By cw1900

August 22, 2007 12:38 PM | Link to this

Time to move to the new topic….

Lots to say today, look out you people….

My value on papa is down 8% on primary residence, 7% on rental #1, and 8% on rental #2. Big deal, a meaningless number, doesn’t affect me in the slighest. I’m still going to work, kids started school today, and when I get home, I think I’ll jump in the pool tonite and have a Budweiser Select (it was on sale…). What’s wrong with life in south Florida? Nothing.

Mike Fink, You know we agree on many things financial, our only debate has been how far and how long we fall. The mathematics are all fairly valid to a point, I agree, but you simply do not believe that south Florida is just a bit different than Dayton, OH or Phoenix, AZ, and I do. It is a bit different, and that cannot be denied.

Playing on your bubble argument to the extreme, I would agree that spots such as Las Vegas, Phoenix, and Denver, so called bubble spots, can fall much more and rightly so. What makes them different than us here in south Florida? One bull in the china shop is the fact that South Florida is to Long Island as Las Vegas is to Orlando. Limited space vs unlimited space. Las Vegas, Phoenix, Denver, Open land. Unlimited room for decades of future growth and sprawl. Anyone who has ever been to Vegas and took the drive to the Hoover Dam for example, can attest to the fact that there are miles and miles and miles of open land where builders will eventually build future cookie cutter housing developments. There is your supply issue problem for those regions in a very understandable and simplistic view for the masses to grasp ahold of.

Have you ever wondered why Oklahoma City, Tulsa, Dallas did not participate in the huge runups of 2004 and 2005? Go to those cities and see how many miles and miles and miles of open land is available. You buy a brand new 3/2/2 in a beautiful development with all the granite and stainless your bw can get herself off on, and 9 months later, there are two other brand new developments 1/2 mile out from city center than yours is. You may be 1/2 mile closer, but yours is 1 yr old and not sold out yet, and buyers are looking at the new one. That will keep tthose types of areas as buyer’s markets most always. Ask any smart realtor in Oklahoma City if I’m right. Orlando has that same problem to a smaller degree.

Long Island and south Florida are very similar. Blocked eventually from future growth by two coasts. Undeniable and it is what it is. That is why these two areas will have to stay a little outside of the normal mathematics that you base your whole life on, and that is one fact that will get you if you don’t be careful. Take away the sunshine and the fact that this is still a world class tourist destination, and you cannot take away the fact that we live in an area of finite, buildable land. The Everglades is probably one of the biggest reasons prices in south Florida can never go to where you want them to be. Denver, Dallas, Oklahoma City, and Orlando cannot say that.

So, we will continue with the radiator flush. That cannot be stopped. South Florida is slowly becoming southern California, that cannot be stopped either, nor should it be denied by any of us at this point. Look at SoCal in the 70s and 80s and there we are. Concentration of people and high prices may happen even faster for us because southern California had much more buildable land than we could ever dream of. The fact is south Florida will have 15% more people in a few short years than it does today, yet, the same amount of buildable land. That is another pot of cold water thrown in your face you always seem to forget. Easy and FL Ren can add to that when they have time.

Therefore, Fink, your mathematics, I agree with in theory, but your logic is awful. Take your head out of the book and look around you and get your business bearings. I think you would make a great professor at Northwestern University, but a lousy person to put the application into a real world business situation. You will sit there and think about it for so long ,and crunch your numbers, you will always miss out, and then you’ll try it again. Pretty soon, that stage of your life is over, and then you’ll worry about the next and wait too long on that one too.

“Big Daddy is not worth replying to. “Investments” and him are the same person. He’s a pompous a*s who I think has less than he wants us to believe. He is bitter. Something’s really wrong in that household, I’m sure of it.

“Curious” is not a vulture. It’s the way I buy anything. If you don’t like it, he’s right, it’s just a business decision. You have the right to say no. It’s a free country.

