The Norris Group Blog

California Real Estate Headline Roundup

Posts Tagged ‘California’

« Older Entries
Newer Entries »

177-TNG Radio – Rick Solis 6-5-10

Friday, June 4th, 2010

Rick Solis

Appraiser and Investor

 stream

itunes

download

rss

This week Bruce is joined once again by Rick Solis. Rick wears many hats. He is a real estate investor, he is the appraiser for all of TNG’s hard money loans, and he occasionally trains people to appraise in TNG’s REO investing boot camps.

Rick bought his first house a week after his 20th birthday. This house was in Montclair. He sold it at the peak of the market, but then 10-31 exchanged the money from that property into another one, and eventually lost all the profit. He owed approximately $250,000 for the Montclair property in 1988, and he sold it for $450,000. He was paying for the home with the tenant, so they split the profit earning $100,000 each. In 1988, he read the Robert Allen books. Using that information, he found a realtor who helped him get a loan for this house.

The books Rick read helped him to think creatively about investment. However, Rick no longer uses creative investment techniques. Today, Rick is primarily concerned with buying properties below market. When you invest creatively, you usually owe 100 percent of what it is worth, and you do not have an equity option.

Rick and Bruce first met at a Nick Manfredi meeting in which Bruce spoke. Bruce was offering a deal on his product Selling Systems. Rick bought the book, and liked it so much that he came back and bought the rest of Bruce’s books.

Rick had a difficult time building an investment relationship with Bruce. The first time Rick asked Bruce to help him invest in a property, Rick was looking at a 5-unit property in San Bernardino. After describing the property, Bruce simply said, “No, that is not something I would be interested in.” Bruce thinks he might need to do a better job of explaining his decisions in the future. The reason why Bruce was not interested in this property was because he had previously tried buying similar properties in San Bernardino and that experience did not end well. Sometimes investors just get used to a specific niche and choose not to work with anything else.

Bruce bought a lot of 4-plexes in Moreno Valley during the 1990s. He sold these properties for $139,000, and their value peaked at $600,000. One of these properties recently opened for bid at a trustee sale for 1 dollar. This type of property has a tendency to cause a domino effect for other similar properties in the area; when one goes bad the rest usually follow. A lot of towns just tear these properties down.

Rick met Andrea at a book store in 2003. Rick told Andrea about Bruce’s boot camp, and she decided to attend it. At that time, the boot camp was pretty basic, but it told you exactly what you need to know when buying houses.

In the past, Rick advertised through the newspaper. Andrea advertised through letter campaigns. When Rick started working with Andrea, they were doing 1,000 letters per week, and they averaged 4 to 6 houses per month using this method. Their business relationship worked to their advantage, because some people do not want to work with men, and others do not want to work with women. Rick and Andrea have very different selling strategies. Rick’s selling strategy is straight forward; he looks at what you have and gives you an offer. Andrea can sell anything to anyone, even at a discounted price. Andrea’s ability to sell is more than a technique, it is a natural gift.

The longer Rick and Andrea did letter campaigns, the harder it got. When they first started they could find plenty of people with just a couple hundred, but by 2007 the lettering campaign become too expensive to pay for itself.

Most of the properties they bought were flipped in 2006. One of these properties was flipped to Bruce’s auction, and it worked very well for Rick. Unfortunately, the auctioning business did not work well for Bruce. Bruce started an auctioning business with high hopes, but discovered that it was very difficult to attract buyers. Rick tried helping Bruce by wearing TNG t-shirts and posting signs, but he was only able to get a couple people to attend his auction.

At the end of the boom, Rick got cocky because of how easy it was to buy and sell. Rick decided to 10-31 exchange into other properties in order to avoid taxes. Unfortunately, he reinvested too much and he lost a lot of the profit he gained from his California properties. Next time, Rick plans to just sell his properties, pay the taxes, and live happily with that.

Rick finds all his properties through the MLS. Sometimes agents bring deals to Rick. Lots of investors are entering the real estate business. About ¾ of the buyers are investors now. Unfortunately, many investor offers do not close. Some agents are now refusing to accept offers from investors now, because of the bad reputation investors now have for not closing.

Right now, the best-working strategy for Rick seems to be driving around and looking at properties. He does this 1 day per week, and Andrea does this 3 days per week. They both buy 3 properties per month. They hold 2/3 of them as rentals, and they intend to sell them as prices increase. After the next price increase, Rick intends to sell all of his properties and stop.

Rick and Andrea invest in the High Desert area. There are not many resale opportunities in that area, so they are primarily renting there. Many of the people in that area have bad credit, and will probably always be renters. Andrea has a sixth sense for knowing when a person is going to be a good renter. She is able to meet the potential renters, look at their application, call their employers and their landlords to see if they will be good renters for Rick and her.

Rick decided to quit investing in real estate around 2007, but Andrea continued. Andrea got great deals on six houses last year, and she was able to convince Rick to start investing again.

Business is completely different now. It is a much bigger challenge now to deal with owners and resale. Rick thinks this aspect of the business will become easier in the coming years.

Rick has been using his IRA to invest in mortgages since 2000. He began using his IRA to invest in houses since 2003.

Rick’s target rental property is less than half an acre. Properties with lots of land have a tendency to collect lots of junk. He prefers single story houses, and he is completely uninterested in rental properties with pools. Rick does not like investing in houses built before 1978, and he prefers the house’s square feet to be between 1,000 to 1,800.

In the High Desert, Rick typically gets 1 house for every 10 offers he makes. In areas near Fontana and Corona, Rick typically gets 1 house for every 50 offers. Rick does not make offers before he has seen the home and made repair estimates.

Rick likes Tony Alvarez’s business model, because Tony gets properties to cash flow. Rick does not like the buying, fixing, and selling business model right now, because it is very difficult to get to the finish line with a first time buyer, FHA loan, two appraisals and a review appraisal.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

Tags: , , , , , , , , , , , ,
Posted in Radio | No Comments »

176-TNG Radio – Rick Solis 5-29-10

Friday, May 28th, 2010

Rick Solis

Appraiser and Investor

 stream

itunes

download

rss

This week Bruce is joined by Rick Solis. Rick wears many hats. He is a real estate investor, he is the appraiser for all of The Norris Group’s California hard money loans, and he occasionally trains people to appraise in The Norris Group’s REO boot camps.

Rick started appraising because his mother was a loan processor when he was a teenager. He was also interested in investing, but he was overpaying for properties. He began appraising to become a better investor. When he first began his appraising career, the only thing you needed to be an appraiser was a clipboard and a tape measurer. However, Rick believes that appraisal qualities were better back then than now with all the education requirements. In the past, appraisers had to be approved by each bank you wanted to appraise for, and you had to submit six work samples to prove you were able to do the job. Once licensing came into play, the banks eased off of those restrictions.

Rick closed escrow on his first house 1 week after his 20th birthday. Rick became attracted to the real estate business because of infomercials from Dave Deldado and Robert Allen.

Rick enjoys working with hard money lenders, because they actually want to know what the property is worth and what is wrong with it. That is the complete opposite of an A-paper appraisal job. All people involved in the A-paper transaction, other than the investor, do not want to know that information, because that information can kill the deals. Information like termite problems cannot be disclosed on an appraisal.

