Four years after home prices hit their peaks, CNNMoney looks at how 330 metro areas have fared.

Source: IHS Global Insight/PNC Financial Service

As of October 27, 2008 year to date, the Dow Jones Industrial Average has lost 37% of its value; the first 27 days in October accounted for an unprecented 20% of the Dow’s YTD losses. The NASDAQ is even worse, down 42% year to date. Investors have seen a staggering $8.3 trillion dollars evaporate in the stock market so far this year.

As if things weren’t bad enough, Hawaii investors trying to escape the bloodbath in the stock market by moving their investments into real estate are finding Hawaii’s real estate market a tough alternative. Real property values on Oahu so far have bucked the national trend of downward spiraling prices. This means high acquisition prices and low, or even negative, cash flows for investors. “On Oahu, investors are happy to just break even and avoid a negative monthly cash flow,” says Carlton Choy, a Broker In Charge at Premier Realty 2000.

Fortunately, it’s not all gloom and doom. Hawaii investors are turning to a safe and stable investment vehicle and are taking advantage of the downturn in California’s real estate market. Hawaii investors are finding big opportunities in Orange County, California.

There are hundreds of 2 & 3 bedroom homes in Orange County that are owned by banks that had to foreclose on the delinquent owners. These homes that sold for $300,000-$400,000 a few years ago, can be purchased today for as little as $100,000. That’s a 60%+ discount. Investors can buy these homes at 30 cents on the dollar. These homes generate anywhere from $1700-$2400 a month in rent. After all expenses, investors are experiencing positive cash flows of about $400/month per unit equating to a double digit return on investment. While double digit ROI’s and hefty positive cash flows are great, the real investment value is in its future value. It’s a reasonable assumption that these homes will return to the same value it sold for a few years ago. Where else can you invest your money today and reasonably assume that it will triple in value in the next ten years?

In contrast, owning or buying investment real estate on Oahu for the same amount of money will get you a small studio and a negative cash flow. On top of that, since Oahu has held its value, you’re paying “retail” for that property and future value is much more speculative. “I meet with investors several times a week looking to invest in Oahu real estate,” says Elliot Lau, a Broker In Charge at Premier Realty 2000. “When I show them the opportunity in OC, their initial response is that it’s too good to be true. That’s how great the opportunity is right now, and we have real numbers to support it.”

How can you tell that OC real estate is such a great opportunity right now? Follow the pros. Professional real estate investors lead the markets while amateur investors chase the markets. Right now, the pros are buying in OC. A leading indicator of real estate markets is the months of remaining inventory (MRI). It is used to gauge the type of market at any given time. 12 months ago, OC’s MRI was at 17 months; an extrememly strong buyer’s market. In less than 12 months, OC’s MRI is down to 7 months, considered to be a neutral market. Take one guess as to who’s buying all of that real estate? It is no longer a buyer’s market in Orange County. Premier Realty 2000, which has offices in Honolulu and Orange County, has helped many investors reposition their real estate holdings from Oahu to Orange County and triple their return on investment and cash flows. Investors like Paul Lam and Jared Nakamoto of Honolulu see this as a “no-brainer” and are buying as much as they can before this window of opportunity closes. “We expect that there’s about a year remaining for investors to invest in Orange County with such favorable conditions.” says Brian Laughlin, President and Principle Broker of Premier Realty 2000, heading the Orange County office. “The smart investors are seeing that Oahu real estate is not the place to be investing and that Orange County currently offers investors a rare combination of low acquisitition costs, great cash flows and tremendous appreciation potential in a safe and stable investment vehicle.”

Depending on your area, many times it is not that hard to find a great real estate deal. In some areas you’ll see 20 to 50 percent as distressed sales. Even with this type of market, there tends to be an elite class of properties that stand out among the distress category.

It could be because of location, condition, price or terms that cause these types of properties to be stand outs and it is in this category that I’ll share some secrets as to how to get them.

PART I

Short Sales

Based on price these seem to be one of the most attractive categories to pick from. Not only that, but there are so many of them. The problem with short sales is that it comes with a HUGE contingency. It is subject to the lender’s approval.

That means the buyer and seller can agree on the price and terms, but it means nothing until the bank approves it. Many banks have a loss mitigation department and their objectives can be quite different from the seller and buyer.

Tip 1

One key is to work with approved short sales . That most likely means an offer was submitted and the bank had approved that offer and for some reason it fell out of escrow. The buyer and seller already know that the bank will accept the price they did previously. This helps a lot when looking to purchase short sales.

