Monday Morning Quarterback

(Monday, June 3, 2024)

I can’t help but laugh when I see videos and memes about “getting rich quick with real estate.” Whether it’s on Instagram, TikTok or X, it’s a common topic: How homeowners can supposedly make easy money by renting out an accessory dwelling unit, one half of a duplex, a room or even a garage. I’ve even heard rentals described as a “passive” investment — meaning there’s not much work involved.?Of course, this is 100% wrong.?Let’s get one thing straight: managing rental properties requires work, whether you own just one or two properties or hundreds. Landscaping the grounds and maintaining buildings are just a few components of the job. The biggest challenge, though, is compliance with ever-changing rules — and in California, we have many changing rules! I have some news for anyone who plans to rent out a house in California: If you are not actively engaged and following recent legislation, you are probably breaking the law.?That’s because the laws are changing rapidly. As one example, if you have a rental application form you used last year, it might be outdated by now due to recent laws at the state and local level.?In recent years, because of an inadequate supply of homes, the rental market has become more competitive (a significant challenge for Californians). As living costs soar, legislative bodies are stepping forward with laws aimed at regulating the rental process, preventing tenant displacement, and ensuring healthier living conditions. Landlords are working hard to adapt and comply, but especially for smaller property owners, it’s not an easy task.?Many cities have recently updated their Tenant Protection Ordinances to align with a new California State Law, Senate Bill 657. This law, which took effect April 1, aims to eliminate supposed “loopholes” that previously allowed for tenant evictions for major renovations or for a family member to move into the property.?Landlords are now tasked with providing detailed notices that include specific information about the remodeling work, permits obtained, and the tenant’s right to reoccupy the unit. These changes demand a greater level of transparency and accountability from landlords — and a whole set of new forms and checklists.?The introduction of a California state law limiting security deposits to one month’s rent, effective July 1, is another change.?As these laws and ordinances come into effect, landlords must stay focused on continuing to provide safe, affordable, and healthy housing options for our tenants. And that takes work.?In other real estate investor news, let’s get under the hood…

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Increased Slum Housing Enforcement. The Los Angeles County Board of Supervisors has unanimously voted to increase apartment inspections and withhold rent payments from negligent landlords. The vote comes years after initial plans to overhaul enforcement of healthy housing standards.?The 5-0 vote Tuesday sets up a “Rental Housing Habitability Program”?to inspect all apartments in unincorporated parts of L.A. County at least once every four years, a significant change from previous standards. Landlords who repeatedly fail to fix code violations could have their properties placed into a Rent Escrow Account Program until they make repairs. About 1 million L.A. County residents live in unincorporated areas, including East L.A., Westmont and Altadena. Those areas include an estimated 119,000 units of rental housing. Under current rules, those apartments are not all routinely inspected. L.A.’s Department of Public Health responds to complaints, but in some building inspectors only enter 10% of units. The programs approved Tuesday are largely modeled on how the city of L.A. handles inspections and enforcement. Landlords will have to pay an annual fee of $86 per unit to fund the inspection program, half of which can be passed on directly to tenants. Renters lined up to give public comment during Tuesday’s Board of Supervisors meeting, describing situations where landlords have ignored long-standing issues such as pest and rodent infestations, persistent mold, lack of hot water and malfunctioning electricity. Tenant advocates say the new program has a key enforcement tool: financial penalties. Short of prosecution for substandard conditions, which is rare, those pushing for change say only a program that withholds landlords’ rental income will motivate repairs. Landlord advocates hoped to see county leaders carve out a separate, less frequent inspection program for landlords found to be adhering to habitability laws.