The investor is typically a private person with money, but you can also have a hard money loan with a different kind of intent. Some lenders are pressured to provide lenders with a specific appraisal value. Rick has had this experience with lenders in the past. Those lenders put a lot of pressure on appraisers, but he does not receive that kind of pressure from The Norris Group’s loan processor. Craig, TNG’s loan processor, would rather skip a deal than skew appraisal values.

In May, HVCC was passed. This new rule requires appraisal management companies to check on all appraisals for accuracies. Unfortunately, appraisal management companies are taking 40 percent of the earnings from appraisals, which means they must work much harder to earn the same income. This has caused many of the veteran appraisers to leave the business. Rick knows an appraiser who has found a way to cope with HVCC and make his job more efficient. This appraiser only takes appraisals that are close to him, and he looks at the properties before he accepts it. If there is anything wrong with the property he is looking at, the appraiser will skip it.

People often think of the appraisal process as being easy, because now they can push a button on Zillow which gives an estimated home value. However, this is very inaccurate. It is very difficult to come up with an accurate appraisal. It is also difficult to make an appraisal which meets all the guidelines of the lender and the investor who the lender is selling to.

FHA significantly loosened their requirements in the early 2000s. FHA once had a 2-page checklist of everything you had to check for on a property. For example, if the crawl space under the house didn’t have 18 inches of clearance the house had to be fixed. If there was any chipped paint on the house it would need to be fixed. However, they will allow some things like dirty carpet. FHA will accept non-permitted home modifications just as long as there are no health hazards. However, many banks and underwriters will not accept that. If non-permitted additions add value to a house, then you are supposed to account for it in an appraisal. It is very difficult to find comparable houses for a house with non-permitted additions.

In the current market, if your house is in average condition, there is not much you can do on repairs which will add a significant amount of value to your house. However, if your house is in bad condition then you can get a decent return on the cost of repairs. Regardless of how much money you’ve spent rehabbing, appraisers will not adjust the price by any more than 10 percent.

Cost basis appraisals are no longer being used. No appraiser who spends half his day looking for land sales is going to come up with an accurate land value.

Bruce Norris brings up an example for when the cost based appraisal may be useful…

Bruce: “If you were making an offer on a custom home, and you wanted the lot value to be emerged from what a custom home would be once it is done, then that would be like a residual value. This could be used to prove to a lot owner that it was once worth x value, but once you subtract the costs and the appraisal then the lot will be worth x. ‘Is that a useful idea?’”

Rick: “Possibly.”

Rick has never done this kind of appraisal, but Bruce wants him to. If you can look at the comps and subtract the costs, then you will have the residual dirt value. Rick thinks that is so simple that you probably wouldn’t need an appraiser to do it.

Around 2006, people were concerned about buying homes with awkward floor plans. Currently, investors no longer seem to be concerned by this. This may be due to the fact that these types of homes represent the largest portion of the current “for sale” market. They are taking a price hit on those homes, but they are still able to make a profit.

Appraisers account for pool values using comps. For example, if an appraiser is looking at two homes that are very similar except for the fact that one has a pool and the other does not, then the pool value will be calculated by subtracting the value of the home without a pool from the value of the home with the pool. If the home without a pool has a value of $200,000, and the value of the home with a pool is $210,000, then the value of the pool is $10,000. The value of a pool can change dramatically depending on where you live. In some areas a pool adds little value to the home, but in other areas a pool can add a lot of value. Rick has noticed that pools typically add up to 0 to 5 percent of the house. Also, the value of a pool can change dramatically depending on what season you sell in. If you sell during a hot season, the pool will be more valuable.

The number of bedrooms within a house does not affect the price much. The square footage of a house is more important the number of rooms within it. Some families like two big bedrooms more than 3 small ones, and vice versa.

If you are appraising a property as an investor, avoid location problems. Stay away from atypical problems, especially problems that cannot be fixed. Old homes surrounded by new homes will not sell well, and dome home styles don’t sell well either.

Investors often make the mistake of assuming that an old remodeled home will sell for the same value as a new home in the same condition. Newer homes will always sell at a higher value.

Mello-roos homes can also be a detriment to home value. However, a lot of first time buyers do not always notice this difference.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

Tags: , , , , , , , , , , , ,
Posted in Radio | No Comments »

175-TNG Radio – Bill Shipp 5-22-10

Friday, May 21st, 2010

 

Bill Shipp 

Bill Shipp, California Real estate Investor

(Full Bio)

 streamitunesdownload

rss

This week Bruce is joined by Bill Shipp. Bill has been investing in Riverside real estate for many years. Bruce thinks Bill is Riverside’s best kept secret.

Bill believes it is important to be true to your word when doing business. Bill has been working with his contractors for 10 years, and he has never had a bid on a home repair. These contractors know that if Bill hires them, they will get paid at the time he specifies. This is even more important than having people skills.

Bruce has taught many real estate investors. Some of them have great people skills, and that is what gets them business. There are also people that are trustworthy, and that is also attractive to business partners.

In the last segment, Bill said that he is willing to do his job every day, and that attitude has allowed him to accumulate a wealth of knowledge. Bill’s knowledge of his market place allows him to live in Utah while still making good investment decisions in Riverside.

Bill has never closed an escrow with a person in it, and he has never bought a house at the steps. Bill does not want to deal with those hassles. This is why he uses the MLS and agents who know what they are doing. Bill gets over 50 percent of the houses that he makes offers on, because his realtors know not to call him unless a home shows promise. Bill works regularly with two realtors, but he receives calls occasionally from other REO agents as well.

Bill has a specific skew number for the paint which he uses on all his houses. Because he uses the same paint for his houses, it is easier for him to calculate how much repairs will cost when buying a new home. This also makes it much simpler for his repair men, because they know exactly what to do for every new job.

Bill discourages investors from traveling to see their investments. Do it for the first two properties, so you can figure out how to do the job. After the second, you should know what kind of property is worth your time, and trust your contractor to do his job. Traveling to your investment homes will cost you money and time. Also, Bill suggests that investors not bring their wives. His wife always has minor problems with his investments, such as the amount of flowers in the yard.

The typical repair cost for Bill’s investment houses is $15,000 or less. However, he has had home repairs that cost $100,000. In the early 2000s, he bought older homes. The oldest home he ever bought was developed in 1828. The house was so old that the home began to dissolve when the repair man tried to pressure wash it. Bruce once bought a home in 1898. Bruce had a termite investor inspect the home, and the inspector told him that there were no termites because the wood was petrified.

Bill does not have a construction background, but he has learned some things about that trade over time. When you buy a lot of older homes, you have to be creative to find a style that people will want to buy. In the late 1980s, Bill only bought homes that were 5 to 10 years old and did not need work, but Bill now only works with fixers built before the 2000s. Bill does not like to compete with home owners. When you are flipping new homes, you are not creating value. Bill thinks that working in the trustee market requires too much work. This is what Bruce’s company does, and Bruce agrees that the trustee market is too much hassle for Bill’s business model.

When reselling a property, Bill uses the listing agent that found the home for him, and he only uses two agents to keep the process simple. Using a large number of agents makes it difficult to determine whether or not those agents are doing their jobs correctly.

When Bill is selling his properties, he tries to control the escrow, but he never controls which lender is used. Bill’s buyers are always cross checked with the lender. Bill’s agent will not tell him that he has an offer until the buyer has been cross checked, and until he can know if he will get a good offer.

