is too high, this takes money and jobs out of the metropolitan area as builders, investors, and developers look to the suburbs to build, so the demand grows, and the cost grows alongside it.

What is even more unexpected, is that the positive growth in jobs and the rest of the economy is actually putting more of a strain on housing cost. Los Angeles has added tens of thousands of jobs in almost all sectors of the market, from the lower level entry jobs, all the way to opening space for new executives and CEOs, and as you can expect, that means more people look to move to the city to fill the openings which the jobs have created; thus adding to the demand for housing that seems insatiable in Los Angeles.

The Proposed Solutions…

The answer seems simple, right? Just build more houses. Unfortunately, nothing is ever that easy. Up until recently there was a push among lawmakers to, at the very least, keep the cost of housing under control through litigation.

The solution seemed concentrated on reducing the cost for contractors to build homes and new developments. Prior to this year, litigation seemed to offer great tax incentives to builders willing and able to quickly build new multi-family units, especially in urban areas. Especially to those builders who made such new developments more eco-friendly and energy-efficient.

Many state law makers have focused energy and attention on low-income housing subsidies. The legislative analyst’s report estimated that building affordable homes for the 1.7 million low-income households in California that now spend half their salaries on housing would cost as much to finance each year as the state’s spending on Medi-Cal.

… And why they have failed

As much as state litigators may want to deal with the overwhelming housing shortage in LA, there is a huge problem – namely, that most decisions regarding new developments and building fall into the laps of city and local government. The state governments’ hands are tied. Unfortunately, the smaller governments tend to have a much more narrow view of the situation, seeking to raise gains and find solutions for /their/ city, without much consideration for the surrounding areas.

Additionally, the main tool that state legislators could use to quickly build homes, is in direct opposition to a myriad of business and environmental interests. The C.E.Q.A (California’s governing environmental law), in many ways, prevents the building of new housing developments at any rate which would make an impact on the housing shortage.

So the question becomes… what can we do? Should we sacrifice environmental protection laws to lower housing costs? It is a question that has to be addressed, but with so many political influences and issues, most lawmakers won’t touch it.

And SoCal residents and home owners associations aren’t making it any easier. Many of these local governing bodies are in stark opposition of rapid development of housing- because that means that their neighborhoods would have to face the dreaded “D” word… Density.

Push-back from neighborhoods and suburban areas is obvious- no one wants to be crowded in, especially in the areas which are the most affected by the housing shortage (affluent coastal communities). So it seems as though lawmakers are blocked on all fronts.

Have Lawmakers given up?

This year, it seems as if state lawmakers have given up on dealing with the increasing housing cost. Little to no new solutions have been proposed, and those that have are not being passed through and put into place. The state is at a stand-still and lawmakers seem to take the “I guess we’ll just have to wait and see what happens” approach.

As litigation passes to increase the minimum wage to $15 an hour, many people believe that this increase will ease the burden on low and middle-income families and low for economic growth and eventually lead to a reduction in the housing shortage.

“Economists worry that if lawmakers don’t fix the housing supply problems, many of the state’s efforts to improve the lives of low-income residents will falter. Many legislators cited high housing costs as a reason to boost California’s minimum wage to $15 per hour over the next six years, but “‘unless something’s done to stem housing costs, much of that pay increase could be eaten up by higher rents, ‘Thornberg said.” (LA Times)

The Verdict?

SoCal is in a pickle, and with legislators openly admitting that the housing problem is not a priority for this year, the residents will have to pay the price. Housing costs in Los Angeles will continue to rise, unchecked, until newer, bigger ideas come into place which can put a stop to the vicious cycle of demand, lack of supply, and the overwhelming influence of special interests.

Time to Get Out of Real Estate

re3Talk about exquisite timing.

Even today, a decade after the fact, the leveraged buyout of Equity Office Properties Trust remains one of the largest of all time: $36 billion for nearly 600 office buildings in New York, Washington D.C. and dozens of the nation’s largest cities.

But in late 2006, some wondered if the billionaire who sold the REIT was being a little rash. After all, the real estate boom was in full swing, and the S&P 500 was primed to hit new all-time highs. “Is he cashing out too early?” asked a Bloomberg headline when the deal was announced.

We all know the answer, of course.

Billionaire Sam Zell deftly sidestepped the coming real estate carnage. Then, with prices at generational lows a few years later, Zell bought hundreds of apartment complexes at dirt-cheap prices.

And today? Well, that’s the ominous part…

Once again, Zell is selling his real estate holdings. Last fall, he unloaded a quarter of his portfolio, buildings totaling about 23,000 rental apartments, to Starwood Capital Group for more than $5 billion.