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Housing Supply Hits Highest Level Since October 2021. U.S. home sales fell in April, as home buyers struggled with an expensive housing market. But the industry is optimistic about the pace of sales moving ahead, as inventory increased to the highest level since October 2021. Sales of previously owned homes fell by 1.9% to an annualized rate of 4.14 million in April, the National Association of Realtors reports. (That’s the number of homes that would be sold over an entire year if sales took place at the same rate every month as in April. The numbers are seasonally adjusted.) Compared to April 2023, home sales are down 1.9%. The median price for an existing U.S. home in April rose 5.7% to $407,600, as compared with the year before. That’s the highest price recorded for the month of April. The jump in home prices was the biggest since October 2022. To be sure, prices are still down from a peak in June 2022, when the median price of a resale home hit $413,800. Around 27% of properties were sold above list price, the NAR says. The NAR said that sales of homes priced $1 million or more in particular posted the biggest increase among all price categories, surging 40% from a year ago.?The total number of homes listed in April rose 16.3% from last year, to 1.21 million units. Inventory of unsold homes was also up 9% from a month ago. Homes were listed on the market for 26 days on average, down from 33 days in the previous month. Sales of existing homes fell across the nation. The biggest declines were reported in the Northeast, where sales fell 4% in April. All-cash buyers made up 28% of sales. The share of individual investors or second-home buyers was 16%.?About 33% of homes were sold to first-time home buyers, the highest share since January 2021. The housing market is catching glimpses of a more upbeat future, as mortgage rates eventually fall?and housing supply increases. While sales were down in April, the uptick in inventory will likely be gobbled up by significant pent-up demand from home buyers. Lower rates will also make it more affordable to take on a mortgage, and also contribute to the easing of the so-called lock-in effect.?

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Zombie Foreclosures Shrink to Even Smaller Portion of U.S. Housing Stock. ATTOM database released its second-quarter 2024 “Vacant Property and Zombie Foreclosure” Report showing that 1.3 million residential properties in the United States sit vacant. That figure represents about 1.3 percent, or one in 79 homes, across the nation (the same as in the first quarter of this year). The report also reveals that 237,208 residential properties in the U.S. are in the process of foreclosure in the second quarter of this year, down 2.3 percent from the first quarter of 2024 and down 23.9 percent from the second quarter of 2023. Foreclosure activity has declined this year following a surge in cases that hit after a nationwide moratorium on lenders pursuing delinquent homeowners, imposed during the Coronavirus pandemic, was lifted in the middle of 2021. Among those pre-foreclosure properties are about 6,945 sitting vacant as “zombie foreclosures” (pre-foreclosure properties abandoned by owners) in the second quarter of 2024. That figure is also down from the prior quarter, by 5.4 percent, and down 20.6 percent from a year ago. The latest count of zombie homes continues a long-term pattern of those properties representing only a tiny portion of the nation’s total housing stock – currently at just one of every 14,724 homes around the U.S. The ratio is down from 13,905 in the prior quarter and from one in 11,577 in the second quarter of last year, to the lowest level since early 2021. The portion of pre-foreclosure properties that have been abandoned into zombie status, meanwhile, also went down slightly, from 3 percent in the first quarter of 2024 to 2.9 percent in the current quarter. As those numbers keep dwindling, the biggest decreases from the first quarter to the second quarter of 2024 in states with at least 50 zombie homes are in Ohio (zombie properties down 22 percent, from 597 to 466), Maryland (down 17 percent, from 104 to 86), South Carolina (down 14 percent, from 74 to 64), California (down 13 percent, from 310 to 269), and North Carolina (down 12 percent, from 67 to 59).

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One Of Biggest U.S. Lenders Offering 0%-Down-Payment Mortgages. Home buyers will be able to buy a home without putting any money down under a new program launched by United Wholesale Mortgage (one of the largest U.S. mortgage lenders). The Pontiac, Mich.-based company’s new program?is available to first-time home buyers and people earning at or below 80% of an area’s median income, the company said in a press release.?But here’s the catch. UWM?will give eligible buyers a second-lien loan of up to $15,000, in the form of down-payment assistance, for 3% of the home’s purchase price. The loan will not accrue interest or require a monthly payment. Buyers can also choose when and how often they want to make payments on that second loan, which must be paid in full by the end of the loan term if the first mortgage is paid off or if the borrower refinances the mortgage, UWM said. Even the federal government acknowledges the steep hurdle that down payments pose to aspiring homeowners. President Joe Biden, during his State of the Union address, called on Congress to provide up to $25,000 in down payment assistance?to first-generation home buyers. UWM’s program is similar to down-payment assistance programs at the state and local levels, so “this isn’t a new concept,” according to Wilner. But it’s important that home buyers fully understand the terms of the loan they are taking on before signing any documents, one expert said. A balloon payment refers to a bigger-than-usual one-time payment that is required by the lender at the end of the loan term, according to the Consumer Financial Protection Program. On its website, UWM states in the fine print at the bottom of the page that the second loan “has no minimum monthly payment requirements, a term of 360 months and is fully due as a balloon payment upon the occurrence of either a refinance of the [first mortgage], [or] payoff of the [first mortgage] or the final payment.” “So there are three points in time [when] this payment is due,” Lederer noted: When a person refinances, pays the mortgage off or sells the house. If a homeowner is prepared for these circumstances, there is no issue at play — but “if you don’t have a plan, it can result in foreclosure on the house,” she warned.

