My Response to Christopher Matthews in Time Business

The following link is what I'm responding to. A post in LinkedIn seemed to think this article was optimistic. After reading it, I didn't find it so, but I notice a lot of agents on LinkedIn are talking the market up, maybe because they believe it to be true, but, I suspect, mostly to make a commission. So this is the link:
http://business.time.com/2012/04/27/has-the-housing-market-finally-hit-bottom/

Here are two of my responses that I posted on LinkedIn:
 #1

 In coastal areas this may be true. California's San Diego, Orange County, and San Jose only have about 30 days of inventory. This may well have to do with the employment bases in those areas, though. 
SD County and OC are pro-business conservative strong holds in the CA political landscape. San Jose has made the most of high-tech government subsidies, and is left-leaning. But the three areas have steady jobs and ocean accessibility. 
Outlying areas are still seeing drops in the housing market. We're also seeing a double-dip (or are soon likely to) in the foreclosure rates--or should I say a double-spike? There is going to be another round of foreclosures as investors and homeowners who can't find work after 2 years finally let their houses go back to the banks. 
Why? If you've been watching, CA tax revenue dropped 16%. The job providers in CA are still leaving and Gov. Brown is still trying to get Californians to vote themselves a tax increase this year. So, expect more people to give up on CA. This will probably help some other state, though. 
You can also add in factors such as "self-deportation" of illegal immigrants and also of some of our legal immigrants who've decided to go home. Keeping in mind that many adults are living with extended family, and the country's population growth is driven primarily by immigration, you don't have heavy demand for housing, except for already crowded markets.

 #2
 When the market got overheated in 2005, I decided to go work as a building inspector in 2006 until 2008. I couldn't justify selling homes I felt were overpriced, but thought I'd see a 30% correction. Little did I know that in the Inland Empire it would be 50-70% or I would have gotten out of the rental market entirely. 
After being an inspector for the first half of 2008 I watched panicked contractors unloading their inventory, and Frontier Homes declare bankruptcy. I am currently VP of the local chapter of the International Code Council, and 90% of the contractors I knew have left not only the area, but California. I listened to Mexican-Americans and guys that I suspected were here illegally talk about leaving CA to go back to family farms in Mexico. (FWIW I speak pretty good Spanish, and was the only Spanish speaking inspector at the city for over a year). 
There are bright spots in the economy, but this has more to do with government favoritism of certain industries. Low income housing (or affordable housing) requires local governments to provide a certain amount of housing. This helps developers at the cost of small-time investors. Also FHA rules allowing only 4 loans has hurt small investors. I know several that would like to invest but can't, unless they spend money incorporating and jumping through other hoops. 
Many of these investors, maxed their credit cards to keep things afloat or took hard-money loans because they couldn't get any other financing. Their hopes of the economy recovering has been dashed, and they are realizing that it's time to short sale, deed-in-lieu, or BK this year. Next year you will see more bargain homes outside of the coastal areas. 
Additional areas for profit include rentals, if you are just getting into them. The FHA 4 loan rule benefits corporations and the IRS (is that a surprise to anyone?) There is a lot of rental buying in the High Desert, mostly with section 8 renters. But, I can't deny there is money to be made in this arena. I think it's a big crap shoot myself, but know people that swear by Section 8. File this under making money through affordable housing and government subsidies, in my book, however. 
There was a recent article about new home owners finding themselves underwater shortly after purchase on Reuters on April 26, 2012 (date preserved for future searches:http://www.reuters.com/article/2012/04/26/us-usa-housing-negative-idUSBRE83P12E20120426) If the agents for these new owners did the right thing for them, they may have bought for construction cost or less. In which case their is still an upside. If we get inflation, the houses may be worth more and the low mortgage rates are beneficial, as long as their is employment to pay the mortgage. 
I'm not saying don't buy. But, inasmuch as we disclose to our clients, we have a fiduciary responsibility to let them know what we can. I try to work with investors that understand the risks 
One other area to look at that comes to mind is having your buyer buy solar during the purchase process. It adds to value of the home, and costs around the same on a monthly basis as the electricity it generates. This helps keep housing from going underwater and is justifiable with FHA energy efficiency mortgages. This also prepares your client for CEC building code changes coming in 2016 and 2020. 
My company PFAES consulting can help with this process.

