Do you think that John McCain or Barack Obama has better policies for the real estate market?

I’m curious about how folks see the 2 major party presidential handling the real estate marketplace and I’m interested in starting a discussion taking into account, tax policy, monetary policy, and other factors. I don’t want to hear anything about McCain’s 7 houses or Obama’s deal from Rezko (I brought ‘em up so you don’t have to) . . . I want to start an intellectual dialogue based on policy.

Feel free to share your ideas here in the comments, or if you’ve got your own blog, write your thoughts and point to the post so we can discuss. We’ll link to any posts out there that take a serious, and hopefully, non-partisan look at these two gentlemen and their policies affecting the market.

Things to consider: capital gains tax, real estate tax, inflation, interest rates, dollar strength, leanings on regulation, position on Fannie/Freddie and bank bailouts, effects on investors, homeowners, real estate agents, lenders, etc.

I look forward to hearing all of your opinions, and I hope that everyone is mature enough to stick to the topic at hand!

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One of the 6,127 reasons that I’m single is because I can’t stand high maintenance women (this one’s voluntary, so two out of 6,127 ain’t bad…I’ll get to the second voluntary reason in a minute). Anyways, right now I’m working on a pretty house wholesale deal (wholesaling a house subject-to) and the seller is crazy high maintenance. This guy calls me multiple times a day… “Hi Jason, this is Mr. Seller, its 5:00, just wondering if you’ve found a buyer…Hi Jason it’s 5:05, just wondering, Hi, Jason it’s 5:07…” This guy is also a talker which is why I have my assistant return the calls and handle almost everything. If you don’t have an assistant I would get one ASAP. I got my first assistant before I could even afford one and it was well worth it. And when I say assistant, I mean virtual assistant. My latest assistant lives in Wisconsin and has been with me for almost two years. I have her make all my calls and she handles almost everything for me. Remember, us investors need to focus on high dollar activities, not making phone calls. (By the way, I found a buyer for this wholesale sub-2, and at closing I will be getting a nice $9,997 pay day).

Okay, the second reason I’m single is because I’m cheap. I just got back from a week in Florida. As I was packing for my trip, I stuffed all of my clothes in my old suitcase and I destroyed the zipper trying to get everything to fit (but I did get it closed). Then when I tried to unpack, I couldn’t get the zipper open. Being that I’m such a patient guy, I ended up “teaching the bag a lesson”, which means it ended up in a dumpster after I tore the zipper off and it was totally unusable. So, I needed a new piece of luggage and asked my friend to show me the closest Goodwill store. I ended up getting a beauty of a suitcase for $2.13. It’s a Samsonite hard shell. I’ve always wanted one of those hard shell pieces and $2.13 is right up my alley. I love Goodwill and the Salvation Army stores.

Alright folks, if you’ve been reading my posts you know that I’m going through a lease option deal from A-Z. Last week was the paperwork needed between you and the seller and this week I am going over the checklist you need to follow after you have the paperwork signed. Here it is:

1. Make copies of all of the paperwork and either mail it to the seller or scan and email a copy to the seller.
2. Make copies of all keys (so you have a key and so you can also put a key in the lock box on the house).
3. Fax or mail the lender notification to the mortgage company so they send all of the coupons and mortgage info to your address.
4. Run a credit check on the seller. Since lease options are more risky, you need to make sure the seller is not in a dangerous financial situation (if they are, do a subject-to).
5. Fax the authorization to release form to the mortgage company and check the mortgage balance and the monthly payment amounts.
6. Send a thank you gift and card to the seller. (I usually send a gift certificate to a restaurant).
7. Go to the courthouse and record the option agreement. This should cost between $20.00-$50.00.
8. Start marketing the property to find a tenant buyer. Place a sign in the front yard, run classified ads in the local paper and post ads on Craigslist.
9. Set up your Excel spreadsheets, Word documents and folders for this property.

There you have it, my million dollar checklist. Next week, I will go over the paperwork for a tenant/buyer. I certainly hope that you are writing down all this information on lease options, because you are getting no B.S. info that took me thousands of dollars to perfect. Have a great week and remember to do at least one marketing activity every single day!

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35.3 percent. By any measure, a staggering number. It is by how much new home sales have dropped from July 2007.

But we are in one of those wierd times when figures seemingly contradict one another and “trends” are hard to keep up with.

For example, while it is true that new home sales are down more than 35 percent since July 07, last July sales of new homes actually went up, though not much…2.4 percent, according to the Commerce Department.

Here’s the catch,though.

The National Association of Realtors, says the Associated Press, reports the “number of unsold properties hit an all-time high, an indication that the worst housing slump in decades is far from over.”

Why the confusion?

When things are in flux–especially the economy–it is not all that uncommon for “trends” to seemingly contradict one another. But that often has less to do with the reality of the situation than with the way in which we tend to see the world–in terms of black and white, rather than many shades of grey.

For instance, another new report just out–Standard & Poor’s/Case-Shiller U.S. National Home Price Index–shows that home prices dropped by the sharpest rate ever in the second quarter–15.4 percent during the period April to June, reports the A.P.’s economics writer Jeannine Aversa.

