A few years back, my good friend Matt had a job offer to work at a company in Caribou, Maine. Caribou fits its name pretty well – it is the northernmost city in Maine, and actual caribou (that is, reindeer) used to live around there. Caribou got more than 16 feet of snow in the winter of 2007-2008.

Matt was pretty excited about the job, but I wondered how long he would last in Caribou. He’s a fairly urbane guy who likes funky restaurants and bookstores. Caribou residents prefer hunting, fishing and snowmobiling. And in fact, Matt didn’t last long. Caribou was not for him.

I was reminded of Matt during the last week, when I made one-day visits to Boston, Massachusetts and Berlin, New Hampshire. The only thing that both cities have in common is a love for the Boston Red Sox.

Many people who live in and around Boston couldn’t imagine living in Berlin, “the city that trees built.” Berlin was for many years a logging and paper mill center. As you would imagine, the city has had a long decline. Now, however, I get the sense that things are looking up.

Berlin’s advantages and disadvantages

The truth is that Berlin is a beautiful city and would attract many people, including some who now live – reluctantly – closer to big metropolises. It’s just north of the spectacular White Mountains. There are many kid-friendly attractions in the area. Of course it has the same hunting, fishing and snowmobiling options as in Caribou.

Best of all, Berlin is a cheap place to live. Many decent houses are available there for less than $100,000, including some for under $50,000. Berlin also has all of New Hampshire’s advantages for business owners.

Berlin’s major disadvantages are its distance from populated areas, overall weak economy, and poor schools. The first of these, however, is becoming less and less of a problem.

The Great Equalizer

The Great Equalizer is, of course, the Internet. It makes it possible for Berliners to work for employers that might be hundreds of miles away, or start companies that have customers all over the country.

And in fact, that is happening in Berlin. People are living there and working remotely, in many cases making more than they ever could have in the city’s traditional industries. They enjoy a standard of living that is enhanced by the generally low prices found throughout Berlin. I also know of two growing technology firms that have established in Berlin and market internationally.

Berlin does lack some off the joys of urban living, but the Internet compensates there as well. For example, Berlin doesn’t have any exotic restaurants or art-house movie theaters. It does, though, have the same access to websites offering exotic gourmet ingredients, so you can cook Ethiopian doro wat at home. And if you want to follow that up with a Werner Herzog film festival, you can get all those movies from Netflix.

What does the future hold for Boston and Berlin?

There are two kinds of reasons why people live where they live. The first are the “need” reasons – the biggest of which is work. If the kind of work you want to do can only be done in New York City, that’s where you’ll have to go. Not many jobs are that restrictive, but right now there are still many jobs that can only be found close to major population centers.

The “want” reasons are mostly cultural. If you really want to see that Herzog film in an actual theater, you’re better off in Boston. Similarly, if you live for skiing, you want to live in a city near ski areas (e.g. Berlin!)

I think the future will see more of the “need” reasons dissipate, while the “want” reasons will become more important. Thus there will, in fact, be equalization between rural areas far from population centers, and urban areas which have more of the art houses and so on.

The net effect will be population growth (and corresponding housing growth) in rural areas, and population decline in urban areas. Just consider this theory when looking at real estate purchases in both types of communities.

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Tags: community, housing, real estate, Society and Culture

Remember the company that created the $2,000 new car?  Tata Group of India has unveiled its newest brilliant innovation - the $8,000 new home.

The bad news is, Tata won’t be bringing its $8,000 homes to the United States any time soon.  Shubh Griha, the company’s new housing development, is located in Boisar, about 100 miles from Mumbai, and more than 10,000 miles from the United States.  But it is brilliant - and it makes me wonder what we can learn from Tata’s example.

Well-built, comfortable and very small

All of the units at Shubh Griha are quite small.  The biggest are only 474 square feet and run about $15,000 (the $8,000 units are only 283 square feet).  While these would be uncomfortably cramped for most Americans, they’re pretty comfortable for many Indians.  Remember that India has more than a billion people.  In fact, an Indian friend of mine once told me she felt more comfortable in New York City than anywhere else in the US because she liked having lots of people around.  These units are aimed at India’s fast-growing middle class, people who earn perhaps $5,000 to $10,000 per year.

