The Latest Case/Schiller Index of Housing Values

What (I believe) is the most negative Housing Index in America – Case/Schiller – was announced this morning.  It painted (as always) a horrible picture of housing values nationally. 

As has been the case for some time now, Denver and Colorado, have been the exception to the (Case/Schiller) rule.  According to Case/Schiller, housing prices in Denver and Colorado once again increased.  Again, this is as the Case/Schiller folks announce the worst picture they have ever seen country wide. 

When it comes to things like the Case/Schiller Index, the media and the population in general tend to be very “headline” oriented.  Study after study reveals that the media and the general population haven’t a clue as it relates to housing values. 

In Colorado Springs (one of the best real estate markets in America) I have conducted several informal surveys in recent months and overwhelmingly the general population in the Colorado Springs area believes real estate is dropping dramatically in value.  This belief flies in the face of study after study showing that it is increasing. 

This is important because perception IS REALITY when it comes to population beliefs.  A wise investor can use this to his or her advantage.  If you know “all is well” and the person you are negotiating with believes the sky is falling, you have a HUGE competitive negotiation advantage. 

It is critical (as an investor) that you understand clearly and accurately your local market.  It is foundational that “REAL ESTATE IS LOCAL!”  What is happening to real estate in Colorado Springs has almost no impact on real estate in Des Moines.  In fact, it has very little impact on real estate values in markets less than an hour away like Pueblo and Denver. 

Do your homework from independent and local sources.  That will make you money.

Under Commit, Over Deliver

You have certainly heard those words before.  Yesterday morning, we called a plumber to check out our sprinkler system for the start of the summer watering system.  He advised he would call Pat (my wife) two days later to schedule an appointment to come out.  Later that day his partner called and said he could do the service call that afternoon.  We were thrilled with their responsiveness.  When he came out, the system needed a small part.  He changed it without adding it to the service charge.  Once again, we were very impressed.

When you are dealing with tenants in your properties, try to adopt the same philosophy.  Find a way to do something or provide something they were not expecting.  I assure you that approach will lead to a much better landlord/tenant relationship and will yield happier tenants.  Happier tenants stay longer.

Furniture Row and Rental Real Estate

Furniture Row is a national chain of furniture stores that built an extremely successful business on a unique idea.  Most people believe Furniture Row is a group of independent stores that have banded together to give the customer ease in shopping and to take advantage of shared marketing costs.

While both of those things are accomplished in each Furniture Row, there is actually just one owner.

There success is directly attributable to the unique idea.

In rental real estate a unique idea can be VERY profitable.  As an example, a few years back we had a property that was “too nice” to rent.  Instead of selling it off, we turned it into “corporate housing” and were able to charge way more rent by furnishing it, equiping it with housewares and linens, and providing maid service.  The property was jumped on (as a rental) by major corporations looking for shorter term housing for their executives in transition.

I am often accused of being the master of turning lemons into lemonade.  I guess you would say I wear that creativity badge with honor.  Before you walk away from a property, step out of your comfort zone and think about what might be possible.

Here are some examples:

Corporate Housing

Seasonal Housing

Student Housing

Multiple Family Housing

Office Space

Office/Housing combination

One of my goals in life is to cause people to leave their comfort zone every once in a while.

Mark your calendar

I apologize for the lack of blog posts as of late.  I have been busy writing my newest book as well as preparing a new and exciting real estate seminar!

Saturday, June 13th is a long way away.  Still, you might want to write it on your calendar.  That morning, we are having our first summer seminar.  If you are sitting there wondering whether or not it will make sense for you to refinance, this seminar will guide you well in that decision.  If you are trying to decide whether paying fees and points makes sense, we will provide you the decision making criteria.  How about those zero cost loans?  We’ll talk about the pluses and minuses.

Investment real estate is another area we will get into.  Specifically, we will get into financing.  We will talk about exactly what you can and cannot do in today’s market.

Our seminars are non-stop fire hose flow of information.  These are not sales presentations.  We want you to leave with all the information you came to find.  Many attendees tell us that at the end of one of our seminars they feel a lot like the young student in the back of the classroom going “teacher, teacher – my head is full.”

