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February 1, 2007 at 7:18 PM in reply to: Federal Reserve Montary Policy in Light of An Asset Bubble #44639
4plexowner
ParticipantDaisyDuke – inflation is not a concern of the Federal Reserve – inflation is one of their main GOALS!!!
There are two ways that governments can pay for doing the things that governments like to do:
1) tax the citizens – this works well but can’t be done to excess because of things like the guillotine – ie, the
citizens eventually get fed up with being over-taxed and revolt2) institute a fiat currency and print money as needed – this solves the immediate issue of how to finance government but it debases the existing money supply – every new dollar that rolls off the printing press decreases the value of all the other dollars currently in circulation – the debasement occurs very gradually so the citizens tend not to notice
Implementing Option 2, the fiat currency plan, is easier if you can also do these things:
> over-complicate the federal financing system so the citizens will choose not to dig too deeply into the details
> have public officials and academics poo-poo the idea that currencies should be backed by something tangible – hopefully the media will pick up on some phrase like “gold is a barbarous relic” and repeat it mindlessly to the unthinking population
> intentially remove all economic and financial material from the public education system
> get the citizens to believe that a small amount of inflation is acceptable and even desirable
> always present the spin that rising prices are being caused by greedy middle-men and speculators – never talk about how it is actually the slow, steady debasement of the money supply that results in rising prices
> manage the price of precious metals so they do not rise in the face of monetary debasement
> provide funding for economists who believe in Keynesian economic theory – grant them Nobel prizes if possible – do everything possible to support Keynesian economics while ensuring that Austrian economic theory is discredited along with that “barbarous relic”
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Read “Creature from Jekyll Island” and you will see how all of this has been accomplished here in America.
February 1, 2007 at 5:53 PM in reply to: Federal Reserve Montary Policy in Light of An Asset Bubble #44635ParticipantThere is almost always a bigger picture if we will back up and look for it.
The bigger picture here is to realize that it was Federal Reserve policy that CREATED the bubbles in the first place – how the Fed reacts to the bubbles when they crash is not the most important thing to focus on.
Read “The Creature from Jekyll Island: A Second Look at the Federal Reserve”, by Edward Griffin. This book lays out how the Federal Reserve was created and why. The book then details how the banking cartel/Federal Reserve instigates wars because they are profitable.
Gotta run … will write more later
ParticipantI grew up in Dallas, went to school in Austin and worked in Houston so I am familiar with the cities you mention.
Texas is mostly flat so Texas cities can expand outward very easily. Just add another freeway circling the city and, presto, lots of new off-ramps for gas stations and strip malls and many square miles of land just waiting for new houses. This occurred several times during my childhood in Dallas.
San Diego is geographically constrained by the ocean and mountains as well as the Mexican border and Camp Pendleton. I think it was probably these constraints that forced urban planning to occur in San Diego – not Prop 13.
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In regards to Prop 13 keeping people planted in their houses, that is certainly true to some extent. I sold all of my investment real estate in San Diego but kept my personal residence, in part, because of Prop 13 and a 1998 tax basis.
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I have the perception that many people in San Diego buy real estate without including the cost of property taxes in their budget. They choose not to have taxes and insurance withheld in their mortgage payment (which they can barely afford) and then get shocked when the tax bill arrives in November.
Property tax of 1.1% on a $500K house is $5500/year or $458/month – ouch!
And the people that paid $800K – $1.4 mil for tract homes in North County? They are paying $8800/yr – $15,400/yr for the privilege of commuting in traffic hell on I-5 and I-15. That’s $733-1283/mo for just taxes and then, as you point out, they get to fork over $300-600/month for Mello-Roos. Some of them also have HOA fees to cover common areas of their development.
I’m ranting about North County tract homes so I’ll shut up now.
ParticipantProp 13 is interesting.
As a real estate owner I am glad that it exists. My 1998 tax basis suits me just fine, thank you!
As a citizen of San Diego I wonder whether Prop 13 makes sense.
