the mesh network | northern california real estate

Is it a CRAZY time to buy a home?

I know, bad news is everywhere.  Fear is paralyzing the credit markets which could translate into the biggest slowdown of our generation.  Ok, I get it.  So why are Sabrina and I doing a mad scramble to find a way to buy a new home at such a crazy time?!

This is how it happened: We were previewing homes in Palo Alto for clients and walked into an Eichler home -- after about 5 minutes Sabrina looks at me and says “I want to buy this house!”  We’re not even in the market to buy a new home but when an opportunity jumps up, sometimes you need to do everything you can to take advantage.

The home is listed at $1.4M -- a huge step up from where we are today.  It’s in livable condition and being sold by the original owner who bought it from Eichler 50 years ago.  We’re attracted to the fact that it has a big lot in Palo Alto and everything is outdated that gives us a chance to start our remodeling projects all over again!

Now for the challenge:  Being self-employed, as we are in the real estate business, it is very difficult to get a home loan nowadays because lending standards have tightened up and we do not have verifiable W2-type income.  So being creative, we asked if it was possible for the seller to offer financing -- and they said yes!  They will carry a note for $1M if we give them a $400k down payment -- not a bad deal for us since we are challenged to find a loan from a bank.

Now how do we get the $400k down payment -- we need to sell our house.  No problem!  We have a nice house in a great neighborhood and we are Realtors.  Unfortunately the Palo Alto seller won’t accept a “contingent” offer from us, meaning that we actually have to sell our home first and have the $400k cash to give them before they will accept our offer and take their home off the market.  This is a HUGE risk for us because what happen if we sold ours and they sold theirs to someone else, and now we don't have a place to live.  That basically makes this deal very hard for us to accept. 

Why are we going through all this if the market is really bad?  Because we truly believe now is a great time to buy a home, especially when Palo Alto market has hit a speed bump in just the last few weeks.  Typically, Palo Alto homes are sold within the first 3 weeks if the agent and seller have priced correctly and presented the home in its best condition.  The recent financial market turmoil and stock market uncertainty has made buyers in Palo Alto hit the brakes and reconsider their purchasing decision.

There may never be a better time to “move up” then right now.  Just look at the price trend chart extracted from MLS sales data (see photo above, click to enlarge).  It seems that Palo Alto homes are on sale at a 10% discount over last year’s price!  Will it continue down?  Will some good news in the economy or change of administration kick undecided buyers off the fence?  Who knows?!  There may be a majority of people stepping away from the table during these times of uncertainty, but for us, we would rather be looking back in 5 years saying “I’m so glad we did…” instead of saying “I wish we would have…”.
 
Like Warren Buffet says, "Be fearful when others are greedy, and be greedy when others are fearful."

-mark

October Wine Friday: The Scariest and Funniest Wine LABEL

This month we tasted wines based purely on the wine label and wow how much fun was that?!  The Zombie Zin was definitely the prize winner from the label perspective -- look at that label.  But I thought the best tasting wine went to the Director’s Cut Pinot Noir, and the label was interesting as well.  We hope everyone enjoyed the seasonal food theme too.  See you again next month!

Here is the food and wine lineup:Download october_wine_friday_menu.pdf

-Mint, Apple, Pomegranate, Persimmons Salad (From Min Style)
-Gruyere Cheese Puffs (From Food Network)
-Butternut Squash Ravioli in Brown Butter Sage Sauce (From The Passionate Palate)
-Gnocchi in a Pumpkin Sauce (From Food Network)
-Grilled Steak and Mango with Lime Dressing, Basil, Mint and Cilantro (From Becky and the Beanstock)
-Cornmeal Blini with Ricotta and Lemon Honey (From Food Network)

2006 Zombie Zin (The winner of the scariest wine label, from Greg and Louisa)
2006 Gnarly Head Zin
2006 Fish Eye Cabernet Sauvignon
2006 Jester Shiraz
2005 Cirque de Vin -- Cabernet Blend
2006 Coppola Director’s Cut Pinot Noir

East Sunnyvale (Lakewood Village) -- Land of Opportunity

We have proof.  The much-anticipated closing for 1261 Torrance Ave, Sunnyvale in finally in -- sold at $541,500.  This is a completely remodeled (and expanded) home on the East side of Freeway 101 in Sunnyvale, known as “Lakewood Village” that sold for $775k exactly 2 years ago.
I have been tracking this area of Sunnyvale for the past 6 months or more.  It has been severely hit by the subprime credit fallout and there are short sales on every street.  As the banks take too long to respond to offers or buyers walk away preferring other deals that can close more easily, many of these homes are becoming bank-owned foreclosures.  I found this particular home many months ago and became very interested in watching the results.  It was listed at $505,000 and had multiple offers awaiting a response from the bank.

Clearly, the designer/contractor has done a wonderful job on this home before it was sold 2 years ago for $775,000.  Granite counters, Ikea kitchen with stainless appliances, new flooring, designer colors inside and out with great landscaping as the finishing touches.

My point here is that this home proves to me that we continue to see opportunities for contractors and flippers in the Bay Area even in this market!  There are similar fixer-upper homes ALL OVER this area of Sunnyvale that you can negotiate for around the low $400k mark.  I have previewed many of them and agents are calling me BEGGING for a client to write any reasonable offer.

These will be money-maker opportunities.  The Torrance Ave sale shows us that a buyer is willing to pay $541,500 for a well-done home in this neighborhood.  Take 1250 Tucson Ave for example.  Just listed for $430,000 and it is bank-owned so you could close quickly.  Maybe you even negotiate a better deal on the purchase, who knows.  Let’s say you put in $50k for renovations (roughly speaking -- $5k per bathroom, $20k for the kitchen, $5k for flooring, $5k for paint, $10k for landscape and hardscape).  You are in for $480k; make it a 60 day flip or less and resell for $540k means you have gross profit of $60k for 2 months work!

These are just raw numbers but I’m convinced that this area of Sunnyvale is a great opportunity for first-time buyers willing to put in some DIY sweat-equity OR for contractors who have a crew ready to work on flipping distressed homes.

-mark