Archive for Real Estate

What goes around, comes around, pt. 1

I’ve written before about the credit crunch, most recently in a six part review of Charles R. Morris’, The Trillion Dollar Meltdown. I’ve also mentioned my love of irony a time or two.  So this article in the LA Times just seemed too funny to be true.  The LBO industry is in deep trouble.  Of course, so are we because of it but that is the other story.

. . . some experts predict that buyout funds launched in the last two years will generate poor returns because they overpaid for the companies they bought and some of those companies will run into deep problems if the economy keeps weakening.

This seems to me more proof that the wizards who run these top funds are no smarter than the ordinary home buyers who somehow convinced themselves that the hype they were creating by buying and trading up was true and the ride up the roller coaster slope would never head down.  Oops!  Overpriced and now the search is on to find a buyer before they lose anymore equity.

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The Wasteland revisited

Okay, before we get started today I need to say a couple of things about well . . . luck.  First, the Lakers 89-85 win over the Spurs was a dream come true.  Kobe played the way I have been hoping he would play since the very first time I saw him take a pass from Vlade (the old one) Divac and 360 a dunk.  In today’s LA Times, TJ Simers took his usual sardonic look at the game by recognizing the maturity of Lamar Odom but the truth is it has taken twelve long years for Kobe to teach himself how to use his superb talents to really play the game.  It was nothing short of great.

The second thing I want to note is the my old friend Serendipity is still watching out for me.  Yesterday’s post, titled Real Estate, the new wasteland, brought TS Eliot’s poem to mind.  So imagine my surprise and delight to open up my Times later in the day to web critic David Sarnov writing about the mystery of so many searches last week for TS Eliot.  Apparently though, people have been misusing the Google Hot Search program to route views to themselves so the big G has started punishing the abusers.  Wow!


Now to get on with it.  In my first post, I passed on my thoughts about some different ways that a person could look at the current real estate landscape.  Things are changing even as you read.  Congress may actually put a bail out bill on the President’s desk before Memorial Day.  I pointed out that even though 38% of the homes sold in SoCal in the first quarter had been through bankruptcy first a seller could avoid that fate by learning how to short sell the property.  A part of solving for this might be to get yourself a new appraisal from which point you could then decide whether to sell or figure out with your lender how to hold on.

Meanwhile, lets lead our horse to a look at the following:

  • Carry Back Loans– So you have decided to sell but with the market so depressed it is a hard decision you have to make about how much you are willing to cut your asking price.  Say you bought at $200,000 but a recent survey of homes sold in your area shows that your property now might be valued $150,000.  That is a hit to your equity that might be recoverable.  If you sell now, the carry back option may be the way to make it back.  In a typical carry back deal your home buyer might only qualify for a certain amount and thus might need to take a second loan out to handle the down payment, closing costs, and the difference between the sale price and what they can qualify for.   In the previous over-priced market, this type of owner-held loan was used to fascilitate a sale when the buyer couldn’t qualify for the whole price.  The owner carried back a portion of the loan at a lower interest rate which the buyer then paid of in monthly installments.  Any problems and the property comes back to the original owner to sell again.  But that was then.  Now in an upside down market, you need to sell, the property value has gone down, and you may have to take a loss.  But it need not be a permanent one.  By carrying back a part or even all if you’re lucky, you can be the bank that earns the interest.  On a $400,000 property where you originally put 20% down you have $80,000 that you can play with.  Drop your sale price to a market value that entices a buyer, say $350,000, and carry back $30,000 as a down payment.  You pay off your mortgage and your $30,000 at 6% earns $38,000 for the 30 years. 

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Real Estate, the new wasteland

Yes, that’s right it’s so T.S. Eliot out there and the turf has certainly turned arid.  No more money to be made lapping at the door.  Now it is a desert crawl through a landscape cactused with for sale signs.  And yes, you may need a guide to get you through to the occasional oasis. 