One of the things I have read about Prop 13 is that it can influence the growth of a city in a bad way. Since the city can’t raise taxes on existing homeowners they have more incentive to build new strip malls and new subdivisions. Can you say “Urban Sprawl?”
But then I read about people on the east coast (where property taxes HAVE increased significantly regardless of when the owner purchased) and how some people are being forced to sell because of the increased tax bite. That pretty well sucks!
One of the reasons Prop 13 was enacted was to prevent people on fixed incomes from being forced out of their homes due to rising taxes. That makes sense to me.
Another thing I have read is that Prop 13 (or similar law?) also applies to commercial property. Since tax re-appraisal only occurs when a property changes ownership, commercial property is rarely ever re-appraised. I think it is even possible to own commercial real estate inside a legal entity (LLC, corp, etc) and have new ownership take over the legal entity without triggering a re-appraisal of the real estate (because the property itself is still owned by the same legal entity).
Again, since the city can’t raise taxes on existing commercial real estate they are forced to promote new strip malls and subdivisions to build their tax base. More urban sprawl.
So, Prop 13 is an interesting nut to crack – if I were tasked with evaluating its continuation, I would start by looking at commercial property and how it is taxed.
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An example of how Prop 13 is perhaps too generous to existing property owners: Prop 13 also covers multi-unit residential properties – one of my friends has been buying San Diego apartments for almost 30 years now – she has a cashflow problem (ie, too much of it!!!) and buys another property every few years so she has something new to depreciate on her income taxes – part of her cashflow “problem” is that she is collecting 2007 rents and paying 1970 taxes – she could certainly afford to pay more property taxes on her many properties – again, if I were evaluating Prop 13 I would start with commercial property
ParticipantPatience, grasshopper!
You’ll get your 30% drop (and then some, IMO) but you may have to wait until 2009 – 2011.
I don’t do as much gloom and doom posting as I used to because it all seems so obvious to me that it has become boring. I figure the people who can’t see it for themselves aren’t going to be swayed in their opinion and they will get what they deserve.
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2007-08 will be hard on San Diego’s market because of interest rates resetting on over $1 trillion in ARM mortgages nationally (very high % of local mtgs are ARMs) and 3000 condos coming online downtown in an already saturated market. Maybe another 8-15% drop in prices each year due to supply exceeding demand?
On top of declining prices we will have over 10% monetary debasement each year (current rate is 11.5%) so real purchasing power (ie, inflation adjusted value) of real estate could drop on the order of 30-50% before we get into 2009.
Is that gloomy and doomy enough for you?
January 17, 2007 at 10:19 PM in reply to: Hard for American People to Understand; Cracked Egg #43650ParticipantIt amuses me to see the bickering back and forth between Republicans and Democrats.
As always, there is a bigger picture if you will back up and look for it.
In this case the bigger picture is that the banking cartel runs the world and they provide Americans with two political parties so we have the illusion of choice.
Because people are so busy arguing about which politicians suck the worst, the banking cartel is able to do whatever they want without being questioned.
Read “The Creature from Jekyll Island: A Second Look at the Federal Reserve” by Edward Griffin to get some insight into who really controls both political parties.
ParticipantOut-of-state ownership:
Obviously, if you are going to own property outside of your local area you will need someone to manage it for you. Are you going to pick someone out of the yellow pages? Hope your realtor can refer you to someone?
When you hire a management company you will provide them with your contact information – an address and phone number that will clearly show them that you are an out-of-the-area owner.
Who do you think the management company is going to give highest priority to: the out-of-the-area owner or the local owner? Which of these owners is more likely to show up in the doorway of the management company and complain? Which of these owners is more likely to drive by their property and see how it is being maintained and managed?
What can you say to the management company when your property vacates and then sits empty for 2 or 3 months? How do you know that they cleaned the unit and put it back on the market in a timely manner?
What can you say to the management company when your property vacates and, according to them, needs $2500 worth of repairs? Are you going to inspect the property and see what they are talking about? (All you can say is, “OK, make the repairs and I’ll send you a check” and hope they aren’t screwing you over.)