Bill is constantly educating himself in real estate. He reads many books, he has attended Bruce’s seminars, and he has been trained as a certified financial planner. Bill believes that many people know how to make a lot of money, but they do not know how to spend it. People do not often plan for downturns in the market, and their lack of planning ruins their financial health.

In the early 1990s, Bill had 40 rentals. It took 8 years to get those homes sold, and it was very frustrating because the market kept going down.

Bill began investing in Texas during 1989. He bought homes for $10,000 each and he owned them free and clear, but he was receiving negative cashflow every month because of property taxes. Repairing one roof could wipe out your positive cashflow for a year. In the end, he only made money on one of those homes. Do not buy real estate in other cities and states if you do not know what you are doing.

In 1986 Bruce was asked to speak on a panel of real estate experts. There were two well known attorneys on the panel, and all of their claims regarding out-of-state property ownership contradicted Bruce’s practical experience. When Bruce asked those attorneys how they came to their conclusions, he discovered that they had no out-of-state investment experience and were relying on theoretical knowledge. When people come from other states and tell you to buy homes in their areas, be careful. Why would someone travel across the United States to encourage you to buy their property if they cannot even get the people from their own state to buy?

If there are more listings in a region than sells, you should be nervous. On the other hand, if there are more sells than listings, then you should be happy. This is all Bill looks at when predicting whether or not he should be investing. Bill does not pay much attention to economic forecasts. He only pays attention to Riverside’s market, so he does not have to worry about general market forecasts.

The best deal Bill ever had was a wholesale in Corona. The property sold in 2 weeks and he earned over $100,000. If you want to find deals, you need to be watching the market every day. You never know why a seller might want to get rid of their property quickly. An agent once called Bill and told him that the seller was offering five houses and two lots on one street. The seller was the chairman of a bank who had stock options which were about to expire. The banker needed the money for those properties quickly, so that he could buy his stock. This deal shows that you never know why and when a great deal is going to show up. Bruce once bought a house from an agent once who was getting into the plastic extrusion business. The agent needed to buy an extrusion machine for $10,000, so Bruce bought two of his homes for that amount.

Bill has been approached with bulk buying opportunities over the last few months. The people offering these bulk buy deals told Bill that they have had bulk buys in the past that sold quickly. When Bill asked for an example of one of these bulk deals, he never received a response and he still hasn’t. Bill received a bulk buy opportunity from a company in Los Angeles as well. Because the company seemed professional, Bill had his agent check out the properties. The agent discovered that all 20 of the properties for bulk sale were short sales.

Bruce will be a moderator for Fannie and Freddie in June. These companies are putting together bulk sale divisions, so perhaps bulk sale opportunities will be available in the future.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

Tags: , , , , , , , , , , , , , , , , , , , , ,
Posted in Radio | No Comments »

174-TNG Radio – Bill Shipp 5-15-10

Friday, May 14th, 2010

Bill Shipp 

Bill Shipp, California Real estate Investor

(Full Bio)

 stream

itunes

download

rss

This week Bruce is joined by Bill Shipp. Bill has been investing in Riverside real estate for many years. Bruce thinks Bill is Riverside’s best kept secret.

Bill began flipping homes in 1986. He did his first flip deal when he was 18 years old. He had a family member who had bought the lot but could not afford it, so Bill agreed to buy it for 2,600 dollars and he sold it a couple years later for $6,000.

Before his first real estate investment, Bill was an airforce brat. He moved around a lot which made him wish he could own a house. Prior to 1986, Bill was working a corporate job and strongly disliked it. He had a good friend who was a real estate investor in the Long Beach area. This friend encouraged Bill to learn real estate. Bill’s friend explained that Bill would most likely not become very wealthy if he continued to work in the corporate world, and he would always have to worry about his job security. If you own your own business of buying and selling real estate you can never get fired. This encouraged Bill to quit his job and begin working as a real estate agent.

Bill did learn some important lessons from the corporate world. He learned to run his real estate business the same way as if he was working a corporate job. He did not sleep in just because he owned his own business. He would begin working at 8, and he worked normal hours.

Bill’s mentor taught him how to buy homes, and how to figure out prices and fixing costs. His mentor was very regimented. If Bill was even a minute late, his mentor would leave him. Bill listened to all of his mentor’s phone calls, and he learned how he conducted business with other visitors.

Bill’s mentor never got into educating people. He simply picked a few people that he new personally to work with him. Bill thinks he was the lucky person to be picked by this mentor because he showed good discipline.

Bill has bought and sold 360 houses. He does not have make many deals in which he personally speaks to the home owners he buys from; he probably only talks about 10 percent of these home owners. He never used mailers or signs.

If Bill was beginning to invest in Riverside with all his current knowledge, he would first call his agent and show them his accomplishments. Agents hear from many people who claim to be real estate investors but are not truly serious. For this reason, Bill keeps a portfolio of every house he has bought and sold. He shows this portfolio to agents during interviews. He then tries to persuade these agents that working with him is a good idea. He interviews multiple agents until he finds a couple of agents who are willing to be trained for his specific style of work.

Bill has not tried to develop relationships with people who control the most popular sources of REOs, but his name is somewhat well known by these people because of the business he does.

A typical investor will receive a call from an agent in which the agent explains what kinds of new inventory have recently come up. This agent might tell the investor that 20 new listings showed up. The agent and the investor would then look at many of those houses and attempt to narrow down their options. The kind of calls that Bill receives from his agents is very different. Bill’s agents will tell him which one of those 20 properties he would most likely be interested in. Bill would then ask who is listing the home, and the realtor would be able to tell him whether or not he had done business with that person previously. His Realtor would also be able to tell him what kind of neighborhood it is in, and whether or not he has done business in that area before. This Realtor would also give him a description of the other houses on sale in that area, the price they are listed at, and a description of the property Bill wants to buy. He would then make an offer slightly below the typical asking price of that neighborhood, and his offer would be made within just a few hours of being listed. This is how you beat the competition. You have to be able to make offers and close deals before the competition arrives.

What really gives Bill an advantage over his competition is the ability of his realtors to identify houses within specific streets of his city. Bill’s realtors are so familiar with their areas that they can look at a specific street, compare the prices of the other properties for sale on that street, and quickly determine whether or not a specific house is a good deal.

Agents are often skeptical of whether or not there are whole sale deals on the market. Part of the problems is that they are not disciplined, they are not experienced, and they are not accustomed to doing their job every day. It takes time for agents to spot a good deal quickly. Bill can buy properties out of the MLS even when the market is going up, and people claim there is no way to find a deal. When Bill told Bruce this in 2004, Bruce was very surprised and it taught him something.

During the real estate boom, everyone was an investor; you did not need to be good at investing during that time to make money. During that time, Bill was not worried about competition because there was so much business.

Name familiarity is very important when dealing with people who control the source of inventory. People who know Bill know that he has only backed out of 1 offer in his entire real estate career. If people know you are going to go through with your offers, they will be more willing to do business with you.

Bill typically puts a $5,000 deposit on his offers regardless of the home price. Bill recently lost an offer to someone who gave an offer for 100 percent of the purchase price. This was an investor trained by Bruce Norris.