  • Short Sales – This can be a job.  Yes, you heard me.  You can shop Craigslist, or the classified, or just drive your city streets looking for real estate for sale, especially those that are for sale by owner.  Then you cold call the seller and ask one simple question.  “Would you be interested in a negociated short sale?”  Of course, the owner might start crying at that point, so be prepared to listen to a little pain while he or she or they try to explain their story.  Be sympathetic but honest.  A short sale arrangement will leave some mark on their credit but it is not a bankruptcy nor a failure to make your mortgage payment.  It is a way to remove the mortgage from your debit ledger and a way to walk away from the anchor that the house has become.  It costs you nothing except time as there are an array of consultants, arrangers, brokers, and downright vulture types ready to help.  They get theirs from the resale of the property somewhere down the line.  Now doesn’t that make you feel all warm and toasty?


  • Appraisals in the new market – Face it, everything is reset.  That report you ran last fall is so not true anymore.  You know this because the news has it that home prices have dropped by more than 10% since then and that’s just on average.  Of course, if you had a Line of Credit attached to your property, you know this too, because those wonderful lender folks have probably reset it to $0.  What, you didn’t know.  Oh, that’s right because in most cases the borrower isn’t finding out unless they try to use it.  On top of that, in order to get your property reappraised you will have to find an independent appraiser.  Can’t have the mortgage lender do it because there have been incredible laxities in the regulation of appraisers so that the government had to step in and mandate that the appraiser cannot have any affiliation with the lender. 

  • Sell or holdon – Now here is where the deal gets really tight.  Say you bought into this whole Kiyosaki thing.   Bought into the cash flowing rental property market.  Bought and bought and bought using OPM.  You know, leveraged your buys so that now you are stretched across the deals like the ultimate plastic man/woman.  (See reset above.)  That snapping sound you hear is your own fingers as they have to let go of something because the property value you were counting on has suddenly sunk and that renter you had locked in has suddenly rediscovered the urge to buy for herself at the newly depressed but now equal to her monthly rental payment prices.  Oops!  So suddenly the question isn’t when can I raise the rent again?  It’s what if I raise it and they go shopping?  The smart owner at this point has already sent out a letter to all renters stating that the possibilty exists that they might buy from you.  The smart owner is facing the fact that this downturn has not bottomed out.  Those frustrated renters who have been sitting just outside the candy store window watching everyone else claim the American Dream are now girding their loins, so to speak, and becoming the new wave of home owners.  That’s the real Tsunami in the room.  Your bankruptees will become your renters while your frugal renters get some justice.  Oh man, the free market economy may finally be adjusting in favor of the little guy.

That’s it for today.  Tomorrow we will continue this journey with a look into the following water holes:

  • Carry Bank Loans
  • Credit Union vs Bank
  • Retirement real estate and the reverse mortgage

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The post real estate seminar blues

I know I shouldn’t have them, I know I shouldn’t cry but every single time I go there I find myself asking why?  How come you fool, you silly fool, you never seem to recall that these are just sales fests and that’s all.  They try to lure you in with promises of riches galore or better yet with subtle hints that new knowledge waits just inside their hotel conference room door.  Of course, you realize once you sit that the rapid fire rattle of real estate terms is keyworded to your need.  But then that’s the thing that really hurts because you knew inside that it’s all being used to cover up their carpetbagging greed.  Dang, it’s painful to admit I went again this week and now I here sit with head in hand.  Another case of those post real estate/DonaldTrump/RobertKiyosaki seminar blues.

Well, at least, I didn’t buy no tapes or sign up for the ridiculously low introductory three day workshop offer. 

Meanwhile, take a look at this offer.  Notice the danger signals.  There’s a FREE booklet.  You can make LOTS of MONEY in just 90 days.  He is a RENEGADE who has turned against the evil bankers.  Wow!  Just like Jesse James and you can be in his gang.  Not

What is crazy about all this is that we seem to be in the midst of a perfect storm of these events and pitches.  I know, I promised myself I would use that term but WTH it does describe the situation in two ways.  We are being inundated with these offers and we do seem to want to flock towards the situation as though the word perfect is somehow magic.