While they are tiny, the Shubh Griha homes are going to be well-made, with high-quality construction and fittings.  And the surroundings are pretty pleasant.  Shubh Griha will have 75% open space, schools, a hospital, jogging paths and so on.

Shubh Griha looks especially nice when you consider the horrible quality of much Indian housing.  Perhaps a third of all Indians live in dilapidated buildings which might or might not have running water and electricity.  Many others live on the street in a box, or under a tarp.

The extraordinary value and 21-st century marketing techniques behind Shubh Griha have already proven very successful, with Tata getting 3,500 applications in the first two days since it began taking applications over the Internet.  This is three times the total number of units in the first phase of the project.  My guess is that with the success of Shubh Griha, many of those applicants will wind up buying a unit in a different Tata development.

The company behind the project

Tata Group has been in business since the 1860s and might be considered India’s General Electric or 3M.  The company owns Jaguar Cars, Land Rover and Tetley Tea.  It produces much of India’s electrical power.  However, Tata first made news in the US with the announcement of the Tata Nano, the $2,000 car.  The Nano is expected to actually sell for $2,200, but that’s still pretty cheap.  It will lead the way in getting Indians to upgrade from bicycles and scooters to cars.  Like Shubh Griha, the Nano is a huge success.  More than 200,000 people committed to buying the Nano during a 16-day period in April.

The Tata Nano reminds me of the Model T - a decent car for regular people.  Shubh Griha is reminiscent of Levittown, New York - a decent community for regular people.  Both the Model T and Levittown came along at times when regular folks wanted the lifestyle they saw wealthy people enjoy, and visionary companies headed by Henry Ford and William Levitt figured out ways to provide it at a profit.

Learning from Tata

I doubt we’ll ever see $8,000 new homes in the United States, but we can still be inspired by, and learn from, Tata’s efforts.  I’ve written before that I think hard work and innovation, not bailouts and whining, will get us out of the current economic slowdown.  Obviously the people of Tata believe this as well.

So what can we take from their experience?  One lesson is that people still want new quality products, even if they have to buy fewer of them.  I’m not referring to luxury products, which aren’t selling at all these days.  There’s certainly a difference between luxury and quality.  Consider that a shirt doesn’t have to come from Neiman-Marcus to be well-made.

Another lesson is that making a splash can help you make a profit.  There are many other housing developments in India, and there’s even another car model in a similar price range to the Nano.  Tata gets all the press, however, because it knows how to create news with its products.  There’s always a hook to grab the attention of reporters - the $2,000 car, the $8,000 home.

Finally, Tata is a trusted company.  You absolutely must gain a reputation for keeping your promises to be successful in business.  Tata Group is the 11th most reputable large company in the world, according to a poll conducted by Forbes.

Tags: housing, Tata Group, Tata Nano

It’s always something!
Just when there are some small (real small) signs that the U.S. economy may be on the mend, a new, never before seen type of swine flu is making the rounds from California, to Texas, to New York, to the U.K., to Spain and, of course, Mexico.

So far, no deaths in the U.S. (unlike south of the border)–but a possible pandemic is the last thing the world needs right about now while it is trying to tilt its axis back toward solvency.

Dead people don’t buy homes! (Except maybe in Chicago where dead people have often voted for political candidates.) And, politicians distracted by the spread of illness may shift focus away too long from fixing the economy.

As some already fear, we may have a perfect storm situation developing here: a basket case economy and the potential for a world-class flu pandemic! What a combo.

And, California, among the hardest hit by the bursting of the housing bubble, is now among the hardest areas of the U.S. hit by this new swine flu virus. Only 11 cases and two probable ones as of this writing…but a number just about everyone says will certainly grow larger over the course of the next several days and weeks.

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• Swine Flu: 5 Things You Need to Know About the Outbreak (time.com)
• Room for Debate: Swine Flu: A Cause for Panic? (roomfordebate.blogs.nytimes.com)

Tags: h1n1, housing, pandemic, swine flu

Secretary of Housing and Urban Development Sean Donovan was on Bloomberg this morning discussing the state of housing and the Obama Making Home Affordable Plan. There are some signs that the program is starting to work.”I think we have a good balance of carrots and sticks” said Donovan when asked about banks and servicers working together to modify mortgages for homeowners unable to make mortgage payments. Time will tell if indeed the plan is working. I can tell you that here in Arizona, one of the hardest hit areas, the numbers are starting to be not as dismal. Mark Tait, a principal in NXT Generation Real Estate shared some interesting numbers with me last week:

In the greater Phoenix Metro area:

• Year over year closing are up almost 4000 units.
• Inventory has dropped almost 9000 units since December, 2008.

