Worried, Recession? The US is Still the Best

March 5, 2009 jd

There was a very interesting article in the Buenos Aires Herald today by James Neilson. The Herald is a news publication printed in English and you can usually get one at the numerous newspaper stands on the streets of Buenos Aires.

Mr. Neilson points out that we are in a better position to pull out of this recession quicker and healthier then Europe, Japan, China or Africa. If you notice, our dollar continues to gain strength against the Euro, the Yen and almost all other currencies of the world.

In his article, Mr. Neilson states in part:

“But bad as the situation in the US undoubtedly is, elsewhere it is even worse. That is one reason why in these troubled times jittery investors want to get their hands on dollars. Another is that, no matter what happens in the next year or so, the medium-term prospects facing the US are far more promising than those of Europe, China or Japan, to name just three possible alternatives. This being the case, it is somewhat premature to speak of the imminent end of US economic hegemony and its replacement by a more equitable arrangement involving at least half a dozen other countries. “

Mr. Neilson goes on to explain the problems that Europe, Japan, Russia, China, Africa and South America are facing. Problems that is severe with no easy or probable solutions for them.

For example, Mr. Neilson says about China and summary:

“China’s outlook is only marginally less alarming than that of Europe and Japan. Thanks to the one-child policy, before too long there will be a huge number of single men who will be expected to support their aging parents. Many will not take kindly to the idea. Though China is bursting with talented people who, unlike so many of their North American and European contemporaries, are willing to study and work as diligently as any Victorian, before that immense human capital can be properly tapped China’s rulers must find a way of maintaining social discipline during slumps like the current one. That will not be easy. Before everything went haywire, Chinese officials insisted that their country’s economy would have to grow by at least 8 percent a year simply to provide enough work to satisfy the millions who were leaving the poverty-stricken countryside. China’s GNP may still be increasing, but at an annual rate that by all accounts is far lower than 8 percent.

As a result, if the recession, or depression, lasts as long as pessimists fear, the US will in all probability emerge in far better shape than any of its hypothetical rivals. With this in mind, it is quite natural for Asian, European and Latin American investors to put their money on the US dollar rather than on the Euro — which may not survive the mayhem — the battered pound sterling, the Swiss franc, the yen, the yuan or even the peso. The US may be groggy and could soon hit the canvas, but it would be less likely to remain there for longer than the other big countries that would go down with it.”

Real Estate, Travel

Argentina Real Estate

March 4, 2009 jd 2 Comments

First a little update as to what’s happening in Argentina. It’s raining here now which is a relief because just like us in California they are having a drought. My understanding is that it has been so dry that they have lost over 800,000 head of cattle. The government, along with the drought is putting Argentina once the third leading exporter of beef in the world to seventh in the world. (BBC News) Since Judy and I were down here in November of 2008, the peso has depreciated from 3.40 pesos to 1 dollar, to the present time of 3.70 pesos to the dollar.

Everyone I talked to down here blame the recession on America’s and Europe’s ability to borrow money to buy houses with a low down payment and to have a thirty year mortgage. They say that cannot happen in Argentina because there, everyone pays cash for their homes. Paying cash for their homes assures them that they will not lose their homes to foreclosure. They said if we had paid cash for our homes, we would not be in this real estate melt down.

In Argentina there is only one way to buy a residence and that is strictly cash. You offer fifty percent down and on closing you put up the other fifty percent. There are no title companies there; you rely on a notary to assure you that you are getting a clear title to the property that you are buying. He or she is insured and they charge two percent of the purchase price for their service.

For them, it limits their market tremendously, only those that can afford to raise cash in the amount of $90,000 to $500,000 can afford to buy a home. (About the going rate in Buenos Aires for apartment condominiums)

It is hard for the Argentineans to see the advantages of being able to borrow money to buy real estate, since all they read about and see is the news about foreclosures, here in the United States and abroad. They are not aware of the greed of the banks and their CEO’s that led to this present crisis. Their qualifications for a loan were simple, they put a mirror in front of a person’s nose and if they detected that the person was breathing, the loan was approved.

Of course paying cash also limits your market, since so few here in Argentina (And the United States) can afford to raise that kind of cash. Even now, in the United States, our ablity to borrow money is what will pull us out of the housing crisis. First time home buyers, real estate investors, almost all of them rely on borrowed money. So we still have in my opinion, the best system in the world. Borrowed money has made a lot of people wealthy and provided homes for the majority of people in the United States. In contrast, the real estate market is flat in Argentina, since no one is spending money and the majority of the people do not have the resources’ to buy a home.

