Monthly Archives: July 2007

Today’s Bawldys Go To…

bawldy

Either I didn’t spend enough time, or today was a tad thin. No matter. These two should be separated from the pack. They’re as different as night and day except for their excellence.

Learn the essence of why you should have an experienced pro with great training and old school values. See into the heart of one of our own as he deals with life as it’s dealt.

There’s a difference between what I call group mentoring, a potially good thing, and in-person infomercials — an almost guaranteed waste of time. I’ve been to both, and you can tell the difference pretty quickly. The problem is, if you get sucked into the latter, and leave too early — you can miss the inspiration that could launch you into building the real deal yourself.

Chris Lengquist touches us where we live with Why You Need A Real Estate Investing Specialist In Kansas City, a seamless yet essentially human post about why all your reading and internet research ain’t worth much when you’re out there investing for your future with the big boys. This is a MUST READ that will likely find you giving your family extra hugs the next time you come home from work.

Greg Swann shows us in A comprehensive take on the StarPower Conference: Reinventing the pearl the Bloodhound way that excellence and its pursuit is its own reward. If Greg believes in anything it’s doing things the way he thinks they should be done. He reminds me of a baseball coach I had once. He was fond of saying, “There’s the right way, the wrong way, and the way I’m gonna teach you.” That’s Greg in a nutshell. :) If you’re an agent this is a slam dunk MUST READ. If you’re not, this post will give you a glimpse into what lengths agents will go to in order to improve their skills and expertise.

Disclosure: I’m a contributor at BloodhoundBlog where Greg is the lead dog. :)

“…and remember. The daily Bawldys have approximately 1/365th the value of our annual awards.”

The Current Real Estate Correction — When’s The Recovery?

These two topics are written about ad nauseam all over the mainstream media and the internet. Everyone has an opinion. I do too. Perhaps the one thing we all have in common is a cracked crystal ball. :) Calling my take on the timing of corrections and recoveries an opinion might be too much. My take isn’t so much a strongly held opinion as it is a sense of what might be a potential outcome based upon previous experience. (Of course, that’s opposed to future experience, right?) :)

Corrections and their recoveries have come and gone for reasons many times totally unrelated to the previous cycle. white outThis isn’t meant to be an economic treatise, as I’m not even close to being an economist. The following is merely one guy’s opinion — and a pretty weak one at that.

Just an aside, but, the term correction fascinates me. The immediate visual popping into my head is one of the Liquid Paper we used back in the day to correct typing mistakes.

There was an historical run-up in prices back in 1976-1979. The correction began in the fall of ’79. It lasted roughly four very long years. I remember closing an apartment sale in December of ’83 (7 units) and was beside myself with glee when the adjustable rate loan started under 12%! I distinctly remember telling my client the interest rate would fall slowly over time, as it was attached to the COFI (cost of funds index). It did exactly that.

The cause for that boom real estate market? bundles of 100'sIn short, and again, in my opinion, it was a direct result of the monetary policy urging of the inflation of our money supply. It was as if there was a machine somewhere spitting out hundred dollar bills like M & M’s. As soon as the Fed, with Paul Volker as chairman, threw the money printing machines away, interest rates and inflation both subsided — with a vengeance.

I remember FHA rates over 16%. Also, inflation over 20%. Prime rate was in the same range. Anyone who lived it will tell you it was a very ugly combination.

From late 1985 through the end of 1989 we saw another boom lasting around four years or so. The main reason was the tremendous power exhibited by the income tax cuts finally making themselves felt — along with the incredible turbo-charging affect of investors’ ability to take advantage of depreciation. The normal, (at the time) 30 year depreciation schedule for residential investment property was reduced to 15 years. When combined with all the new jobs that also resulted from the tax cuts, the economy as a whole took off. The 15 year depreciation schedule caused millions of investors and agents/brokers alike to lose significant weight due to all the dancing in the streets. :)

Along came deregulation of the savings and loan industry, (a huge mistake he said, using 20/20 hindsight) and with it, the S & L crisis. And a crisis it was, no doubt about it — senate hearings and all. senate hearingLicensed since Nixon’s first months in office, this was the worst correction, downturn, whatever you want to call it, I’ve ever seen first hand. Most of the trash talk today by the doom-and-gloomers, though hyperbolic in many cases, still doesn’t match the reality of the early to mid 90′s. I’ll speak of San Diego here. Vacancy rates in the 20′s. Rental rates falling 15-30% depending upon location. It was as close to blood in the streets as I’ve ever seen in person.

