The Keyline Weekly Report – by Max Whitmore
by Tom on December 14, 2009
in Guest Posts, Market Musings
THE KEYLINE WEEKLY REPORT 12-14-09
SIDEWAYS ISN’T SO BAD, YOU KNOW
CURRENT BUY – 100% of portfolio stock allocation $$$
KEYLINE 7-25-09 BUY 50% allocation only (S&P @ 970)
SIGNAL 10-9-09 BUY balance of 50% (S&P @ 1071)
Sometimes you just wonder how long the market can meander sideways. But then, you remember that the rule in charting is that the sideways movement, called a “correction in time,” (especially after a long rally) can be the best world of all. What such a market says is that, yes, the heavy preponderance of buyers has declined, but, the auction market is now at almost a balance between buyers and sellers and the index prices should hold their own until more buyers come to the game.
My wife used to ask me why the market was up or down on a particular day. My answer became so “the same” that she often answered for me. My answer on days where the market was up was “More buyers than sellers,” and on down days “More sellers than buyers.” She used to laugh, but I am sure she got tired of hearing that. I recall she would often say, “No, I mean really!” Sorry honey, but who REALLY knows exactly for sure. Sometimes it is clear, but most of the time it is foggy at best to pick the one best reason. That is why in the daily “Munchin” report I try to give you the 5-7 main reasons the market moved up or down for the day, at least as I see them. Take your pick, as any one of them usually has had at least some noticeable impact during the day.
But, on to the markets. I told you last week that if the bonds held steady, the dollar steady, gold was soft and the S&P above 1,100 on the Friday close this would be the best scenario for the week. We only got the S&P to cooperate. The bonds were decidedly down on much stronger than expected retail sales and consumer confidence. Bonds took the hit, as they say, because the good consumer numbers portend a recovering economy.
That potential recovery means that the Fed may soon be able to raise rates and try to get back to the historical mean of about 5% interest rates. But, the rub is that rising rates means lower profits 80-90% of the time and lower profits means lower stock prices. This last effect is one the Fed would like to avoid, at least for the next 12 months or so. All of this is the main reason I developed and use the Keyline so diligently. It keeps me out in bad selloffs and in on good rallies – like this one.
THE CHARTS
Ok, let’s get to the charts for this week. By the way, I am including two charts this week that I have made a part of the closing data at the end of this weekly Keyline Report, the dollar and copper. The dollar I have shown you several months ago, but I will be now including it on a more regular basis. Copper I am including because of all the commodities, it is the one that is most used by professional traders to gauge the effects of inflation. Yes, there is a commodity index that included almost all the commodities, but copper is the single most sensitive commodity over the years and traders even call this metal “Dr. Copper,” as it is most often the first to signal changes in the inflations winds.
But first, let’s get to the S&P chart.
You can see that we are just “crawling up the chart’s Headline. So far, we have held above it, but just barely, as the market has worked over the last month or so to digest the huge rally that began last March. My target remains the S&P 1220-40 area, at this point, but I am keeping a close watch for any weakness that might signal a shift from the current sideways movement. For now, we are above the Keyline (at 1059) and holding above the 1,100 mark all this week would be a good sign. About 1,080 is still a critical support. Note in the MOMENTUM SECTION of the chart, at the bottom of the chart, that the green line (fast stochastic) has moved back into the 80 area (see red circle), a rather high reading for a good up move to develop. But, I have seen it happen before. Just need to be alert to this high reading for now. Let’s let the chart show us the way here, however.
Now on to the dollar chart.
I am showing the last 10 years here, so you can get a good grasp of the decline this period of time has produced. It is substantial, but the lower dollar has also helped to reduce our import-export balances. But, we need to really cut oil imports to make any more of a dent, it would appear.
The current price remains well below the Keyline (at 79.92) and, you can see by the chart, that the bit of a dollar rally they have talked about the last 10 days is really a very anemic move – so far. The big news here is that the Japanese yen is replacing the dollar as the choice of the “carriage trade” traders. That means that the dollar will be bought for the next month or so, as these traders buy dollars to repay their “carriage trade” loans and move to the yen.
I expect, assuming the shift is relatively smooth, the dollar will continue to gain some in price, but should remain below the Keyline for now. This gain in the dollar will weigh on the stock market, as it means, primarily, that the U.S. will be less competitive in world markets with its goods and services – less profits to the minds of investors. A steady to mildly higher dollar this week would be the best scenario.
And finally, on to the copper chart.
I had this chart in the daily “Munchin’” report this week, but I am including it here again, as I have more extensive comments to make about it. This time I am showing the chart back 10 years. You can see it did the same nosedive that stock market did, as would be expected. But, note that it began to rally as early as January of this year, nearly 60 days ahead of the March low. I suspect that this was one of the major clues to the big investors that that March low was not a harbinger of more lows and may have help set off the rally we are still experiencing.
Note in the MOMENTUM SECTION at the bottom of the chart that the green line (fast stochastic) is quite low and the black line (slow stochastic) is still in the 70 area. This kind of setup is usually a harbinger of higher copper prices. This might also be telling us that the current stock market rally might be ready for more up move. I will be watching this closely.
We remain well above the Keyline (at 2.8808) for now, but like we did in late July to October period, prices are moving sideways pretty much. I am keeping a watch on this one for any weakness that might break the $3.00 level. If that were to occur, we might well see the stock market begin to drop again, also. If that were to occur, the drop would hopefully not be like it was last year. But, for now, the $3.00 level is a critical support. Watch the price updates I give you daily to keep up on this one. Best scenario is to hold steady in price this week.
