The Peebles Path to Real Estate Wealth: How to Make Money in Any Market

218 Pages·2008·0.88 MB·English

by  R. Donahue Peebles

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FM JWBK256/Peebles June30,2008 7:48 PrinterName:Malloy,AnnArbor,Michigan
The Peebles Path
to Real Estate Wealth
How to Make Money in Any Market
R. Donahue Peebles
with J.P. Faber
John Wiley & Sons, Inc.
i
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xii
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FM JWBK256/Peebles June30,2008 7:48 PrinterName:Malloy,AnnArbor,Michigan
The Peebles Path
to Real Estate Wealth
How to Make Money in Any Market
R. Donahue Peebles
with J.P. Faber
John Wiley & Sons, Inc.
i
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FM JWBK256/Peebles June30,2008 7:48 PrinterName:Malloy,AnnArbor,Michigan
Copyright(cid:1)C 2008byR.DonahuePeebles.Allrightsreserved.
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LibraryofCongressCataloging-in-PublicationData:
Peebles,R.Donahue,1960–
ThePeeblespathtorealestatewealth:howtomakemoneyinanymarket/R.Donahue
Peebles,withJ.P.Faber.
p. cm.
Includesindex.
ISBN978-0-470-37280-7(pbk.)
1.Realestateinvestment–UnitedStates. I.Faber,J.P.(JamesParis),1954– II.Title.
HD255.P44 2008
(cid:2)
332.63240973–dc22
2008012234
PrintedintheUnitedStatesofAmerica.
10 9 8 7 6 5 4 3 2 1
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Contents
Introduction: TheOpportunityofSetbacks(WhyIWroteThisBook) ix
PARTONE ARECENTHISTORYOFTHEREALESTATE
ROLLERCOASTER 1
CHAPTER1 TheBigBang:ThePost-2000RealEstateExplosion 3
Between2000and2006,mortgageinterestratesinthe
UnitedStatesfellinhalf.Thatstartedafeedingfrenzy,
whichsenthousingpricestodizzyingheights.
CHAPTER2 TheGreatFlood:TheOversupplyofHousing 17
Combinedwiththegrowingthirstforinventory,spiraling
pricesencourageddeveloperstobuildmoreprojects.
Andguesswhat?Blindtothedownturn,theybuiltway
toomuch.
CHAPTER3 DownTime:TheNewBuyer’sMarket 33
Becauseofthecreditcrunchandtheoversupply,weare
nowonthedownslopeofthehousingbubble,with
pricesdroppingacrossthecountry.Thatmeans
opportunitiesareeverywhere.
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iv Contents
PARTTWO FUNDAMENTALTOOLSFORREAL
ESTATEINVESTING 45
CHAPTER4 InformationPlease:WheretoFindTheData 47
Thegoodnewsaboutrealestateinvestingisthatanyone
candoit.Havingsaidthat,youneedtodoyour
homeworktomakeasuperiorinvestment.
CHAPTER5 AddingItUp:ACrashCourseinValuation 57
Figuringoutthevalueofapieceofproperty—whatit’s
reallyworth—isbothananalyticandcreativeprocess.It
isalsofundamentaltomakingagoodinvestment.
CHAPTER6 TheBigGuns:FindingHelpfromtheGovernment 71
Ifyouwanttobuyproperty,orprotectpropertythatis
nowthreatenedbyskyrocketingmortgagepayments,
don’tdiscountthepowerofgovernmentprograms.
CHAPTER7 MoneyTalks:NegotiatingwiththeLender 81
Theaveragepersonwhogoestoabankforamortgage
figuresit’snotnegotiable.Wrong.Hereareafewhelpful
insightstohelpyounegotiatewiththemanbehindthecurtain.
PARTTHREE CREATINGWEALTHINTHENEWLANDSCAPE 89
CHAPTER8 BoomtoBust:MakingMoneyinDownTimes 91
Tounderstandthecurrentsituationyouhavetolookback
athistoricrealestatecycles,inparticulartotherealestate
crisisoftheearly1990s.
CHAPTER9 FundamentalValues:BuyingintheRightRegions,Cities,
andNeighborhoods 107
Abigaspectofthecurrentrealestatecrisisisthatit’s
indiscriminant.It’shurtingeverymarketinthecountry,
evenplaceswithsolidfundamentals.Andthat’swheretobuy.
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Contents v
CHAPTER10 SpecificObservations:MakingtheDeals 119
Onceyouunderstandcurrentvalues—wheretobuyand
whentobuy—youstillhavetomakethatperfectdeal.So
sizeupyourseller.
CHAPTER11 Techniques,Tactics,andTricks:UsefulTools
toMakeMoney 133
Understandingrealestateprinciplesisvital,butitalso