San Diego was hit the worst, at least from where I was sitting. We simultaneously lost major employers (plural), almost overnight. That and the S & L crisis was a cruel and devastating one-two punch. What a nightmare.

Once the foreclosures were pretty much sold off, and the market more or less caught its collective breath, things began to return to normal. eclipseThe sun was allowed to shine again — no more financial eclipse. The actual process took about five years, though you could credibly argue longer. It wasn’t until late ’95, spring ’96 that normalcy seemed to be a realistic description of the local market here.

We just saw the end of the latest boom market towards the end of 2005. Low interest rates, liberal, um, underwriting, combined with huge Wall Street cooperation (buying many of the questionable loans) made for the perfect recipe for a real estate boom, didn’t it?

Then along came income tax and capital gains tax cuts.

goose in water

Again, much like the mid-late 80′s, job creation shot up. California lost jobs due to many businesses throwing in the towel because of the high taxes constantly being aimed their way. State political leaders at the time didn’t realize their favorite Golden Goose, business, could just as easily fly to another state and lay golden eggs without the permission of the political hacks in charge. :) It was the direct cause of the governor losing his job.

This most recent boom was so powerful it wasn’t even slowed a bit by the recession of 2001. Economists were talking about the weak recovery. That talk stopped soon after with the long term positive affects of cuts in both income and capital gains taxes. Job creation took off, as history shows. Real estate never paused. It turned out to be the longest uninterrupted rising real estate market I’ve ever personally seen — from Nixon to today.

Now most of us are wondering when this market correction will emerge into normalcy — use your own definition for normal. :)

1976 — 1984 — 1988 — 1996 — 2000 — 2004. presidential seal

What do all those years have in common? They’re presidential election years of course. They represent almost 30 years of our most recent history. In all those years, only 1980 and 1992 weren’t good years for real estate or the economy in general. 1980 saw us in the aftermath of the longest running money-printing spree in modern memory. (up to that time) 1992 was smack-dab in the middle of the S & L crisis.

One could argue, both exceptions, ’80 and ’92, were the result of catastrophes that hadn’t happened since the end of World War II, and haven’t happened since. In other words, unique events when looked in the historical window of 1946-2007.

Even if you give no value to that idea, (it’s surely not supported in any way by close study) 75% of the years in which presidential elections were held — the economy did from Good+ to Smokin’ Hot.

’76 — ’84 — ’96? All three years actually were the first full calendar years of their period to offer empirical evidence of economic recovery.

When do we get to recover from our current real estate morass?
coffee filter

My thinking is by summer of 2008. Would I bet more than $5 on being right? No way. Nor would I bet more than three people. I refer you to the cracked crystal ball in the corner. Besides, this opinion, and the so-called evidence behind it, has more leaks in it than a coffee filter. :)

At best what we see is even shaky as a loose correlation. Still, it’s there and it’s history — 75% of the time for the last eight presidential election years.

But if in 2009 we’re reading in the mainstream media, (you know, the Johnny come lastly guys) and they’re pointing to sometime in ’08 when we were officially in real estate recovery — remember you heard it here.

By the way, in a recent Bawldy award post, Mac Whitmore predicted the bond market yields would not rocket up as many had gleefully been predicting. When he wrote that, the 10 year bond was well over 5%. It’s now at 4.788%.

Seems Max might have seen something others missed. One in a row for the good guys. :)

Finally, it makes sense to put the current real estate correction in historical perspective.

I’ve lived through several of them, and the two worst, were what followed the October ’79 crash, and the S & L crisis in the 90′s. Today’s ‘ordeal’? No disrespect intended for those who have suffered, sometimes in life changing ways, but this correction is mild in comparison. In fact, I’ll go a step further.