“Jeremy”, very reasoned, you sound like a nice guy with some brains, but a few points I’d like to touch on. You said, “Never buy the most expensive house in a neighborhood. If you’ve overimproved your home and expect to get paid for it, you have a problem ahead.” Perfect. Yes. Most people don’t get that. It’s that “I want to be better than the Jones’” thing, I guess. Ego takes place of a person’s business sense.

However, you also said, “Housing costs should be no more than 30-35% of the household budget. That includes mortgage, taxes and insurance.” Wrong. That logic is what well meaning, but dumb mathematically, mortgage brokers and realtors tell the masses everyday and that is doing your financially ignorant client a grave disservice. Try 25%, maybe 30%, but no more. 35% and you are getting into that risky family budget and the husband and wife fights at night over money. Don’t do it. Ideally, for a well balanced, workable household budget to work and not have the wife throwing the dishes as you spell out to her how tight on cash you are this month, your PITA should be no more than 25% of your after tax dollars. That also meams no ARM’s, no interest only, that does means a 15, 20, 25, or 30 yr fixed rate mortgage, nothing else, and only after you have put down a down payment of at least 20%. If you can’t do that, you can’t afford the house, period, end of story. I’m wrong? Look at the gazillions of examples I have of people in trouble who did the opposite and now are freaking out. Why is it that I am not in trouble, and our boy “Big Trouble” from yesterday is freaking out and wanting us to feel sorry for him? The fact that most people are more in line with your 35% and that doesn’t even include HOA’s, that’s just one more reason you can’t always look at your mathematics when determining the future median price here. Apparently people are ok with eating hot dogs every night for dinner, and fighting with each other at night, so as long as they can live in SoFla and have that granite countertop. No, they can’t afford it, and are financially being very stupid, but they do it for years, anyway. What can I tell you? You see it yourself. Just another variable that has to be factored into the equation. One more step towards life like SoCal.

The bottom line is Jeremy is another Mike Fink, except I don’t even like his number crunching as much as Finks, but both are missing too many other factors and therefore, will continue to be misleading the general public, just like my neighbor who always tell me it’s a good idea to have whole life insurance. He calls it an investment. He’s an idiot, but I think he actually believes that garbage, so I still like him. He knows not what he speaks. He’s just bad with a calculator, but he’s still fun at block parties.

Jeremy then said, “It’s just the way we have to go…”. No, we do not. It’s what your book says, I agree, but read between the lines sometimes. You can learn a great deal from stepping outside the box. Hint…. The radiator flush, salt water, and environmentally sensitive land has a little to do with it.

He then said, “But NYC is a bit of an anomaly, agree?” Yes, and so is south Florida, not as much of course, but a heII of alot more than Scranton.

Bail out? Chris Dodd is an idiot. Never. Not with my money. Let them fail. It will leave more for responsible people who live with their means to buy when the dust settles. They can then lick their wounds and rent the same house from me, cw1900, landlord and master of my domain.

cw

By Bobby McGee

August 22, 2007 1:08 PM | Link to this

Good post Cw. Spot on today, sir.

By Jeremy

August 22, 2007 1:49 PM | Link to this

CW — I agree with your 20-25% completely. In fact, when the wife and I recently went and bid on a house at auction, we based the math on 20% all-in expenses. That being said, I’m trying to make an argument that housing prices are going down because they aren’t economically supportable. You can scratch and claw a 30-35% budget, although it would be tough. And I did use only 20% down. Figured the fixed rate, no exotic crud was a given. So if you are more conservative than me on the budget numbers, how can you say prices are supportable? Or maybe you just don’t think they will fall as far as others? I think we’re headed for a 30% drop off the absolute insane highs of early ‘06. That puts the typical 400K house around 270K. I can justify that, barely, using the budget analysis on 110K income. I’ve been hammered by people saying that 110K is too high and my housing prices are coming too far down. You just hammered me by saying my housing price drop is too far but only because there isn’t any land. So how do people buy the houses on local salaries in your theory? We can’t all rent from people in Staten Island. If the rent isn’t at least close to the mortgage, it doesn’t make sense to the owner. So I’m confused on where you think the money is coming from. Not being confrontational, just curious.