Tip 2

It’s a numbers game. Most experienced short sale agents do not think much of the first offer(s). The Listing agent knows it just starts a process with the bank and that statistically the buyer will end up finding another property instead of waiting 4 to 12 weeks for a response. In this case, a second key is to recognize that purchasing short sales is a numbers game and it usually takes about 10 offers to equate to 1 close. Play the game correctly and you’ll have a valid chance at owing some really good properties.

Tip 3

Think in nets. Usually, a good story and a strong qualified buyer with a large down matters to sellers and is essential to getting your offer accepted. With banks being so overwhelmed with loan defaults, the standard mode of operation is the path of least resistance. The primary indicator that they use is what they will net from this sale. So when making offers, look to see how you can show that the bank will net the most from working with you.

Tip 4

You MUST have an agent team that is aggressive in follow up. Remember, your offer may be used just so that the Listing agent can start talking to the right bank department or person and you can easily be ‘forgotten.’ I can think of over a dozen stories like these from other agents in the past 2 weeks! Follow up is a must and you need to have someone who has the resources to do it.

Tip 5

Keep your deposit check. There is no reason to open escrow when such a major contingency exists. You can not tie up the property by being in escrow. Let’s say you open escrow and wait 8 weeks. In that time 4 other offers come in and are presented to the bank. The bank can accept another offer even if you are in escrow.

Tip 6

Work with an experienced team. Don’t get sold on what an agent can do for you, have them prove it to you. That’s right – if you miss this step you can waste a lot of time. Many agents do not have successful experience in this area, transact too infrequently or do not have a team.

Experience

If they are learning on you then you could be paying too much or missing out on the best deals. Ideally, you want someone that has been through a market cycle before, is working fulltime and has no other occupation. They should have specialization in what you are looking for. An easy way to tell is to look at their business card. If they are not even trying to brand themselves as an expert in the category you want, then why take that chance working with them.

Transactions

They should have no less than 10 qualified active buyer clients. If you are the only one or 1 of 3 then you should run. If you needed to do brain surgery, would you want a doctor that does 1 every 6 months or see the doctor that has 1 to 2 surgeries every day. There is safety in crowds and working with an agent that doesn’t have a strong active client following in your category is a huge indication to ask a lot more questions.

Team

If they do not have a team (a real team) that can service you then there is really no way you can find the best deals. The reason – it takes a lot of hard work. This is not rocket science type of hard, more like ditch digging hard. If you want a Grand Canyon real estate steal then you need to have an agent team that can throw their resources behind you.

Caution, don’t get tricked by a franchise name thinking familiar is better, because the reality is that all of their agents are independent contractors and the ‘team’ may be nothing more than promotion and not the ditch digging hard work needed to win the best real estate deals.

The best way to find out is to ask who is on the team, what do they do and how will they service you.

In the next series we’ll talk about how to get the best REOs on the market.

What Nouveau Riche University Is

Nouveau Riche IS an MLM company. Their most loyal and passionate “alumni” will argue otherwise until you’re blue in the face. Just remember, if it walks like a duck, quacks like a duck, and looks like a duck, it’s a duck. So what if it is? The concept of MLM is actually a good business model. It’s just that MLM has gotten a bad rap. For example, unethical people misleading others that “it’s not MLM.” For those living in denial, let me offer some advice. First, if you are so convinced that you’re onto something real, be proud of it. Most of the MLM stigma is because you’re afraid to admit it and “trick” prospects into coming to a recruiting meeting. Second, tell the truth. You created the stigma MLM as earned, you get rid of it.

How to spot an MLM? Look for the signs, catch-terms, and typical MLM phrases. Here are some Nouveau Riche terminology and its translation into MLM:

Independent Student Advisor (ISA) = Up-line, Sponsor, Mentor. This is the person who brought you in and gets a portion of your money you paid to get in. In this case your up-line gets about half of the $16,000 you pay to get in.

$16,000 Regent Tuition/Education/Courses = Product. If you don’t provide something in return for money, the government considers it an illegal pyramid. As long as you receive something “of comparable value” for the amount of money you paid, you’re not a pyramid. I suppose if it’s spun right, it’s not totally beyond the realm of possibility that you get $16,000 worth of education. Just understand that you can buy the same information at Border’s Books for under $500.