Bill usually offers a 10 day close, or the seller’s preference. He has actually lost offers in the past because the bank felt the closing time was too quick, so allowing the seller to choose the closing time is best.

When Bill discovers that he has made an offer on a property with multiple offers, he simply responds by giving them his highest and best offer. Bill doesn’t have a problem with making only $20,000 on a property which gives him an advantage when making offers. Some investors will not bother making a deal if they cannot buy it for 62 percent of the price.

Bill may be one of the biggest investors in California, but he actually lives in Utah. He has developed a business model which does not need him to make full time deals. Bill cannot think of anyone with a business model like this, and that is why he sticks to one city. Having all his properties within a very specific region allows him to easily manage all his properties. Bill does not invest at all in Utah.

Bill typically buys under the $200,000 price range. Many of his buyers are FHA buyers, and many of them are conventional. When the market gets slow, Bill does not fight it, he just quits and waits until things pick up. Bill did have some trouble getting back into the market not long ago, because many rules had changed since his last transaction. When Bill re-entered the market, the 90 day FHA rule was still in place, and Bill did not know about it. His first offer was an FHA and the appraisal came in $15,000 low. He chose to be satisfied with the $10,000 dollars he made off the property and move on. Bill encourages people to not fall in love with their properties, so they will make smart selling decisions. Bill decided to leave the market in 2007 because he was receiving multiple offers on all his homes, and the offers were too high. Things were getting too crazy. When Bill looked at the loan documents, his buyers would have a 10 percent interest rate with a 700 FICO score. Bill wanted to tell these people, “What are you thinking?”

Bill does not buy and hold rentals. Bruce thinks that is interesting because many people think that is the best way to invest. Bill believes that if you are a full time investor, flipping houses will be more profitable then renting. However, renting is a good option for passive investors. Passive investing is what Bill did when he first started investing. When he first starting buying properties, he bought 45 rentals and he eventually ended up with negative cash flow. When times get tough, people start moving which leaves you with vacant rentals.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

Tags: , , , , , , , , , , , , , , , , ,
Posted in Radio | No Comments »

173-TNG Radio – Leslie Appleton-Young 5-8-10

Friday, May 7th, 2010

Leslie Appleton-Young

Leslie Appleton-Young,
Chief Economist of the California Association of Realtors

(Full Bio)

 stream

itunes

download

rss

This week Bruce is joined by Chief Econ0mist for the California Association of Realtors, Leslie Appleton-Young.

The peak of the median home price in May 2007 was almost $600,000. Bruce believes there were indications that we were no longer in the peak in May 2007 despite the fact that median prices reached that level. Transactions slowed in the 4th quarter of 2005. In Sacramento, there was a lot of new construction, affordable housing, and subprime borrowing. In areas like Sacramento, homes were purchased in 2003 and 2004, but they began adjusting in 2006. These properties started faltering for a full year before they showed up in the data. Sales at the moderate and low end shrunk, but sales at the high end were doing fine, so the median home price became skewed. Prices went down in 2007 and 2008, but at the same time, sales were increasing by over 25 percent.

We have never experienced a price decline like this recent one. However, the San Fernando Valleys had a significant drop in 1990’s when there were fires, floods and riots. At that time, the median went from $225,000 to $165,000 in that area.

There are many owners who put down 20 percent on their home, but now owe more than their house is worth. There were people with good jobs and good mortgages, but got in trouble once prices decreased. In the future, we need to be more aware of cash-out refis. People who had equity would use it for vacations and toys rather than investment. We had such a long run –up in price that people began to think that real estate could not hurt them. They thought that pulling out equity now would be replaced by more equity later, and that was not true.

There are many people who are defaulting strategically presently, because they don’t want to pay for a property which won’t return to its previous value in many years. However, you have to weigh this benefit against the damage done to your credit. Strategic defaults are becoming more prevalent, and it is becoming more socially acceptable. It was once considered bad to choose to stop paying on a mortgage, but now people find it acceptable. Fannie Mae just came out with a statement which allows people to get financing within 2 years if you will give a deed-in-lieu of foreclosure. This new rules will come into affect July 1st. The new mortgage you get in 2 years will likely require 20 percent down.

Distressed sales have never been this high. ForeclosureRadar.com provides a tremendous educational opportunity for those interested in learning about the distressed sales market. In areas like Riverside, distressed sales represent nearly 80 percent of all sales. Short sales are also beginning to increase.

Distressed sales have been more common in the lower end of the market. However, now that the downturn has been going on for so long, foreclosures are becoming more common in the upper end of the market.

In Riverside County, there are approximately 3,000 homes with over 3,000 square feet which are pending for sale. Bruce doubts that we have buyers for all those homes, and the loan balance for many of those homes is probably over $1 million. Bruce thinks that we are going to have a price hit and glut of inventory in the upper end of the market.

Leslie thinks that first time buyers are in good shape with the stimulus package, but the trade-up buyers are having trouble. When you have a median price of $600,000 and the government programs are specifically designed to help people that owe less than the Fannie Mae maximum loan balance, then you are probably missing 35 percent of the market. People who owe $1 million dollars have no encouragement to buy again. Bruce thinks that having a home above 3,500 sq. feet will be less meaningful in appraisal values than ever before.

The spread in the jumbo loan market has come down to 1 percent. Many of these borrowers are putting down 30 to 40 percent down for jumbo loans. To get those loans, you need to have a large down payment and a strong FICO score. Many loans are being held in portfolio by the lender, because they want to have a cushion going forward.

People have different reasons for buying now than they did in 2006. People are not buying homes expecting to get rich off of their homes. They thought they could sell their homes once the interest adjusts or refinance, and when the adjustment time came, neither of those options were available. Now people realize that they are not going to get rich over night just because they own a house, and they are looking for a place to raise a family.

There is a strong disconnect in the mind of a person in congress between the word investor and speculator. In this market, the speculator has gone home, but investors are working to fix up houses and they are needed. Banks do not have the resources to rehab and get homes onto the market in a timely fashion.

Bruce will be a moderator on an interestingly panel coming up in June for Fannie Mae and Freddie Mac. These two companies are starting bulk divisions. Bruce wonders what size of bulk deals they are planning for, and whether or not there will be restrictions on detaining those properties. Bruce is not sure when Fannie and Freddie will finalize their decision on this subject. Bruce is also trying to get Sean O’toole from ForeclosureRadar.com to be a moderator as well. REO agents can benefit from listing homes ten at a time, rather than 1 at a time. There is a huge chunk of negative equity properties that need to get through the process, and anything that speeds that process up in a reasonable manner is a good thing.

There are many people in California who are showing tremendous character by paying for an upside down property. The best way to reward these people is to show them that there is hope for equity replacement in the near future.

60 percent of people are not buying homes, yet very few are renters. Leslie thinks many of these people are moving in with their parents and children. The housing downturn has affected very aspect of the economy, so people need to save.

There is a statistic showing that 200,000 homes are built every year. Builders are looking at this statistic and thinking they need to build more houses, but you have to be more realistic than that. The reason why builders aren’t building homes is because nobody is willing to buy. However, all these people that have moved in with their families to save money will someday want to move out. We are artificially skewing our building to the low side right now. There will be a day when builders will be behind the curve, and demand will accelerate far faster than the inventory.