helpstoknowafewthingsaboutauctions,foreclosures,
bank-ownedproperties,andcontractsforpreconstruction
sales.Inotherwords,howcanyoubestleveragecashand
credit,orjustoneofthetwo?
CHAPTER12 OutsidetheResidentialBox:InvestinginCommercial
RealEstate 157
Theopportunitiesinrealestategobeyondtheresidential
marketplace;shouldyouconsiderinvestingin
commercialproperties?
PARTFOUR SAVINGYOURBACON 173
(HowtoAvoidGettingSweptUnderbytheSubprimeTide)
CHAPTER13 BeLiketheRich:ChangeYourWayofThinking 175
InAmericawehavebeenconditionedtofollowtherules.
Butwhathappenswhentheruleschangeandthesystem
doesnotprotectyou?
CHAPTER14 Showtime:DealingwithYourLender 185
Thefirstlessoninlearninghowtothink(andact)
differentlyishowtorenegotiate.Evenifyouhaveabad
mortgageonapropertyyouown,youhavemore
leveragethanyouthink,eveninforeclosure.
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vi Contents
CHAPTER15 KnowWhentoFold:TheTimetoWalkAway,andHow
toDoIt 197
Sometimesitnolongermakessensetofightfora
property.Thenyouneedtoknowhowtogetoutwiththe
leastpossibledamage.
Index 202
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Introduction
The Opportunity of Setbacks
(Why I Wrote This Book)
I started my real estate career in my twenties, working as
an appraiser of low- and middle-income housing for HUD in
Washington, D.C. That was in the late 1970s, during one of the
worst real estate crises to rock this country. Despite those troubled
times, by the mid 1980s I was developing my first office building
andonmywaytobecomingamultimillionaire.Later,whenthereal
estate market again crashed in the early 1990s, I invested heavily.
TodayIhaveanetworthapproaching$400million.
I am writing this book at a time when the real estate mar-
ket is once again down. Most people would call this a bad real
estate market, with prices dropping. For me, it is a market full of
opportunities.
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viii Introduction
WhenIstartedworkinginrealestateduringthatdownmarket
ofthelate1970s,interestrateswereat20percent.Timesweretough,
butitmeantlotsofworkformeasanappraiser.Ispenttheensuing
years developing my real estate valuation skills and developing
local business and political relationships. By the mid 1980s I had
evolved those skills and contacts sufficiently to lay the foundation
of my wealth, developing my first high-rise. It was not until the
early1990s,however,thatIbegantobuildatruerealestatefortune.
This was in the midst of the last great real estate crisis in
America. During this time the real estate industry faced a severe
creditcrunch,rightwhenvaluesweredecliningduetooversupply;
thecreditcrunchexpeditedandexaggeratedthatdecline.Thesefac-
tors combined to create the largest transfer of wealth in our coun-
try’s history, when the big Wall Street firms decided to take a look
at distressed real estate. It was then that the first private equity or
vulturefundswereformedbysomeofthelargestinvestmentbank-
ingfirmsintheworld.Theysawgreatopportunityandhadaccess
tothecapitaltotakeadvantageofthesituation.
I also built my fortune through buying well in those difficult
years. It was a time of great opportunity for buyers who had two
things: access to money and a strong stomach. I had both. My real
estate appraisal business had grown into a real estate tax appeal
business,whichprovidedmewithexcesscashflowtoinvest,andI
possessedagreatappetitefortakingcalculatedrisks.(Theoperative
wordhereis“calculated”!)
Today we have a situation that is presenting almost as good
a buying opportunity as the last real estate crisis, certainly on the
residential side. Once again we are flooded with too many homes,
with prices that rose to unsustainable heights. Compounding the
problemaremillionsofoverblownmortgagesforhousesnolonger