Learning Seminar = National Conference. Every MLM has them. They are very motivational, uplifting, attitude strengthening meetings. They are needed to keep you “in the game.” They are the high school equivalent to a pep rally. Nouveau Riche even throws in a few investment seminars. They have a few motivational speakers and self-help workshops that most can benefit from. You also get a heavy dose of the “success stories”, an endless parade across the stage of “ordinary people like yourself who’ve made it.” If you’re looking for a self’-help seminar, you might get your money’s worth. If it’s real estate education you’re going for, stay home, pick up a copy of Rich Dad, Poor Dad and put the rest of the money you would have spent into a high interest CD. By the end of the year, you could have enough for a down payment on your first property.

Learning Event = Recruiting Meeting. Your first introduction will most likely be through an invitation to one of these by someone you know who probably just joined and wants to share this exciting new opportunity with you. The meeting starts with some exciting ways to make lots of money fast in real estate. They may show “hypothetical” examples of the riches that lay ahead for those who see the “opportunity” and are willing to make the “investment” into their own education. The “education” you pay for will give you ALL the tools you’ll need to be a successful real estate investor. Next up will be the testimonials of people who have “had their lives changed” from NRU. With the excitement level peaked, they tell you how you can start your education to riches. You can start for as little as a few hundred dollars, but the person who brought you will tell you why you want to get the Regent tuition package which is slightly higher, about $16,000.

Other Commonly Used MLM Words & Phrases: Opportunity, life changing, mentor, coaching, coachable, conference call, retirement, financial freedom, synergy, network, passion.

What Nouveau Riche University Is Not

NRU is not a scam. At least not totally. You will get an education in real estate investing. It’s just REALLY expensive and you CAN get the $16,000 Regent tuition equivalent education for much less than $1000. I give the same education for free. I say it’s not really a scam because they do tell you up front what you get, and usually most ethical ISA’s present things straight, although there is a lot of exaggeration that goes on. But then again, tell me when there isn’t some form of exaggeration when sales are involved. The problem is, most people that cry scam don’t do any research before jumping in head first. They got wrapped up in the hype and take it all at face value. There’s always some vision of “financial freedom and getting rich fast” the person has formed when deciding to “enroll.” Some time after shelling out $16k, they realize it’s not what they expected, a get rich scheme via easy street, and cry “foul.” For them, their education was a $16,000 lesson in life. Although $16k is a lot for a dose of reality, I know of “life lessons” that have cost people hundreds of thousands of dollars.

I will acknowledge that there are people who have made money in NRU. Some have made a lot of money. The success stories fall into two categories. The first category are the ones that should be commended. But these same people would have made it with or without NRU. These people have the discipline, mindset, attitude, work ethic and most important, the constant pursuit of learning and improving; qualities all successful people possess. These people applied what they learned at NRU and with HARD work, became successful. Who cares that they paid more than they had to for their education? They’re not complaining, so what do you care? The second category of people who’ve made it leave a path of destruction behind them. While it’s true they made money in NRU, their journey involved recruiting. Lots of it. After their first two Regent recruits, every Regent recruit after that puts about $8000 in their pocket. If you get someone decent at sales, put them in a room full of hype, frenzy and a road map to riches, well, it’s like shooting fish in a barrel. Each “fish” equals $8k. You do the math. It doesn’t take long before you’d have a nice war chest to start your investing. Sadly, most of those fish will soon be crying scam on some blog. They’re the path of destruction I referred to.

NRU is not a university. At least not in the context that many people enroll under. They do have fancy marketing stuff that looks official, but when you really look at it, it’s a very HIGH priced education that is nothing revolutionary or contains any top secret formulas. But if you think that paying $16k makes it valuable and empowers you, who am I to stop you? Just be smart and do your homework before forking out $16k.

NRU isn’t as easy as it’s made out to be. In fact, it just doesn’t work in most cities. The theories taught are real. But theory and real world can be very far apart. It’s possible that if you applied some of the strategies taught enough times (100 or more), you might eventually get a hit. But the reality is most people give up frustrated way before that. Also, it could literally take 100 or more tries to get that one deal. Along the way, be prepared for LOTS of rejection; some pretty personal and cruel. One of the education courses should be on developing thick skin and handling rejection. That would be the most valuable course. If you think the rejection thing is minor and you’re not worried about it, be prepared for an eye opening experience. You have no idea what you’re getting into.

NRU’s examples of their “favorite deals” on Concierge are not accurate. Question the numbers. That’s all I’m going to say about that.

