Link between house prices and consumer spending

Many people (although hopefully not too many readers of these blog posts) can be forgiven for wishing journalists and commentators would simply shut up for a while about the trends in the housing and mortgage markets and concentrate on more important things like reducing unemployment and improving healthcare.

However, and whether we like it or not, the focus on the housing market needs to continue because it has direct links to many other industries and house prices directly affect consumer spending. Simply put, if people know that their house is increasing in value, they will tend to spend more money (and vice versa). In economic jargon, this is referred to as the Wealth Effect and it is very influential. The economic policy models of the Fed Reserve assume that a person whose house appreciates by $100,000 will increase his spending by the same proportion as a person who receives an extra $100,000 in stocks, shares and regular income.

Declining house prices also limit a banks willingness to lend money – not just for houses but also for cars, business start ups, holidays and general investment. Far too many people who should have known better lost sight of these forces.

Torcana Ltd is a property investment consultancy dealing with investments in foreclosed property, distressed property, and discounted property in USA, Spain, UK, and Panama. For more information please visit: – http://www.torcana.com

Happy Birthday Credit Crunch!

Next month will mark the 2nd anniversary of the credit crunch believe or not, and as Fiona Redden of the Irish Times has pointed out, this is as good a time as any to reflect on what lessons can be (re)learned. Among other things, she recommends a diverse portfolio, that we know when to cut our losses and take our profits, that we purchase a property based on predicted capital appreciation & rental income rather than add on incentives and that we always maintain a cash reserve.

Warren Buffet himself would be proud of such homespun wisdom Fiona.

Torcana Ltd is a property investment consultancy dealing with investments in foreclosed property, distressed property, and discounted property in USA, Spain, UK, and Panama. For more information please visit: – http://www.torcana.com

How house prices affect our everyday lives

After a (very) long winter, spring seems to have brought a touch of sunshine to American house prices. The latest Case Shiller indices were released last week and they showed that average prices continued to fall in April 2009: the ten city index was 0.7% lower the 20 city index was 0.6% lower than the previous month. What’s interesting to me is that these are the lowest falls since June 2008. The case for those declaring the worst is over continues to gain momentum.

Despite continued pessimism in some quarters of the market, the statistics point to similar turning points in the UK; with Nationwide reporting price rises of 0.9% in June and the Bank of England announcing four months in a row of rising mortgage approvals in May.

Shouldn’t we be concentrating on something else?

Many people (although hopefully not too many readers of these opinion pieces) can be forgiven for wishing journalists and commentators would simply shut up for a while about the trends in the housing and mortgage markets and concentrate on more important things like reducing unemployment and improving healthcare.

I am also particularly worried about the crazy tax burdens in Ireland – €13 billion was collected via income tax in 2008 (it will be less in 2009) but the government is about to pay €50-70 billion for the bad assets in our banking system. You know what they say – €10 billion here and €10 billion there and before you know it, we’re talking real money.

Link between house prices and consumer spending

However, and whether we like it or not, the focus on the housing market needs to continue because it has direct links to many other industries and house prices directly affect consumer spending. Simply put, if people know that their house is increasing in value, they will tend to spend more money (and vice versa). In economic jargon, this is referred to as the Wealth Effect and it is very influential. The economic policy models of the Federal Reserve assume that a person whose house appreciates by $100,000 will increase his spending by the same proportion as a person who receives an extra $100,000 in stocks, shares and regular income.

Declining house prices also limit a banks willingness to lend money – not just for houses but also for cars, business start ups, holidays and general investment.

Far too many people who should have known better lost sight of these forces.

Torcana Ltd is a property investment consultancy dealing with investments in foreclosed property, distressed property, and discounted property in USA, Spain, UK, and Panama. For more information please visit: – http://www.torcana.com

Encouraging House Price Stats

After a (very) long winter, spring seems to have brought a touch of sunshine to American house prices. The latest Case Shiller indices were released last week and they showed that average prices continued to fall in April 2009: the ten city index was 0.7% lower the 20 city index was 0.6% lower than the previous month. What’s interesting to me is that these are the lowest falls since June 2008. The case for those declaring the worst is over continues to gain momentum.

Despite continued pessimism in some quarters of the market, the statistics point to similar turning points in the UK; with Nationwide reporting price rises of 0.9% in June and the Bank of England announcing four months in a row of rising mortgage approvals in May.

Torcana Ltd is a property investment consultancy dealing with investments in foreclosed property, distressed property, and discounted property in USA, Spain, UK, and Panama. For more information please visit: – http://www.torcana.com

New ways of purchasing foreclosed properties

Most of you know that we’ve been selling foreclosed properties in Orlando since last autumn, and it is an excellent way of purchasing an undervalued buy to let asset. However it can be a frustrating experience as well, as clients are often bidding against several people for the same property, and once an offer is made, you usually have to wait 2-3 weeks to receive an answer. If the bid was unsuccessful we need to start again. Once a successful bid is accepted and processed, the management company process starts, with the lucky landlords finding new tenants within 4-6 weeks.

