Everyone loves a top 10 list, but being a part of this one is not a mark of a city experiencing good financial times. Here’s a look at Fortune’s 10 Worst Real Estate Markets for 2009:

1. Los Angeles, CA - Projected 24.9% drop in 2009
2. Stockton, CA - Projected 24.7% drop in 2009
3. Riverside, CA - Projected 23.3% drop in 2009
4. Miami-Miami Beach, FL - Projected 22.8% drop in 2009
5. Sacramento, CA - Projected 22.2% drop in 2009
6. Santa Ana-Anaheim, CA - Projected 22.0% drop in 2009
7. Fresno, CA - Projected 21.6% drop in 2009
8. San Diego, CA - Projected 21.1% drop in 2009
9. Bakersfield, CA - Projected 20.9% drop in 2009
10. Washington, D.C. - Projected 19.9% drop in 2009

If these predictions are correct, we’re in for yet another really bad year to come. The brilliant minds running the government (sarcasm) better have some tricks up their sleeves because additional drops of this large a magnitude could be catastrophic!

BTW - Note that 8 of the top 10 worst are all in California . . . surprised?

Anyone got their own predictions?

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Tags: case-schiller, Foreclosures, housing, los angeles, real estate

Exploring a Future Foreclosure Bailout and the Bernard Madoff Ponzi Scheme

The second episode of the BiggerPockets.com Real Estate Show features the show’s hosts, Joshua Dorkin (founder of BiggerPockets and yours truly) and Charles Feldman (journalist extraordinaire) covering such topics as a possible future housing bailout, coping with the current housing crisis, Bernard Madoff’s $50 Billion Ponzi scheme, and more. The duo’s antics keep these and other serious topics from putting people to sleep. Jump in and join the fun!

Thanks for watching and be sure to check out more videos on our BiggerPockets YouTube Channel.

Tags: bailout, Bernard Madoff, biggerpockets, biggerpockets show, biggerpockets.com, charles feldman, housing, housing bailout, josh dorkin, joshua-dorkin, ponzi scheme, real estate, real estate investing, youtube

From time to time, I like to visit John T. Reed’s Real Estate Guru Rankings website. It’s entertaining to read his blunt criticisms of the many gurus out there today. John reminds me of the guys we’ve all met, maybe our next door neighbors or the guys at the barbershop. They seem to have seen everything and have a sharp word about almost anyone. Yes, John is a fun read, but there’s a danger in spending too much time there - you might turn into a curmudgeon yourself.

That’s not to say that John isn’t right, quite often. Let’s suppose you’ve been considering going to see Guru X (I’m not going to name real names, so as not to embarrass the guilty). Before you spend your $99, you head over to John’s site. Hmm. Guru X has filed bankruptcy three times, is the defendant in a class-action suit, and 60 Minutes ripped him a new one in an expose back in 2003. Maybe you shouldn’t give Guru X any of your money.

John’s in the business, too

But there are two things to remember about John. One is that he’s something of a guru himself, although he’s got a “straight-talk” schtick that attracts a lot of people, myself included. He’s not going to film infomercials on a yacht or go around the country in a $5000 suit. But he is selling something. You can buy his books, download free reports, and so on.

As you may have noticed, many of the people offering you advice on real estate are trying to sell you something, including me and most of the other bloggers here. That doesn’t mean we’re con artists. Rather, we use this forum and others because it helps us grow our businesses and we enjoy writing. It helps us grow our business because, if the things we say make sense to you, we’ll have more credibility. And you are more likely to buy from someone who seems to know what he’s talking about.

That’s what John is trying to do, build credibility.

John is also very critical of Guru Y. A few years ago I traveled around the country exhibiting at real estate trade shows. Because I had paid a small fortune to rent my space, I also got passes to see all the gurus who were presenting. And while most of the gurus did seem like con artists, I liked Guru Y. His advice made sense to me. So I was really surprised to see John’s reaction.

Why is John so critical of Guru Y? Because his investment advice doesn’t agree with John’s. Guru Y hasn’t spent time in federal prison or anything like that, and he doesn’t tell people he’ll make them millionaires if they take his training course. He just has a different approach.

That’s the second thing to remember about John T. Reed. His investment advice is based on his experience, which is different from yours or mine, and so he’s learned different lessons.

Being a healthy skeptic means taking each piece of advice by itself, and paying less attention to things that surround it. Don’t ignore the wild claims or the harsh criticisms, but check them out for yourself. Recognize that when something seems too good to be true, it probably is. Recognize that when somebody rips a competitor as evil, crooked, the lowest of the low, the critic has his own agenda.

Trust no one

I’m not convinced…

…but I’m willing to listen.

Most of all, be very skeptical of the words “Trust me,” whether they are said or implied. The implication can be through shills, as in “John’s a great guy, and his product really works.” Or it can be through claims of experience, as in “I’ve bought and sold 500 properties!” Or criticism of a competitor, as in “That product is junk sold by a crook.” The implied message is “My product is much better.”

