Berkeley Investment Property=A Hornet's Nest

Why would anyone want to own investment property in a city that has stringent rent control?

Ask the hundreds of Berkeley landlords. Many have owned their property for many years and even with rent control, they can make a decent cash flow. Some have bought recently and are struggling with the sometimes subtleties of tenant/owner relationships.

A new owner of investment property in Berkeley is treated like a substitute teacher in a classroom of wild children. The established relationship with the previous owner took the tenant as far as they could go and now, fresh opportunity. The tenant in Berkeley enjoys a protected status even when they have the means to buy a home or buy their own investment property. Measure Y protects tenants even further: Seniors, the disabled and low income tenants have what is essentially a "Life Estate" under rent control. Most newer owners cannot afford to upgrade their properties with the "wet blanket" of rent control.

In a city where 33 thousand students vote to make the rules, where the rent arbitration board consists of only rent control enthusiasts, and where everyone else is too ashamed to publicly decry the unhealthy and unfair aspects of the present rent control ordinance, why would someone want to submit to such frustration? Hope springs eternal. Many investors believe that the demographics of Berkeley will eventually change and we will see a change in housing policy that allows supply and demand to determine price (the supply is higher than the demand at the present time, but the allowable rent increase is close to 0%/year). Some even think that the composition of the rent board will change with the changing demographic or that the population will vote to alter or dismantle the present rent control system - that in the privacy of the polling booth, people will vote their true beliefs rather than their guilt driven beliefs. It has been nearly 27 years since Berkeley enacted rent control and no one knows to this day how many available units exist in Berkeley. The city never did a real survey - so we will never know how rent control has affected the number of available housing units for rent. My hunch is that that number is measurably lower than in 1979. Hope springs eternal.

Opportunity Time

Expect mortgage rates to be up to 7% for a conforming mortgage by April. How will that affect the market?

There is a "sweet spot" to smart buying in an adjusting market. This is how it looks.

The intersection of lots of inventory (available houses) and the cost of money rising (mortgage rates). Are we there now? If not, when?

Sidebar: Always buy when the weather is terrible for two reasons:
1. You see the property at its worst - light, water tightness and drainage, mold or musty smells.
2. Fewer buyers are buying - they have hunkered down for the holidays or just for winter. Fewer people want to even get out of their warm and dry cars to look at property in bad weather. Sellers who have to sell (transfers, bought another, can't afford the mortgage because of adjustable rates) sell in any weather.

Always buy when mortgage rates are in the middle of their rise in an adjusting market - if possible. When is that? Now! The Feds have indicated that their activities will pause if not cease at the Spring levels - but now, money is much cheaper, loans are abundant.
In 2005, the Feds raised the overnight rate 8 times, but only the last 4 had an impact on the long term borrowing rates.

Go out on a rainy, dark and cold day to look at Open Houses. Work with eager and creative agents. Sellers and their agents will be glad to see you and your offer - Finally!

What is happening in the real estate market - really...

I just spoke to a real estate appraiser who called me to inquire about a sale of a duplex in Berkeley that I did in April of 2005. I said that it was back in the days of everything selling for more than asking, multiple offers and outrageous offerings for everything - yes, everything.

Now... here is the issue. No one knows if what is happening now is a seasonal slowdown, a short term blip or the beginning of the future of real estate in the SF Bay Area for the next two to five years. So...

I believe that we make our best decisions with lots of information and some opinion. I intend to offer anyone who wants to read this blog, lots of information that is credible. By credible, I mean information that you can surmise a good course of action from. Everything from buying to selling, to investing, to growing a real estate company. stay tuned...