 I am sure you have noticed how often that term is used these days to describe an event as though it were inevitable and somehow admirable.  The perfect storm of controversy surrounding Obama and Wright.  The perfect storm of the real estate bubble bursting that we now can surf for wealth.  The perfect storm of the Iraq surge.  All forseeable and undeniable so what are we to do.

Yeah, it’s a perfect storm of bullshit.  That’s what it is.  Another case of mediamanipulation parading as news.  A sound bite.

Ah well, at least we know one thing, the heat of outrage sure is sweet when it works this way to cure those damn post real estate/DonaldTrump/RobertKiyosaki seminar blues.

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Weekly Tags

So here we are again, adding things up, reliving the week’s research and hoping that doing so will unearth even more blogosphere gold.

I spent quite a bit of time this week looking at the financial industry.  But I came across this site when I visited a blogger who had been brought to my attention by’s new “automatically generated related tags”. I seem to remember there was some lamenting at the state of financial literacy in school age children.  This project called, Banking on our Future, has several strong memes:  Urban education, political correctedness, and the real effects of a true financial education on our children.  The Board of Directors smacks of money, and the articles on the blog lead one to believe that in money matters god may be on your side.  Hope floats.  Ah well, who knows maybe the $836,000,000 they’ve spent of educating 228,000 kids will change the world.

I guess you can tell, dealing with the money men and women this week has left me cranky.  This next tag came about because there appears to be a species of search engine which crawls the sphere looking to link you up with an ad for their business.  This one came in looking to lead me to his business blog about MLMs.  His comment was easily recognizable as a car salesman’s hello.  But then I shouldn’t complain, right?  Traffic is traffic.  Plus, you might actually be interested in finding someone to invest in your home business so why not at least take a look.  Just remember to cross reference your Google search so you see all sides.

As you might have noticed, I do have some thoughts about the coming election and the effect the new president might have on the economy.  I could spend time commenting on this type of news report but something about Obama’s reaching out to new voters, and thinking voters at that, makes me less concerned about this foolishness than I used to be.

 Which leads me to this last little link.  Marc Prensky’s name came up in a discussion about media, learning, and writing at Nicola Griffith’s blog.  I had never heard of him but as a veteran of the education system and the ongoing battle to make it computer literate I could feel myself certainly responding to his message.  Why are kids still carrying 30 lbs of textbooks when the money spent on them could be used to deal with the ongoing economic crisis in our classrooms.  Fear of the machine and the loss of power it would bring about in the corporate atmosphere of America’s staid and true education system are real issues and I am glad someone’s addressing them because the 50% drop out rate doesn’t mean necessarily that students are failing, it may mean schools and their resistence to change may be failing the students.

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Real Estate, Interest Rate . . .

So first things first.  I think we might have to give a thumb up to the Fed.  Yesterday’s news that the sub-prime reset rates for mortgages at risk did not jump as high as was expected.  In other words, people expecting their mortgage payments to leap out of payment reach were pleasantly surprised at a little they had changed because the Fed had lowered prime.  Breathing room is what they call it.

Strangely enough, on the very same day that I read that news, my Citibank credit card sent me a letter explaining that they were forthwith increasing my variable rate for purchases to U.S. Prime plus 14.9% but with a minimum set at 19.99%.  At, I found this note:

When the prime rate decreased during the period February 2001 until June 2004, most credit card interest rates did not decrease accordingly.  In fact, most credit card issuers raised their interest rates steadily during that period.  How did they do that?  When the prime lending rate fell, they simply raised their margin rates to compensate for the decreasing prime rate so they would not have to lower the interest rate on customers’ credit cards.  You can find out how ethical your credit card company is by getting out your old monthly statements and seeing if your interest rate dropped as the prime rate fell steadily during the period February 2001 to June 2004. (Of course, to do this your credit card interest rate must be tied to the prime lending rate.)   If you have a variable rate card, notice how quickly your credit card company raised your interest rate when the prime rate increased.  Did they lower your interest rate when the prime rate fell?

