Q1 2012 Update

Sandalstone Group, LLC.

Overall Market:  
Sandalstone’s 1st Quarter of 2012 reflects the strengthening of the economy as we see a continued pick up in the real estate market.  Vacancy rates in the East Bay are low and strong demand is pushing up rents across the board.  While the first three most important things in real estate is location, the next three for rentals are Jobs, Jobs, Jobs - and they are coming back as businesses in the Bay Area are hiring again.

 

The Las Vegas market is entering a heated phase much like the East Bay market two years ago.  We are now bidding (and losing) on properties that have ten to twelve bidders - the most recent attracted twenty four.  This property is the same as our Back Woods - same block, same floor plan, etc.  I’ve been told it went for about $116,000 - or $20K more than we paid in December.  

From reports last year at this time there were about 25K units that sold per quarter - this year only 6K are on the market to sell.  Thus, increased demand from investors coupled with decreased supply is surely leading to price appreciation. Rest assured that we will be disciplined in our approach - which is to say that we will only “win” if our criteria are met and not get caught up in any frenzy.

 
My guess is that the official numbers will start reflecting this up-tick - the purchases thus far made are feeling very good though no action will be taken on this short term blip.  Rents and occupancy levels are holding in the good areas.  The latest acquisition has had a few weeks vacancy - as we turned away one prospect - more on that later.  

On the asset valuation side, in the East Bay we have the beginnings of a true upside.  Real people now have incomes with which to support purchasing a home.  It has been interesting to see how investors provided a floor and now off this floor, buyers with traditional financing are now able to come in and create a genuine up-draft.  The best areas have already seen an increase in prices as mortgage rates stay at record lows.  

In Las Vegas - as stated earlier the recent feeding frenzy will invariably lead us to make more offers and lose more often.  More rental supply is being put to the market and it is conceivable that rents fall and vacancy rise in the short term.  It is our belief that by buying in relatively good areas and with our disciplined approach we shall be able to weather that period (not having any leverage also makes that a highly certain call).  We choose to ignore any short term fluctuations (up or down) and focus on the long term - which is a return of prices to “fair” value.   We continue to purchase assets that make sense using our models and this bears repeating:  remain committed to our OPINION first articulated in 2007 that this uptick won’t happen until 2016 to 2019.     

On the growth side - we closed and rehabbed one property in Las Vegas in the Qtr.  This property is around the block from our first one in the Southwest part of Las Vegas.  The property was put on the rental market in mid-March and it attracted a prospect within a week.  Upon examining her credentials we decided to pass.  The lesson learned and applied is that it is always better to avoid issues in the first place.  This tenant simply didn’t have the income and even worse had a prior eviction (which was averted at the last minute).  For those of you who rent or ever choose to do so - avoid any renters with past eviction on their records.  Once tenants get over that moral hurdle then they realize how to play the system to their advantage and your expense.  We put the property back on the market in search of a better candidate.   We also are replacing the carpet in favor of a new neutral beige over the existing bold blue.  

Green Improvements:

This past quarter we had the opportunity to attend a presentation by EBMUD - which is my local water company - yours may have a similar program.  They will send you a free water savings kit and upon filling out their survey they send you (for free) a range of devices (aerators, hose sprays, shower heads) that reduce water consumption.  We have begun to implement across the portfolio and expect to lower our “water” footprint.  Also interesting - last years record rainfall is providing enough water to cover this year’s shortfall (last weeks rains helped too!).  

   
Clarameda Fund, LLC:

  • Purchased one Property in Las Vegas, NV
    • 922 Single Tree:  3BDR, 2BA - $90,500 purchase price, $106,000 all-in rehab price.
      • On the Market for $1,075 per month
  • Continue to aggressively bid on properties that fit our criteria
  • Operations - no major issues to report
  • Continued record of paying 40 straight months of distributions of the Preferred amount to Partners.
  • Partners received 2011 K1s in which we reported almost no net income - distributions all tax sheltered last year!
  • Seeking additional Partners - check out the latest Presentation which more fully describes the opportunity!

Investment Opportunities:

  • Clarameda Fund is actively seeking new Partners.  This Company is expected to return 10 to 12% to investors (5.0% preferred distribution plus 50% of profits for new investors).  Company has paid 40 straight months of distributions (plus Special Distributions which boost distributions in “profitable” years - and TAX loss in “unprofitable” years).  
    • Raised $100,000 in new money this quarter.  

In Summary, wow what a difference a quarter makes - last quarter the challenge was raising money, this quarter the challenge is finding properties.  Over my last twenty years of making investments this is always the case - when times are best for investing that’s when money is scarce.  That’s probably what makes it a great time - the fact that yields are pushed up to attract the capital.  For those of you contemplating adding real estate to your portfolio - while we are off the bottom hit last year - there is still plenty of room to get back to “fair” value.  My recommendation is to act soon as prices are recovering - by the time you see it in the “official” numbers yields will fall further as prices continue to rise.

   
We encourage you to take action and call today to see how you can reasonably grow your investments by taking advantage of this situation.   
Cheers!
Biren
Biren Talati
Managing Member
Sandalstone Group, LLC
650-799-4447
biren@sandalstone.com


 

MARKET DATA

VANGUARD REIT ETF:

http://finance.yahoo.com/q/bc?s=VNQ&t=1y&l=on&z=l&q=l&c=

CURRENT YIELD:  3.36%  Compare to Clarameda... 5.0% for New Investors and Tax Advantaged!

HEADLINES

NY Times:  Another article on Waypoint - buying 1000s of homes
http://www.nytimes.com/2012/04/03/business/investors-are-looking-to-buy-homes-by-the-thousands.html?_r=1&scp=1&sq=waypoint&st=cse

WSJ:  Talks about suddenly over-heating Phoenix market - same thing in Las Vegas (and I’m sure other areas)

http://online.wsj.com/article/SB10001424052970204653604577251232717986316.html?KEYWORDS=phoenix+real+estate
 

VEGAS INC:  Unemplyment - falls to 12.2%
http://www.lasvegassun.com/news/2012/mar/30/unemployment-rate-dips-clark-county-statewide/