THE BOTTOM LINE THIS WEEK
Well, that pretty much wraps up this week. I will have the daily update to keep you current on any major developments during the week. But, I will not be giving you a summary this week, as I have in the past, of the major news events influencing the market all week. That I am now doing within each daily update report.
But, here is the way I see the bottom line that would make this week’s scenario a good one. The S&P needs to remain above the 1,100 level, bonds really need to find support in this 117 area, Gold needs to hold steady – but above $1,100 level, oil should hold the $68-72 area and the dollar not break above the 77.50 mark, as the “carriage trade” exits the dollar usage and shifts to the use of the yen.
So, as always, do have a good investing week. And you keep in touch. I do! See you next week.
WEEKLY CHANGES
Closes as of Fri. 12-11-09 WK. CHANGE (cash) KEYLINE# ABV/BLW
DOW INDU. 10,471.50 +83 points 9,848 ABV +623
S&P 1,106.41 +43 points 1,059 ABV +47
NASDAQ 2,190.31 -4.05 points 1,969 ABV +221
30 YR BONDS 117 21/32 -23/32nds 115 24/32 ABV +1 30/32
GOLD $1,132.50 -$37.00 $1,044.40 ABV $88.10
OIL $69.56 -$5.91 $83.21 BLW $13.58
DOLLAR INDEX 76.57 +.63 79.03 BLW 2.46
COPPER $3.1330 +$.0285 $2.8808 ABV +.2522
TOP 10 STOCK SECTORS LAST 6 MONTHS @12-11-09
1. BROADCAST (+70.3%) SAME AS LAST WEEK SAME
2. TOOLS (+65.0%) #7 LAST WEEK UP
3. AUTO (+49.0%) SAME AS LAST WEEK SAME
4. ELECTRICAL (+48.0%) #6 LAST WEEK UP
5. ENGINES (43.4%) #4 LAST WEEK DOWN
6. PRINTING (+42.5%) #2 LAST WEEK DOWN
7. TEXTILE (+41.1%) #10 LAST WEEK UP
8. MINING (+38.6%) #9 LAST WEEK UP
9. PUBLISHING (+36.7%) #5 LAST WEEK DOWN
10. CHEMICAL (+34.4%) NEW TO LIST UP
*The name Super Chart Keyline is a registered Trademark of Max Whitmore.
Free Ice Cream Anyone?
by Tom on September 26, 2009
in Guest Posts, Market Musings
The post below is reprinted with permission from my “friend” Greg Swann who I’ve never met. Greg is the owner of Bloodhound Realty in Phoenix and the owner of the Bloodhoundblog.com. I’m privileged to be able to say that I’m one of the writers with Greg on Bloodhound. It’s one of the most eclectic and truly inspirational groups of people who I’ve ever “hung around” with. Check them out!
Tom
BloodhoundBlog.com – How about free ice cream?
When I was a kid, my Uncle Jack, my mother’s oldest brother, told me a story I’ve never forgotten. He was at a little county fair way out in corn country. Nothing special, just beauty contests for hogs, cheesy little rides and sticky, sugared confections.Late in the day, the ice cream vendor decided to pack it in, announcing that he was giving away what was left of his inventory. People elbowed their way to the front of the crowd, so eager were they to get something for nothing. They walked away with the ice cream piled into their bare hands, rushing off to their cars, leaving a trail of melted drips behind them.
The lesson I took from my uncle’s story was that those folks didn’t really want ice cream. They were willing to get themselves dirty, and to get their vehicles dirty, just to have something for free. Most of them probably didn’t even eat the ice cream, and they certainly couldn’t have enjoyed it. Imagine trying to inhale a glutton’s quantity of chocolate-fudge-swirl before it melts all over your clothes.
Could that be what’s going on right now with the $8,000 first-time home-buyer’s tax credit? I happen to be carrying three listings that are undeniably “investor’s specials” — which means they’re a good buy, but they need a lot of work. Even so, my phone is ringing off the hook with agents trying to sell those houses to owner-occupants — folks with very little cash trying to get an FHA loan so they can buy a house, thus to get $8,000 in “free” money.
Do those buyers really want homes, or do they just want that free money? What will happen to the properties when the $8,000 is spent? Should we dial the clock back to 2006 to see if anything looks familiar?
Meanwhile, the National Association of Realtors is campaigning for even more “free” money to bribe even more otherwise-unmotivated buyers. The only thing that could make the deal sweeter would be a double hand-full of “free” ice cream.
Technorati Tags: BloodHound Blog, Greg Swann, Free Ice Cream, $8, 000 Tax Credit
Fork in the Road – Part 2 – It’s Coming Fast!
by Tom on July 23, 2009
in Guest Posts, Market Musings, Realtor Thoughts
On Tuesday, I posted Part 1 of the Fork in the Road Series by Jeff Brown from Brown and Brown Inc. Tonight, Jeff’s talking about the timing of it all. Let’s just say the clock is ticking…..
Read it and then call Jeff at 619-889-7100 or call me at (616) 292-7559 and let’s talk about how the market is going to affect you and how we can help you navigate through it.
Tom Vanderwell
Real Estate Investors — Are You In ‘Wait ‘n See’ Mode? Breaking News: Time Ain’t Your FriendPosted @ 8:41 pm – Filed under Buying Income Property, Economy, Financing, Market Correction, RE investment strategies, San Diego Property Owners
Let’s talk a little real estate history tonight, along with (takes a deep breath) some governmental lessons we’ve already lived through, if not learned from. (That screamin’ you hear in the background is my high school English teacher.) This isn’t a post on politics as much as it’s a review of the litter left on the roadside by history — litter some of us prefer calling empirical evidence.
