Save California Save Prop 13? Say What?

There is a lot of grumbling from Jerry Brown and the people in Sacramento we elected to work for us up there about Prop 13.  I agree in California we have a budget problem.  Everyone does and you can't overlook it.  I normally don't like to talk politics but this is an important issue for everyone that is being clouded by rhetoric and outright deception.  

Gov. Brown is blaming the budget problem on the rich and the land owners.  Specifically he says Prop 13 killed the state and county budget.  When a company loses money they borrow a little and then start cutting.  Thousands lost their jobs at airline after airline after September 11th.   Walk in to any airport and look at how many computer kiosks replaced people.  The line at the DMV is still around the corner every morning in Newport Beach Ca.

When a company can't pay it's bills, the state shuts it down and takes away the owners property.  Maybe it is time the Governor move into a FEMA trailer for a while.  After all he has had since 1978 to figure out how to lead a government and budget accordingly.  

Governor Brown is complaining that his credit card is maxed out and he needs more money.  If you or I do that the banks say no.  Our choices are simple.  1. Go bankrupt and lose everything, which I wouldn't do. 2. Negotiate a better deal with your creditors and workers, and 3. Work harder to add value.  Right now number 3 is the choice the Governor is overlooking.

Instead of chasing businesses out of the state that create jobs, maybe he should welcome them.  Make it harder to collect unemployment, and easier to employ.  That increases income to the state and decreases expenses.  Instead he cut the state employee roster just 1.3% while the state lost nearly 8% of the private sector jobs.  The private sector in some way shape or form pays all of the bills for both the private and public sector.

When the state of California Economy shrinks 20%, you can't cut 1.3% and expect to keep up.  That is simple bad fiscal management we all have to pay for, both now and later.  Since 1999 California's GDP is nearly off 50% according to the analysts at Chase.

Governor Brown anti business budget for 2012 chases businesses out of the state and yet he wonders why he can't get a budget increase.  That is like chasing your boss out of the room with a broom stick and promising the people standing there the TV's that he was carrying in.  

If you let the government raise taxes at will, two things happen.  The people that can really afford the taxes leave, or it turns out the taxes are just rhetoric.  Just look at the residents of Incline Village Nevada that are former California residents.  Or take a look at how little President Obahma's "Millionaires Tax" really created in revenue.  Tax hikes on the rich don't even scratch the surface.

We have to face facts, it is time to hold the elected representatives fiscally responsible.  That means we need to take their charge cards away.

Everyone knows that when you take out a loan for something the interest fees make it cost a lot more.  In California, cities have high permit prices to help pay for things like fire stations and police stations and schools before the neighborhood is finished.  Paying in advance is how investors get rich and states can do more with less money.  Politicians don't like it because they have to be responsible.

California wants to change things and the Governor says Prop 13 is killing his budget.  When home prices skyrocketed in 2006-2008 far outpacing inflation, you didn't hear any county or state rep talking about how they were saving or investing the new income.  What new income you ask?  Well, in 1995 I bought a home for $235,000 that the previous owners paid just $75,000.  That meant an increase in the tax income from my home of over 300% to the county.

Did the county save that money?  Over the next 4 years, 32% of my neighborhood sold.  Statistically in California from 2003-2008, at least 50% of the homes changed hands and increased the tax revenue to the locality 50% or more.  Many areas got 100% raises in tax revenue.  Did you get a 100% raise? Did you hear them complain?  Take a look at where the money went and you will quickly vote no and vote them all out.  

In 2000 the local schools attempted a bond measure.  I brought the increase in taxes due to the new neighbors to the meeting and the measure quickly died.  The school district didn't bother to tell anyone they had a 400% increase in income, and a 5% decrease in students over the previous 5 years.  

Don't be fooled by the man behind the curtain.

In California we have two problems. First we have a very high number of people who have "good jobs" working for the state.  Working for the government should be a service.  We should all give four years just so we can see how crazy people get when they are trying to register a car in the DMV line.

In many border areas, the "State" workers don't even live in the state.  With high unemployment, California is hiring out of state workers and contractors to do the job.  Why aren't we training people receiving benefits from the state to do these jobs?  The answer is simple. A free ride buys votes and Governor Brown depends on it.

Politicians are getting very good at pulling the heart strings and using the very unions they helped create against you.  You don't want to lose teachers do you?  You don't want to lose firemen do you?  Did you once hear "You don't want to lose your representative do you?" or "You don't want your representative to lose his government car do you?"  Why does he get a car and I have to pay to commute to work anyway?

Maybe "they" should start cutting the budget and start with their salary and benefits.  Maybe they'll quit chasing business out of the state and figure out businesses bring in money, so they don't have to keep raising taxes to pay their bills.