Now that you have a little more insight, here’s your homework. Read the comments on this post and see if you can tell the level of and length of time that person has been in NRU.

Here’s the scale:

1) Just joined – 1 year: Passionate defense of NRU; calling all naysayers ignorant, uninformed or close-minded. Anything negative about NRU takes a little toll on their faith and creates a little bit of doubt.

2) 1 year – 2 years: Defense not so passionate but still believe in NRU saying their experience was worth it.

3) 2 years – longer: Support of blogs calling NRU a scam.

Elliot Lau

“Like any real estate advice, this seems very positive. I agree with everything that was said, however, I think you have missed an important component. Location!
Depending on location you could purchase a piece of property that may never increase in value during your lifetime. Look at areas where severe economic hardship has set in (Detroit & Chester). I would like to see data that supports these timing statements. Graphs are always nice too.”

The response argued that location should have been mentioned as another important component. While I’d agree that location plays a factor in real estate, time is much more important. There are lots of components to consider when analyzing a real estate investment. If I included every one of those components here, it would be, at least confusing, at worst discouraging. Location has been widely accepted as the most important factor to consider. With that being said, let me dispell another myth:

Myth: There are only 3 things that affect the value of real estate: Location, Location, Location.

The response continued on to say “Depending on location you could purchase a piece of property that may never increase in value during your lifetime.” citing Detroit, MI as an example. While widely believed, that remark is incorrect. The fact is time, not location, would be the determining factor. Of more than 275 major metropolitan cities in the U.S., every one of them, including Detroit, has gained in value since 1980. Sorry, I’m still learning how to insert graphs here. Instead, go to OFHEO,the federal office that keeps these stats. Did you realize that since 1980, Michigan real estate prices have increased by almost 215%. Detroit over the last 5 years has increased 4.4%. Modest but at least an increase in value. Last year, the real estate values in Detroit decreased by 3.3%. These stats support the principle of time being the determining factor.

Time vs. Location

I was born and raised in Hawaii. I formed a belief from an early age that the Leeward coast on Oahu was a depressed and impoverished area that investors should stay away from. That belief is shared by most locals. In the mid 1990′s, I met a young investor who came to Hawaii with less than $100,000 in his pocket to buy real estate. He didn’t have any preconceived notions about the Leeward coast. Instead, he did his homework. He instilled real estate investment principles and, despite location, invested heavily into that area. Ten years later, he has amassed a real estate portfolio worth over $15 million. Time, not location, determined that. The area’s severe economic hardships have shown little or no improvement since the mid 90′s. Despite those economic conditions there, anyone who invested in that area 10 years ago has expereinced some of the best appreciation on the entire island. Imagine if he had not invested in the area for reasons of location and economic hardship. Real estate will always appreciate in value over time.

Real Estate Deals in Detroit

And just to show you that Detroit isn’t as bad as you think, check out this link: Detroit Deals. Professional real estate investors don’t follow the crowds or buy into prejudices. They use sound investment fundamentals to make their decisions.

I thank Turtle for his response and encourage more to do the same.

Happy house hunting!

Elliot Lau

In the first lesson of this series, you learned that it really isn’t possible for anyone to accurately time any real estate market, including the most experienced professional real estate investor. If you missed the first lesson, you will want to go back to it to get up to speed. As with every lesson, part 1 laid out important fundamentals you need. Each subsequent lesson will build on the prior one. By the end of the series, you will have a complete understanding of what it takes to be a real estate investor.

Dispelling Real Estate Myths

So if one can’t time real estate markets, how is it that some build fortunes, while others don’t make, or worse, lose money in real estate? What are the secrets of the real estate pros? The main difference between these two groups of people is this. Professional real estate investors do their homework. They research, learn, and listen. Researching different markets and trends, learn investment fundamentals and strategies, secure the best financing and carefully choose a Realtor that is an expert in both the market and in real estate investing. Finding that expert Realtor is probably the most important research you can do. Why? Because that Realtor has the best information and pulse on that particular market you are in. A critical mistake amatuer and first time investors make is overlooking the role and importance of the Realtor. This same group puts more thought into deciding on what’s for dinner than how to choose a Realtor.

Myth #1 - All Realtors are created equal.

I’m constantly amazed at how many people believe that. Unfortunately, I’m not surprised. Think about it, what other “profession” has practitioners that do it part time while spending full time at their “real” job? There are few barriers to get into the business. You can complete required classroom instruction in as little as a week, take a state exam the next day and be given a real estate license in the same month that you started the whole process. Heck, my cousin is a waiter at night and sells real estate part time during the day. All of those facts are 100% true. That brings me to the next myth.