Please email me at savingyoursol@gmail.com or reply to this blog if you have any questions. 

More rearranging the home office and submitting a commercial offer

So today consisted of running over to a clients place of business and having him sign an offer on a restaurant going into foreclosure across town.

The lender plans on foreclosing on Thursday, so my client made what he thinks is a high offer, though I doubt the lender will be happy with it. I've been saying we're heading for a commercial crash, and mentioned the stagnant commercial market, so I'm hoping for a counter offer, at best. If we don't get anything, we'll just wait and see if it comes up again at a better price. I'd like to be more hopeful, but I think a lot of lenders are too optimistic about the commercial market, or too stubborn to take a small loss now, in order to take a bigger loss later. Maybe the lender is hoping to make another loan on the property in order to foreclose a second time.
The location is on outer Hwy 18, so a little hard to get to for travellers, but it is close to the post office. We could use a place for a good cup of drive-thru coffee over there.

I also spoke with a businessman and his wife (businesscouple ?) about the value of the building they were leasing with an option to buy. Hopefully I'm making friends. Their building is old and needs a lot of work to bring it up to current codes, as is the attached SFR, but their credit isn't the best, so maybe they can work something out with the owner. IMO, the owner wants way too much.

Still working on the home office. Had to get some round cable staples for the power cords. Just about have things set up in an acceptable manner. Older places never have enough electrical receptacles. When I get my dream house built, it's going to have lots of places to plug the stuff in...if I don't go all mad scientist and power the place with a Tesla coil.

Tomorrow is time to meet an inspector and potential renters.

Coming Inflation may make now a good time to buy. Times are strange.

I just wrote an article on my political blog about currency devaluation and inflation. I don't want to cut and past the whole thing here. But, buying real estate has always been a hedge against inflation. I still stand by the prediction that housing prices will, in general, drop. However, they could drop in value, and still increase in price if we get a currency devaluation or rampant inflation.

Furthermore, properties can be bought in the Inland Empire for less than the cost of construction. So, there are bargains and lots of them out in the market. I do believe that more foreclosures and REO's and short sales are on their way. We are going  to have deals for quite some time.

Here's a link for homeowner's who need to hire someone.

Here's the link, and below is my commentary.

I would like to point out that in California, all jobs over $500 in labor and materials should be performed by a contractor, if you're not going to do it yourself. Though if you follow here guide for payment under painting you may not be left  in the lurch.

Also, I don't think a garbage disposal changeout is beyond most peoples ability. It's time consuming the first time (3 hours), but if you have a newer model (within the last 7-10 years) you can probably get the same brand which will match up to your old mountings. Don't forget to remove the knockout if you're hooking a dishwasher up, or you'll be trying to figure out why the dishwasher doesn't drain.

I've found that hot coffee also helps with unclogging drains. The heat and the acidity seem to break up grease, and the coffee helps clean stainless steel.

Even More Reasons Real Estate May Drop

I've been mentioning for months that real estate, in most cases is going to drop. In special cases like beach front property, and areas where development is limited or not allowed, this won't be true, or as true.

Here are some links and reasons:
3 reasons home prices are heading lower


http://money.cnn.com/2009/12/31/real_estate/home_price_drop/index.htm

Housing Inventory Still Dramatically Oversupplied — Before You Add In The Foreclosures

http://newobservations.net/2009/12/27/housing-inventory-still-dramatically-oversupplied/


Resets Projected to Cause Mortgage Crisis in 2010

http://www.dsnews.com/articles/index/loan-resets-projected-to-cause-mortgage-crisis-in-2010-2009-12-11http://www.dsnews.com/articles/index/loan-resets-projected-to-cause-mortgage-crisis-in-2010-2009-12-11

Q3 2009 U.S. Foreclosure Heat Map
http://www.foreclosurepulse.com/blogs/mainblog/archive/2009/10/27/q3-2009-u-s-foreclosure-heat-map.aspx

A nationwide forecast for real estate is below. If you look to the left side, you can click on your state

http://www.housingpredictor.com/better.html

More predictions for a double dip in the California real estate market.

I was reading an article based on an LA Times article that reports that certain areas of CA real estate market are recovering.