Just think all of this through.  If we repeal Prop 13 we all know taxes go up.  If taxes go up, house payments go up because most people have their taxes paid by the bank.  If people are having trouble with their house payments now, imagine what happens when the payments go up again.  Do you want your vote to cause people to lose their homes because the rent went up or the payment went up?  I don't, the banks don't and you don't.

Personal bankruptcies are still on the rise in California, let's not push anyone else over the edge.

Let's remind Governor Brown, and the other representatives in Sacramento who they work for.  Keep prop 13 and make them learn to manage money better so we cal all save California.  

Now I have to go find the website to donate to that Jarvis guy.

Has Orange County CA Bottomed Out

I have been saying for some time that we are near the bottom in Orange County.  Last May I bought a home near the beach at a price that I thought was pretty good.  More than once I heard something like "You are nuts, what if prices go lower and interest rates drop?"

My answer then was simply "So What?".  I didn't think that prices would drop much further.  I could easily stomach a 10% decrease in my home value if that really did happen, and a 4.25% fixed loan was pretty cheap. In the world of retail finance, 4.25% is as close to free as I think you are going to get.

The big banks hold the cards right now, so my crystal ball is filled with a giant logos for the big three banks.  Rumor has it that BofA and Wells Fargo are sitting on over 1 Million homes each that are over 120 days late and waiting for foreclosure, in addition to the 1 Million homes they already have foreclosed on or are in the process of foreclosing.

Now those numbers are pretty much conjecture as far as I can tell.  Time Magazines Business blog last August said "There are nearly 1.7 Million homes in the U.S. in some state of foreclosure."  Which is probably a more realistic number.  In the big scheme of things, that number isn't that bad.  Another tracking agency I use to find foreclosures for my wife and her investor clients says that in Southern California, the number is 1 out of every 687 homes.  Last year it was 1 out of 542 according to the same site.

That means there are fewer foreclosures.  Keep in mind there will always be some.

I said it before and I will say it again now.  If you can buy, and you live in Southern California, by all means buy everything you feel comfortable that you can afford.   If you are thinking about moving up, call my wife, get your home listed and start looking.  Inventory is thin.  The good deals go in less than two weeks.  Great deals in a couple of days.

The difference between a good deal and a great deal isn't $50,000 anymore, it is condition.  Any home in really good condition at a fair price doesn't last.  If your home is on the market and sitting for more than 30 days without an offer, there are one of two problems.  Your agent isn't doing their job, or it is priced too high.  The good news is someday the market will catch up to your price again.

For those of you that walked away from your home, I am sorry you did it.  A quick economic lesson here.  When the U.S. Government prints money, there is a short term boost to the economy of 2-3 years and then inflation follows.  In simple terms if there is $100 in the world, and there are two houses, then each house can only be worth $50.00.  If the government magically creates $300 and convinces two people to build to more homes at $50 each, there are now four homes and $300 in circulation.  When the people figure out what is going on, then instead of building two more home, the existing owners raise the prices.  Each house is now worth 1/4 of $300 or $75.

In the last three years, to slow the economy's downward spiral, it is estimated by several sources that the U.S. Government tripled the money supply.  The economy hasn't grown much and now inflation is rearing it's  head.  This is going to be one big inflationary baby.  Home prices will follow.

If you are on the verge of losing your home, and it is worth at least 80% of the current market value, Call Your Bank.  Work out a deal.  They don't want anymore foreclosures, and you don't want the headache of moving.  At the very least get an agent and consider a short sale.

Already I have seen several investor newsletters saying the courthouse auctions are getting more competitive and it is time to start getting creative.  Investors are now approaching the owners and the banks directly to try and work a deal.  These same newsletters are also saying in Southern California "low balling" isn't working because there are other buyers for just about every house.

I am not saying we are back to the craziness of 2006-2008, but I am saying, the banks are tired, the people are tired and the government has pumped up the money supply.  This is as close to bottom as I can ever see it getting.  That means one thing.  Buy if you can, hold if you can't, and if you don't own, now is the time.  We all know that rising inflation means rising rents, no matter what the price of houses does.

There is one other variable, but I'll save that for later in the week.

Is there money to be made in Real Estate Today?

For nearly 20 years I have been investing in Real Estate.  If you own a home, you too are an investor in my mind.  I have read just about every "get rich in real estate" book out there.  They really all say the same thing, but once in a blue moon something new comes off the pages.

Since most of my friends don't like to read, they are always asking me for the highlights of different books when they see the bookshelves in my office.  I don't mind sharing because the highlights won't get them the understanding they need.  As Malcolm Forbes famously said "With all thy getting - get understanding."

Just a few months ago, my wife finished her real estate license, and entered the field as a Realtor.  I of course handle all of her online marketing thought my SEO and online marketing company, the Bourquin Group.

