Archive for October, 2007

I’ve been talking to a lot of out of state investors lately, and the subject of weaknesses and opportunities for this region comes up every time. While I know that any discussion of substance on this would take a while, I though that I would put together a couple of lists off the top of my head.

If you think there’s something missing off of either of the lists send me an email at list@MichProps.com. If I get enough of them I’ll publish them.

Let’s start with the bad news because it’s like shooting fish in a barrel.

10 things WRONG with the Detroit Area and the State of Michigan

1. A governor who never had a real job and lacks even a kindergarten-level understanding of economics.
2. A state legislature that is incapable of making a single difficult decision.
3. A CEO at Ford that has, as inconceivable as it may seem, less of a clue as to how to run a car company than Bill Ford Jr.
4. UAW membership that struck GM and Chrysler and nearly rejected the Chrysler contract – what part of R–E–C–E–S–S–I–O-N don’t they understand?
5. Comerica, Audi, and Pfizer leaving the state.
6. A nation-leading number of homes in foreclosure.
7. No adult supervision in Detroit City Government.
8. No adult supervision in the Detroit Public School System.
9. A massive state-wide inferiority complex that caused our state legislators to consider as a priority moving up our state presidential primaries. All it did was showcase Michigan’s complete and total irrelevance in the national presidential race. With all the other problems that we have, this was their top priority?
10. In response to the US Postal Service’s plan to open a new sorting facility in Pontiac that would consolidate functions and save $4.3 million TAXPAYER dollars per year, Dwight Boudreaux Sr., president of the Detroit district local of the American Postal Workers’ Union thinks that it’s a bad idea because the city won’t have a postmark any more. I’m not making this up. He actually said “it carries a sense of the city’s identity”. “We had a Super Bowl, General Motors is here, Quicken Loans is considering moving here, but we won’t have a postmark.” And this clown is the president of the union. Yikes.

And now the good stuff.

10 things RIGHT with the Detroit Area and the State of Michigan

1. General Motors UAW contract. With it they close 2/3 of the cost gap per vehicle between them and Toyota.
2. General Motors continued success in consumer-driven design, marketing, and advertising. Have you seen that new Cadillac commercial?
3. Chrysler, LLC. Doesn’t that have a great ring to it? Finally an auto company run by people with profit and cash flow as their first priorities. And they won a stunning victory in their contract negotiations with the UAW. (Ford, were you paying attention?)
4. Google opening an office in Ann Arbor.
5. Compuware’s upcoming $1 billion Covisant IPO. Nicely done.
6. Finally the beginning of a critical mass for a Downtown Detroit resurgence, despite #7 & #8 on the other list.
7. Carl Tannenbaum, chief economist for LaSalle Bank, adds two to the list: the area’s highly-educated workforce, public university system, high household income and history of business leadership as positive attributes for the region.
   
8. Tannenbaum also said that long-term, Michigan will be a hub because 20 percent of the fresh water supply in the world is nearby. “That’s an amazing natural resource we need to harness and promote,” he said. “People no longer will be chasing the sun. They’ll be desperate to seek water.”
9. Dirt cheap housing, land, and buildings.
10. A blistering hot rental market that is begging to be addressed.
11. Term limits. (couldn’t resist this one)

Your thoughts?

Now, What Are You Going to Do About It?

It looks like the rest of the country is finally waking up to the fact that yes, we really ARE in a recession in the US. A recession that is being led by the decline in real estate values. How can that be, you say. Real estate, while a large and important part of the overall economy, does NOT have the power, by itself, to drive us into a recession.

Quite right. Read on.

It’s actually not too difficult to understand how this happened. At present we have the largest economy in the world. An economy that’s fueled by consumer consumption of everything from Vente Lattes to plasma tvs to Hummers. The problem has been, though, that as a country we have been increasing our consumption and spending at a faster rate than out incomes have been rising, and so for the last decade and a half we have been funding our consumption habit by continuously borrowing against the steadily increasing value of our homes. That all works just dandy in the short term until – you guessed it – home values stop rising.

Now everything would have worked just fine if, three years or so ago when home values stopped increasing, we all stopped consuming everything in sight through the use of plastic. The problem would have worked itself out, the economy would have had, as they say, a “soft” landing. We would have had a temporary dip, recovered, and then all gone on with our lives.