By Rent to Price Numbers

August 22, 2007 2:47 PM | Link to this

What would be considered a “normal” rent to price ration for a home. I see adds in Abacoa where you can rent a house for $2,500 per month, more or less, or you can buy it for $600,000 or so.

I’ve always heard that the price of a home should be 100 to 120 times the monthly rental. So to buy a home that rents for $2500, you should pay $250k to $300k to buy it.

Are rents here still out of line with the cost of homes, or what?

By CW1900isana$$

August 22, 2007 3:45 PM | Link to this

CW1900 I would like to respond to your post about credit scores. WTF Who are you to lump together everyone you have no idea what life circumstances people face so get a clue.

By CW1900isana$$

August 22, 2007 3:46 PM | Link to this

CW1900 I would like to respond to your post about credit scores. WTF Who are you to lump together everyone you have no idea what life circumstances people face so get a clue.

By CW1900isana$$

August 22, 2007 3:46 PM | Link to this

CW1900 I would like to respond to your post about credit scores. WTF Who are you to lump together everyone you have no idea what life circumstances people face so get a clue.

By Curious

August 22, 2007 4:26 PM | Link to this

Rent to Price Numbers,

“I’ve always heard that the price of a home should be 100 to 120 times the monthly rental.”

That’s a very rough traditional equation. I usually figure 100 times monthly gross, minus a vacancy factor, sinking funds for fixed expenses, repairs and unknowns.

For a real estate rental investment, I at least want to see 30% gross on invested capital (other things equal) for all the risks, hassles and hands-on involvement, compared to buying liquid assets and just sitting around drinking mint juleps and watching the market reports. If I have to “sharpen my pencil” to see those kinds of numbers in a real property, I am not interested.

Incidentally, am only talking about a triplex or smaller; 20-100+ unit properties are valued somewhat differently.

Fortunately, in today’s market there are tens of thousands of properties available; leastwise in my target range that spans along the coast from Jupiter to St. Augustine.

Best to ya!

By easyasabc

August 22, 2007 4:29 PM | Link to this

Busy, busy, busy……lots of talking here, with some new folks…..going over the notes of everyone…..some of you are saving $80, $100, $150 on your taxes…..don’t spend it all on a family dining outing at a local over priced pasta restaurant……..looks like the “have nots” did not recieve their 70% reduction as they hoped for……you know when the time you don’t have to worry about money????….it is when you are driving around two weeks with several rent checks in your glove compartment of your auto…..one of my renters called and asked me why did not cash their check yet…….I was just busy making bigger money it seems……….I saw my evil wannebe false double posted earlier this morning……you can see how bitter she is when he capped HA HA over and over a dozen times…..pulling their hair out….knowing the worst is over….but they still cannot make a living with the low prices that were around…….even RCA/postman wrote in between his pudding snack periods……while many of the “have nots” will be watching others buy their deam home/condo, they can come back here and list more propeties and prices….wasting their time blogging, while they should be at a second job working…………Sorry CW, I cannot compare Southern California to South Florida….a world of difference apart……Southern California has high paying professional jobs…..South Florida has low paying jobs……we lost many corporate companies that built this area up in the 70’s, 80’s and early 90’s, thanks to Chiles and Bush…..IBM, Pratt Whitney, Motorola, and a few others…..our largest employers today are the local school district, Publix and Boca Spa & Health club……..that is why our median income has dropped….but Florida has something more than S. Ca. has, affordable housing, and taxes…..that is why more people would move here than into Calif……Denver area is limited to enviromental issues, so is S. Calif…..Phoenix and Las Vegas is a desert…..some lakes around, but people will take oceans over man made lakes…..Las Vegas has no community identity……S. Calif has a more postive family outlook than Florida does….we cater more to the snowbirds and the baby boomers…..Vegas, Florida and Phoenix are all transit places to live ………..someone mention one of the more important element in buying real estate….”Location”…. where is this magical place everyone wants to live at????….are we all looking at the dollar value of a home and neighborhood, or a place where you will a raise a family at or retire in your golden years…..I could point out over three dozen areas across this country that were dumps ten years ago….now they are high value real extate property………..did anyone notice the police and fire personel will recieve pay hikes????…..we do have many govt. employees making good money here in the area….many of the sellers should target that high end paying crowd…..plus, many tradesmen have cash businesses….there are people out there with money, don’t believe eveything you read about median household incomes……buyers can low ball offers, the worst answer they can get is a “No”…..with fall around the corner, more homes will re-listed again with a new realtor….new buyers come into town……just the regular cycle that Florida is in…..you either can afford to live here or not…..and finally about “Loopholes”….they are made by politicians to help out big corporations….these guys make these deals on golf courses, not at any govt. meeting…..all “stealth” law talk that is going on…..these loopholes are not for the common folks…..and the Palm Beach Post and other media giants knows this….they have high paying consultants who always look over eery line of these law contracts…..there should be no surprise when these builders/develpoers make out at the end…….if someone was looking at a $400K home, and saw it drop to $280K, why then look at the $600k home?….because it will be only around $420K now…..I would say a better deal for the buyer who was in the $400K range earlier……and the guy who was looking at $600k property, can now look at the property that was for $800k, which now is only $560k……anyone has homes like that in their neighborhoods that dropped in prices like that?????….if they went into foreclosures, the realtors don’t have them to make money on them…..the banks might cut the price off 10%, just to get them out…..or they will wait it out like the rest of the sellers out there….knowing the baby boomers have the cash to buy here when they get tired of the cold and snow up north…..and the local sideliners, well, they will either find a mortgage lender or make money.