Travel

In Buenos Aires

March 3, 2009 jd 1 Comment

Containing on from my last post, I boarded an American Airline 777 for a nine hour and forty four minute flight to Buenos Aires. I asked my agent who booked my flight to get me a seat next to the emergency exit as you have more room to stretch your legs. Instead, she booked me a seat ahead of the exit and in the middle row!

Now you may not know this, but when manufactures’ design airplanes, they spend thousands of hours designing the seats, using live people for testing, computers and engineers with PHD’s. When they find just the right amount of leg room so that people can barely get into their seats and when they find just the right angle for the seat to tilt back so there is no way you can fall asleep, they go, that’s it, put it into production!

I arrived in Buenos Aires at 9:30 in the morning. My friends were to pick me up and of course they went to the terminal for American Airlines. This being Argentina, our plane landed in the terminal for the Argentina airlines NOT American Airlines. After much searching for me and an hour later, they did finally find me.

Now you may not know that for the last three times I was in Buenos Aires, in addition to vacationing, I was also trying to get my DNI, fighting an endless amount of red tape. DNI stands for Documento Nacional De Identidad or National Identification Number. (Think of something similar to a social security card) Since I was born in Buenos Aires and left for California when I was seven years old, I have dual nationalities. Thanks to my girlfriend’s help with Spanish translation and Buenos Aires maps every time we went there, it was now finally ready to be picked up on my forth trip.

My friends that picked me up were helping me in my final leg of getting my DNI . You have to know in Argentina that is easier said than done. The first office that they drove me to said we had to go to another office. We went to the other office and they said to go upstairs. We went upstairs and they told us to go downstairs. We went downstairs and the clerk said they did not have my DNI. We said “Yes you do.” He asked where did you apply for this. We said here. He said “Oh”, and then he looked for my DNI and found it! So, I finally have it and everyone says what are you are going to do with it. I don’t know, when I figure it out, I’ll let you know. Chow.

Oh, by the way, I’m having breakfast, lunch at Lo De Mateo at austria y juan maria gutierrez

Travel

Flying to Buenos Aires

March 1, 2009 jd

american-airline

I’m sitting here at the Sacramento International Airport waiting for my flight to take off at 1:20 pm. I’m flying American Airlines this time instead of Delta. Going through security I thought I was going to have to take off all my clothes before the darn alarm would stop going off. Every time I walked through the metal detector monster that everyone has to walk through it would just keep buzzing. Finally, down to my shorts, I got to go through. (just kidding)

You know the gig, take your shoes off, then your belt, your keys, your cell phone, you cell phone case, pull the laptop out of the case, remove the steel plate out of your head, (no, they haven’t gone that far yet).

Once I get to Texas there is a two hour delay for the flight to Buenos Aires. Good thing to do when you get on the long flight to Buenos Aires is take a sleeping pill, forget about whatever they bring you that they call food and wake up to summer in South America.

I’ll keep you posted.

Nevada County Home & Land Statistics, Real Estate

Nevada County Residential Sales January-February 2008 vs. 2009

February 28, 2009 jd

And the real estate market is going to go?

Residential sales for the period January 1, 2009 to February 28, 2009 compared to the same period last year remained about the same. Eighty homes were sold this year compared to eighty six homes last year. However, average sales prices dropped 12% or about $48,500 per home. The average sale price this two month period was $340,866 compared to the same period last year’s average of $389,350.

Days on the market increased to 158 days compared to 128 days on the market for last year or about 19 percent longer on the marked before they sold.

That’s the long and short of it, but I did an analysis of the entire year of 2008. Sales figures for residential home prices in Nevada County indicate a 12% decline in value. Prices of residential homes in Nevada County are still higher than our surrounding neighbors and higher than the State average of $281,100 versus our average of $340,866.

A report from the California Association of Realtors states that “The median price of an existing, single-family detached home in California during December 2008 was $281,100, a 41.5 percent decrease from the revised $480,820 median for December 2007, C.A.R. reported. The December 2008 median price fell 2 percent compared with November’s revised $286,850 median price.