As I said last night, the ’70’s was the first time economic policy went full speed executing the combination of massive spending + tax hikes + huge increases in our money supply. That troika proved beyond a doubt to be THE slam dunk recipe for record inflation, real estate appreciation not seen in my lifetime ’till then, or since the end of WW II for that matter, interest rates over 15%, and a continued marginal tax rate for the biggest income earners of — wait for it — here it comes — 70%! If you lived in California back then, and found yourself in that tax bracket, you netted roughly 21¢ on every subsequent dollar of income after taxes. In technical terms, I think economists call that a disincentive.
History has recorded the result. A recession lasting years. Loss of jobs, property, and hope so staggering, the ‘Misery Index’ was born. It was the first really bad times I’d experienced as an adult. Compare our status quo now to the economic nightmare of the early ’80’s.
Back then there was rising unemployment, a recession, double digit interest rates, and a mortally wounded real estate market. Now? We have rising unemployment, a mortally wounded real estate market, proposals for higher taxes, and massive new spending everywhere we look. The point is that we appear to have much in common with the period ‘76 through give or take ‘83/84. A mercurial rise in real estate prices followed by recession, and severe lending challenges.
Interest rates aren’t 15% now you say? True enough. But ask the nearest real estate investor the difference between losing a great deal due to high rates, or underwriting so silly even ultra-conservative investors raise eyebrows. There is no difference, as the result is identical — no deal.
Here are the results demonstrated in the ’80’s and the circumstances preceding them in the ’70’s. Do they sound somewhat familiar?
# High marginal tax rates — rising rates on capital gains
# An unreliable source of real estate financing
# High unemployment — still on the rise
# Massive government spending — with no end in sight
# Historic increases in the nation’s money supply
# A gravely wounded real estate marketI now quote a relatively (couldn’t resist) credible source on the subject of insanity. Einstein put it succinctly when he so pithily said — “Insanity: doing the same thing over and over again and expecting different results.”
Under what rational school of logical thought does anyone think we’ll end up with different results this time out? Please, don’t answer, as it’s a rhetorical question.
Here’s where I bring up two very important factors which are currently in play — only one of which was existent in our historical example. First, regardless of what the LameStream media would have you believe, real estate remains fiercely local in nature. What’s true in San Diego can be almost foreign in another region. This isn’t opinion. While Las Vegas is floating face down in the water, some selected regions are producing very solidly positive fundamentals — a result which still acts as a siren song to prudent real estate investors.
Second, the status quo in which we currently exist doesn’t include, at least for the moment, double digit interest rates. Hence the window I wrote of last night. That window has a shelf life people. Those in ‘wait and see’ mode will find themselves up the river without a paddle — or newly acquired income property with rapidly rising net operating incomes and low fixed rate financing.
Those who took advantage of this same window back in 1979 soon found themselves in an atmosphere of upward spiraling rents, crashing vacancy rates, and ever increasing cash flow.
I dunno, sound OK to you?
It’s time to move it or lose it people. Tick tock.
Take a minute and give me a call. One thing most folks tell me is how they learned answers to questions they hadn’t known to ask. 619 889-7100 will find me. Have a good day.
A Fork in the Road
by Tom on July 21, 2009
in Guest Posts, Market Musings, Realtor Thoughts
Here’s another guest post (part 1 of 2) from my friend and real estate investment connoisseur Jeff “Bawld Guy” Brown. Jeff spends his days helping people invest in real estate as a road to retirement (something everyone is having a harder time reaching these days.)
Jeff and I have spent considerable time discussing his “fork in the road” theory and I’ve got a couple of thoughts to chime in:
- I think there’s a very high probability that he’s right and the next few years are going to go one of those ways.
- I think that it’s worthwhile reading not only for those who are investors, but anyone who has a financial stake in the real estate world.
Take the time, read it over and then either e-mail Jeff Brown or call him at (619-889-7100) or e-mail me at Straight Talk or call me at (616) 292-7559. We’d both like to talk with you further.
Tom Vanderwell
P.S. Part 2 will be coming Thursday night
Are We Coming To A Real Estate Investment Fork In The Road? · BawldGuy Talking
Are We Coming To A Real Estate Investment Fork In The Road?Posted @ 7:15 pm – Filed under Buying Income Property, Cash Flow, Economy, Financing, Market Correction, RE investment strategies, San Diego Property Owners, Texas
Yeah, I know, there are more than two schools of thought when we start talkin’ about what’s next in the national economy — especially in the context of the oh so important real estate markets. I get that. But the fork I see are two roads really more or less going in the same direction, which I realize is confusing. Hang with me.
This isn’t new ground by any stretch, as many have written endlessly on ‘what’s next’ — to the point we’re all hittin’ the weary wall. Sooner or later though, it’s gonna break one way or the other, something on which there is universal agreement.
The most likely direction I see us taking is on the same sad dirt road on which we found ourselves in the ’70’s and early ’80’s. I was gonna go all linky on ya, but decided it’d be far more instructive to simply begin the discussion.
Inflation followed the ‘74-75 recession. In fact, it was the first time it had ever reached double digits in my lifetime — at least to my knowledge. From ‘76 through fall of ‘79 inflation was an infection and the doctors seemed to have gone fishin’. For example, San Diego real estate went up a more or less steady 2% — a month — for those nearly four years. We’d never seen anything like it.
When it predictably hit the fan, prime rate was over 20%, FHA was about 16.5%, and both were there to be seen, not used by anyone but the most desperate. It’s a very close call in my opinion, but I think we’re maybe about to be headed that way.
The other road on which we may find ourselves sports the above mentioned inflation but without the accompanying robust economy. Seems oxymoronic doesn’t it? But the phrase ‘Stagflation’ was born just about 30 years ago. Inflation was off the charts while recession deepened. Interest rates remained high for so long, I remember celebrating at the local steakhouse when I closed a deal with an interest rate under 12%. Not makin’ that up. When rates finally dropped to single digits we nearly became euphoric.