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Kevin Costner Took Out Mortgage On Seaside Santa Barbara Estate To Fund Epic Western Project. Kevin Costner made headlines this year for taking out a mortgage on his seaside Santa Barbara estate to fund the filming of?Horizon, the four-part epic Western he’s been developing for over 30 years. He doesn’t regret the financial move, even though he’d originally intended to build his family home on the 10-acre plot of land. “it wasn’t an easy decision, but it was the decision I needed to make,” Costner told the Associated Press at the 76th Annual Cannes Film Festival. His decision sent his accountant (and wife) into “a f****ing conniption fit.”?But Costner believes it’s important to invest in yourself and what you believe in.?“You can spend your life just trying to make your pile grow bigger and bigger — and I’ve not been really terribly great at that,” Costner admitted to Associated Press. “I’m like anyone else, I’d like it to be big,” he says. “But not at the expense of not doing what I feel like I’d love to do.” Costner further revealed he’s invested about $38 million of his own money (so far) into Horizon in a recent interview?with?GQ. You might not be Kevin Costner (with a couple of Academy Awards and millions of dollars to your name) but it’s not uncommon for folks to tap into their home equity?to pay off their debts, fund major repairs or home improvements, or make other large purchases. Of course, taking a loan against your home or whatever real estate you own can help you access cash quickly — but it also comes with plenty of risks. For one, taking out a loan against your home means increasing your overall debt burden. It also typically includes higher interest rates and additional fees compared to what you’d pay on your primary mortgage since second mortgages come with more risk. And, of course, if you default on this loan, you risk losing your property altogether — a gamble that Costner made, betting on the success of his upcoming film. But Costner says, “I don’t let the fear of that control my instincts on any level. I don’t want to live that way.”

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Shohei Ohtani Buys Mansion In La Ca?ada Flintridge. Shohei Ohtani has found a place to call home in the foothills of the Verdugo Mountains north of Los Angeles. The Dodgers' 29-year old superstar, who signed a 10-year, $700 million contract with the team after six seasons with the Angels, bought a mansion in La Canada Flintridge for $7.8 million, according to the Los Angeles Times. Ohtani bought the home about 10 miles from Dodger Stadium from radio personality and comedian Adam Carolla, the Times reports. The mansion surrounded by a wooded area is 7,327 square feet with midcentury modern features with Bluestone walls at the entry. the five-bedroom mansion has a family room with a fireplace and a primary suite with a balcony, walk-in closet and a spa bath with soaking tub. Other highlights include a home theater, gym, sauna, four-car garage, infinity-edge pool and sports court with a basketball hoop. There's also a bar and dumbwaiter. "The gourmet kitchen, boasting top-of-the-line Miele and Thermador appliances along with custom cabinetry, is a hosts dream come true," according to the listing. "With its spacious island and stylish bar, it sets the stage for culinary creativity." Ohtani's brief time with the Dodgers has been eventful. The Japanese two-way superstar was honored at Los Angeles City Hall?on Friday and presented with a city council resolution that declared May 17 as “Shohei Ohtani Day” for the duration of his Dodgers?career. A day earlier, the first Shohei Ohtani?bobblehead giveaway of the season snarled traffic outside Dodger Stadium?and created long lines of eager fans. His longtime interpreter was fired?by the team in March after prosecutors said Ippei Mizuhara stole nearly $17 million from Ohtani to pay off sports gambling debt. Mizuhara was in court?to enter a plea on bank and tax fraud charges. There was?no evidence Ohtani was involved in?or aware of Mizuhara’s gambling, and the player is?cooperating with investigators, authorities said. Meanwhile, on the field, Ohtani has gotten off to one of his best starts as a major leaguer.?