Many jobs have been lost in the California construction industry, but these jobs are starting to return. Leslie thinks that this industry will make a comeback in a few years. We need to make jobs from new products and services. We usually expect construction to provide jobs at the end of a downturn, but that will probably not happen this time. Consumer confidence increased in March, but it is still only half of what it was one year ago. The opportunity for builders lies in creating multigenerational housing.

A report was just made on the demographics of California through 2050. The numbers show that we are very different from the other states, and that we will probably grow. Our growth will cause more demand for housing, but it will not happen over the next few years because of the problems we’ve had.

In Riverside, unemployment is close to 15 percent, but that probably translates to around 20 percent because many people have stopped looking for jobs. Riverside County used to be the leading county in California in regards to employment growth. People will always migrate to places with more jobs. California is currently losing people to other states with better employment. Uhaul recently came up with a report on moving destinations, and one of the top destinations was Sacramento. People are moving there because housing is more affordable and they have been able to find some sort of employment. It will take time to work through California’s negative equity position, but we will improve eventually.

Unemployment is usually an instigator of foreclosure, but this time unemployment has lagged from foreclosure yet is increasing the problem. There are areas that were not subprime focused that are being dragged into the overall problem because prices have gone down.

Tags: , , , , , , , , , , , , , , , , , , , , , , ,
Posted in Radio | No Comments »

172-TNG Radio – Leslie Appleton-Young 5-1-10

Friday, April 30th, 2010

Leslie Appleton-Young

Leslie Appleton-Young,
Chief Economist of the California Association of Realtors

(Full Bio)

 stream

itunes

download

rss

This week Bruce is joined by Chief Econ0mist for the California Association of Realtors, Leslie Appleton-Young.

Leslie has had a tough job for the past few years, but things have changed for the better this year. Leslie can see the light at the end of the tunnel, and people’s expectations of the market have become more realistic. People are not as afraid of the downturn. However, she does not feel that this is true in all price bands. Over the next 24 months, the upper end of the market will experience many more price reductions. In the moderate to low end of the distressed market, Leslie predicts that prices will remain flat, and possibly increase slightly. The upper end of the market has seen some adjustment, but nothing like the lower end of the market. As the economic turmoil hits upper end markets, sellers will have to be more realistic about what they expect to get for their homes. In Riverside, there are some great homes with loans on them worth $1.5 million, but they cannot even sell for $700,000.

The lower price, subprime inventory has been absorbed, and that part of the market seems to be coming back. The stimulus for first time buyers and the decreased rates have had a significant influence on home purchases.

Every area in California is unique and different, but the dichotomy in today’s housing market has more to do with price than location. Part of the problem is that people are having trouble qualifying for loans. Demand for homes at the low end of the market exceeds the supply, but the opposite is true for the high end.

In the past, Bruce has found that inventory levels are pretty accurate leading statistics. When you are below a certain months level of inventory, you can often reasonably assume that things will turn around. There are a lot of lenders with properties that are not on the market. Default rates have also exploded, but the lenders will not file NODs. There is a penned up group of buyers, and there may also be a penned up group of buyers. Leslie thinks that government intervention will determine how this problem is rectified. It is difficult to predict how the government will deal with this problem.

California has benefited from the stimulus programs. We are starting to see more green shoots, and Leslie thinks that the iPad may have positively affected our economy. The state deficit has decreased over the last few months. California is an outlier. We boom harder, we sell more, and we improve quicker. However, our recovery is generally rather flat. We had a 5.9 percent GDP growth in the 4th quarter of 2009, and 4 percent of that was inventory restocking. Leslie wonders how much of our retail sales growth is tied to all those homes that are behind on their mortgages. We are not out of this downturn yet, but we are improving. The government stimulus is going away, and that is why there is some uncertainty about the outcome of the second half of this year. We will likely see interest rates increase. They have already increased a bit, but only by a quarter point. If interest rates climbed above 6 percent, Leslie thinks that there would be a strong negative reaction in the market.

Sometimes when rates increase, people feel encouraged to buy before rates become unreasonable. It is important for people to remember that it is not clear that prices have bottomed in all categories, but it is pretty clear that rates will be higher in a year than they are now. People need to measure the tradeoff between the cost of increased rates and decreased prices.

When Bruce became an investor, he refinanced his home in 1981 at 17.5 percent. One year later, he was delighted to refinance at 12.5. Very smart people told him that rates would never go below 10 percent, but now many people would feel jipped if they bought at a rate above 6 percent even though that is a historically incredible rate.

One thing that is really different this time around is the role of equity, or the lack of it, has played in the cycle. If you don’t have equity, you are not a homeowner. The policies for home buying and selling during the boom caused many of our current problems. When you have to pony up 20 percent, and you have equity in your home, you treat home buying and selling very differently than someone who is buying without documentation and zero down. In 2006, 40 percent of Realtors working with first time home buyers said that the buyers did not put down any money.

Bruce thinks the timing of the no down program was atrocious, because the price to income level was absurd. However, Bruce actually thinks we should have a no-down program in our current market. We have to create households that are fit to own. We have just taken back hundreds of thousands of homes from people that wanted to be owners, which are now credit damaged and cannot re-enter the market. We could make a no-down payment program, but when somebody doesn’t make a payment, we could let the loan go forward to the next owner without qualifying just like how the FHA once operated. The other option is to let the opening bid for the next 5 years to consist of just the late payment. If we used this program, there would never be an REO. The nothing down program would create a lot of interest in new owners, and we might retain the current percentage of homeownership that we already have. Bruce fears that we will have a national decline in the 62 percent range, and California will have another downturn in homeownership. Bruce loves the statistics that Leslie puts out.

There is a big difference between the net dollar amount coming to the seller now in comparison to the past. It was once around $200,000, but now its only about $50,000. One-third of these sellers sold at a lost. This creates a negative perspective on real estate which discourages people from investing in a home in the future. In a recent survey, 60 percent of past homebuyers claimed to have no future interest in buying again.

California homes are very affordable right now, because of the price decrease and the low interest rates. However, we are still feeling that it is necessary to encourage potential buyers to enter the market. The tax credit was truly a present to first time buyers. First time buyers are now approximately 50 percent of the volume of current home buyers.

We now have a healthy volume of sells. For 19 consecutive months, we have had a pace of over 500,000. We never even passed the 500,000 pace until 1999. The accumulative dollars are very different now from the peak. Commissions earned by realtors are very different from 2006 and 2007. Incomes have changed the membership of CAR, but not as much as Leslie was expecting. In 2007, there were 211,000 realtors in California. This year, we will probably have around 172,000. That is a significant drop, but considering the significant drop in profit volume, that is a rather small drop. This isn’t surprising though because the economy has not left with people with many other job options. If you work hard enough, you can still be successful. This market works well for the first time agent because there are a lot of first time buyers.

Website presence is critical right now. A recent buyers’ survey asked, “Did you look in the newspaper during your home search?” The results showed that only 10 percent of people were using the paper as a reference. People are searching for homes using very different methods, but it is actually very cheap to advertise online. All of the brokerages have cut back on overhead and expenses. A realtor may not have an office, but they can still be visible online if they have a laptop.

The internet has allowed the consumer to shop around without spending the realtor’s time. However, Leslie has found that 85 percent of home buyers were shown their current home by an agent. Perhaps the internet is presenting too much information for uneducated buyers. Also, in a market where properties are selling quickly, you need to have an agent helping you to be the first potential buyer in line.