Here’s the common denominator between the two scenarios: Both will have windows of opportunity (already open) for real estate investors. And no, this isn’t some convoluted NAR message saying “It’s a great time to buy real estate”.
In either case the entry level home buyer will find themselves shuffled off the stage. Either rates will be way to high, or prices will have left them behind. Meanwhile the supply of rental property, affordable that is, will begin to shrink. Nobody, or in any case very few, will be building. Vacancy rates will tumble as rents find new heights. This is already happening in some regions. Texas is one major example as you may have already guessed.
Those who lock in relatively long term, low interest rates now, will find themselves in the Catbird Seat. My hands-on experience with this came in San Diego of course. Vacancy rates not measured in percentages but rather time — sometimes hours. Really. Owners insisted on month to month rental agreements so they could follow (read: adjust to) the upward trending rents. Folks who’d began with a ‘break even’ property found themselves awash in cash flow a year or two later.
They did this at rates of 7.5-9%! When rates almost doubled shortly thereafter, they found themselves with slowly rising expenses, a fixed cost for borrowed money, and very quickly rising rents. Gimme that combination any time. That combo is in your future, in my humble opinion, no matter what happens.
The key though is to act before the bull’s waste product hits the wildly spinning metal blades. Once the interest rates and/or prices get their death grip on what makes investment sense — your ship will have sailed — whether you’re on it or not.
There’s no ‘being late’ to this particular party. That great deal at 5-7% becomes an easy ‘I’ll pass’ at 8-10%. So if you’re late, the party will go on without you.
I’m very interested in what you have to say — including how long you think this current window of opportunity might last.
If you wanna talk about how you might take advantage yourself, gimme a buzz at 619 889-7100 or email me. Have a good one.
The Silent Witnesses
by Tom on May 19, 2009
in Guest Posts, Market Musings
This is another guest post reposted with permission. Chris Griffith is a Realtor with Keller Williams in Bonita Springs Florida and she writes about life and real estate at Life in Bonita Springs. I really have enjoyed and appreciated her and her writing and I’ve learned a lot about real estate and about life in Florida from her.
I found this post to be not only accurate but also disturbing and I thought it would be good for all of us to read it again and take a couple of minutes to:
- Realize that you aren’t alone with the financial struggles that you are facing right now.
- Realize that this is probably impacting the children that are around you as well and do what you can to alleviate the impact on them (or at least to talk with them about it.)
Read it, enjoy it, be disturbed by it and then check out more of what Chris writes……..
Tom Vanderwell
The Silent Witnesses
Category: Bonita Springs Real Estate | 
Your Kids Are Worried, Too
Many people in Southwest Florida believe that it is the land of
haves or have nots. It’s no secret that there’s an incredible amount of
affluence in the area. When there are a couple of million dollars of
cars in a restaurant parking lot and some of those cars cost more than
many people’s homes it’s clear that there are definitely some people
more fortunate than others.
Not long ago, I had an opportunity to have lunch with several
youngsters at a local middle school and the conversation we shared
echoed the sentiments of many grown ups. The difference was that these
were just kids. Each of these kids thought they were the only one that
had worry, was scared, whose mother passed away, who got evicted, whose
home was taken by the bank, who had diabetes, whose dad didn’t have a
job or whose home didn’t have any food in it.
It is so easy to notice of the illusion of how perfect everybody
else’s life seems to be and compare it to ones own reality, especially
when the reality so darn ugly. It’s hard for people to realize the
perceived reality of someone else’s life isn’t always as perfect as it
looks, so how can kids?
These kids just broke my heart. They are little champions. The
problems that they’re shouldering are huge, grown up issues. They feel
that they’re alone and the only person who’s ever had set backs, loss
or gone without. They don’t know that they’re not the only one. They
really don’t have anyone to talk about it with, though.
You can see the worry in their eyes, it’s peeking out when they tell
you about what they want to do when they grown up. They’ll tell you
anything if you’ll take the time to listen.
Every person and every family, no matter how perfect things appear,
has a story. Nobody’s life is so perfect that they don’t have something
weighing heavy on their heart. It may be loss, foreclosure, bankruptcy,
addiction or illness.
Most of the negative things are private matters happening behind
closed doors with the illusion that everything is alright. Everyone has
problems, especially these days, but kids don’t understand that. They
really do think that it’s only their family that is struggling.
The downturn of the economy and real estate has caused a lot of pain
for so many people, so many families. The kids are quietly watching
this crisis and they’re secretly scared senseless. The kids are silent
witnesses to it all and they are collateral damage that is going
unnoticed. Almost everyone is looking right over their heads, past
their little ears that are hearing everything.
Someone needs to let them know that the things that may have gone
wrong within their life doesn’t mean that something is wrong with them.
These kids have value that isn’t defined by their circumstances. They
don’t know that. They’re just kids.
Maybe if you get a chance to spend some time with a kid, maybe even
your own kid, you can let them know how important and worthy they are
regardless of what they have or where they live.
###
Real Life in Bonita Springs is a project by Chris Griffith
dedicated to writing useful blog posts for consumers about the Bonita
Springs, Florida area. Find out what it is really like to live in
Bonita Springs, Florida by reading about our fair city. You’ll get the
latest in local real estate information, Bonita Springs real estate
market reports and a little bit of humor. If you have topic ideas,
feel free to request a story about the idea, after all, this site is
just for you.