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Have You Hugged a Cow Today? While relatively rare, “cow cuddling” (or cow hugging as it’s sometimes called) may be an effective form of animal-assisted therapy, per a study out from researchers at New York University and US Military Academy at West Point. The investigation, by Katherine Compitus of NYU’s Silver School of Social Work and Sonya M. Bierbower of the Department of Chemistry and Life Science at West Point, also added a new twist: women were more receptive to bovine-assisted therapy than men. How do they know? The researchers arranged for a group of 11 volunteers to spend 45 minutes each with one of two steers with varying degrees of gregariousness; the study was conducted at?a micro-farm called Surrey Hills Sanctuary in New York State. Volunteers ranged in age from 13 to 79. After the sessions, they filled out a survey and discussed their experience. According to the researchers, the predominantly positive responses add to prior research suggesting that time with farm animals holds potential benefits for those engaged in psychotherapy and cognitive behavioral therapy for mental health conditions such as depression and anxiety. But in an unexpected outcome, the researchers found the steers showed a strong preference for interactions with women when compared to men.?And, in turn, the women reported stronger attachment behaviors toward the steers. “It is unclear without further testing,” the study continued, “whether the animals sought out the attention of women in general, or if the women were more likely to initiate the actions when compared to men participants.” I know. I know. Therapy animals typically are dogs, cats, horses or rabbits. But the range of animals can be extended to farm animals including cattle when the therapy is conducted ethically and with special care for both humans and animals. “We have discovered in the current study,” the authors concluded, “that bovine-assisted therapy may not only be an effective treatment model that benefits human participants but also appears to be enriching to the cattle participants.” So, I repeat, have you hugged a cow today?

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Vendors Expo Returns!?Our world-famous, super-duper "Vendors Expo"?returns on Thursday night,?June 13, 2024. The Vendor Expo opens starting at 6:30 pm. We'll have 30+ of the finest vendors featuring real estate products and services you will want to utilize as a successful investor. Stick around after and enjoy our guest speaker. Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, CA 90034. FREE Admission.?Metered and free street parking. Please RSVP at www.LARealEstateInvestors.com .

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Accessory Dwelling Units (“ADU”). Our June general meeting will be held on Thursday night, June13, 2024, 6:30 to 9:30 pm.?Our very special guest will be Seth Phillips, California’s leading authority on “Accessory Dwelling Units” (“ADU”) and the laws regarding 2-3-4 units on a single-family zoned lot. If you want to build more units and increase your rental income, you must attend Seth’s presentation.?Our meeting will be held at the Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles 90034 (Culver City adjacent). FREE Admission. Please RSVP at www.LARealEstateInvestors.com .??

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Foreclosure Workshop. How to find and buy foreclosure properties, including buying pre-foreclosure properties from distressed property owners, buying at the trustee’s sale, and buying REOs. Plus attendees will have the opportunity to participate and bid at a live trustee’s sale. Saturday, June 29, 2024, 9:00 am to 5:00 pm. Iman Cultural Center, 3376 Motor Avenue, Los Angeles 90034. The cost of the Forum is $149.00 per person if paid before June 22.?After June 22, the price increases to $1 million. So don’t wait to register!?(Gold Members can attend for FREE.) www.LARealEstateInvestors.com .

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Cash Flow Chronicles Podcast.?We are so very excited about our weekly podcast, "Cash Flow Chronicles" hosted by our very own Bill Gross. Bill has been a Realtor, broker and real estate investor since the Ice Age!?No one is more experienced in local Southern California real estate than Bill Gross. Each week, Bill interviews real estate professionals sharing their insights and advice. Every Tuesday at 3:00 pm, and anytime thereafter on YouTube, Facebook, and Google.

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This Week. Investors will continue to watch for Fed officials to elaborate on their plans for future monetary policy. For economic reports, the ISM national manufacturing index will come out on Wednesday and the national services sector index on Friday. The key Employment report also will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be some of the most highly anticipated economic data of the month. In addition, the next European Central Bank meeting will take place on Thursday.?

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Weekly Changes:

10-Year Treasuries:?????????? ?Falt????000 bps

Dow Jones Average:???????? ??Fell????800 points

NASDAQ:????????????????????????????Fell????200 points

Calendar:

Wednesday (6/5):????????????????ISM Services

Thursday (6/6):????????????????????ECB Meeting

Friday (6/7):?????????????????????????Employment

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For further information, comments, and questions:

Lloyd Segal

President

Los Angeles County Real Estate Investors Association, LLC

www.LARealEstateInvestors.com

[email protected]

310-409-8310

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