But this is the US. Our national motto is “Live Beyond Your Means”. It should be on our currency.

As a real estate investor I can tell you from first hand experience that people are STILL in denial, TODAY, about the problems in the real estate market. It’s not really that these people disbelieve the evidence that’s staring them in the face. No. They believe the evidence but as a rule they ALL think that their home is the lone exception.

The net result is exactly what we’re seeing today. Consumers in denial continued to do what they do best – consume – even in the face of leveling and then declining home prices. Many thousands didn’t get religion on this until it was far too late – when they tried to refinance and couldn’t – and are now saddled not only with mortgage balances that are higher than their home values, but also piles of extraordinarily-high-interest-rate credit card debt that they have no hope of getting out from under until – you guessed right again – homes appreciate in value again.

So what we’re seeing now is the emergency brake being applied to consumption spending. This is a bad thing. For pretty much all areas of the economy.

When people stop spending, companies stop making things. When companies stop making things people then lose their jobs. And when people lose their jobs – they lose their homes. That puts an even heavier strain on a real estate market that’s already reeling from the flood of foreclosures that are clogging it up.

Just how bad is the housing market?

An article in the NY Times pointed out a couple of interesting things today:

The Joint Economic Committee of Congress predicts about two million foreclosures by the end of next year on homes purchased with subprime mortgages

There will be a decline of $917 million in lost property tax revenue to state and local governments, which will also have to spend more on policing neighborhoods with vacant homes.

In next 18 months, interest rates on more than two million homes loans will reset to higher adjustable rates.

Inventories of unsold existing homes rose last month to their highest level in almost 20 years.

So what does all of this mean? Well, it all depends on your perspective.

If you’re someone that has been living large on your home equity loan – the party’s over my friend. Best for you to sit on the sidelines – NOT consuming – and try to ride this thing out. Pay your minimum payments on all of your plastic and tread water for a while. You won’t get anywhere, but you won’t drown either. Good thing there’s a new version of Halo out.

If however, you haven’t squandered the crown jewels, then you need to jump into this real estate market TODAY. There has never been a better buyer’s market than there is right now, and the next couple of months before year-end are going to be the most extraordinary ever in the history of the area.

I’m already seeing this manifest itself on several fronts. Foreclosure Asset Management companies are more and more willing to negotiate; Short Sale Loss Mitigation Officers are calling me instead of vice versa, and what’s been most unbelievable of all – I’m now finding MLS listed properties – these are completely updated, occupied, non-foreclosure homes – at prices around where I bought foreclosures last year.

I’m negotiating one like this as we speak that, as a matter of fact, is in such good condition that I could have my renters move in the day after the current owners move out. You’ve heard about no rehab properties – this is the poster child in that it literally needs no rehab whatsoever, not even paint. AND it meets my #1 criteria for rentals – I can refi and get ALL of my money out and still have it cash flow.

You know what the best part is? I’ve found two more just like it.

This truly is a once in a lifetime opportunity to build a real estate portfolio and set yourself up financially.

What are you going to do about it? Why aren’t you already involved?

If you’re like most people in this area, like my brother, you are simply going to play turtle and bury your gold pieces in the ground like the servant in the new testament parable. When it’s all done you’ll breathe a sigh of relief that you “made it through” without losing anything.

But is playing not to lose the way to play the game of life?

I don’t think so. You don’t get ahead that way, and worst of all, you will have squandered an opportunity to see how much you could have achieved had you simply tried.

What a waste.

For those that are interested but don’t know how to get started – visit my website at www.ForeclosureConcierge.com and request my special report that will show you how.
 

This was a headline in Saturday’s Washington Post.

Like the New York Times, you can always count on the ol’ Post to get things exactly 180 degrees wrong.

Vultures? Really??

I don’t know about you, but that description sounds pretty bad. Even a bit sinister. Maybe a touch evil. They like to make ma and pa out to be victims of the big bad mortgage companies, and they make it sound like those of us that invest in distressed real estate are gleefully kicking ma and pa off the farm they have lived on for 60 years into a homeless shelter, all while we sit by a cozy fire sipping Cognac and lighting our $20 cigars with $100 bills.

I often wonder what color the sky is in the alternate reality occupied by the Washington Post.