I think just about everyone would agree that the credit card industry lacks in transparency.  Even as congress struggles to regulate it, it is also clear that the question about what reasons apply to explain the lenders margin rates are still missing.  As I expected, information about this problem is scarce and indicates the slant of privacy is definitely towards the credit card companies. 

Meanwhile, the world turns.  Have a nice Sunday.

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Weekly Tags and some ideas, too

Some ideas:

How can we finance our schools?  Today, in California, up and down the state, school districts are voicing a similar plea.  Can you donate $400 to our school for each of your student bodies?  Apparently, this is the agreed upon amount no matter where the school is located and even though there is a demonstable difference in the salary scales from district to district across the state.  Now some school critics, especially those opposed to teacher tenure laws, will see this as an opportunity to finally get rid of the chaff.  But teacher layoffs will be based on seniority not ability so that hope is just wishful thinking.  Some critics who say the time of public education for all has seen its day will say, finally, close the damn schools and lets figure out a new and more complete way to go about educating ourselves.  Still, the question won’t go away even though the presidential debates will avoid addressing it.  How can we finance our schools?

Real Estate seminars the do’s and the don’ts – Take my advice and leave your credit cards and check books home.  Sit up front so you can really look in the speaker’s face and hear the questions from the crowd.  Make sure you ask about what you don’t understand.  Beware the one on one meetings at the back of the room.  That’s where the sales staff lies.

 Weekly Tags:


  • I had just completed this post and then turned to my email box where I came across this post from JD at Get Rich Slowly.  I couldn’t help but note that he is doing here what is really a good habit for all bloggers who care about their audience to do.  That is, reviewing a subject he has already addressed.  And yes, I always try to post first before doing anything else on the computer.


  • At Jon Taplin’s blog (see blogroll link) last week we were discussing Obama and his level of cool in the face of the spurious questions on Tuesday’s debate.  As I have said before, and probably will again, surfing the net by tracking a commenter can take you to some very useful and I think amazing places.  This is one.   


  • Finally, this connect which I got from my alternet email but was originally posted on the Huffington Post is just downright hilarious and demonstrates again why a sense of the humorous is one of the best ways to get you to think.


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More and more about Real Estate

I can’t speak for any other area of the country but here in Southern California we are being bombarded with Real Estate buying seminars.  Trump, Kiyosaki, and Armando Montelongo, whoever that is, are ready and willing to (for just two hours of our time and anywhere from $1000 to $1999 if we sign up for the training) teach us all of their tricks.  Guaranteed!  We will learn how to become rich from the foreclosure market.  Guaranteed!  We will learn how to buy bank owned properties with little or no money down.  Gaurunteed!  We will learn how to get cash back when we buy a property, how to incorporate to avoid taxes, and more.  Guaranteed!  Money back if you don’t triple your investment.

Whoa!  I can’t wait. 

The only problem is that these are the very same strategies that the real estate market used to get themselves into this bubble bursting predicament.  Only now as our economy revs up the inflation while taking away the jobs, there seems to be a sense of the desperate about all of this.

So here’s my advice.  Recycle those offers into the circular file.  And step away from the seminar, please.


Meanwhile, in other news, this item in yesterday’s LA Times caught my eye.  It is about a real estate fund co-founded by Magic Johnson, the basketball great.  It’s called the Canyon-Johnson Urban Fund and it provides funding for real estate improvements to properties in the country’s largest metropolitan markets.  Affordable housing, community-serving retail, and livable down towns is the goal.  A great venture and about time, I say.

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There’s more to Real Estate than meets the eye

Yesterday morning, after breakfast, T and I took a little drive around our seaside community.  Cruising past well kept lawns and blooming flower beds, we were on the lookout for the For Sale signs of a growing market of properties where, according to the news, the median home price has dropped to $385,000.  But we weren’t surprised to find that the flyers we found were still holding to pre-bubble prices.  $799,000 and $675,000 for 20 year old homes albeit in nice neighborhoods.  As we curved up the hill towards the top level and newer homes that can claim ocean views $1 million and more still was the price.  It appears that location, location, location still means something even in this market.