If you finally get fed up with the management company what are you going to do? Fly there and fire them? Who will you replace them with? Back to the yellow pages?
Bottom line, IMO, is that you are setting yourself up for problems by being an out-of-the-area owner. You might get lucky and never have any problems – or you might be unlucky and end up losing your ass on a property that you shouldn’t have bought in the first place.
(If you have family or friends in the city where your property is located they might be able to keep an eye on things for you.)
My experience: I turned one of my properties over to a management company not long after purchasing it – they had a maintenance crew on staff so I asked them to do some of the work that was needed – one job was to sand/paint a wrought-iron railing – I happened to be in the area one day so I drove by the property and found two people spray painting my railing with cans of Krylon spray paint – they hadn’t put down any paper or taped anything – I stopped the ‘painters’ from continuing and told the management company not to do anymore of the work I had asked for (I had to pay to have the overspray buffed out of my tenants’ cars) – not long after that incident I had a unit vacate and it needed new linoleum in the kitchen – I picked the flooring and let the management company schedule the install – after the work was done I went to the unit and found that there was a seam in the linoleum about six inches away from the sink (ie, highest wear point in the kitchen and a wet point besides) – how long do you think it would have been before that seam looked like shit and was allowing water to get below the flooring? – the management company insisted that there was nothing wrong with the install (I made them redo the entire floor and put the seam in a more sensible location) – at this point the management company let me out of my contract (they could have refused) and I took over management – if I had been an out-of-area owner, I might have been sued by my tenants because of paint on their cars and I would have been replacing the linoleum in that kitchen much sooner than necessary
Participant9/11 was executed by the neocons to achieve the goal of gaining control over Iraq’s oil.
Iran is the next target and the objective is the same.
If you don’t believe these statements you haven’t read enough history.
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Who put OUR oil under the Middle East’s sand anyway?????
ParticipantI bought my first 4plex in 1998 – paid about 11 GRM which was high at the time but made sense due to property and location (not to mention that everything else I had looked at over the previous 4 months was absolute TRASH).
Bought the next one in 1999 – 11.5 GRM for 4plex in Mission Beach. Never again – beach people (I call them beach scum) are horrible tenants – all they want to do is drink their beer, smoke their weed and figure out how to get over on the landlord.
Bought several more in the next two years – GRM kept increasing but rents were rising sharply too.
Around 2002 GRMs were consistently 14-15 for anything that wasn’t obviously trash – it was very common to see properties listed AND SELLING at 16-20 GRM – I stopped buying. It was no longer possible to pretend that I was INVESTING in real estate – it finally dawned on me that I was just another speculator playing the game so I started selling. (I had also read Robert Prechter’s books and was convinced that a major deflation was about to occur.)
The last 4plex I sold was in 2004 and it went for 18 GRM.
I haven’t been watching the multi-unit market since I sold all of my investment real estate but IMO, if GRMs are still above 12, there is no way in hell that you will get positive cashflow out of property. If you think you can get some type of suicide loan (interest only, ARM, neg am, etc) and make the cashflow work, I hope you will ask yourself this question: “Am I investing or speculating?”
I will be a buyer of multi-unit property again – probably in the 2009-2012 timeframe depending on how things unfold in our local market.
As far as buying income property somewhere other than where you live, my opinion is “DON’T DO IT”. All of the real estate books I have read say that being an out-of-town owner is a mistake. My experience: one of my properties was in Imperial Beach – I could drive to the property in about 45 minutes unless traffic was bad – and I decided that even IB was too far away to own property!
As far as value fluctuating: IMO multi-unit properties are priced strictly based on rental income (that is why I only talk about GRM) – if you can accept this premise, ask yourself “Are rents going up or down?” If you think rents are going up I’d like to hear how you think 3000 additional condos downtown in the next two years are NOT going to provide a glut of rentals which will depress rents throughout San Diego.
The multi-unit game in San Diego is over for several years, IMO. I believe you will be fooling yourself if you come to any other decision.