Let’s take a few minutes and look at true reality, shall we?

Now – using the term “vulture” implies both a victim and a predator. Let’s look at the whole victim thing first; an area, by the way, where we as a country excel.

The foreclosure tidal waves in both Florida and Las Vegas are the direct, appropriate and TOTALLY predictable result of oversupply. An oversupply that was driven not by any type of rational market force. No. It was driven completely by real estate speculators looking to make a profit. The first ones in did make a ton of money. The ones that jumped in at the end are now holding the bag.

Are these real estate speculators victims? Absolutely not. Investing is obviously risky, and anyone that jumped in should have done their due diligence. I doubt very seriously that any of the speculators had a gun pointed to their head as they wrote deposit checks on multiple condo units that wouldn’t be built for several years.

Do these speculators deserve our sympathy? No. Their greatest value is that they should serve as warning and a case study for the rest of us, a la the dot com crash, on how investing in ANYTHING when the fundamentals aren’t there is a really stupid thing to do. Yes I said stupid.

Victim count – 0.

Here in Michigan the situation is quite a bit different as we are heavily weighted toward adjustable rate subprime mortgages.

Adjustable rate mortgages were obviously popular over the last few years when rates were low. They allowed people to maximize their monthly payments to buy homes that they could not otherwise afford. Subprime adjustables then became a well-used vehicle that allowed poor credit borrowers to buy homes.

This however, was a double-edged sword, as most of the people that took on these subprime adjustable rate mortgages never expected them to actually adjust and therefore never thought about what would happen if they did.

The upside was that a huge number of people had the opportunity to experience home ownership. The downside is that most were not the least bit prepared for them to adjust.

Are there “victims” here? Probably in some cases, but not nearly as many as the media would like you to think. Most subprime loans were taken on with zero out of pocket costs, so these borrowers didn’t lose any real money. Their credit suffered by having a foreclosure added, but they had subprime credit in the first place.

Victim count – low.

So – despite what you’ve heard, there really aren’t many true “victims” in this mess. Most people in both the scenarios are reaping what they have sown; they’re simply lying in the bed that they made for themselves.

Now let’s look at the “predator” angle.

What exactly are investors doing in these down markets?

Here in Michigan, investors like me are buying homes that have sat on the market for months, some longer than a year. Most are vacant, have had the utilities turned off, and are not being maintained at all. And the grass is only cut when someone complains. They are eyesores and a blight on the neighborhoods.

So what are we doing with them once we buy them? We fix them and rent or sell them.

Let me reiterate.

We’re buying homes that wouldn’t otherwise be bought.

We use our own money to rehab them. We take ALL the risk.

Then we rent them or sell them to people that want to live there.

This is a bad thing? This is predatory?

The truth is, we are helping to improve these neighborhoods, one house at a time.

And somehow, since we make a profit in doing this, we’re called vultures by Those That Know Better at the Washington Post.

You know what? I’ll take it. I’ll take it but I’ll ignore it.

Why? Because of what happened at the last house that I rehabbed.

You see, when I’m rehabbing a property I wait until I’m nearly finished with the rehab to put in new landscaping. On this particular house, the guys that did the landscaping put in a very long last day to get done, and I went by after work to check it out and pay them. When I pulled up to the house I saw almost a dozen neighbors and kids on the sidewalk looking at the nearly finished work. Landscaping always makes a big difference, but this job turned out exceptionally well.

When I got out of my truck and walked up to the house the neighbors applauded. No joke. Not only that, but each of them individually thanked me for taking the crappiest and most rundown house on the block and making it beautiful.

The applause on this one was a surprise and a first. But the appreciation wasn’t. No. On EVERY rehab that I have done, the neighbors have been just as appreciative of the work that I’ve done, and every investor that I know gets the same response on every house.

It’s just what us vultures do.

Two short months ago I wrote about the unbelievable action that the Federal Reserve took to prop up our sagging stock market by injecting billions of dollars into the economy, and that it didn’t take a freshman econ whiz kid to tell that this would undoubtedly lead to an increase in the inflation rate.

Strangely enough I found very few business reporters that even discussed the impact of the Fed’s foolhardy actions, and fewer still that predicted any impact at all on the inflation rate.