 As we continued our drive, she and I talked about two recent developments.  Two friends of ours had enrolled in the Trump University Real Estate program.  They were spending a part of each day and several nights a week trolling for properties both rental and commercial.  They told us of their experience at last weekend’s REDC auction where after putting down a $5,000 entry fee they were able to tour a listing of foreclosed properties and to make bids to buy them. 

“There were all sorts of people there,” S said. “The guy in front of us was a college student, next to us was a family of four, behind and standing along the wall were guys in suits with laptops open as they checked each bid against their own info.  There was an air of excitement and it felt like anything could happen.  We ended up bidding on six properties but all but one of them went to someone else.   The last one we’re still waiting for word on whether the bidder’s financing went through.”

The second development concerned our son who’s part time job as computer consultant for a real estate company has blossomed into a full time management postion as the company began last year to focus totally on handling foreclosed and bank owned properties.  Their listings went up a thousand percent in the second quarter of 2007 and haven’t decreased since.  Now the company wants him to head a new division that specializes in short sales.  At, realtor Elizabeth Weintraub gives this definition, 

“A short sale occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed.”

In other words this is a negotiated sale of the property before it goes into foreclosure.

Our friends experience got complicated last week when their Trump counselor who had been touring with them to find properties turned them onto a can’t miss deal that had them making an offer of $525,000 for a property the realtor assured them they could turn around and sell for $640,000.  The seller would even throw in $35,000 as an incentive.  Three things put a crimp in the deal. 

  1. The prospective buyer at $640 couldn’t qualify so our friends would be expected to carry back a part of the loan.  
  2. Our friends were shopping with money they thought they had available in a HELOC on their own home.  Unfortunately, their lender had reset and canceled it without notifying them. 
  3. When we heard the details of the situation we immediately sat down with them to talk about the real real estate market they were getting ready to take a chance on.

 Our son seems eager to jump into his new job.  Our job apparently will be to keep our eyes open as the people around us venture forth.

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To spend or save

that is the question.  And a horny dilemma it is.  We, in the US, are the world’s worst savers if you look at the stats that tell us we save less than negative 1% of our income as opposed to China where the savings rate is a plus 20%.  We are the world’s best consumers, too.  We are so good at spending that our President told us to use our skill as a defence after 9/11.  The government is so confident of our inability to save that it is willing give us money that it just knows we will spend to stimulate the economy

Meanwhile, our common sense and our personal finance education has taught us that in order to be in safe territory financially we need to set aside funds for emergencies and put our money to work in a variety of ways so that it earns returns for us and the economy.

That is why this situation is so frustratingly confusing.  What is good for one should be good for all.  But in a consumerist economy that is credit based like ours, the opposite appears to be true.  Our savings and investing should be good for the economy because savings make us less and less vulnerable to hard times while the money invested supports businesses and growth.  But the hard times come because our economy is seven eigths consume and one eighth save.  In order to keep up with this imbalance we have dipped deeper and deeper into a credit future to pay for it.  Not just we the consumer but theythe corporations that produce the goods.  Instead of being secure and wealthy we are shakey and awaiting a recession.

Strangely enough the news though daunting is not all bad.  The apparent settlement of the long term dispute over oil production along the Santa Barbara, California coastline is one sign that economics and ecology are finally reaching some agreement.  My recent post on Real Estate brought this interesting corroboration from a realtor in Illinois that that market may be seeing some welcome change from the bottom up.

” the National Assoc of Realtors have actually been running an ad lately that makes a very accurate statement, “real estate is local.” In our market (northern IL), there are homes available for sale to any income level. I’ve worked with people who live on disability income, but they have practiced living within their means, kept their credit in good condition, and have purchased homes successfully. We work with employers who provide down payment assistance to their employees (and get tax credits in return), and we work with the state to provide matching funds. People are walking into $50,000 homes with $10,000 in assistance. Just because some ideas don’t fit in your market doesn’t mean that they don’t apply elsewhere.”

We are, after all is said and done to us, all about challenge and survival.  Our greatest improvements, most important inventions, and best performances come under stress and during duress.  I don’t see how this time around it will be any different.


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