As I've mentioned before, housing near the ocean, and in other specialty locations will rise. The article confirms this by saying San Diego, Los Angeles and San Francisco have had the highest recovery rates, and have increased for 5 months running. All of these cities have ports and beaches. All of the locations are pretty much built up, so there's nowhere to build. In SF's case, there are laws preventing construction. There are certain areas of SD county that can be built, but new building codes put in place after the fires of 2005.

Low density areas are still having problems. When prices in the big city start to drop, people (especially commuters)  in the outlying areas migrate inwards, leaving a high vacancy rate in places like the Inland Empire and farming communities like El Centro.

The downward trend in these markets certainly hampers the ability of these local governments to garner a money from property taxes as the foreclosed properties sell for less money and must be assessed on a lower valuation. This leaves these areas on a downward spiral until investors start returning.

Some investors can buy cheaply and charge lower rents, bringing rental values down further. For rental properties, valuation is based on rent rolls, so if landlords and property managers lower their rates to compete with new owners, then they can apply for lower assessments from the county. This can lead to even less services, and perhaps result in blighted areas, barring some sort of intervention/assistance from higher levels of government.

My experience as an investor and as a building inspector has shown me one thing about government intervention in the housing market. It is tied up in low-income projects. While the goal of assisting low income people may seem on the surface noble, the unintended consequences are dire, generally resulting in generational economic suffering. One of the principals of success is "How do you learn to be successful (or insert whatever adjective you like) people if you aren't surrounding yourself with successful people?" People in public housing learn to be people in public housing. (For a good start in mimetic theory, check out this link)I've also heard anecdotal evidence of prejudice against poor white people by administrators of color in low-income communities, but that's another story.

As long as there is a shortage of rentals, property prices will stabilize. So we are seeing prices stabilizing and rising (though probably temporarily) in the coastal areas. And we are seeing prices stabilize in other areas, but if you see lots of "move-in specials" in the local papers and online classifieds, be prepared to see prices drop in those areas, especially after the federal subsidies (tax credits) expire.

In fact, the $8000 tax credit was causing all sorts of pressure to buy at the end of last year. The new $6500 tax credit has put some wind in the sails of the CA housing market, and will allow people in outlying areas to move closer to the big cities, or upsize their dwelling in the suburbs. After it expires, if there is a commercial downturn, and people lose their income, we are going to see more foreclosures in the residential sector.

Then prices will come down again, unless there is further intervention by the federal government, but with all the red ink they are bleeding, that may not happen, though inflation may cause the property values to rise in any case. That raises the question, how do we cope with rising prices if the economy is stagnating or in a recession/depression? Keep in mind, all the federal stimulus of FDR extended the Depression into the Great Depression. (Read this article for a thorough treatment)

Obviously, we have to pay the piper at some point. The government will have to either raise taxes (further punishing owners and producers) or cut services or some combination of the two. I have yet to see any government program save money, so I don't buy into any statements of that nature, as no government program has come in under budget in anyone's memory that I know. The politicians have a vested interest in providing services in exchange for votes, so I'm not optimistic that we will see any action on that part.

Just some of my thoughts about what's coming down the road.

November Begins

It's been a busy beginning of the month. Escrow closed for one client. I dropped off an earnest money deposit for another. I had the normal collection of rent. I'm cleaning up after renters and listing stuff for rent and for sale. I also installed did some repair work.

A couple things I had to do were plumbing. I capped a 1/2" copper pipe that was used for a swamp cooler. It had a saddle (or vampire) tap, and the tap was leaking, so I removed it. The mineral content in the water had caused a very large hole to form under the tap, so I cut off the pipe with a hacksaw, cleaned up the edges and slipped on a 1/2" Sharkbite® fitting. The fitting went on in less than 10 seconds. I can solder, but this is so much faster. They can even be removed with a plastic tool. They are available at Home Depot. Lowe's has a similar product, I think it's called Gatorbite®. They cost around $5 instead of $2 but save so much time, and are way cheaper than calling a plumber. 

I also replaced a low boy toilet with a standard height toilet. The copper piping is surface mounted on the brick wall. The 't' fitting had to be moved 4" to the left to allow the tank to clear the angle stop (my fault), and so I cut the pipe and used 2 of the 1/2" couplings to do this. Once again, saved a bunch of time. This particular run of pipe has caused me some problems soldering before.