1031 Exchanges can be used to defer losses? Huh?
by Tom on May 18, 2009
in Guest Posts, Market Musings, Realtor Thoughts
This post is another guest post from my friend Jeff Brown. Jeff’s a common sense investment Realtor who has done more Straight Talk in his career than many people I know. Check out more of his writings at Bawld Guy Talking or at Brown & Brown Inc.
Real Estate Investors — 1031 Exchanges Can
Be Used To Defer Losses
Posted @ 6:53 pm – Filed under 1031 Exchanges
What? Huh? What would possess anyone to defer a loss for Heaven’s sake? There are situations in which a tax deferred exchange deferring a loss would make excellent tax planning sense. Sometimes, believe it or not, investors have executed exchanges without knowing ’till the end they’re in fact not deferring a gain, but, horror of horrors, a loss. No really, I’m not kiddin’.
First of all it’s crucial the taxpayer understand a 1031 basic truth. Once you’ve done what it takes to qualify for tax deferral, it doesn’t matter whether it was taxes to be paid by you, or tax savings to be enjoyed. Crazy, no? Once you’ve filed a tax return with a transaction structured as a qualified 1031 — there’s no changing your mind. It is what it is. The gain, or in this case, the loss is deferred.
Now you know why I’m always banging away at folks to ‘call the guy’, which would of course include your tax pro when contemplating a strategy of tax deferral. Sure, I know the law and regs, even a large part of the minutia of which I talk much about here, and about which most folks don’t know to ask. Yet I still insist clients speak to their tax people or have them speak to me to ensure we’re all on the same page. My experience is chock-full of examples where clients’ tax pros bring ‘new’ facts to the table that saves the shared client from a self destructive strategy.
Oh, you wanna hear one? OK…
How ’bout the client who ‘computed’ his capital gain without the understanding of ‘adjusted basis’ and it’s impact? “Well, I paid X and sold for Y, therefore my gain is Z.” Wrong 6-figure tax bill breath. His adjusted basis effectively lowered his ‘what I paid’ number by almost a half million bucks! Uh, seems the calculations neglected to include the factoid he’d twice used 1031’s — ultimately ending up with the property in question. Not only that, but since he’d acquired the initial property in 1985 his depreciation was off the charts huge, and relatively short lived compared to today’s law. If I remember correctly, he’d barely gotten under the line, qualifying for a 15 year life. Then he traded again in 2001. Then traded into the subject property in early 2003. He came to me around Jan-Feb of 2005.
His actual gain would’ve cost him, according to his CPA, who was a real firecracker, and a funny lady, easily over $100,000. Our client wasn’t amused. His figures showed a tax bill literally in the ‘chump change range’. Go figure — pun intended.
But why would one defer a loss on Purpose?
This is where it gets way simple.
You might be protecting some other ‘loss carry forwards’ which make more sense to use time wise. It’s also common to defer a loss when you’re fairly sure you’ll be in a higher tax bracket or at least making a bunch more income down the road. Maybe you’re planning to take a good size capital gain in a couple years on another property, and plan to take the loss at that point. There are several reasons a taxpayer might choose to defer a loss.
My experience has taught me it normally makes sense to simply take the loss by selling, not implementing a deferral strategy. An example is what we’ve talked about here recently. You own real estate with significant capital gains, and also some with similar capital losses. Don’t fall into the trap of thinking all circumstances with the same facts will work best using the same solutions — it just ain’t so. Sometimes a choice made years earlier can come home to impact today’s decision.
BawldGuy Takeaway: Don’t get lost in the minutia of what to do, when to do it, or how it’s done. For those things, ‘call the guy’. The primary takeaway here is to do whatever you do on Purpose and with a well thought out Plan. The rest will generally take care of itself.
Call me with any questions you may have about your current situation. I can be reached at 619-889-7100 or via email. Have a good one.
Guest Post – Being a Seller in a Buyer’s Market
by Tom on April 28, 2009
in Guest Posts, Market Musings
Once again, I’m turning to my friend, Jeff Brown, for today’s guest post. Jeff has an uncommon ability to generate the type of “Straight Talk” that is needed in today’s markets.
I hope you enjoy this!
Tom
Selling Real Estate In A Buyers’ Market? Here’s How To Turn The Tables · BawldGuy Talking
Disclosure: In order to avoid hurt feelings I’ve taken some liberty with some of the facts of the example used. These changes are insignificant as they relate to the main theme. They’re required, in my judgment so as to protect the privacy of others. You’re free to continue reading now.This example recently took place in a smallish northern California city.
First of all let’s face something that may be our currently reality — it’s entirely possible real estate in general is beginning its painful U-Turn as we speak. It’s also entirely possible it ain’t. From my vantage point, which allows me to see more than a few markets up close and personal, there’re too many signs for me not to think something might be afoot. But I digress, and besides, we’ll not know for sure until our rearview mirror tells us, right?
Buyers in markets so heavily tilted in their favor tend to behave accordingly — Duh. They make sometimes insultingly low-ball offers. Insist sellers pay a large part if not all their closing costs. Want price adjustments at every turn, mostly from the leverage they perceive available to them during the inspection period. They do it until they sense the seller is about bleed out, then smile, back off, and wait for the escrow to close.
So the million dollar question is, just how does a seller successfully shift the balance of power? Can it even be done? You bet your bloodsucking vampire-buyer it can. It’s so simple, yet so many sellers are afraid to implement the approach. I’ve never understood why.
A recent example comes from our own files. Our seller, as we warned him from Day 1, had to swallow pretty much everything the buyer wanted. Still, the final price was a record high in that neighborhood since about August of last year. Not bad. The buyer had made his offer literally hours after it had hit the market. He wanted it. And why not? The property itself was nearly perfection personified — a factor which shouldn’t be lost on you.