Zell next sold off apartment buildings in South Florida and Denver, with complexes in Phoenix, Boston and other metro areas expected to be sold before the year is out.

“No one has ever accused me of not being a realist,” Zell told CNBC’s talking heads recently.

Reality Bites

Few things are more real than the threat of rising interest rates. Concerned about the Fed’s late-to-the-party threats and distorted capital markets drunk on years of zero-interest-rate policy, Zell is getting out while the getting is still good.

In the past few months, new-home sales hit their highest level in eight years. Pending home sales rose by the largest percentage gain in a decade.

Even home flipping is back in vogue again. RealtyTrac, measuring 2015 data, estimated a 75% increase in active home flippers – the highest since 2007.

Nationally, the average gross profit on a flipped home was $55,000 – the largest since 2006.

But for the realists like Zell, the widening cracks in the facade are plain to see.

For instance, apartment rent is starting to come down in New York and San Francisco – two of the hottest markets in the country. There is simply too much supply and not enough demand.

A few weeks ago, the head of the Federal Reserve Bank of Boston warned about overheated speculation in the commercial real estate market. “We care about potentially inflated commercial real estate prices,” said the bank’s president, Eric Rosengren, “because they might risk a bout of financial instability.”

Translated from “Fedspeak,” Rosengren was saying: Get out now.

Even those ultra ultraluxury homes in the $100 million and up range aren’t selling. It’s a rarefied market, for sure, but The New York Times recently noted that a record 27 properties, each with a nine-figure price tag, are languishing unsold on the market. According to figures kept by Christie’s International Real Estate, 19 such homes were on the market in 2015 and 12 in 2014.

Late last year, I wrote about one of those massive palazzos here in Florida – the beachside $159 million, 60,000 square foot Le Palais Royal. It’s still for sale.

Perhaps the extra gold leaf they painted on the front security gate will help.

Beware the Peak

I can’t see Sam Zell taking up residence in Le Palais Royal. But then again, he sold his office properties in 2006, and watched the market crack wide open a year later. Now he’s unloading his real estate portfolio again, so, who knows?

If history repeats, Zell just might find his next great distressed real estate bargains in the palatial homes of the (once) superrich – dazzling jewels of the “new” gilded age now past its prime.

How to Assess Any Real Estate With the Approaches to Value

re2The valuation steps applied to create a supported conclusion of a defined value based on an analysis of applicable general and specific data. Assessment in creating an opinion of real estate value follows specific sets of processes that reflect 3 different methods. These include:

– Cost Method
– Direct Comparison Method
– Income Approach Method

One or more of these methods can be used in the assessment of real estate valuation. The methods to be used will rely almost entirely on the type of property being assessed or appraised; however may also factor in the use of the appraisal, the scope of work involved, and the data availability for the analysis.

Cost Method

The cost approach to assessment and appraisal is established by understanding the construction methodologies and property attributes related to cost. The cost approach is estimated by adding the cost of land to the current cost of construction related to all improvement on land, and subtracting depreciation in all improvements on the land. The construction costs of buildings would include a reproduction cost or a replacement cost of the same or similar like materials or systems. This approach works best when it used for the assessment of new or newer properties that are not frequently exchanged in the market. The actual costs are usually derived from cost estimator software, cost manuals, builders, and contractors. Note: The land would remain a separate value when using the cost approach.

Direct Comparison Approach

The direct comparison method to assessment of real estate is most useful when there is a large number of similar like properties that have recently transacted on the market or are currently listed on the market. Using this method, the assessment would come from identifying the subject with similar properties, called comparables (or comps). The sale prices that most identify with the subject would have a heavier weight on the value, oppose to one that is further from the subject characteristics. Most of the time the comparables would create a range of value, upon which; opinion must be used to find an exact value. Several elements or factors are used to qualify the degree of similarity between comparables and the subject. This would include: real property rights, financial terms, property conditions of the sale, post sale expenditures, location, market factors, physical characteristics, economic characteristics, use/zoning, non-real estate components of sale (chattels, fixtures). After the best comparables are set, a dollar figure or percentage is applied to the sale price of each property to estimate the hypothetical value of the subject. For instance comparable A has 1 more bathroom than the subject; therefore subtract $9000 from the comparable to hypothetically get the sale to reflect the same characteristic as the subject.

Income Approach

The income method to the assessment of real estate would be from an analysis of present value of the future benefits of property ownership. A property’s income and resale worth upon return may be capitalized into a current, lump-sum amount. There are two methods of the income approach; one is direct capitalization and the other yield capitalization. Direct capitalization is the relation between one year’s income and worth indicated by either a capitalization rate or an income multiplier.