I hope to have more updates later. Last month was crazy busy, and this month has a lot of catch up to do.

Even More Renter Drama (or lack thereof)

I have been trying to get in contact with a tenant who was to pay me around the 15th. After several unsuccessful attempts, I asked the neighbor if he'd seen her and he replied, in short, that he thought she had moved out.
I went to the unit. The lights were on, so I called to the house several times with no answer. The tenants across the way were looking through their door and I inquired if they had seen my tenants. The volunteered that they'd helped my tenants move. I checked the gas meter and it was off, and the garage door was unlocked.
I opened the garage door. I looked at all the trash on the floor. At least they left the ladders they borrowed from me, and the paint they were going to use for the trim (that I had provided). I took some pictures, but they didn't upload like I wanted them to. The doors were all locked. I am not one of those landlords who carries keys to all the apartments, and I don't have them master keyed (though maybe I should reconsider that), so I loaded my ladders up and talked to the tenants from across the way.
They, M and J for now, said that my tenant mentioned that she owed money and was moving out. I don't know why she hasn't contacted me. I'm easy to get in touch with, by mail or phone. Someone's got to be able to lend you a phone.
Anyway, it's been quite the month for tenants leaving. One moved out due to moving into a senior park. Another left due to threat of eviction. This one just up and left--I only wish they'd just told me to come and pick up the keys. Another of my tenants is buying a house and I'm the agent and we're hoping to close this week, or early next.

Free Dump Day at the San Bernardino County Dump

It's this October 24th. These days are usually very crowded. The dump opens at 7am and the line starts around 630am the last time I went. Dump fees are around $50/ton with the recycling fee. This is good for getting rid of large items that you usually can't get rid of.

Codewise Consulting

My long time best friend who got me into Building Inspections just opened his own consulting firm. He's incredibly knowledgable, with years in the field as a commercial electrician in addition to years as a plan checker and building official.
Check out Codewise Consulting.

Water Heaters: Tankless Vs. Tanks.

A good article from Builder Online on tankless vs. tank costs.

It doesn't address the fact that many people take longer showers and don't save as much, and that's not a great idea if you're on a septic system.

It does not address solar water heating. Solar water heating takes up more space and has some fairly high retrofit costs, but most saves money immediately if installed at construction.

Here's a link to an inexpensive $1000 system.

Some Bad News for the High Desert and Green Development.

In an article put out by Investor's Business Daily (IBD) it seems that Dianne Feinstein and the Wildlands Conservancy are looking to stop development of a solar/thermal electric plant.

How to use a power sewer snake.

I figure you're reading this because you want to know how to use a rooter. If you're afraid of things that typically go down the toilet or have a sensitive sense of smell, don't read anymore.
One of the things you might find yourself doing as a landlord (and maybe as a homeowner) is snaking out your sewer drain. It might be because of roots, papertowels, kid's toys, tennis balls, rags, feminine hygiene products--ok you get the picture. I've found all of the preceding items. Pity me.
Both Home Depot, Lowe's, and Harbor Freight Tools carry plumbing snakes. I bought the one by Ridgid for around $400. Harbor Freight's runs around $250-300, but doesn't look as sturdy or as safe, as it has an open cage design as opposed to the plastic shell that surrounds both the Ridgid at HD or the model that Lowe's carries. Also, buy the PVC gloves that are nearby.
In any case, it generally costs around $200+ for a drain cleaning service to come out and snake the main line. I've heard that Mike Diamond charges $99 for any drain, so that would be a good deal, depending on when his guys are available. Most inexpensive rooter services take at least 8 hours to get to your job, in my experience. So if you've ever had a rooter guy out 2-4 times, you could've bought the tool.
Now that I've blabbed your ears off (eyes off as you're probably reading this) I guess I should stick with the HOW TO in the title:
1. Take off the cap to the cleanout (you might want to be wearing those gloves, eye protection, and shoes you don't care about--I wore my Tevas today, but I knew I could just wash off my feet.)
2. Let water flow out while you go plug in your snake and determine where the best place to put the machine is--that's why you take off the cap BEFORE you bring your snake over.
3. If you haven't put on the PVC gloves yet, now's the time.
4. Place the snake 2-3 feet from the cleanout.
5. Put one of the attachments on the tip--I use the root cutter for most jobs. It's U-shaped. The spade bit is also good, but as this is on a rental I want to see if my tenant is to blame, because then I charge them for my time. There is also a corkscrew/spring attachment, but I don't like this one.
6. Start feeding the metal spring down the clean out by hand. Don't use the motor yet. When you have pushed the spring as far as you can by hand, stop pushing.
7. Adjust the spring so that there's a little slack, but not too much as the spring can form a loop and catch your hands, fingers, or just smack you. The spring can also catch skin, cloth, or your gloves in the grooves, so treat the machine with respect. Then step on the foot switch and hold the spring loosely while the motor turns the snake. Do this for about 15 seconds to one minute. After some practice you'll be able to notice differences in the sound of the motor.
****Safety Warning**** If the snake loops up, you take your foot off the switch. Then put the machine in reverse. Tap the foot switch to unwind the snake.
8. Repeat steps 6 and 7 until the water has drained out of the pipe or you've reach the end of the snake.
9. Put the snake in reverse, but don't push the switch unless you need to.
10. Start pulling the snake back and load it back into the drum.
****Warning**** The snake is a spring that can fling the effluent on you and the end has a tend to whip if you pull it out too quickly. Anything stuck on the end of your snake might get flung at you. Use your imagination.
11. I like to run a hose down the drain AFTER it's been unblocked.