Tags: , , , , , , , , , , , , , , , , , ,
Posted in Radio | No Comments »

171-TNG Radio – Bill Tan 4-24-10

Friday, April 23rd, 2010

Bill Tan

Bill Tan,
President of Bill Tan Investments and The San Diego Creative Real Estate Investors Association

(Full Bio)

 stream

itunes

download

rss

This week Bruce is joined by Bill Tan. Bill owns Bill Tan Investments, and he is the creators of the San Diego Creative Investment Association. He is a nationally recognized real estate investor and mortgage exchanger. He speaks now and trains people.

Bill started in the real estate business when some friends of his started doing it. He became really interested in the business when a man came out with a book named Nothing Down. He went to a lot of seminars. He has been investing since the late 1970’s. His mentors are Jon Schobb, Robert Allen, Jimmy Napier, Peter Fortunato, Jack Miller and the Four Horsemen of Florida.

Bill’s company provides several services. Bill acts as a real estate investment counselor, his company makes hard money loans, buying notes, and his company invests in real estate. Getting into the note buying business took some training. Bill got into note buying when he was encouraged to buy real estate in another state. There are a lot of challenges that come with that, such as property management. After a while, he got sick of having to travel to solve these problems, so he chose to sell the property but he had to become the bank in order to do so. Once he did this, he stopped having to deal with the tenants and the check appeared in the mail box every month.  He then went to a real estate training seminar and told other people what he had done. They then started selling their properties and began carrying the notes as well. They also began needing an extra chunk of cash for their deals, so Bill started giving loans. This was when Bill learned all about negotiation. The best note deal he ever made was a $10,000 dollar note buy which he got a $100 dollar cash flow on.

Later on, Bill began taking even more training, so that he could fully understand the business of note buying. He took a set of classes from Carl Aubey,  John Stefenskay, and John Behle. He learned the most from a week long class he took with John Behle.

There are some market circumstances that make seller carry back notes more likely. When lending becomes tight or interest rates rise, sellers have to compete with lenders to get financing for their properties. In these situations, buyers often have difficulty getting financing. There are many people at this time with damaged credit due to foreclosure.

Right now, we have the worst equity position for owners in history. Many people are upside down on their properties. These people are not candidates for the deals that Bill makes. The only protection that people have when they take back a note is the value of the property and the equity position of that home. The equity is usually brought about by a down payment, but right now many properties have negative equity.

At any time, 1/3 of all properties are owned free and clear. A lot of the properties that are free and clear are land, but there are many elderly people who own properties because they have spent their lives paying off their mortgages. Those people are good candidates for carry back notes.

If a senior citizen has a property free and clear which they do not live in, and they want to sell it and carry the note, is their declarable gain the interest they receive or is it the principal they have not received? Bill says there could be two scenarios in this situation. If they have a 100,000 dollar home that they own free and clear, and they take back an IOU on the property for $100,000, and they do not get paid for a while, that is considered an installment sale. If they have an interest only note, then they are only getting rent on their note. In this case, they would not get taxed on their profit, but they would pay tax on the note’s interest. This could go on until they are no longer with us, and then this would cause an estate issue, but they would only have to declare their interest portion. If they were to create an IOU against the property for 30 years, then part of every payment they receive would be interest and that would be taxable. Also, part of every payment they receive would be principal pay down, and that is taxable also.

There is no such thing as a typical seller carry back note. What is nice about notes is that whatever two people agree to can be modified. Sometimes grandparents want their grandchildren to go to college. At certain points over a 4 year span, lump sums will be paid on that note. So in this case, one could just pay a large sum of $10,000 pay down after 4 years. With this specific deal, he bought it as a fully amortized note, but then changed the structure of the note to help his client. Bill’s client was going to put their money into the bank at a 1 percent interest rate, so he gave them the opportunity to earn a higher interest rate through the note. That may be an easy transaction for Bill to do, but it could become very difficult if you deal with a large number of deals. Bill has the opportunity to deal with many creative solutions in a market place where lenders are very tight. If the government had not intervened a short time ago, notes would have likely skyrocketed.

Finding out who owns a note has changed to some extent. When Bill first started buying notes, his business was nearly unknown. Because of the internet and the rumors going around from investment courses, more people are becoming aware. When a person takes back a note, they usually believe they are taking back the note until it is paid off. Most of the contact that Bill has with other note owners shows they are advertising from title companies. Nearly 100 percent of Bill’s notes are referred to him.

Bill has many stories about people who thought they had a legitimate note, but really did not. There is always fraud when money is involved. Fraud is more common when note brokers don’t check on the ownership of their notes. There is more involved in checking the value of a note, because you have to first check the value of the house, and then the person making the payments, and then the value of the note.

If you are creating a note that you want to be sellable, shorter works better than longer, and larger down payments work better than smaller. The longer the term of the note is, the more we have to account for inflation. If somebody were to bring you a fully amortized 30-year note today, and you needed to get a yield on a 10 percent interest note, you could only pay approximately 50 percent of today’s face value of the note in order to get a 10 percent return on the investment at a 6 percent interest rate. This is a hard sell. If you are setting up a note you want to sell, it is important to know that there is a 10 percent market rather than a 6 percent market. If you carried a 30-year, ten percent note, there is a possibility you could get close to earning the full value of the note, but probably not if you were working with Bill. However, there is another opportunity for people who do not need all the money out of their note immediately, because Bill can buy part of the note. For example, there was a note on a property in West Covina. Bill helped structure the note for this property, so that the owner could sell the note after she sold the property. The note’s face value was $100,000. They could not qualify for a new loan, but they had $5,000 dollars down, so they took back the $100,000 dollar note. This note was for 30 years at 7.5 percent interest. She used this money to go to Idaho and buy a condo near her daughter. Bill bought the first 60 payments on that note, and he gave her $30,000 dollars in exchange for them. With this money and the $5,000 dollar down payment, she was able to pay the closing cost of her house and buy a new $20,000 condo. Bill got a good yield from this deal, and at the end of those 60 payments, Bill stopped receiving the payments and she took the payments. At the end of five years, her $100,000 note had amortized to $95,000.

Bruce has taken Bill’s beginner course. Bill’s technique is very effective, because he makes his students struggle. Bill believes the only way we can learn is by making mistakes, so the more mistakes Bill can help his student s make, the more they will learn. Bill’s more advanced class is the 3-day Creative Financing Technician’s Strategy class, and you do not need a calculator for this class. Bill may be having this class in June.

Bill’s website is www.billtaninvestments.com

Tags: , , , , , , , , , , , , , , , , , , ,
Posted in Radio | No Comments »

169-TNG Radio – Harry Dent 4-10-10

Friday, April 9th, 2010

Harry-Dent

Harry Dent

Author and Economist

(Full Bio)

 stream

itunes

download

rss

This week Bruce Norris is joined once again by Harry Dent. Harry is the president of the H.S. Dent Foundation, which publishes the H.S. Dent forecast. His mission is to help people understand change. He is the author of many books, which include The Great Boom Ahead 1992 and The Roaring 2000s and The Great Depression Ahead.