Compared to those two downturns, this correction is like a six-year-old’s birthday party running out of cake and ice cream. Those who went through earlier bad times know exactly what I’m talking about. Those who are experiencing their first correction?

Ask somebody born before 1960. :)

Today’s Bawldys Go To…

bawldy

How many times have you rolled our eyes listening to someone make excuses for their lack of success at an endeavor? One of the most often used is luck — good and bad. Where’s a mirror when you need one?

We thought we knew the whole story behind the first Thanksgiving, but we learn something new from details not taught in elementary schools. (especially in the PC environment of today’s schools) Turns out the pilgrims had to learn the same lesson many 20th century countries did hundreds of years later.

The falling dollar has been a concern of those who follow such things since 2002. It seems those who have been shouting from the mountain tops that interest rates are not king, but money supply is, (including a certain hairless individual) beginning with Milton Friedman, are possibly being vindicated right before our very eyes — and in real time.

Chris Cree very eloquently exposes what I call the Blame Brigade. In his excellent post The Blame Game, he exposes the approach to life that says luck and circumstances are the foundation of success and failure alike. If only because he made me think of Grandma, I make this a MUST READ.

Donald J. Boudreaux tells us the rest of the story in Pilgrims’ Progress. Their approach was reminiscent of some late 20th century totalitarian countries who were more often than not, short of food, and most other necessities. They practiced communism, which has failed miserably everywhere it’s been tried. This short but incredibly powerful reminder of the difference between collectivism and free enterprise capitalism is a lesson we must learn once and for all. A MUST READ — especially for those who still believe what they were taught the whole story in grade school.

Max Whitmore is a very smart guy. His ability to communicate relatively complex concepts so that regular folks get it, falls nothing short of uncanny. In his latest post More On The Dropping Dollar he makes a compelling case for money supply over interest rates as the source of economic consequences. It also demonstrates what could be a paradigm shift in thinking at the Fed due to the leadership of Bernanke. Recent historical evidence seems to support Max’s thinking. Time will tell. This post is the first MEGA MUST READ of the year.

“…and remember. The daily Bawldys have approximately 1/365th the value of our annual awards.”

Insane Cost Of Living In New York — What Retirement Awaits?

Living in San Diego is far more expensive than say, Kansas City, Boise, or Fargo. People have their preferences of ocean, mountains, warm weather, real seasons, art, and dozens more. It still surprises me when say, a Phoenix native rhapsodizes about how they wouldn’t live anywhere else. Having lived in SD since 1967 I just can’t relate to the notion of living in Phoenix sans coercion or naked force. Folks from cities subject to four seasons say they couldn’t live in San Diego because of the blandness of the year-round climate.

But what about cost of living? We’re now shopping for a new place and seeing what we get for our budget. For the same money in Boise we’d be buying more house than we’d ever be able to use. Lord only knows what we’d be able to find in Kansas City, or Fargo. But what would we find in NYC?

Turns out not much — way not much.

How’d you like to be a renter and pay over $3,000 for considerably less than 1,000 square feet? Wow. night in new york cityOr if you’re buying, would you be interested in a 700 square foot condo for half a million clams?

I’ve been emailing and talking on the phone with an interesting couple from Brooklyn the last several days. It’s been an eye opener to say the least. I’ve always known, of course, about how expensive NYC is, but to hear the every day ins and outs has been almost scary. ‘Mary’ and ‘Rick’ live in a Brooklyn apartment. Fortunately for them, the rent is kept very low.

Between them they make $120-150,000 a year. He’s in the creative department of a Fortune 500 company, and she’s a freelance producer. They’ve managed to save over $50,000. As Mary says, “We don’t eat out as frequently, or take in as much of NY culture as we used to.” They’re pretty dang disciplined, and should be proud of what they’ve accomplished so far.

If they moved to Boise they could easily afford to buy one of the townhomes we boiserecently acquired from a local builder there. Their living space would literally quadruple! They’d be in a very cool neighborhood, though I’m sure not even in the same galaxy as what they’re used to in NYC. Financially, everything would be far better for them in Boise.