If you're on a septic system and the clog won't come out, your septic tank may be full.
Hope this helps. If you're afraid to do this yourself, my buddy or I will do it for a couple hundred dollars if you're in the High Desert. :-)

How to Sites

There are a number of places you can go for do-it-yourself (DIY) and home improvement ideas. Some are run by stores that want your business, and some are green and encourage you to recycle, and some just like to share ideas. I'm going to post links here from time to time, so please bookmark this entry of my blog and check back from time to time.
Commercial: (1)
True Value

Green: (0)

Handy: (0)

Tips for investing in Income Properties

Rismedia has a great article about investing in property in today's market. After you read the article, come back and read my comments.

1. Location is the number one rule of investing in real estate. Because the market for rentals in the suburbs of declining areas is contracting, it might be better to invest in cities that don't have much appreciation, but do have positive cashflow.

2. It's good to not go overboard, but as you're buying for the long term, buy long lasting components like ceramic tile, tiled baths and showers, and go with low cost granite countertops. If you are handy, these are fairly easy to install yourself and save a ton of money, plus the saws that you use for large tiles can be used on granite backsplashes. Here is a True Value project site.
If you use drop-in stainless steel sinks (get deep ones if your units are older and don't have dishwashers) you can use a 4" wet saw or grinder to make cuts in the granite. Bullnosed 8' granite slabs can be bought for around $100 and will last longer and look better than a $50 formica countertop. As an added bonus, it won't be hurt by cigarettes. If you start early in the morning, this is only a one or two day project; you can do it on the weekend.

3. Appreciation really depends on your market. California is always cyclical. Southern states, and the Northeast have cashflow without much appreciation. Flipping at this point can be done if you have a lot of cash and can find a really ugly fixer that noone else wants.

4. Historically properties have been appreciating faster than inflation. These days, much of the difference is eaten up in new fees and regulations by the local jurisdictions (Rental license, Code enforcement inspections and tickets, proposed Fire Marshall Inspections for smoke detectors) and public utility rates have been rising with public employee union wages, which rise even when the private economy is contracting. If you have lower income rentals you won't be able to pass these fees on, so avoid low income rentals. The government also competes directly against you with low income housing projects. (Remember #1)

5. Cash is best. While leverage is great, less debt is better. Just protect your assets with corporate structures and insurance. A dollar in your pocket is better than a $0.37 tax credit on your interest write-off.

6. Cost of ownership is a big one. See #4. What are the utility costs? If the utilities are not paid by the renter, can the utility company recoup from the owner ? In California, water bills go against the property. Are there MelloRoos or other bonds that increase the tax rate? Ask your agent.

7. It's amazing what can be done by ripping out nasty carpet (I'm a huge fan of laminate flooring, ceramic tile), scrubbing the walls, replacing the countertops (cabinets if necessary, but refinishing is cheaper and usually works), and upgrading some of the lighting fixtures (adding ceiling fans and outdoor lighting) for comfort and security.