“As a man on the street, I can tell you multiple offers are back and most REO properties.” said Tait, “$200k and below are going out at FULL PRICE.” Now does this mean that we have a bottom in housing? No, I don’t think we have hit bottom in terms of values yet, what I can say though is that activity is returning to the market–and that is the first step on a long road to stability.

Tags: housing, mortgage, real-estate-owned, residential, United States Secretary of Housing and Urban Development

So you’ve got five residential tenants.  Joe consistently pays late.   Christine got in a fight with her boyfriend and kept everybody awake on Christmas Eve.  Alex leaves his trash out in the halls.  Richard calls you around the clock to complain – about the other tenants, but also about the traffic noise, about the heat, about the shower, etc.

And then there’s Mary, the undemanding tenant.  The tenant you love.  Mary never complains.  Mary always pays.  Mary is your buddy.  Do you have to worry about Mary?  Yes.

The other tenants demand your attention.  Mary never gets any attention because she never causes a problem.  However, your lack of communication with Mary means you don’t really know what’s going on with her unit.

Mary may, in fact, be very unhappy, and planning to go.  A lot of people are like this – they don’t complain about a situation until the day they decide to walk out of it.  In that case, the first call you get from her will be the one saying “I’m leaving at the end of my lease.”   Even then, she may not say “I’m unhappy.”  But suppose she is?  Suppose she had real complaints and issues that you could have fixed if only you had known about them?  You’d be kicking yourself when you got the “I’m leaving” call, because it came too late.  Offering to fix the problems in response to the “I’m leaving” call probably won’t work, because chances are Mary has already signed a lease somewhere else.

You Must Call First

Because Mary’s not going to call you, you have to call her.  Do this every couple of months, and any time a problem happens elsewhere with the building that might affect her.  These are “check-in” calls.  You can ask how she’s doing, if she was affected by the other problem (assuming that prompted the call) and so on.  If your call was prompted by an issue elsewhere in the building, let her know what you are doing about it.

By making frequent calls, and soliciting her views, you are letting her know that it’s okay to complain.  It’s highly unlikely she will have any concerns to address at first, but eventually she will open up.  Now bear in mind this is not a bargain – “If I pay attention to you, you won’t leave.”  However, you are increasing your chance that she will stay.

I must confess, there are times I’ve been really reluctant to make these calls!  If it’s the end of the day and I’ve dealt with four or five major issues, the last thing I need is another potential hassle.  But consider Mary’s value.  She’s the best tenant I have.  If she leaves, I’ll have a heck of a time replacing her with someone of the same quality.

What if She Just Doesn’t Notice?

It may be that Mary seems satisfied, not because she is reluctant to complain, but because she just doesn’t notice problems.  The whole place could be falling down around her, and she would really think everything was fine.  Great, right?  Let me repeat:

The whole place could be falling down around her, and she would really think everything was fine.

Since you don’t want the whole place to fall down, you need to make sure this isn’t the case.  Little problems often develop into big ones, especially with plumbing, pests, or electrical work.  To prevent this, you must – at a minimum – schedule inspections of Mary’s unit with the same frequency as the others.  When inspecting Mary’s place, you’re not looking for problems she caused as much – those are unlikely.  Rather, you’re looking for problems that happened for other reasons.

You may also want to take a few minutes to teach Mary about little signs of trouble that she can catch early.  Frame it as a matter of avoiding inconvenience – “if this turned into a major problem, you wouldn’t be able to use your stove for a few days.”

Don’t Take Her for Granted, or Give Her a Break

I’ve noticed before that when contractors form a friendly relationship with you, they may start taking your good nature for granted.  Rather than getting special treatment from them, you’re moved to the back of the line.  We have the same tendency to do this to our best tenants.  When they do have an issue, because they’ve been so nice to us in the past, we may say “Mary can wait a little bit, she’s patient.”  But that’s entirely unfair to Mary and may cause trouble for you down the line.