The title The Great Depression Ahead is gutsy. This book came out in 2009. Harry finished writing the book in the first half of 2008. However, we had some significant events occur at the end of 2008. The only thing that really surprised Harry was the stock market rally. He assumed that the economy would get worse, and as it got worse, the government would stimulate it. Harry predicted the stock market would bounce to 9800 and maybe even 11,800. We are right in the middle of that zone right now. Short term indicators predict that we might go even higher in the near future. However, he thought this stock bounce would begin and end earlier. Harry does not believe the recovery will last, because the baby boomers will go from spending to saving.

Harry defines a depression as an extended downturn in which you also see a deflation in prices. The reason why prices go down is because banks and loans are failing. This destroys credit and money. The deleveraging of credit causes deflation. In a depression, everything goes down. In an inflationary downturn like the 1970s, real estate goes up. Real estate does well during inflation. The failure of the banking system is the biggest shock an economic system can have. Harry believes that later this year and in 2011 we will go into a depression.

Alan Greenspan once said, “I watched my whole intellectual education fall apart in 2008”. That took a lot of guts to say, and it was astonishing to think that someone like Greenspan had studied economics for 50 years but still estimated incorrectly. Economists can look at a chart and come to two completely different conclusions.

Anyone who has studied business cycles throughout history knows that human greed takes over every time. Anytime you have low regulation, low interest rates, and bubbles building, people go nuts. People start thinking that the market will never go down, and the banks will lend to anyone. If bubbles go on for long enough, anyone will buy into a bubble. Its not a matter of intelligence, it’s a matter of understanding human nature, and that is where economists fall short. All economists look at is statistics.

There are no exceptions to the cycle of economics. The economy always goes from summer to fall, from inflation to disinflation. In the fall season is when you get bubbles, and when you get bubbles, the government always claims it can fix the problem, but they cannot and they have proven this over and over again. Bubbles have to deflate. We don’t want real estate to be so expensive that young people cannot afford it.

The bigger the boom the bigger the bust. Fortunately, we have a tool that tells you how long a boom will last approximately, and when it will wind down. Harry predicted how the economy would change by looking at the birth index. Booms always lead to excesses, and excessive lending and business expansion.

Japan had a real estate bubble similar to ours. They had excessive lending and unaffordable real estate prices. They had a demographic boom peak before the rest of the world, because they were the only major country who did not have a baby boom after WWII. Japan went through their downturn while the rest of the world was in the greatest boom of history. They didn’t have as much deflation as we will have, and their export industries can still be working at 120 percent. Japan also entered their crisis as a net creditor to the world. Almost all their debt was financed by their own citizens, so they had more capacity to stimulate and keep stimulating.

The U.S. is entering this downturn, and the whole country is going down with it. Baby boom demographics are down around the world. The world has also had a banking crisis and real estate bubble. We’re dragging people down with us, but they would have gone down anyways. The U.S. is the biggest net debtor in the world. We owe trillions of dollars to other countries. 50 percent of our debt is financed by foreign investors. This is contributing to the world downturn.

In 2011, Harry believes debt will overwhelm the banking system. This will cause the deficit to reach about $22 trillion. Harry thinks the debt will encourage our government to borrow even more, and we will pay for it. Japan tried to do this, and they will be sorry for it. Their debt to GDP ratio is 2.5 times what ours is. The only reason why they are surviving is because they are still paying interest rates on that debt at less than 2 percent. In the next decade, they will have to pay market rates like the rest of the world. Japan never truly deflated their bubble. They deflated their businesses, but they didn’t deflate their financial institutions. They have no way to easily get themselves out of this trouble.

Harry believes that Europe is going to start having debt trouble as well. When this happens, France and Germany will have to pick up the tab, but they won’t want to have any part in that. They will demand that the other countries cut their spending and raise taxes to cover their own debt.

In the United States, healthcare and social security expenses are already at costs above what we can afford, and we are now looking to expand that. Company and government pensions are unrealistically generous. Once we get to the point where we have to cut those pensions, people are going to go nuts. There may be riots. Bruce agrees with Harry on this issue. $46 trillion in unfunded medicare, Medicaid, and social security liabilities have already been promised to people. That is 4 times as much as the current government debt. We can’t afford the healthcare we have, and now they are trying to pass another healthcare bill.

The government will have to confess its inability to pay the baby boom generation its social benefits around 2012 or 2013 when the crisis will be at its worst. We will not get out of the mortgage and housing crisis until 2012. Harry believes that Obama will not be reelected, because he became president at a bad time.

We are going to have an enormous amount of debt in the next couple years, which is part of the reason why Harry does not support the new health reform bill. We will not be able to sustain the cost of this new program, and Bruce doubts that Congress has fully read through this health care bill.

When you have deflation, it exaggerates the current debt level. Harry believes that this will cause the government to scale back on age limits for social security and health care. Private debt will scale down substantially. All the debt ratios will get worse. Many businesses will go under or merge with other businesses. Banks will have to write off trillions in loans. Deflation works to restructure debt, rather than pay it off. If we had to pay all that debt off with deflated dollars, it would be much more difficult. At the end of this deflation period, we will be much stronger. Stronger companies will take over weak companies, costs get cut, and real estate goes down.

There are very few properties for sale in California right now, and it is easy to resale. The default rate has doubled in the last 12 months, but the foreclosure numbers have been cut in half. Banks are not foreclosing on people, because they do not know what to do with so many properties. Despite the 6 percent GDP, which Harry does not believe will last, defaults will continue to increase and foreclosures will continue to hit the market. This will suppress real estate prices. Banks will eventually have to write off a lot of those loans and foreclose. This is what will kill the recovery. Once the banks realize that real estate won’t recover, we will see the next banking crisis.

There is a psychology attached to exaggerated events like booms. When booms occur, people rationalize their decisions and the same thing happens in a down cycle. When things go down, people develop a pessimistic attitude towards the future. Baby boomers have not yet had a major downturn in both the real estate and stock market at the same time. This crash is going to cause retirements to disappear for baby boomers, and this loss will cause them to save even more. They will have to work longer but they may not be able to get jobs, because older people cost more in benefits. Harry is forecasting 15 percent unemployment.

Harry believes interest rates will increase this year. However, the bond market will eventually notice that the economy is slowing and then interest rates will decrease. This is what happened in 1931 when the crisis was building. We had a great boom market in bonds from 1932 to 1940 when interest rates were falling. In the next decade we will see deflation. If you want to buy long term bonds, Harry encourages people to wait until later this year or early next year. If you want to refinance, you may want to wait until interest rates come back down. This downturn in interest rates will happen between 2011 and 2013.

Bruce never thought he would see interest rates go down this low. Bruce began his real estate career in 1981 when he refinanced his house at 17.5 percent. Now we are at sub five percent rates, and we may see rates go even lower. Harry agrees and claims we may see rates go down to 3 to 4 percent.

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,
Posted in Radio | No Comments »

The Norris Group Vlog – Mold Featuring Julie Crittenden

Wednesday, April 7th, 2010

It’s finally here! The first Norris Group video blog featuring mold expert Julie Crittenden.

The Norris Group is dedicated to continued education through our radio show, news blog, and now the newest feature to our website, our video blog. These short segments will explore basic concepts and important topics not often understood and/or covered from the point of view of the real estate investor. We look forward to your feedback as we grow this new feature and resource. We hope you find it helpful.