“Median prices continued to decline in December, and based on preliminary calculations, the statewide annual median price declined 38 percent for all of 2008 compared with 2007,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “While the month-to-month decrease in December was considerably smaller than in recent months, it remains too early to determine if prices are beginning to stabilize. Many distressed sales still must work their way through the system.”

Real Estate

China Buying American Real Estate

February 27, 2009 jd 2 Comments

China may be having the same economic troubles that the United States is having, but groups of Chinese are coming here to buy up some bargains. A trip organized by SouFun Holdings, China’s leading property website company announced a tour to America to buy real estate. The trip was heavily oversubscribed and only 40 will make the tour to buy property in the $300,000 to $800,000 range.

According to the Timesonline: “Mo Tianquan, the chairman of Soufun.com, told The Times that his clients were hardly run-of-the-mill Chinese in a country where GDP per head is about $4,000 a year. “These people are not ordinary members of the masses,” Mr Mo said.He said: “I don’t know how much money these people have. I would say they must have at least a million dollars in cash. That’s cash they can spend any time – not investments fixed already in real estate or shares.”

Mr. Tianquan estimated that at least a third of the group were buying for their children studying in the United States. They are interested in both houses and flats, “properties near universities or high schools and bankrupt homes auctioned by the courts. Usually these houses are only half the price they used to be”

“He said: “I don’t know how much money these people have. I would say they must have at least a million dollars in cash. That’s cash they can spend any time – not investments fixed already in real estate or shares.”

One question is why the Chinese would want to buy in the United States when the yuan is seen as likely to rise further in the long term, thus effectively harming the value of their American property.

Mr Mo said that this was a minor consideration for these members of China’s tiny elite. “They don’t care if the dollar will rise or not,” he said. “They are using pocket money to buy houses. To spend these sums has no impact on their way of life. If it makes a profit, and how much, is not a consideration.”

There is one final hurdle: it is not clear how even the super-rich will get their assets out of China, which limits the amount a Chinese person can take out each year to $50,000.”

Its bargain time in the United State again. Some of you may remember the down turn we had in real estate in the 1980’s The Japanese came over here and bought a huge amount of real estate..They poured nearly $300 billion into high-profile properties like Rockefeller Center in New York and the Pebble Beach Golf Club in California. Do you have a feeling that history is repeating itself? I remember the doom and gloom of those days, everyone thought it was the end of the real estate market. We’ve had several booms and busts in the real estate market since then. The real estate market, like the stock market, will always have it’s up and downs.

Real Estate

Now is the Time to Buy Real Estate

February 26, 2009 jd 2 Comments

According to Forbes Warren Buffett is number two in the line up of the 400 richest Americans. If you believe in his wisdom, Mr. Buffett says now is the time to buy! (Mr. Buffett is worth 61 billion dollars)

I’ve read his simple rule for buying of stocks, companies and real estate, “Be fearful when others are greedy, and be greedy when others are fearful.”

He admits that fear now is widespread, gripping even seasoned investors. And that fear makes us sell stocks and hold on to cash, or hold off buying anything.

Then he observed, “In waiting for the comfort of good news, they are ignoring the great hockey player, Wayne Gretzky’s advice: ‘I skate to where the puck is going to be, not to where it has been.'”

Continuing with some other comments by Mr. Buffett, this is part of the text of an opinion piece written by Warren Buffett and published in the New York Times on Friday, October 17, 2008.

“Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts”

So while everyone is selling, Warren Buffett is buying. So where are you, are you sitting on your cash, waiting for the market to settle down? Remember the greed of some investors when the market was soaring, they were buying real estate for whatever price the seller was asking. They were buying on the greed side of real estate and many lost their total investment. So who is buying during this fear cycle? Read my previous blog , For Some, Foreclosed Homes Equals Gold.

So if you have the money to invest, now is the time to buy, according to Warren Buffett.

Real Estate

Hard Money Loans and Some Pitfalls

February 25, 2009 jd

money
First a brief definition of what a hard money loan is from Wikpedia:

Many hard money mortgages are made by private investors, generally in their local areas. Usually the credit score of the borrower is not important, as the loan is secured by the value of the collateral property. Typically, the maximum loan to value ratio is 65-70%. That is, if the property is worth $100,000, the lender would advance $65,000-70,000 against it. This low LTV provides added security for the lender, in case the borrower does not pay and they have to foreclose on the property.