How about a break on the rent?  I don’t mean a one-time break, allowing a late or partial payment without penalty.  That’s probably not going to come up with Mary.  I mean not increasing her rent at the same time you increase everybody else.  I personally would raise her along with the others.  The good reason not to (you want to keep her) is overshadowed by the good reasons to.  One good reason is that having everybody pay the same reduces resentment among tenants.  Another is that if you charge market rate but provide superior service, you’re still giving Mary a good deal.

Tags: apartment, housing, lease, tenant rights

In a sure sign that in order to survive the hobbled housing market you must take chances and make drastic moves, two of the largest home builders are going to be merging. According to the Washington Business Journal:

Pulte Homes Inc. has agreed to buy fellow homebuilder Centex Corp. in a stock swap valued at $1.3 billion. The acquisition also includes net debt of $1.8 billion, giving the entire transaction a cost of $3.1 billion.

According to Pulte CEO Richard J. Dugas, Jr. the combination will put both firms, “in an excellent position to navigate through the current housing downturn” and “accelerate a return to profitability.” Pulte has lost money in each of the last nine quarters. Centex has been in the red for the last seven quarters.

The Wall Street Journal reports:

In a decision the executives labeled a first-mover advantage and a game changer, Michigan-based Pulte will acquire Centex Corp. for about $1.3 billion in stock. The companies said Wednesday that the combined company would have a market capitalization of $4.1 billion, beating out D.R. Horton Inc. (DHI), the largest home builder by volume, with a market capitalization of $3.4 billion. Its shares gained nearly 3%.

Under the deal, which also includes $1.8 billion of debt, Centex shareholders will receive 0.975 Pulte common shares for each share of Centex they own. Based on Pulte’s Tuesday closing price of $10.77, the deal is valued at $10.50 per Centex share, a 38% premium over Centex’s Tuesday close of $7.62. Pulte shareholders will own about 68% of the combined company, while Centex’s will own about 32%.

For more information on the merger, the two companies have created a website PremierBuilderUSA.com with facts, figures, forward looking statements, etc.

Will the new goliath have what it takes to survive a flat or even negative housing market over the next few years . . . only time will tell.

What do you think?

Tags: Centex, DR Horton, home builders, housing, Pulte Homes, Wall Street Journal

Looks like some banks have stolen some ideas from their own customers…after months of worry about homeowners walking away from foreclosed properties, more and more banks are now apparently doing the same thing, leaving the property owner holding the bag.

According to a New York Times report, “the so-called bank walkaways rarely mean reflief for the property owners, caught unaware months after the fact, and often mean additional financial burdens and bureaucratic headaches.”

The report highlights the case of a woman who had lost her rental property to a foreclosure.

Well, she thought she had, anyway.

Turns out that even after a date for a sheriff’s sale had been set,and after her tenants had already left, the city in which she resides contacted her to demand that “she resume maintenance on the property.”

Seems the sale had been called off and that meant the property title, despite the foreclosure, remained in the woman’s name!

And you thought banks couldn’t come up with even more ways to screw their customers!

Says one lawyer quoted in the piece, “the soft housing market and the vandalism that often occurs when a house sits empty are the two main factors influencing the mortgage holders’ decision to walk away.”

Says another person quoted, “the whole purpose of foreclosure is to take title of the property, sell it and recoup what money you can. It’s just a sign of the times that things are so bad no one wants to take possession of the property.”

The current economic disaster is bringing out the best in some people and institutions, but, more often than not it would seem, it is bringing out the worst.

Housing Crisis Drives GM Boss Away

Meantime, who would have thought even six months ago that the so-called sub-prime mortgage mess (which never really was about the mortgages as much as it was about the investment bundles made of these mortgages that no one really understands) would lead to the removal of the head of General Motors?

Clearly, Obama is in the driver’s seat here and apparently recognized a little appreciated fact of American business: just being a majority shareholder in a company means nothing unless you can replace the company’s Board of Directors.

Which is pretty much what the Obama administration set out to do with GM in exchange for an infusion of even more taxpayer dollars.

In the late 50s, Americans were promised two cars in every garage as pent-up demand for consumer goods exploded in the aftermath of Word War Two.

Who would have thought that we’d get to the point where, not only can’t many Americans afford two cars, but the company that makes a lot of those cars may go bankrupt and there is no garage anyway because the occupant lost it to foreclosure?

Tags: Economy, foreclosure, housing