ParticipantI always looked at prices based on gross rent multiplier.
So, I take $6500/mo income for 12 months => $78,000/year.
The last 4 plex I sold (2004) went for 18x rents which would give us $78,000 x 18 = $1.4 mil. Let’s say that the market has softened and the 4 plex were talking about doesn’t have the amenities or whatever, so it only warrants a GRM of 15. That’s $1.17 mil.
Let’s say we can buy it for $1.2 so we can do some back-of-the-envelope cashflow analysis.
You’re going to live in one of the units so income becomes 75% of $6500/mo or $4875. Let’s pay property taxes next – 1.1% yearly on $1.2 mil is $13,200/yr or $1100/mo so we have $3775 left.
Let’s say we put 5% down ($60K) and get owner-occ financing on the rest. 80% first mtg (30 yr fixed) for $912K at %6 means a monthly payment of about $4500. We will need a second to cover the other 15% – depending on your credit rating this 2nd mortgage is likely to be at 10% or more – let’s say the gods are smiling on us and we can get a 15 yr, interest only loan of $228K at 8% – that gives us a 2nd mortgage payment of $1520/mo.
We have now taken $2,245 out of our pockets for the right to ‘own’ this property for one month and we haven’t paid for any insurance, utilities or maintenance yet. We also haven’t accounted for vacancies or turnover costs.
Let’s be conservative and say it will cost $2750/mo to own this property and cover expenses. This assumes you will manage the property and do all the minor maintenance work yourself. When someone moves out it will be you doing the cleaning, painting, etc.
Can you afford that monthly nut? Will you have any reserves if something goes wrong?
Do you really want to have $1.1 mil in debt secured against rental income property? Real estate is very non-liquid in a soft market so this could be dead money for a long time.
Buying this 4plex might make sense for your personal situation but it doesn’t make sense to me as an investment.
As an owner-occupant you get better loans and you’ll have lots of write-offs for your taxes. Just don’t kid yourself about what it will cost to ‘own’ a property like this.
ParticipantMy real cost of living is increasing by more than 3-5% per year and has been for the past several years.
The real cost of living includes things like energy and food, health insurance premiums and copays – perscription medications – etc – the inflation statistics put out by our government are very creative to say the least.
I like the ‘substitution effect’ which assumes that your grandmother will stop eating hamburger when it gets too expensive – she will substitute dog food for hamburger so her cost of living won’t change.
Another neat trick is to say that computers and cars are costing less and less each year because the technology keeps improving – I guess eventually they’ll be free?
ParticipantI’m not sure why I enjoy seeing powayseller getting trashed but I do.
She does have a website that was last updated in Sept ’05 or so. I wish I could find the link to include here – reading her description of herself gave me a good laugh.
She says she has 20 years of experience in the financial markets but I have seen numerous posts from her on this forum that show me she has tremendous holes in her financial knowledge.
Here are a few that come to mind – I am paraphrasing:
1. “I forgot about inflation …”
2. “I don’t know anything about derivatives …”
3. “I didn’t know I could buy 5 properties with nothing down …”I hope powayseller continues to post here – she provides entertainment value and sometimes provides useful info / insight. Would I pay “less than $10 per month” for her information? Ha ha ha ha ….
ParticipantSupply of US dollars is currently being increased at yearly rate of 11.5%. If you are getting a 5% return on your paper investments you are losing 6.5% of your purchasing power every year.
ParticipantGood cop / bad cop can also be used in real estate negotiations.
My agent was ‘good cop’ presenting my hardball offers – I was ‘bad cop’ (the unreasonable buyer/seller) asking for things I knew the seller/buyer wouldn’t agree to and telling the seller/buyer (via my agent) to F-off inre anything they asked for.
During purchases, a key piece of this strategy was letting the seller know that I was a serious / qualified buyer and that if we reached an agreement, we WOULD be closing escrow.
As other posters have stated, you have to negotiate from a position of strength. The main part of this strength is being willing to walk away from the deal – if you aren’t willing to walk away from the deal you have given up most of your negotiating power.
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