8. Hiring of professionals is great if you can afford it. A lot of minor plumbing and electrical jobs would be prohibitively expensive if done by a professional. There are a lot of great how-to and DIY sites online, as well as books in the library for free advice. (Don't take a library book to a plumbing job). I don't like to kneel, so I hire some help for my flooring. If you're paying $40-80 per hour, you have to calculate how many hours you'll have to work to pay the professionals. If you have renters that want to move in, then you have to determine whether you or the professionals can get the job done on time. I've had it go both ways: professionals could do it faster, or pros didn't show up and the renter went elsewhere.

9. Always. Read some of my posts. I like background checks in addition to credit checks. I don't rent to anyone that I can't do checks on. All adults must be checked. All teens must go on the rental agreement once they turn 18. I just had a lady call and tell me that her husband has no papers and ask if that was a problem. Yes it is--do you want someone selling drugs or pimping out of your house? I had it happen once because I accepted a personal reference.

10. For about $350 you can do your own eviction in San Bernardino. For about $550 you can have a lawyer do it. Go with the lawyer. This could take 2-6 months in California.Or depending on your rent offer the person money to move out (as long as the place is clean and undamaged) as you just want to start earning money. Do not offer to give a good reference. Lying to other landlords will eventually ruin your reputation, maybe faster with new technology.

11. Lower densities tend to have better behaved populations. Once you get 5 units, you need a commercial loan (higher rates and less money could be taken out of a property) and you usually get an added inspection by the health department.

12. Absolutely. If you buy a rental in a resort location you can even right off trips to the area. Vegas market is down, so it's a good place to buy right now. I like Reno a bit better; it's close to the snow and is not entirely entertainment driven.

Fannie Mae Homepath Financing Hazards

This post is meant to be more informational than alarmist.

Many of the REO (repo) properties out there need some work. Fannie Mae has a site where they list some of their REOs for sale. The homes need varying degrees of work. Fannie Mae offers loan which have additional money for repairs. The difficulty comes from the way the loans are put together.

Here's the short version of where we are: Client makes an offer, we wait, we get a counter offer with an addendum by the bank, which we sign and send back. That's when things become a little different.

We got a verbal 'conditional acceptance' from the listing agent. So we are not in escrow, but now have to get estimates for any needed repairs. So now my client has to hire the various inspectors and see what is needed. Then we can get estimates.

The septic inspection turned up that we need a new seepage pit ($2000). The home inspection turned up a new roof, dryer venting, and some small electrical work. So now it becomes a little harder, because my client has to get estimates on all this from licensed general contractors. Here is where we start having problems.

A lot of contractors have left the High Desert area of California (and probably other areas as well--Our legislature is not friendly to business and the boom is over), so there are fewer contractors to choose from. The contractors out there, understandably, are reluctant to give estimates on houses that my client doesn't own. Then there is the fact that some who say they will come out and give an estimate never show up.

So now my client is looking at switching the type of Homepath loan he can get (the standard one gives up to $7000 for costs--this house just needed more) and use a credit card for repairs. He's doing this to get the $8000 first time buyer tax credit, which expires November 30, 2009.

Just a word to the wise.

The Ten Cannots

In 1916, a minister and outspoken advocate for liberty, William J. H. Boetcker, published a pamphlet entitled The Ten Cannots:

You cannot bring about prosperity by discouraging thrift.
You cannot strengthen the weak by weakening the strong.
You cannot help the poor man by destroying the rich.
You cannot further the brotherhood of man by inciting class hatred.
You cannot build character and courage by taking away man's initiative and independence.
You cannot help small men by tearing down big men.
You cannot lift the wage earner by pulling down the wage payer.
You cannot keep out of trouble by spending more than your income.
You cannot establish security on borrowed money.
You cannot help men permanently by doing for them what they will not do for themselves.

Get a Home Inspector

Here's a link to an article encouraging buyer's to get a home inspector lined up before the end of the year to capitalize on the $8000 tax credit. Unless you're a construction professional, with experience in the field, I can't emphasize enough, how important it is to get an inspection. I was a building inspector, and I found a bunch of things wrong with a property that my client and I have a conditional acceptance on, but the inspector pointed out that the dryer was being improperly vented to the attic.