People give us all kinds of peculiar looks when they find out we are moving head first in todays Real Estate market.  We are both amazed at how many people say something like "I was an agent but after the crash I quit and let my license expire."

The next question out of their mouths is "Do you think there is money to be made in Real Estate today?"  Now I really wonder how I should answer that question.  Should I say "No of course not, we are just plain stupid."?

So as Mr Forbes said, it is clearly time for them to get understanding.  Most people measure a market incorrectly in my opinion.  They look at how fast they can buy something and "flip" it for a profit.  Short term gains like that are simply gambling.  No real value is added to the market so it will eventually cost somebody some money.

The real answer to the question "Is there money to be made in Real Estate today?" is the same as always, "Yes".  Every market will dictate what method you need to use in order to make money in a market.  What most people want to know is "How do I make a quick buck in Real Estate today?".  That I can't answer.

What I can tell you is that if you are an investor or just starting out, now is the time to buy.  Nobody will know the exact bottom of the market, but Dean Graziosi uses "Days on Market" as a key trend indicator.  I would like to add "year over year inventory".  Both numbers are starting to shrink.

Banks still hold the wold card with unreported foreclosures.  Those are foreclosures where people still live in the house, and haven't made a payment in years.  The banks are just waiting to protect their investments .  Empty houses attract problems.  Letting people live there rent free is an interesting approach, but they are doing it.

Given all of the key indicators, we are nearing the bottom or possibly past the bottom of the market.  My bet is that in real dollars we are past the bottom.  Inflation alone will hold house prices right where they are.  In adjusted dollars, there may be one to three more years of price erosion.  That means that while everything else will go up in price, home prices might be flat.

So I can hear you asking "If home prices stay flat, how can there be money in Real Estate?"

The answer is simple.  I don't think real estate should ever be used for gambling unless you have a lot of cash to risk.  In the long run, Real Estate will always go up.  If inflation drives up wages and the price of lumber, building a new house will cost more, and that adds price pressure to existing homes.

History says, Real Estate always goes up.  More specifically with a couple of exemptions, any given piece of land will always go up in value over the long run.  Stocks that is not true.  Any company can go bankrupt.  Look at the names littering the grounds outside of Wall Street like American Airlines and Enron, in fact 87% of the Fortune 500 in 1987 aren't there any more.

Now the one Caveat to Real Estate.  Government intervention and Environmental Hazards, which usually result from Government intervention.

The city of Detroit is a stellar example of the freebie program gone silly.  hundreds of millions of dollars line the pockets of corrupt politicians and there are city blocks that are totally worthless because the government is attempting to control those areas.

Rent Control.  Another great social experiment to give more to those who haven't earned it at the expense of the those who worked for it.

Sometimes even environmental problems are caused by government intervention.  California made MTBE mandatory in gasoline to save the environment and reduce smog.  That was until the MTBE leaked out into the ground all over the state.  The gas station owners lost everything and the bureaucrats kept their jobs.  If the gas stations added MTBE on their own, the owners would all be in jail.

So as an investor, it is in your interest to limit the governments involvement to the bigger picture like zoning and safety.

Where does that leave us today?  There are two methods I am encouraging everyone to use to make money in real estate today.  The first is the method I call the path to retiring on the beach.  It is a simple method and will be expanded in my next book.

The short course to the "Path to retiring on the beach" is this.  Step one, buy a house that you can afford now, no matter if the price goes up or down.  Step 2, save money so that in 5 years you can buy another house.  Step 3. Buy another house and rent out the first house.  Step four, repeat at step 2 for 20 years.  At 20 years, the first house is paid off, and if inflation is normal, it is making the payments for the 5th house, your retirement home on the beach.  Every 5 years as each subsequent house is paid off, you get a pay raise in rents.

The second method is for people with great credit and already own a home. Go to step 2 and start there.

You can hope that your retirement is there in 20 years, or you can buy a house today and have four money makers when you retire.  The best part is, if you really dig and find good deals, you might not have to wait 5 years.

I used a VA loan, to get my first house.  Two years later I bought an FHA and rented out the house with the VA loan.  I bought a VA repo as my third home.  I paid about $5,000 more than it was worth but the VA interest rates and low down payments for investors made it worth the extra risk.

As home prices went up, I refinanced the VA loan to a 15 year so that I was still making $125 a month in positive cash flow and then used the VA loan again to buy a third house.  T

Even if you don't have VA benefits, FHA loans can do the same thing. You just need to pay PMI which means you keep more cash up front and pay a little more over time.

So is there money in Real Estate, the answer as always is "Yes", as long as you don't gamble and can keep the government from trying to "help" you or your neighbors.

The clouds are clearing up, so time to go to the beach.  Would you like to join me?