If you would like to insure a spot, you may sign up at 719-574-9500 or send an e-mail to joewhitemortgage@gmail.com.

The Psychology Of The Stock Market

A year and a half ago the Stock Market was approaching 15,000 points on the Dow Jones Index.  Recently, it dropped below 7,000 points.  More recently, it climbed back up to about 8,000 points. 

The talking heads on CNBC and the representatives of the Stock Market are touting this “turn around” as one of the greatest events in the history of “the Market.” 

What is that old saying about statistics???  The Stock Market is and has been a terrible place to be for more than a decade.  The spokespeople for “the Market” tell you it is a “long-term investment” place.  Unfortunately, they never identify what long-term is. 

The other night I was listening to syndicated radio money man Clark Howard talk about what a 30 something should be doing with his investment money.  Clark was all over the tremendous opportunity the Stock Market held out for this person.  His assumption was there was no doubt it would go back up to previous levels and exceed them.  He probably would have given him the same advice ten years ago.  Where would that have our then 20 something in a decade of consistent investing?  Down 30-40% in his “long term” investment. 

I can only think of the person flipping pennies.  They flip 10 heads in a row and are convinced a tail is more likely on the next flip than a head.  Of course, the odds remain 50/50. 

I fall into the camp that believes the Stock Market will not see its previous levels for many years to come – if ever.  I personally believe it is just as likely that we will see 5,000 as 10,000 on the market.  I believe a fundamental change has happened.  If we do see those levels again, it will – in my opinion – simply be the result of a grossly deflated currency. 

A couple of years ago, I had the audacity to question the Stock Market at its lofty levels.  I was viewed as a weirdo by the established investment community.  I preached a message of cross asset class diversification.  Those that followed my advice are doing very much better today than those who did not. 

I believe (for the individual investor) that the Stock Market is no different than going to Las Vegas.  The likely outcome is very similar. 

Get TRULY diversified.  If I can help, let me know.

Inflation

The “economic experts” tell us that inflation is not a risk.  Who the he—are these “economic experts?” 

As a country we are printing money so fast that printer’s ink has become a key economic stimulus item.  I can’t even fathom what a billion dollars is and we are printing trillions. 

Let me see if I understand this.  Our currency is backed by the full faith and credit of the United States – and nothing else.  We are printing new money in the trillions.  There was only a few trillion dollars in circulation before this started.  Doesn’t the buying power of those dollars have to go down – by definition?  Isn’t that inflation??? 

Let me give you a simple example.  Let’s pretend we live in the world of X.  There are 1000 dollar bills in the world of X and each of those dollar bills will buy a widget.  If we print another 1000 dollar bills in the world of X and nothing else changes, won’t it take two dollar bills to buy that same widget? 

Am I missing something? 

It appears to me that we will have more than doubled our currency in this process.  Won’t that reduce the buying power of our currency by more than 50%???  Isn’t that inflation – the unkindest tax of all? 

Your solution is to get into real assets.  Maybe you want to expand a hobby the way I have done recently with my leather store.  Perhaps you purchase antiques or collectibles.  Investing in real estate certainly is a proven way of dealing with inflation. 

Don’t get caught doing nothing.  Do something!

Loan Modifications…

You see and hear their ads constantly.  They are the “Loan Modification” crowd.

The majority that you see or hear about are SCAMS!  Most are operating illegally in the State of Colorado.  Most do not have the required licensing, bonding, errors and omissions insurance, etc.  They have not taken the courses.  They haven’t passed the tests.  In short, most are criminals.

Worse yet, most of them do nothing for you other than reaching into your wallet and removing hundreds and maybe even thousands of dollars of your hard earned money.

If you want to find out if there are things you can do to improve your mortgage situation, contact Your Personal Mortgage Planner.  If I can’t assist you, I will direct you to a professional that can.  I will also give you advice as to what to watch out for.  There is no charge for this advice.

The “Loan Modification” crowd is a slick bunch.  They will talk to you on the telephone or in person and have you confident they can change your financial world over night.  Seldom is it that simple and you should NEVER give them money up front.

Once again, your first step should be to visit with Your Personal Mortgage Planner.  Give me a call at 574-9500.

Denver and Dallas

Denver and Dallas remain the best of the Case-Schiller Index 20 real estate markets.