Residential Log Cabins Offer Great Summer Fun

re1Residential log cabins have become extremely popular lately. It seems that simplicity is making a comeback in an age of interconnected clutter. But what is it about residential log cabins that attracts so many people? For the majority of us, these cabins offer a vista into the world of minimalism. For any summer traveller looking to get away from it all, this is a perfect world to enter.

Enjoy nature inside and out

Whether it’s fishing, hunting, hiking or just enjoying the warm summer air, a residential log cabin will be where you want to go. It offers a pleasant retreat from the day’s activities, and when evening comes, you’ll love the wooden atmosphere as you settle in for the night. The natural interior makes you feel at home in a world where so much of living is manufactured. You have the perfect place to find peace from the constant noise and movement of modern day life. You can enjoy your world at a slower pace and make sure that you don’t miss a thing.

Summertime is, for most, the only chance we get to break outside of the workplace and drop into nature. Residential log cabins are the perfect place to spend long summer nights with those you love. They offer small, quaint style at an affordable rate, and they bring traditional class with a modern flare that you can customize. Most people love the rustic façade, but who’s to say the interior should follow suit? In a residential log cabin, you can feel free to add your personal touch and fulfil your wildest interior design dreams. Just peruse Pinterest for five minutes, and you’ll be swamped with brilliant décor ideas.

Holidays are better with a residential log cabin

Residential log cabins can make for a great destination holiday with cabins strewn all across Europe. But for those who might already own a good plot of land, building your own cabin won’t take too much trouble, either. Of course, if you aren’t up to the task of chopping your own logs, there are plenty of contracting companies who will survey your plot and build you your dream residential log cabin very quickly and at a fraction of the cost of a traditional brick and mortar house.

Do you have a tight holiday budget? Residential log cabins can be rented or bought, but neither option is going to break the bank. Unlike lavish country summer homes, residential log cabins offer just enough space for what you really need. Most cabins register in the range of 6m by 11m, though you can certainly find options larger or smaller in order to accommodate your needs. Residential log cabins are either fixed or mobile, but even the mobile models can fit four bedrooms, an en-suite, a lounge, a kitchen, and a dining room. More economical living quarters means more time together as friends and family and less time spent paying energy bills or cleaning the empty spare bedroom.

Making the right choice

With the demand for residential log cabins so high, the hard part is choosing what you want yours to look like. You can definitely opt for the traditional A-frame style, or you can take a modern twist and find something that is a little more elegant, striking, or charming. Some designs allow for plenty of natural light, allowing you to bask in the sunshine (which is the reason you took a summer holiday in the first place, right?), and others bring out the sights and sounds of the woods, making you feel as if you’re in the middle of a thicket.

Unlike the draughty old wooden homes of yesteryear, modern residential log cabins are built with your comfort in mind. Though the classic single-layer wooden wall is still available, those who want to live year-round in their cabins have the option to build them with a dual-layer wall, or “twin skin,” with up to 50mm of insulation between two wooden walls. This ensures a healthy, comfortable temperature no matter what the weather is like outside. And speaking of weather, Mother Nature can’t harm a well-built cabin as much as a traditional concrete structure. Residential log cabins are sustainable and durable through heat, snow or rain. Some traditionally built cabins have been standing for over 300 years. Talk about reliability!

Residential log cabins also require a fairly low amount of maintenance, which means that they will not demand too much of your time. You’ll be able to relax more often than you will have to work to keep your house in good shape. The natural strength of the wood protects it from the common elements far better than brick or concrete homes. Most residential log cabins call for limited preparatory maintenance just before winter, but beyond that, nature will not distract you from what you want to do most.

People who have the pleasure of owning and living in log cabins have described them as inviting and warming. Others have said that hey evoke peacefulness. For some it’s the smell of fresh perked coffee and baked bread that comes to mind whenever they’re inside. The other most appreciated feature is the ability to incorporate a truly personal decoration style ranging from very rustic to modern/contemporary. As for visitors who get to spend some time with their friends living in the woods, they compare it to paradise, and the proud owners agree as they could not imagine living anywhere else.

So many people love their residential log cabins, yet despite all the praise they get, these cabins seem to be one of the best kept secrets of summer fun. If you haven’t given much thought to the idea before today, now is the time to seize the opportunity and find yourself a summer residential log cabin. You never really know what it’s like to live, sleep, and dine in a cabin until you’ve experienced it first hand, and once you enjoy a few nights away from it all, you’ll have a tough time going back to reality.