Every time we yielded to the buyer’s agent (on one point after another) it was quietly mentioned by us how this was a buyers’ market and we really had little choice. Once we arrived at the bottom line, which was, according to our seller, written in his own blood, we made one itty bitty request of the buyer’s agent.
We’d like the deposit, which was nearly $10,000 on a sales price under $500,000 — to become permanently/irrevocably non-refundable on the last day of the inspection period — passed by escrow through to the seller at the end of business that day. We’d been so reasonable throughout, he felt he couldn’t/shouldn’t refuse this one small request.
Then the appraisal came in low. The agent said that was ‘unexpected’ but the seller would need to ‘adjust’. We politely demurred, instead saying the buyer would need to be paying for more of his own closing costs than previously agreed. “He doesn’t have it” replied the agent. “Then I guess we have a problem, ‘cuz the seller just ain’t in the mood” said the ‘other’ Brown. Continuing politely, he said, “You’ll need to figure a way to make it far more palatable for the seller. He’ll adjust to this farce of an appraisal, but your client will hafta come up with a lot more than he has so far. This is a two way street.”
One wonders what the conversations must’ve been like between the buyer and his agent at this point. There was simply no way, no how the buyer was gonna walk away from his nearly $10,000 deposit — and everyone knew it. The best part? That deposit was like the 10 ton elephant in the room nobody (needed, wanted to) talk about — especially the buyer’s agent.
We may hear from various buyers and/or agents saying they’d surely not ever allow a deposit to ‘go hard’ as it’s called. Fair enough. But I’ve been able to make it happen over half the time in every buyers’ market in which I’ve participated, with the exception of ‘74-75. Why not then? Gimme a break, as I was 23 at the time and hadn’t yet had the full advantage of all the mentoring I’d eventually receive.
If you’re a seller in a buyers’ market, please put this strategy into play. Buyers and their agents tend to become more than a tad cocky, and will often let their guard down. I call it IBS — Invincible Buyer Syndrome. It’s often exacerbated by a much worse malady — IBAS — Invincible Buyer’s Agent Syndrome. The really pivotal players more times than not in this approach are the buyers’ agents themselves.
Anywho, give it a try. In this example it generated about a 7% increase in our seller’s ultimate net proceeds — not a bad result, all things considered.
Wanna talk? Call me at 619 889-7100 or email me through the Contact BawldGuy widget up top. Have a good one.
Mark to Market Discussions
by Tom on March 13, 2009
in Guest Posts, Market Musings
You know I must not have a life or something if I’m reading about mark to market at 11:30 on a Friday night, but I just finished reading one of my favorite bawldguy’s writings and since he was talking about me, I thought I’d take the liberty that he’s given me many times and guest post the entire discussion. So, here goes:
Some Thoughts As We Enter The Weekend
The first quarter isn’t over yet, and banks lending to each other and/or to business is trending slightly up. I make a distinction between ‘trending’ and calling it a definite trend. It’s not a trend yet, just encouraging.
Our portfolio lender in Texas is coming through, closing loans Fannie Mae wouldn’t give a sniff to. That’s great news for you too, as it shows they’ve assessed the risk and decided the interest charged (low 6’s) is appropriate. This means pressure will now begin to build on Fannie/Freddie from lenders who will be losing more and more loans to portfolio lenders — and guys like me who advise investors. I have a client now able to purchase 3 duplexes, who’d be limited to 2 if he were to use a Fannie Mae lender. This is due to what I call the ’successful investor penalty’ inflicted via down payment on those owning more than 4 properties. In this client’s case, it’s empirically impossible to acquire that 3rd property without using the portfolio lender exclusively. That’s five figures of income the Fannie Mae lender will never see — times how many investors nationwide one wonders.
Over the next 25 years that extra property will mean at least an extra $2-4,000 in monthly retirement income. See? It is such a big deal.
Had an interesting discussion with my good friend Tom Vanderwell today. He’s among the very small group of lenders for whom I hold the ultimate respect. He lives in Grand Rapids, which these days is spelled H-E-L-L as far as micro-economics goes. He’s also a fellow BloodhoundBlog contributor, one of the best moves that blog’s owner, Greg Swann ever made.
Anywho, we were having a spur of the moment give and take on the ‘Mark to Market’ accounting rule. You learn early on not to run willy nilly when debating with him, ‘cuz you’ll find out quickly your apparent gains are really a prelude to becoming outflanked by your own impetuosity. Bottom line, he’s for keeping it the way it is, and I’m with the crowd wanting at least a meaningful modification.
For those still tryin’ to figure out exactly what it is, I used an analogy with Tom that I thought was illustrative of the fiction perpetuated by MM’s accounting. In real estate, depreciation is a phantom loss which acts as an offset to income from both property investments, and in the case of those earning $100,000 or less from their job, paycheck income. Imagine going to the bank for a loan, any kinda loan. You make $76,000 a year, saving over $10,000 annually after taxes. Your credit score exceeds 750.
Using the concept of MM, i.e. a loss never incurred, your banker says you only make $51,000 on your job ‘cuz of the $25,000 ‘loss’ shown on your tax return via depreciation from your real estate investments. You both realize you didn’t lose a dime. In fact, due directly to the depreciation you were able to avoid paying almost $10,000 in state/fed income taxes. Still, you’re denied the loan — you don’t make enough money to qualify. Now, how silly does that sound to you?
Yeah, me too.
Tom made some great points, one for which I simply don’t have an answer, but surely on which will affect any compromise reached by the SEC’s efforts next month. Though the loss inflicted by the practice never happened, the value of the asset in question is more or less correctly identified. In other words, if the house indeed has a current vlaue of $XX when it used to be worth $XXX, it is what it is. And if the bank needs to liquidate assets today, there very well could be a loss, depending upon the loan’s balance.