But, of course, it is this very drop in home prices that has brought about a mini-buying boom in parts of Southern California for people with excellent credit who are seeking and getting houses at relatively cheap prices. See what I mean about shades of grey?

Adding to this period of flux and uncertainty is the open question of what will eventually happen with Fannie Mae and Freddie Mac? Both have an enormous impact on mortgages and both, some fear, may soon be in dire need of the very government bailout they claimed only a few months back they didn’t want nor need.

What happens with Fannie and Freddie will , to a large measure, help define the housing situation in this country for some time to come…their fate is THAT important.

In the meantime, we all have to take headlines with a grain of salt…The headline of Monday will surely be challenged if not flat out contradicted by the headline of Tuesday…and on it goes.

Like I said, things are in flux. Uncertainty rules!

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The imminent failure of both Freddie Mac and Fannie Mae has already begun to have a detrimental impact on the larger US economy and the ability of home buyers to finance the purchase of a new home.

This is an unfortunate circumstance for many young families who may not be able to qualify for a mortgage to purchase their new home because of tighter bank underwriting guidelines. While this is a negative situation for young families looking for their own homes it could be a potential wind fall for the owners and operators of apartment building complexes across the United States. All of the people displaced by the housing bubble along with new populations of young people looking for housing will have to turn to rental properties for housing. The fact that more and more residential, single family homes are entering into foreclosure should also further diminish the available supply of rental units on the market.

When a home is in foreclosure or bank owned it can’t be rented and it sits as an empty, unavailable property. For example, on the residential street where I live in Fort Lauderdale there are 3 or 4 houses on one block that appear to be completely abandoned and in some stage of foreclosure or bank ownership. No one can rent these homes because they are bank owned and waiting for a buyer. Meanwhile the prices of homes in the neighborhood are still priced well above the ability for most working families to afford, especially considering the difficulty many are experiencing when searching for an affordable mortgage.

The obvious choice for many young families and those displaced from their homes because of foreclosure is to find a rental property to live in while saving money for the future purchase of a single family home. With the expected decline in available rental homes available on the market due to bank ownership many families and young people will be looking to apartment buildings for housing. This increase in the number of potential renters comes just at a time when the construction of multi-family buildings has begun to decline.

The decline in the construction of new apartment buildings is due to the fact that many banks and real estate financiers are cutting back on new construction projects nationwide. They are unwilling to take the risk of funding new construction during a time when residential real estate prices are dropping rapidly. According to the Associated Press, the “Standard & Poor’s/Case-Shiller U.S. National Home Price Index tumbled a record 15.4 percent during the quarter from the same period a year ago.”

It remains to be seen what impact the decline in availability of rental properties will have on the rental rates for major metropolitan areas.

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Is it worth $300-$500 to have a professional home inspection prior to making a purchase? This is a question that I ask myself frequently. For most people the answer is absolutely! The average homebuyer does not have the experience or the knowledge to effectively evaluate a home prior to purchase. Experienced real estate investors, and especially rehabbers, probably have enough of a background to make a decent evaluation. However, that doesn’t mean that they shouldn’t have an inspection done.

That First Rehab

My first rehab project was a bank REO that I purchased in New York about 15 years ago. The price seemed right, but it was an as-is purchase. I had some construction experience but I was not an experienced rehabber. The house was in a great area but needed to be completely redone, I naively assumed that it would be a piece of cake. (see article: That First Rehab )

Since the house needed everything I thought that an inspection wouldn’t be necessary. If I had done one I would have learned about many problems that I had missed. I didn’t see the termite damage to many parts of the house; I missed the carpenter ants that had devoured a large part of the roof deck. I also didn’t find the pipes that had frozen and burst and I certainly would have liked to know that the furnace needed to be replaced. Had I spent the $300 for an inspection I would have known about the unexpected repairs that cost almost $10,000.

I probably would have gone ahead with the purchase anyway, but I would have done so with a better understanding of the problems that I faced.

A Negotiating Tool

Today I have a much better idea of what to look for prior to making a purchase. And while a home inspector may not find anything that I can’t find myself, the inspection report can be used as a negotiating tool. If the inspection uncovers anything significant I can seek a price reduction or additional concessions from the seller. If you use a home inspection contingency (and you always should) in your purchase contract you will have the option of walking away without a penalty should something significant turn up.

One thing to remember is that a home inspection is only as good as the home inspector. If you are using a knowledgeable and experienced inspector it almost certainly pays to have it done. If the inspector is not thorough it is probably going to be a waste of money. Seek referrals from experienced investors when choosing an inspector and you should be able to find a good one. The bottom line is that a home inspection will either save you from making a huge mistake or give you peace of mind when making a purchase.

A man who carries a cat by the tail learns something he can learn in no other way.
-Mark Twain

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Warren Buffet, the oracle from Omaha, said today in a CNBC interview the “game is over” for Fannie Mae and Freddie Mac. He stated the not-so-obvious fact that the two GSEs both have a zero net worth which means stock and bond holders are holding an empty bag.

Hank Paulson’s recent law gives him the ability to lend or invest capital without restraints, so those with a stake in the two companies are holding their collective breaths.