By now we have all heard about Thomas Hastert, 53, who now faces 73 counts of embezzlement, securities fraud, conspiracy and filing false documents . He is alleged to have misused funds taken from private investors that were supposed to be invested in real estate properties or construction of new homes.

I don’t know all of the various schemes that he is supposed to have perpetrated, but I am familiar with at least one. I was approached by a mortgage broker and asked if I knew any good hard money lenders because her friend had started building a home with a loan from Thomas Haskert . As the conversation continued, it was explained to me that Haskert had made the loan with insufficient money in her friends construction account.

I am not a lawyer, but I believe this is a felony. Prior to allowing the homeowner to sign papers for the construction loan, the loan must be fully funded by the hard money lender, the money must be placed in a trust fund independent of the lender after the papers are signed and a third party must inspect the construction phases prior to releasing any money. This protects both the investors and the borrower.

What Haskert apparently did was to have the borrower sign papers prior to having the loan fully funded, putting his investors and borrower at great risk. For example, if you borrow $500,000 to build a home, then during the course of construction you incur costs of $150,000 in materials and subcontractors bills. At that point you are ready for a draw of $150,000. However, if Haskert has not fully funded the loan and there is insufficient funds to give you $150,000, you are in a lot trouble.

Now your property is subject to construction liens, you have a note against your property for $500,000 (the money you borrowed that is not there) and you are going to have some real problems getting out of this mess.

So remember, if you do borrow from a hard money lender for a construction loan, be sure all of the money is there, be sure that the money is put in a trust fund and that someone comes out and inspects your progress. If you invest your money with a hard money lender, check out how long they have been in business, which may or not mean anything (think Bernard Madoff), look at the property you are going to invest in, and determine that you have a safe loan to value ratio.

Real Estate

What, I was Just Having a Drink?

February 24, 2009 jd 1 Comment

You might have heard of the real estate agent in Hillsboro, Oregon who used his lock box key to enter into homes and burglarize them. A homeowner returning from a business trip, walked into his house to find Michael Troy Messmer drinking a White Russian. It seemed obvious that Messmer had been in his liquor cabinet.

The homeowner asked Messmer what he was doing and Messmer replys, “I’m a Realtor” with that, him and his girlfriend walk out with a box full of the homeowner’s personal property worth about $260. That was on February 1.

On February 5, this genius was found to have taken some minor items, toiletry and liqueur from a Cornelius home. The items were worth about $250. In both cases, he used his lock box key to enter the homes.

Of course Messner was caught in short order. This is because every time a Realtor uses his lock box key to open a lock box, (where the key to enter the house is located), a code is entered into the lock box leaving behind the agent’s name and the time that the house was entered. It’s too bad that in every profession there is always somebody who is dishonest. Not only was this guy dishonest, but I think he makes the grade for the dumbest criminal of the year.

I don’t know if they do a background check on real estate agents in Oregon, but in California every licensed real estate agent and broker has to have background check prior to obtaining their license, giving assurances that people with criminal records do not get a license.

Real Estate

For Some, Foreclosed Homes Equals Gold.

February 23, 2009 jd 1 Comment

gold

Foreclosed homes are a buying opportunity if you have the cash. For some investors, speculators and first time home buyers are thinking big and finding opportunities in plummeting home prices. A gold lining in the Golden State’s housing crash.

According to the The News

“For many young couples, plummeting prices and near record-low interest rates make it possible to own a home in California for the first time.

Investors and real estate speculators, meanwhile, can snap up foreclosed properties on the cheap to sell during the next boom in California’s boom and bust real estate cycle, a boom they believe is inevitable and possibly not far off”

“This is a buying opportunity of our lifetime,” said Bruce Norris, who heads an investment group that expects to purchase 100 homes in Southern California.”

The article mentions the group buying a home for $55,000 that originally was worth $360,000 at the top of the market, putting $30,000 into it for repairs and renting it $1,200 a month. I would say that’s a fantastic investment.

I know an investor who bought homes during the last real estate downturn. He bought thirteen homes and turned them all into rentals. When his company told him three years ago that they were moving to Texas and if he wanted a job, he would have to move there. He’s still here, doing well living off of the income from his rentals and building a new home in Lake Tahoe.

Yes, now is the time to buy, if you have a secure job or money to invest, if you want an investment that has proven time and again that you can become wealthy buying real estate.