The problem? They love living in New York. There’s little objectivity involved for most people when it comes to deciding where to live. They love NY, I can’t imagine living anywhere but San Diego, and the folks in Boise look at me like the RCA Dog when I even suggest they might like San Diego too. :)

So what’s the point?

chocolate doughnut

If you love living in New York where a chocolate doughnut is $2.95, you also live with the reality that you just don’t have the same choices on your menu as a person living in another city. Mary and Rick contacted me because they had a gut feeling they shouldn’t spend their savings on a place to live. They wondered what I thought.

I wholeheartedly agreed
. In fact I told them I thought investing now would probably allow them to have their cake and eat it too — later though.

They can afford to invest in at least (or maybe only — we’ll see) one property. It’ll be far from NY of course, which means they have to wrap their heads around their very first investment being in another state. That’s a lot to digest, isn’t it? You bet.

Rick returns from a business trip soon so we’re gonna be talking again. Each time we talk, they have more questions — all of them well thought out, and on point. They’re very bright people. They’re first time investors, which make up maybe a third of our clientel at any one time.natural high

I personally like to work with first time buyers because it’s a natural high for me to experience the process with them. As time goes by and they begin to reap the benefits, I keep getting better fixes. :) Heck, I’m Jonesing now just thinking about my next conversation with them.

Their retirement is going to be sooner and far more abundant than the vast majority of New Yorkers. Living there has its price — they pay dearly for the New York lifestyle. Because they’re able to earn significantly above the median income, they at least have the choice to invest or buy a home. Most, according to Mary, live in nearly constant fear of losing their apartment for one reason or another.

Yet they’ll stay there because they can’t imagine living anywhere else. cost of livingRick and Mary have worked very hard to add an option to their menu. Yet, most regular folk in NYC don’t have a lot of choice in the matter. Think for a moment what it must be like to live where you want, but knowing you’ll never own a home, or be able to invest for your own retirement. And they realize the whole time, all they have to do to secure a far better retirement is to move to a city with a significantly lower cost of living.

But if you’ve lived in the same place for decades, imagine having to decide whether you want to leave 20+ years of friends, possibly family, and the lifestyle you love, the life you’ve created OR stay there without the real chance for a magnificent retirement.

It’s not a choice I’d want to make. Rick and Mary are a rare breed. My money’s on them.

Today’s Bawldys Go To…

bawldy
Trust me, I’m as surprised as you will be by this particular award. Those who know what a coffee snob I am will see this and just smile. The picture alone made my mouth start watering.

One of the values we all do our best to instill into our kids is personal responsibility. There’s a large part of our current American culture that does everything in its power to excuse undesirable consequences by blaming others. This one takes the cake — pun absolutely intended.

Finally, learn what OS!M is. I know this guy personally and he’s the real deal. As a leader myself much of what he says either cracks me up, or helps move me to the next level. The ultimate level of course is to be an extreme leader. His books, by the way, are some of the best reads around.

For the coffee elite I offer Triple Chocolate Espresso Bean Cookies Recipe which will no doubt subject me to endless ridicule from my good friends on the house side of the biz. For decades now I’ve been having fun at their expense because of the recipes they insist on putting in some of their newsletters. Well, what’s good for the goose is good for the gander. Warm up your trigger fingers. :)

Russell Roberts writes Like A Virus which examines how seemingly intelligent folks have decided the guys/gals with the giant cabooses only exceeded in size by their beach ball sized bellies are the victims of a virus — not one visible under a medical microscope mind you. No, this is………I won’t spoil it for you. Just know that every time I think you can’t make up something this stupid — somebody does — and then backs it up with even sillier research. The lengths we’ll go to avoid looking in the mirror sometimes staggers the imagination.

Steve Farber
treats us to a snippet of one of his seminars via video. He explains what the OS!M is in leadership. He wants you to have them on a regular basis. I do, and they’re some of the scariest moments I experience — but the coolest too. YouTube, Too will make everything clear. This is absolutely a MUST READ MUST SEE.

“…and remember. The daily Bawldys have approximately 1/365th the value of our annual awards.”