Hey, I’m telling you - don’t trust me. The things I’ve created might be just what you need, but don’t take my word for it! Check them out for yourself - check everybody’s products out for yourself. Make sure the money you invest is always appropriate to the level of knowledge you have about a product. I can say with absolute certainty, spending $5000 on a training course based only on a one-hour presentation is never wise.

Considering buying a book? See if you can find sample pages or other articles or material written by the author. See what John T. Reed says (a lot of the information on his web site is objective, and therefore more valuable). Considering buying a software product? See if you can try it for free for a while. Considering buying a training course or a mentoring service? Google it, see what you can find out for free, and again, go see what John says.

And BiggerPockets can be very valuable in your research. Hey, go ahead and ask if Product Z is worth your money. But as always, watch out for shills.

Photo Credit: magnusfranklin, Dlade

Tags: guru rankings, gurus, investor, John Reed, john t reed, real estate, real estate guru, real estate investing

I am not Catholic, and I beg for forgiveness from those who think I may be blaspheming by using the term ‘redemptive suffering’ in a non-religious context.

Whew. Now that we have that out of the way …

Watching the news media, you’d think the world is about to end.

Markets are in turmoil. Economies are contracting. Capitalism is dead (if it were ever truly really alive in the first place). Compared to 1998, the world is indeed looking pretty bleak right now. After all, if you’re used to drinking water out of a pitcher and then someone takes that pitcher from you and replaces it with a small glass of water, you’re going to say “wow, I just ‘lost’ 50% of my water’. But, you still have water, though, don’t you? And, chances are, that glass is a bit bigger than the glass you had before you got that pitcher to begin with. So, yes, times are tough. And there’s certainly a trickle down effect caused by one sector after another ‘collapsing’ (residential, financial services, jobs, auto, jobs, etc).

However, how bad is it REALLY?

For commercial real estate, here are some facts …

from National Retail Online:

Across property types, what is shaping up to be a prolonged recession is already dragging down occupancy rates and cash flows as tenants grow averse to new lease commitments. Three consecutive quarters of negative absorption drove up the national office vacancy rate to 13.7% in the third quarter from 12.6% a year earlier, according to Reis, a New York-based real estate research firm. Meanwhile, the national retail vacancy rate climbed to 8.4% from 7.3% during the same period. Even the typically dependable apartment sector hasn’t been immune to the economic and financial strife, with the vacancy rate climbing 40 basis points over the past year to reach 6.1% in the third quarter.

So, office vacancy went up 1%, retail up 1% and apartments up 4 bps. Wow, I feel a depression coming on!</sarcasm>

Finally, in closing, I can’t sum up my feelings on this topic better than commentator Roger Kimball in his blog entitled “How Bad Is It?”

The economy, I mean. The President-elect warns that “the worst is yet to come” and “millions of jobs” might be lost. Olivier Blanchard, head of the International Monetary Funds, agrees: “The worst is yet to come,” he told a German newspaper recently. Type “economy bad news” into your search engine: you’ll find plenty more where that came from. Jim Cramer, the excitable, “progressive” financial analyst, set the tone some months ago with his “this-is-Armageddon” video.

Maybe so.

Or maybe the current turmoil is, well, the current turmoil.

Let’s get a bit of perspective on things. Yes, yes: my 401K is a 201K now, too. As I write, the market is hovering around 8000, down from a high of more than 14,000 not so many months ago. In October, unemployment jumped from 6.1 to 6.5 percent–ouch! Inflation this year is about 3.7 percent, up from 2.7 percent last year (and 1.6 percent just a few years ago). Not good, what? How does it compare with, say, the golden age of Ronald Reagan. Well, by the end of 1982, unemployment was 10.8 percent, up from 8.6 percent the year before. The Dow was 700–that’s seven hundred . Inflation peaked in 1980 at 14.76 percent, dropping over the course of 1982 from 8.39 to 3.83. Thinking of buying a house? The prime interest rate in 1980 touched 21.5 percent. In 1982, it went from a high of 17 to a low of 11.5 percent. It is about 4 now.

What, Sherlock, do you make of all these numbers? Here are two things: One, the market, and all associated economic indices, fluctuate. Two, we are a lot richer now than we were in in 1980.

So, yes, things are bad. And, yes, I believe things are going to get worse (more jobs lost, more foreclosures, deeper credit crises). But, I believe that — even when we ‘bottom’ out — things have been much, much worse in the past (I don’t think many of us will need to stand in bread lines for example). However, this ‘worsening’, also opens up opportunities as I’ve blogged about in the past. So, as entrepreneurs and investors, we have to be nimble, open-minded, and work smarter AND harder to take advantage of them and benefit in the long run.