Though Tom disagreed with me, I think I can safely predict he’d like living in a world free of Mark to Market. Both real estate and Wall Street would be positively impacted almost immediately. The psychological influence will more likely than not be very positive, no doubt reflected in the very next day’s DOW/S&P numbers.
OK, that’s enough for a Friday. Enjoy your weekend.
By the way, this site will be undergoing an upgrade shortly after midnight PST. My web guy says I’m ready to eat at WordPresses cool table. 
So if you come here and I’m not here, you now know why. It’s only supposed to take 10 minutes or so, but we all know how it can go sometimes.
Real Estate Investors – Some Thoughts from a Friend
by Tom on March 4, 2009
in Guest Posts
It’s time for another guest post from my friend, Jeff Brown, over at Brown and Brown Inc. He does a very good job, in his unique and colorful style, of laying out how it could be a very good move for a first time buyer to buy a multi family property rather than a single family home. Read it and let me know what you think…..
OK All You Wannabe Real Estate Investors — This One’s For You · BawldGuy Talking
OK All You Wannabe Real Estate Investors — This One’s For YouPosted @ 10:00 pm – Filed under 1031 Exchanges, Financing, San Diego Property Owners, Buyer’s Market
Unlike all of the previous buyer’s markets I’ve experienced, this one sports some pretty attractive interest rates, as if the prices aren’t enough to put a smile on your face. Not only that, but down payments for some loans are lower than 5% — and available to those who’re serious about gettin’ started on the investment side of the ledger. Haven’t bought a home yet? Not to worry, as you can still get your investment portfolio started while you get your own place.
AFter you put about 3.5% down, FHA will lend you the rest of the purchase price. You must move in though, which shouldn’t be a problem with most folks starting out. Of course, the difference in the real estate values of San Diego vs East Toilet Seat, North Dakota vary radically. A 40+ year old San Diego duplex can still run over $400,000 easily. Compare that to duplexes in other states, recently built for less than $250,000 — with more goodies included. So beware of leapin’ before applying your local reality to the calculator. Still, in most areas, including San Diego, this will work pretty well.
Death Valley
Let’s take a fourplex with a value of $375,000, sporting rents of $700 a unit. You’ll be moving into one, so your monthly gross scheduled income would be $2,100 monthly. Forget operating expenses for now. Your loan payment, including mortgage insurance should be roughly $2,170 or so. Before ya start jumpin’ up and down on the couch screamin’ “I want one!” let’s now ‘remember’ the operating expenses.
Taxes, insurance, maintenance, water & sewer, trash, and vacancies, not to mention the forever infamous ‘miscellaneous expenses’ will come from your Levi’s. Depending upon your area, and the building(s) in question, you may be able to pass on trash collection to the tenants. Rarely can you do that with water/sewer, though I’ve seen it before a few times. Usually tenants pay their own gas/electric. Let’s say your expenses sans vacancies (or bad tenants) run you around $8,400 a year, or $700 monthly. It could be more, though I doubt it would be much less.
That would leave you with a monthly net outgo of give or take $700-800 — without any bad tenants or vacancies that don’t fill up quickly. Could you rough it, living where ya wanna live for that much? Could ya? Use 150% of that amount just for fun. You could see yer way surviving with a net outgo of not much over a grand a month, right? If maybe ya cut out Starbucks?
But what would be your Plan — long term?
Yosemite Valley
Sooner or later the value will go up, and yeah, your guess is as good as mine when that might be in your area. When it does, you will have new options on your menu. First of all you’ll be able to make a move — but which move? What if was after about five years or so?
1. You’ve made impressive career advancements and your income has allowed you to save bags of money. This money could allow you to buy your own home, condo, whatever. No more tenants living next door. This would mean you’d still own the units, only by then the rents would’ve risen somewhat (probably, not always), and more likely than not they’d pay for themselves with all four units rented.
2. You can sell them, splitting the proceeds between Internal Revenue Code section 1034 and 1031. That’s a highfalutin’ way of saying you’ll be separating the sales proceeds — 75% to a tax deferred (1031) exchange, and 25% to your bank account to do with whatever you please. (As long as you’ve adhered to whatever guidelines are in place at the time for occupancy.) This will result in having created two separate baskets — one for investment one for your home.
3. You can stay put, as your cost of living has no doubt decreased over the years.
Monument Valley
What about while yer living there though? What are the pros and cons? Let’s begin with the downside.
Unless you’re now living in a detached single family home, you’re already sharing walls with your neighbors, they’re just not contributing to the reduction of your cost of living, or paying the lion’s share of your loan payment. Your tenants will no doubt figure out you’re the owner. This can be very good or very not so good, as Aunt Ginny used to say. In reality that’s up to how you approach being a landlord. But that’s a whole ‘nother post altogether.
There’s a lot more maintenance ‘cuz there are two, three, or four units, not just yours. They all need what they need, and you’re elected to ensure it’s handled. You can ‘call the guy’ or do it yourself, but it’s on you one way or the other. When units become vacant, and they will, it’s you who’ll hafta clean, paint, and whatever else needs to happen to make it rentable for the next tenant. You’ll get stoopid calls about petty problems — roll with it ‘cuz it’s part of the fun long term. You’ll pass on the management stories when you’re older and financially higher up the food chain.
Here are some of the pros to taking this approach.
25% of the interest and property taxes will be directly dollar for dollar deductible from your job income. In this case that amounts to roughly $10,000 year, depending what your area’s property taxes are. You like that ‘cuz it results in a tax savings of $2-4,000 a year state & fed combined. Then there’s the investment side, which parties in their own way when it comes to tax shelter. More tax shelter?