I found this strange, because while I may act like I’m the smartest person in the world sometimes, I know that in reality there HAS to be one or maybe two people smarter than me.

Well, maybe not.

BusinessWeek just published an article yesterday (Oct 17) titled “Housing Cools, Inflation’s Up”. Let me cut through some of the Econ-speak and relate a few excerpts for you:

• Two economic reports released before the start of Wall Street trading Oct. 17 more or less confirmed the market’s expectations on consumer-level inflation: running ahead of the Federal Reserve’s comfort zone, and housing: still lousy
• The report also revealed the expected September year-over-year inflation increased by 2.8%
• We should reach a 3.5% rate in October

And on the housing market . . .

• Housing starts plunged 10.2% in September
• Permits fell 7.3%
  Single family starts fell 1.7% while multifamily starts were down 34.3%
• We will continue to expect a 20% rate of decline in residential construction in both the third and fourth quarters, following the 11.8% rate of decline in the second quarter
• We continue to expect existing home sales to fall by 3.6% in September, while new home sales fall by 5.7% in September

So let’s recap, shall we?

Inflation is spiking largely due to the two biggest expenditures that every household has – food and energy. And the housing market apparently is still declining and hasn’t hit bottom yet. All wonderful news for working households.

But the silver lining is, of course, that the Fed’s actions have cured the volatility in the stock market, right?

Nope. At least it doesn’t look that way on the charts that I’m using. They look more like an EKG chart than they did BEFORE the Fed wizards started to meddle with the money supply.

And oh by the way – one of the best indicators of the true inflation situation is the price of gold.

When I last looked today it was trading at $762 per ounce. This time last year? $590.

Your tax dollars at work.

I started a new line of business last week.

If you’ve been reading this blog, you know that I’m a big proponent of buying single family homes and holding them as long-term rentals. It’s my belief that it’s an ideal way to build real wealth. The idea had been jelling in my mind for a couple of weeks, and everything finally clicked into place after a meeting that I attended.

Even though I absolutely despise meetings, I belong to a couple of real estate and business networking groups. I was at one of these meetings a few days ago and an out of state investor was there.

It was humorous listening to him talk – he was describing all of the “great deals” that he and his fellow out of state colleagues had bought here. My humor turned to stunned silence as I listened, because he and his friends had all bought property in – get this – areas that the police don’t go and the mail doesn’t get delivered.

They bought properties in what’s called a “war zone”.

That’s not even the worst part. It was clear that they had NO IDEA what bad deals they had gotten into, because he was bragging about buying more on the same block!

Now – don’t get me wrong. Some people make an entire business out of acquiring these types of properties, and they do very well at it. The people that do that, however, do so with their eyes wide open knowing full well what they’re getting themselves into.

I don’t think the same could be said for this out of state investor, because he was acting like he had bought property in Livonia for 20 cents on the dollar. And the really scary part was that he was so misinformed and at the same time so excited that he was planning to start a business marketing these properties to OTHER out of state investors!

That’s one email list that I KNOW I don’t want to be on.

At that point it became clear that that there was a real opportunity to work with out of state investors, and even local investors in this area that want to get into real estate investing in the Metro Detroit area but don’t have the necessary local knowledge or expertise.

Thus the Foreclosure Concierge service was born.

This business is focused on identifying properties in one particular suburb of Metro Detroit that would make good buy and hold investments for the kinds of investors that I mentioned, and the service includes Property Selection, Comparable Analysis, Deal Evaluation, and Negotiation Assistance. I will guide someone through the entire acquisition process.

Not only that, but it also includes some very valuable information that took me three years to put together – in particular the names of the people that I use day-in and day-out in my own business, including my Home Inspector, my Insurance Agent, my Contractor (this alone is worth the entire price of admission), my Mortgage Broker, my Tenant Finder/Rent to Own Buyer locater service, and my Property Management company.

In short, I provide all the necessary information for someone to get into real estate investing in this area, WITHOUT having to attend an outrageously priced seminar from an out of state “guru” that has never bought a property here. And I only work with one person at a time.

This video shows a sample of the kinds of properties that I’m talking about:

http://video.google.com/videoplay?docid=3109966363558613415

To learn more about the new Foreclosure Concierge Service, visit my website at www.ForeclosureConcierge.com.