Myth #2 – There is little difference between one Realtor and another.

The biggest mistake you can make when buying real estate is to believe that. I have been a Realtor for 20 years and recognized each year as a multi-million dollar top producer. I’ve done it full time and have never had any other job to distract me. During the course of my career, I’ve spent over one thousand hours in non-mandatory education, seminars, workshops, etc. to become an expert in my profession. On top of those thousand hours of formal education, I spend any where from 20 to 30 hours every week studying, researching and networking to make sure I’m always at the cutting edge of my profession. I’m not saying all of this to brag or attempt to get your business. Chances are I will never have an opportunity to meet you let alone work with you. I’m saying this to dispel the myth that there is little difference between two Realtors. Yes, there are people who have a real estate license and practice it “in their spare time.” That’s what makes choosing a Realtor the most important research you will do as you start out. Who would you rather have representing you in probably the single largest purchase you will ever make in your life? A person that sells real estate as a hobby or someone who has spent countless hours to become an expert and practices real estate like a professional?

Myth #3 – All Realtors have access to the same information.

That myth isn’t totally false. While it is true that all Realtors have access to the same MLS information, knowing how to search and find the good deals is what sets them apart. Unlike the yellow pages, the MLS doesn’t have a category named “Good Deals”. If your Realtor doesn’t know how or what to look for, they may not find it. And having access to the same information is not the same as knowing what do to with that infomation. Most Realtors don’t even have the same understanding and knowledge that you will have just from reading this series.

So what can be learned from this lesson? Adopt the fundamentals of the real estate pros. Do your homework. Don’t take shortcuts and never underestimate the importance of carefully choosing your Realtor.

Next up – Seller’s Markets, Buyer’s Markets, Neutral Markets…and The Pros and Cons of Each.

Until then, happy house hunting.

Elliot Lau

There are 33 American billionaires that made their fortune from real estate. All of them collectively agree that nobody can precisely time any real estate market, not even them. So if these 33 people (whose combined net worth made from real estate totals over $80 billion dollars) admit that they can’t time the market, how can you? But before you give up on your dreams of becoming a real estate tycoon, there are valuable principles and practices used by each of these 33 real estate billionaires and most professional investors. Their secrets, mostly unknown to amateur investors, can be learned. They will all be revealed in this first and following educaltional series. This series will teach you the secrets, and mistakes, of the real estate billionaires to help increase your chances of not having to rely on social security for your retirement.

The Secret of Timing Real Estate Markets

Adopt the same techniques of those that have built fortunes in real estate. For starters, they follow this creed: First, Buy low and sell high and second, There’s never a bad time to buy, there’s only bad times to sell. If you incorporate this creed, you’ll begin to understand what all successful real estate investors have learned. It’s okay to buy high, as long as you sell higher. In fact, looking back at any time in history, the price of real estate at that given point in time was “high” at that time. I remember when my parents bought their first home in 1960. It was $50,000. It was, at that time, an obscene amount of money to spend on a house. That home today is worth over $1.5 million dollars. My point is that at the time my parents bought that home, the price of real estate was high. Did it matter that they paid a “high” price for that home? In hind sight, the answer is easy. In fact, it would have been a mistake to not have bought that home. Of course hind sight is always 20/20, but one fact remains. Real estate will ALWAYS appreciate in value over time. Yes, there will be peaks and valleys, but over time, it will always appreciate in value.

All successful real estate investors know that real estate is a long term investment. Sure, you can make money quickly in real estate. But the quick path is also filled with high risk, sleepless nights and will need a little luck. These types of investors are called flippers. They know that the higher the risk, the higher the reward. Investors looking to make the quick dollar better have deep pockets and an iron clad stomach. Flipping real estate is not for the faint of heart. One wrong decision can cost you everything.

So what’s the secret?

So what is “The Secret” to timing real estate markets? The secret is you don’t have to time markets to build wealth in real estate. All you really need is time. If you can adopt the discipline of patience and combine it with time, you have moved a huge step closer to financial independence. It is that simple. Mind you, I didn’t say easy. There’s a distinct difference between simple and easy. The next in this series will get into the nitty gritty and teach you to how to become a professional real estate investor.

Until then, happy home hunting!

Elliot Lau