Special thank you to Julie for being our first guest and Rich Durant for editing!

Tags: , , , , , , , , ,
Posted in Video Blog | No Comments »

168-TNG Radio – Harry Dent 4-3-10

Thursday, April 1st, 2010

 

Harry-Dent

Harry Dent

Author and Economist

(Full Bio)

 streamitunes

download

rss

This week Bruce Norris is joined by Harry Dent. Harry is the president of the H.S. Dent Foundation, which publishes the H.S. Dent forecast. His mission is to help people understand change. He is the author of many books, which include The Great Boom Ahead 1992 and The Roaring 2000s and The Great Depression Ahead.

Before he wrote his books, Harry was working towards a degree in Economics, but then changed to Finance and Accounting. He felt that economics did not teach much, and that most economists were not able to predict anything. He eventually went to Harvard Business School and studied business strategy and marketing. This is probably why he comes to different conclusions than many economists.

Harry has been studying demographics in his consulting work. In 1998, he was sitting in front of the S&P 500 and the Birth Index for Baby Boomers. He looked at those 2 charts and he noticed that they looked a lot alike. Harry knew that the peak in spending was between 45 and 49 for the average economy, and this knowledge led him to conclude that he could predict the economy 50 years in advance with just one indicator. A boom typically starts when a generation is young, and ends when they begin hitting their 40s. Not too long after, he discovered that there were many correlations between different economic factors.

Harry’s business of predictions has been an ongoing learning process. He has extended his studies to real estate and different pieces of the economy. Recently, he had to revise his book The Great Depression, because he got new information about merging markets between countries like Europe and Australia. Emerging countries do not have the same kind of spending habits as that of developed countries. This is why he makes different predictive calculations for merging countries.

Attempting to accurately predict the future can be exhausting, because every time you think you’ve accounted for all the factors, you discover there is something missing. Harry has to account for political cycles, commodity cycles, urbanization and other factors which affect the merging of countries. Bruce feels that Harry’s non-arrogant mentality lends credibility to Harry’s work. The fact that Harry is open to new information, and to the idea of revising his own theories, is why Bruce pays attention to him.

Harry’s first book was named The Power to Predict. This book is about indicators like “the spending wave”, “the 46 year lag,” and “the inflation indicator.” This book also contained the “S-curve,” which describes the 4-stage business and economic cycle. Harry predicted that DOW would hit 10,000 by the early 2000s, and that the boom would end by about 2007. This book accounted for new technologies like the internet and new car models. When new technologies develop, they cause bubbles.

Japan was mentioned in this first book as well. Harry claimed that Japan was going to slow, and that the United States and Europe would improve. People thought he was crazy for making that claim, because at that time, Japan was booming with growth. In 1992, people thought the U.S. had seen its best days, but Harry claimed that there would be a boom around the year of 1998 to 2000, which would result in a government surplus. Harry also predicted at that time that inflation and interest rates would decrease around that time.

Bruce feels that the legitimacy of Harry’s predictions is confirmed by his ability to predict both bad times and good times. Also, Harry uses very specific terms when describing the future of economics. Harry doesn’t use moderate language in his predictions. He has noticed that economies tend to either be bullish or bearish. The good times don’t last forever, and he thinks that people who make predictions about never-ending prosperity are foolish. When markets go up, they tend to increase for 25 to 27 years. When markets go down, the downturn typically lasts 12 to 14 years. Harry currently believes that we will have a period of demographic weakness from 2008 to 2023.

Every 40 years we get a major downturn and the government tries to fix it, but they cannot do this because they cannot fight demographics. When you’re in a demographic boom, the government can stimulate because you have a generation that needs to spend and borrow a larger amount of money. Harry is claiming that the current government stimulus program will fail, because it is simply causing the younger generation to buy earlier when they would have bought a home in the future. Also, Harry does not believe the baby boom generation will be affected by the stimulus, because they are done with the home buying part of their lives.

Most people only study one theme of economics. This means that if they are bullish, then they will selectively read bullish material. These people have already come to a conclusion before studying the evidence.

In the early 70s, Bruce read a book from Howard Ruff named The Coming Bad Year. At that time, Bruce did not have much knowledge of economics, so he read this book as if it came from God. One of the suggestions that Howard made in this book was to buy 200 pounds of wheat. At that time, Bruce had two kids and he didn’t want to run out, so he bought 1000 pounds. This experience taught Bruce that you cannot believe everything you read from proclaimed experts.

Economists don’t have tools to project 50 years in advance, but Harry believes that demographics can do this. Harry predicts that the value of gold will decrease in value during the downturn, because this is a deflation season not an inflation season. This is contrary to the opinions of many people, but Bruce actually tends to lean in favor of Harry’s opinion on this matter.

The more popular you are as an economic writer, the more people respect your opinions, and the more likely they are to plan their lives according to your predictions. This is something that Harry thinks about frequently. Harry actually encourages people to read other authors who think contrary to his opinions, so they can have a fully educated opinion.

A long-term boom prediction is bound to have some down cycles mixed in. Bruce asks how one can know the difference between an anomaly downturn and a downturn which leads to a depression. If demographic trends are still up when downturns occur, then the market will eventually recover. Baby boomers are moving into their 50s and 60s. During this time, they will be saving more and spending less. This tells Harry that the government stimulus will not work.

It is easier to predict long trends than it is to predict precise downturn points. For example, during the past crash, our indicators led us to believe that the DOW wouldn’t go past 7200, but it actually went down to 6440.

Harry claims there is an 80-year new economic cycle. This 80-year cycle is described as the 4 seasons model. There are always 4 seasons that occur in economics just like summer, spring, winter, and fall. We had the spring boom during the 1940s to 1960s. From 68 to 82 we had the summer downturn in which we experienced inflation and low spending. From 1980 to we went through the fall boom in which the baby boom generation began to spend a lot. We are going from high inflation to low inflation, which causes lower interest rates. The stock market does well when interest rates are low and this causes a bubble. Now we are up against the winter season, in which all our bubbles will decrease and cause deflation.

This 80-year cycle occurs over two generation booms which last around 38 to 40 years each. This cycle is repetitive going backwards, but there is an exception. If you go back into the 1800s, we still had a similar cycle system, but the two generation cycles only lasted about 28 to 30 years. This is because we were more of a farming society at that time. We did not have so many powerful middle class consumers. Right now, the commodity cycle is less important to our countries cycle. Commodities only represent about 10 percent of our economy.

Bruce asks if Harry has a process to determine whether or not false predictions are based on something unforeseen. Harry assumes that when bad predictions are made, that something was missed. Most people assume that the markets just aren’t getting something, and those people will be vindicated. The automobile industry correlated with a technology bubble from 1912 to 1919, and then a big crash occurred in the 1920s. We assumed another bubble would happen in 2006, but we did not see this. Harry tried to find an explanation for this by searching through history. He found a commodity cycle and a geopolitical cycle. During the boom of 2006, we had oil prices dramatically increasing which affected our ability to accurately predict the effect of the boom. Also, we had war problems which affected Harry’s predictions.

Harry Dent’s website is www.hsdent.com

You can find his books there and other activities which his company is involved with.  Join us for part two with harry Dent next week.

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,
Posted in Radio | No Comments »

« Older Entries
Newer Entries »