Regular readers of this blog know that I am not a big fan of the Case-Schiller Index.  I do not believe measuring the 20 largest metropolitan areas of the U. S. gives a valuable indication of real estate values – which are totally local.

As an example, Denver, Colorado’s home values have very little impact on Colorado Springs, Boulder, Fort Collins, or Grand Junction.  Case-Schiller suggests home prices in Denver have dropped about 4.5% in the last year.  First of all, I doubt that and feel the Case-Schiller methodology tends to paint a negative picture.  Even if it were true, wouldn’t it make sense to include Boulder (which is booming), Colorado Springs (which is doing fine), etc.

All that being said, Denver has shown the best picture in the nation in the Case-Schiller for about the last year.  If you asked the average Colorado resident, they would tell you the market in Colorado is horrible when it is simply not.  There is a tremendous gap between perception and reality.

REAL ESTATE IS LOCAL!!!  Beware of the media reporting.  Don’t fall for their trap.

My New Book!

Last week I agreed to begin writing a new book that will focus on the mortgage and real estate investing market of today and tomorrow.  This is one incredible challenge. 

As I sit here today, I really don’t know with certainty where the mortgage market is right now.  I certainly will be doing an educated guess – at best – when I discuss where it will be tomorrow and going forward. 

Then I get to do the same thing with investment real estate.  Actually, this is a little easier. 

With mortgages, there has been a total change in the industry.  The most popular programs of the past 5-10 years are now all gone.  Interest Only loans are still technically around.  They have been priced out of the marketplace.  The entire sub-prime loan market is gone.  FHA used to require a 550 credit score.  Now it requires a 620.  This has dramatically reduced those who qualify.  Investor loans are almost impossible to get and the loan to value ratios are punitive. 

What is left are 30-year and 15-year fixed rate amortizing mortgages.  Coincidentally, (I am sure) these are the most profitable loans for the banks in America.   

That is pretty much the state of the industry today.  I suspect it will not change much until at least the summer of 2010. 

In the real estate investing world, the biggest factor is the gap between perception and reality in parts of America.  In Colorado, we have outstanding factors that would guide most people into investment real estate.  We have record high rents, lower costs, low vacancy rates, and short time on the market.  Further, our demographics suggest massive population growth in Southern Colorado over the next several years. 

What is weird is most people think things are bad and going to get worse.  This creates an unbelievable opportunity for the wise real estate investor. 

There you have it.  That is the foundation of the next book.

What’s Wrong Here?

Three years ago I advised a client to take his savings and diversify it.  At that time he was 75% invested in the stock market and 25% invested in gold.  My advice to him included:

1.  Reducing his exposure to gold to 10%.
2.  Creating an emergency fund of the equivalent of six months of his annual income.
3.  Reducing his exposure to the stock market to only his 403(b) and limiting his contribution to the match his employer (Jefferson County, Colorado) provided.
4.  Use the balance to acquire investment real estate.

Here are the results, three years later:

1.  He lost a little by reducing his exposure to gold.
2.  He has been far more secure due to the presence of his emergency fund.  He actually had a need to use part of it (which he replenished) and having it in place avoided significant costs.
3.  Reducing the exposure to the stock market has been an absolute godsend.  He mostly avoided the massive crash that impacted almost everyone.
4.  He acquired three single family homes.  Two are located in Pueblo, Colorado.  One is located in Colorado Springs.  He put 10% down in each case.  All three have been fully rented the entire three years.  The two in Pueblo were each positively cash flowing (before taxes) by about $150.00 a month each.  The one in Colorado Springs was negatively cash flowing about $400.00 (before taxes).  Overall, (before taxes) he has been about $100.00 negative cash flow.  After taxes are considered, he has been about $600.00 per month POSITIVE cash flow.  The two properties in Pueblo have appreciated about 15%.  The Colorado Springs property has appreciated about 10%.

But…  The client is upset!

If he had stayed in the position he was in, we would have lost about 25-30% of his net worth.  Instead, he has been liquid.  His net worth has actually increased slightly.  He has also had a $20,000 tax write-off after just about break even on his investments.

Again, he is very upset with me!

If you’d like to get upset with me too, give me a call or send me an email.