In tax savings alone your bank account should swell by roughly $27-30,000 over a five year period. Better than a stick in the eye, eh?
Most of you, probably three outa four, will be living for far less than rent, especially after income tax savings are factored in. That statement is way too general in nature, but you get the drift.
Valley of Fire
The happy consequences of living more cheaply, plus the tax savings every year, is your ability to save lots of cash — at least more than if you hadn’t bought the dang thing.
Your tenants are paying for most of your loan’s principal reduction, something worthy of special toasts in the Kansas City area. (Sorry, inside joke.) In fact, if you should stay there five years, they’ll have shouldered the brunt of reducing your loan balance by about $35,000. Better than a kick in the head.
In five years your measly down payment of about $13,000 will have blossomed into, well, a whole bunch more. Chances are in this market the seller can be persuaded to front you all the expenses over and above your down payment. How cool is that? My lender buds, and what I see pretty much every day myself, tell me it’s pretty much become the norm lately. But back to how much you might have in just five years.
$28,000 in tax savings. $35,000 reduction in your loan balance. And let’s add just $6,000 in cost of living savings — come on, it’s only $100 a month. That means without including even a buck in appreciation, you’ve made almost $70,000 — works for me. Make sense to you? And yes, Chicken Little, it’s also possible it could be worth less in five years — not freakin’ likely, but possible.
Look, I’ve been pretty simple with the numbers here, but they’re real. Every buck had a dead president on it, and not one was ‘pretend’ in any way. It’s real, and it just might be the way for you to get started. Are there other ways? You bet. But this one is my favorite when it comes to beginners. It nails so many birds with just one silly stone. It could be the acorn from which your financial oak grows.
So, what’s up with you these days? Been wonderin’ about your retirement lately? Lotta folks been doin’ a whole buncha that lately. Think it’s time to take the bull by the horns? Me too. Get in touch with me and let’s make some good things happen. Have a good one.
I believe they call this a “Twofer”
by Tom on February 5, 2009
in Guest Posts, Market Musings
Why would they call it a “Twofer?” A couple of reasons:
- Because David Shafer and Jeff Brown are two of my real estate and investment friends who I’ve had the privilege of engaging in many online, in person and over the phone discussions with and I respect them both and their views very highly.
- Because I’ve promised David that I’d write a review of his book but due to a variety of issues, I haven’t been able to, so instead (for now) I’m taking the liberty of guest posting the review that Jeff Brown wrote of David’s book.
Read the review, buy the book, talk to Jeff, talk to David, talk to me. We’ll all be better off for it!
My First Ever Book Endorsement — David Shafer And Uncommon Wisdom · BawldGuy Talking
David and I met a little over a year ago. He not only has the innate ability to understand what works, he’s also a pro after my own heart. Instead of taking things at face value, he thinks. What a concept. He bases his investment philosophy and his real life investment strategies and choices on historically empirical performance evidence. You might be compelled to ask, “What will they think of next.” But there I go again, being Captain Obvious. Imagine, someone who demands to know the real facts — the real life historical performance data of available investment options — before making a decision.I’ve never endorsed a book on these pages, and for excellent reasons. Though I know of several books for which I hold much respect, the average person simply can’t translate most of what they teach into their own reality. The whole “I did this and so can you” has a fatal flaw. Allow me a baseball analogy. (Hey! I heard that. No groaning allowed.)
You and I can read how to throw a Hall of Fame curveball written by Sandy Koufax till our eyes dry up and fall out. The best curveball most folks will end up throwing though, would be a pitch that might discernibly change direction. You might understand the principles, but you soon learn there’s a reason the definitions of amateur and professional are so different. Duh.
Same goes with investing for retirement. David’s book, Dr. Dave’s Uncommon Financial Advice is exactly that — uncommon. One of the most consistent threads I found in reading it cover to cover — twice — was his underlying advocacy of ‘Call the guy’. Deal with real pros. Does he recommend specific investments? Yep. Does he back ‘em up with real life data? Yep. Is there some ‘how to’ and ‘you can do this’ included? Yep. The difference is, the things he tells the reader to do themselves can be done successfully by a smarter than average eighth grader.
Anything involving concepts more complex in nature? He strongly advises to call the pro — period.
He demonstrates in detail why some of the so called ’solid investment’ axioms of the last couple generations are nothing but the product of cynical marketing. How 401(k)’s are Uncle Sam’s way of collecting more taxes in the long run — from the very taxpayers he’s purporting to help. I dunno. Ever read that before?
Here’s a sampling of what you’ll learn:
# The real scoop on the massive failure of mutual funds as a retirement vehicle.
# Why investing in an EIUL is how the wealthy have been doing it for years.
# Why 90% of Americans must rely on government and others after retirement.
# Why diversification is a four letter word.
# Paradigm changes in thinking that must be adopted to retire well.
# If leverage isn’t part of your retirement plan — prepare to be disappointed.David Shafer’s new website, Shafer Financial is well worth your time. He offers the reader real value — a rare commodity these days. He’s been a regular read for me since I met him.
I endorse this new book without reservation, and furthermore encourage my readers to take the hint and purchase it today. You can make that happen by going here.
I love the way Dave writes. As I recently told him, he’s the only guy I know who manages a vanilla style while making it work. How does he pull that off? I don’t like vanilla ice cream, but give me enough chocolate sauce and I’m there with a spoon. His chocolate sauce is the impressively rich detail he provides in the form of empirically historical evidence — all performance based. You’ll find yourself, as did I, rereading passages as you mumble, “I never did really believe those mealy mouthed SOB’s”.