I beleive all the “Have Nots” need to make themselves believe they can buy here someday…..

repeat after me and say these lines to yourself over and over again….

“I am going to buy that property”

“I am going to get that house”

“I am going to move into that condo”

“I am going to make more money”

……say this over and over and over again…..mind over matter…..sooner or later, it will happen….

easyasabc

By To CW

August 22, 2007 10:01 PM | Link to this

One of your better posts. Still too crude, but you are on the right track.

By FL Renaissance

August 23, 2007 12:36 AM | Link to this

Good post cw…I’m begining to think your name stands for “common wisdom”, but alas that kind of thinking is unfortunately not very common on this blog. Also a quick nod to “easyasabc”. I would like to add to Easy’s point about So. Cal..yes FL does not have the large corporate employment/industry base as in So. Cal., but because land is here so relative cheap in comparison…FL has already begun to attract “clean idustries” such as relocating science, medical and high-tech companies and labs., They are forming alliances with FSU and others to create an Atlantic East-Coast Florida science-hi tech corrider which could be akin to No Cal’s “Silicon Valley” corrider stretching from San Jose North to Santa Clara and up to Sunnyvale. It is being built right now and extending from No.PBC to St Lucie West (Tradition)on to Orlando. Anyway it certainly won’t be built overnight, and not without commercial tax incentives but it will happen and will greatly boost FL’s ability to to attract like-kind going and start-up ventures from No. Cal, Austin and New England and Western Europe. This creation of a higher paying job infastructure will afford qualified local and/or relocated professionals great potential in future years. It won’t happen soon enough nor will it be of any immediate help to the majority of service workers here now, but for those ambitious or motivated enough to retrain to attain necessary job skills, the future should mirror the successes in CA. (even Austin Texas has done it) If you think FL living has gotten too expensive now, I’ve got news for you. The sleeping giant has awakened and the lure of Sun, Sand and Surf at approximately 50% of the cost of California and without a state income tax to boot! You ain’t seen nothing yet. Yes, life is indeed good here in PBC and the future looks even beter for those with enough vision to see beyond the hood ornament of their leased vehicle and/or their $4.00 double lattes. Sorry, it’s too true so…”wake-up” (nod to him also). Aloha

By Elmer Humes

August 28, 2007 10:36 PM | Link to this

This big number sounds like what Blackstone paid Meristar for their southwestern Florida properties which included South Seas Island Resort. Is this so?