Torcana.com manages this whole process (and much more) from start to finish and we do our best to minimize the work a client needs to do. However, once we’d processed a lot of these units and established a very robust network of local contacts, it became evident that there was a much better way of doing this, both the agents and the buyer point of view.

As has happened in Ireland & the UK, when the credit crunch was causing misery for local Orlando developers quite a few decided to try and ride out the storm by furnishing and renting out the remaining units themselves while waiting for the market to turn. Makes sense right? But what if we could find a developer who owned and rented high quality units and was about to be foreclosed by a bank? Let’s say we find one who needs to raise $5 million in 30 days or the bank will seize his assets. Would he be willing to sell 100 of his properties to investors with tenants in place at a foreclosed price level (say $50,000) in order to avoid the excruciating foreclosure process? If you can convince him that you’ll be able to sell them, then yes, he certainly will, which is what our Tradewinds development is all about.

This ticks all the boxes in terms of location, quality, price and rental yield. It has all of the benefits of a foreclosed property (highly discounted price, v high rental yield) with none of the headaches (bidding process, red tape, finding tenants). Please contact us directly if you’d like to learn more.

Torcana Ltd is a property investment consultancy dealing with investments in foreclosed property, distressed property, and discounted property in USA, Spain, UK, and Panama. For more information please visit: – http://www.torcana.com

New Foreclosure Mortgage in Spain

The manager of one of the banks we deal with called me last week to let me know they’ve launched a new mortgage product specifically for people purchasing distressed properties.

This is an excellent product: loan to value of up to 90% available for anybody resident in an OECD country, low application fees (0.35%), low interest rates (around 3%) and loan terms up to 40 years.

It’s a big deal that a Spanish bank has launched a 90% mortgage product specifically for these properties, as most of them have their heads completely in the sand. For example, myself and my (Spanish) wife can’t even get 90% for a regular property in Madrid!

This is perfect to use with our Granada product, which will achieve net rental yields of up to 8%. If you would like full details, please visit the Torcana website.

Torcana Ltd is a property investment consultancy dealing with investments in foreclosed property, distressed property, and discounted property in USA, Spain, UK, and Panama. For more information please visit: – http://www.torcana.com

Colin Murphy

Director

www.torcana.com

New Ways of Purchasing Distressed & Discounted Properties

As many of you will be aware, investors have been purchasing foreclosed properties in places like Orlando, Florida since early 2008. They have been doing this because it is an excellent way of purchasing an undervalued buy to let asset.

However it can be a frustrating experience as well, as clients are often bidding against several people for the same property, and once an offer is made, you usually have to wait 2-3 weeks to receive an answer.

If the bid was unsuccessful we need to start again. Once a successful bid is accepted and processed, the management company process starts, with the lucky landlords finding new tenants within 4-6 weeks. If a person was unlucky enough to receive “your bid was not successful” messages three times, he could easily have wasted 3 months trying to purchase a foreclosed property with absolutely nothing to show for it!

Even if you were lucky enough to have a bid accepted and you (or your agent) managed to navigate your way though the extremely slow and bureaucratic title companies – you might not get a tenant very quickly. I know of several people who had to wait more than 3 months for this – that’s three months paying HOA and Real Estate taxes without any income to show for it.

After I’d spent many months purchasing and helping people purchase property this way, it became evident that there was a much better way of doing this, both an agents and a buyers point of view.

As has happened in Ireland & the UK, when the credit crunch was causing misery for local Orlando developers quite a few decided to try and ride out the storm by furnishing and renting out the remaining units themselves while waiting for the market to turn. Makes sense right?

But what if you can find a developer who owned and rented high quality units and was about to be foreclosed by a bank? Let’s say you find one who needs to raise $5 million in 30 days or the bank will seize his assets. Would he be willing to sell 100 of his properties to investors with tenants in place at a foreclosed price level (say $50,000) in order to avoid the excruciating foreclosure process? The short answer is yes, he certainly will!

This method has all of the benefits of a foreclosed property (highly discounted price, v high rental yield) with none of the headaches (bidding process, red tape, finding tenants). If you can tailor your search for these types of tenanted units, then everything becomes a whole lot quicker – and much more profitable.

Torcana Ltd is a property investment consultancy dealing with investments in foreclosed property, distressed property, and discounted property in USA, Spain, UK, and Panama. For more information please visit: – http://www.torcana.com