So, my suggestion to anyone serious about not just surviving, but THRIVING during these crazy economic times: turn off the CNBC and get to work!

Photo Credit: Fillmore Photography

Tags: CNBC, Economy, opportunity, real estate, real estate investing

Perhaps the biggest challenge facing the Obama administration is implementing a new energy program. As gas prices rocketed skyward 6 months ago, calls for energy reform were rampant. As the economy slides further into a recession, focus has shifted towards the financial markets, manufacturing, and stabilizing housing prices.

Economist have long argued that even with hybrid vehicles, hydrogen batteries, and renewable energy resources, Americans will have to alter their driving habits and live closer to work. Many have called for stiff gasoline taxes, in order to keep the public’s focus on the impending energy crises and influence population migration.

UNDERSTAND THE ECONOMIC FORCES AT PLAY

There is a very real possibility that the decades of expansion and urban sprawl will shift back towards centers of production and commerce. Because of extremely slow changes in the supply side of Real Estate, home values and market rents in certain suburban areas may experience a prolonged decline while metropolitan areas will experience a resurgence.

Make sure you understand what the economic drivers of your market area are and investigate changes in demographics and population movement. Though it is extraordinarily difficult to project long term growth in any market, it is foolish to ignore the myriad of economic indicators and assume away changes in consumer behavior when making investment decisions.

Photo Credit: diaper

Tags: energy, gas, Global Warming, house values, oil, Population Trends, real estate

Dinner Conversation

Cruises used to mean assigned seating with set times dinner and the same dining partners for the duration of the trip. If you were at a good table that was great. However, if you had a table full of people that you didn’t like you could find yourself wishing that the vacation would end quickly. Recently many cruise lines have instituted an open seating option at dinner, which meant that you could eat when you wished and dined with different people every night. This was the option that my wife and I chose and it enabled us to meet a lot of new and, in most cases, very interesting people.

The conversation would always start with introductions followed closely by two questions: 1) where were you from and 2) what do/did you do for a living. When my turn came and I stated that I had been a financial planner for fifteen years and was now a real estate investor and author, the conversation always turned to the current financial conditions and the state of the housing market. It was great for me because I was able to hear what other people were thinking about the economy and how it impacted them.

Our Dinner Partners

One night we met a middle-aged couple from Dubuque, Iowa. They had been real estate investors and had previously owned a couple of rental properties. However they found that they were not cut out to be landlords and decided to sell their properties. They were fortunate in that they had not lost money and, in fact, had made a very modest profit. They decided that they were more suited to be stock market investors and put the bulk of their investments, including 401(k) accounts, into mutual funds. They had managed to time the switch to coincide with the market peak last year and were now wondering what to do next. The daily financial news centered around the how much the Dow had fallen that day. Although the seas were calm, they looked fairly seasick as we discussed this.

On another night we had dinner with a retired couple from Arizona. Conversation this night turned to their concern for the daughter, the Ph.D., who was in the process of divorcing her husband, the doctor. It seemed that the well-educated couple had been caught up in the real estate craze. In a very short period of time they had managed to accumulate a portfolio of over 30 rental properties. The combined properties had a very negative cash flow and had declined significantly in value. This, supposedly brilliant, couple had bought into the guru craze of becoming fabulously wealthy through real estate and were instead facing financial ruin and, ultimately, divorce. It was a sober illustration of the human toll of the housing mania.

One of the most interesting nights was when we had dinner with Don and his wife, a retired auto dealer who had owned a Ford dealership in Indiana. His sons had since taken over the business. He reminisced about how owning a car dealership was, at one time, almost a sure path to wealth. It certainly had been for him, but now his sons were struggling to stay afloat in these economic times. Earlier this day the heads of the Big Three automakers had been pleading their case for a bailout to the members of congress. I was sure that Don would be in favor of the bailout and I was truly stunned when he said that the Government shouldn’t give them a penny. I asked him why and he said that if congress bailed them out they would never change. He felt that the companies should be forced to deal with the mess that they created even if it meant that the Big Three had to merge or be allowed to fail. Wasn’t he concerned for his sons? Of course he was and there was a good chance that they would fail as well. He could feel this way because he was wealthy enough to take care of them and he would be their “backstop” (his words) if he had to be.

While passengers on a cruise ship do not represent a real cross-section of America, it was a great opportunity to hear what others had to say.

In three words I can sum up everything I’ve learned about life: it goes on. -Robert Frost

Tags: auto bailout, Economy, real estate

We created the following video this past spring, but thought it was worth sharing once again, since it has re-emerged into the collective consciousness thanks to our friend Joseph at Sellsius. Enjoy!

Please make sure to share this with all of your friends! Blog about it or just spread the word!

BTW - We’re working on a new video series on real estate and we’ll be sure to let you know about it soon!

Tags: biggerpockets, fun, housing, money, real estate, real estate investing, rich, subprime, video, youtube