The biggest losers should Paulson decide not to act are the regional banks like Midwest Banc Holdings with $67 Million in preferred stock at stake who’s CIO had this to say,

“I guess we are betting on Paulson. We have to believe that his plan carries the day somehow.”

Many regional banks, including the ones holding your checking and savings accounts, have millions invested with the two GSEs. Banks can not afford another hit to their balance sheets that a Fannie / Freddie collapse would surely cause. Banks are already capital strapped and another writedown of this size could trigger runs on regional banks like we saw last month ala IndyMac Bank and others.

Last week I wrote about Greenspan’s take on the crisis and his solution was to nationalize the GSEs wiping out shareholder equity with one mighty swipe of the pen.

Buffet seems to say here…it’s going to happen one way or the other.

Ouch!

My take is similar but slightly different. Sure, common share holders like individual stock owners (you and me) will get wiped out soon, but Paulson will probably pay the foreign bond holders and preferred stock holders since most of them are institutional investors both foreign and domestic.

This divvying up of the liabilities and keeping those happy who you need to invest in our debt and equities in the future is Paulson’s paramount objective…and it’s why he got legislative authority with the new law in the first place…to use it.

You didn’t really believe him when he said he most likely wouldn’t use it…did you?

Silly rabbit…tricks are for kids!

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Since I have been promising to present my very own solution to the foreclosure problem I think I’ll get started. I think you should know my proposal is a mixture of theory and several “proposals” that have been tried before.

None were implemented because they were pronounced as frauds and the proposal proposers jailed. Conspiracy theorists believe it is one reason JFK was gunned down in Dallas. I don’t know about that but the theory is alive and floating around in the universe.

That tells you that presenting solutions to the problems can be a very risky business. The powers that control what is called our money system like it the way it is, and anyone proposing to change it is immediately denominated a kook or worse.

Regardless, I will at least put it on the table for your review and critique. You should also know I am well aware we have what is called fiat currency as our currency. We really don’t have a choice about that.

My proposal will flip the equation we operate under in today’s economy. If you understand the public and private side of what is called the governors and governed, you will know I am speaking of the public as being the modern day elected officials (governors) who call themselves the government and the private as being you and me the citizen (governed).

This is important to understand as the public totally dominates the private in today’s governmental structure. My solution flips the equation as I mentioned above. My proposal puts the private where it should be and that is at the head of the structure.

I call my solution the People’s Money System (PMS). No pun intended by the way. Before I can lay out the system it is important I define value. After all, we are told value is important and if we are to use a commodity, or anything else for that matter, as a trading/purchasing tool it must have value.

If you read my post of two weeks ago, you will know the federal government has a title and code section that says the present day currency can be redeemed in gold and silver. This means, at least theoretically, we can walk into any federal reserve bank and trade our FRNs for an equivalent amount of gold or silver.

That is one example of value. Gold and silver are the “value” behind the FRNs turning them from fiat into “real” dollars. Of course if you have tried to redeem them, you know the federal reserve only gives you a like denominated FRN for the FRN you are trying to redeem.

This keeps the circulating fiat currency, well, fiat currency. And it also speaks volumes about what the governors say and believe on this thing called value.

To take that one more step, the federal reserve actually uses, among other types of collateral, foreign bonds bought with paper money (FRNs) as backing for the fiat currency they issue.

If you read Walker Todd’s Working Paper 9405, you would of course know this. However it bears repeating since I am talking about value. I don’t want anyone believing I would introduce a system that remotely mirrors this kind of value.

The Chicago Federal Reserve (CFR) answered the value of money question:

“What Makes Money Valuable?”

in their pamphlet titled, “Modern Money Mechanics”. They have since discontinued its publication but a simple search engine entry of the title will produce the document in its entirety should you want to read it for yourself.

The CFR answered the question by stating:

“Mainly, it is the confidence people have that they will be able to exchange such money for other financial assets and for real goods and services whenever they choose to do so.”

My premise is built around the CFR’s answer. After all, what else is there but the confidence of the people? And when you get right down to the nitty gritty, isn’t this another way of saying the full faith and credit of the government given we the people are the government?

It must be because when I tried paying for lunch the other day with silver dollars, the clerk behind the register said she could only accept real money. When queried, ‘what is real money?’, she showed me an FRN. Full faith and credit at its finest.

So it would appear a system would have to have the full faith and credit of those who will use it as well as have something of value to raise it above the level of fiat currency. I could be wrong but I don’t believe I am.

BTW, I can provide more examples of what is being used as value behind our present currency but I feel certain you can find them on your own. Hence, I will proceed into my PMS.

However, I won’t do it today given this post has taken up quite a bit of VRE. I suggest you do a search on the acronym CAFR and read Craig vs. Missouri to prepare yourself for my PMS presentation. The Craig case is an excellent explanation of the thing called a bill of credit and the CAFR is one leg in my value triangle.

If I do my job in explaining PMS, we just may be on the cusp of actually issuing a currency that will keep all of us out of foreclosure while allowing us to pay our bills as they come due. PMS also provides the added benefit of keeping our elected officials extremely honest.

I look forward to presenting PMS next week for your examination.

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