Wednesday, October 25, 2006
Another class..
Another dead end. As a faculty member here at the college, I have the contractually supported right to attend all the continuing education courses I can get my greedy little paws on. I certainly enjoy the classes, although it reminds me that I am beyond glad to be done with school. Even walking down the halls as a student depresses me. I guess that second Master's or Doctorate will need to wait, possibly forever.
The class I took last night was an import/export class. I've broached the topic before, and every time I investigate the matter, it gets more an more complicated. For my purposes, my business plan (such as it is...) would be as follows: investigate via Yahoo! and Google and Ebay what people are searching for. When I find a product with the right price that involves a place where I would go anyway, I fly over and buy X amount of the product and bring it home. I would then sell it on any of the above sites and pocket the profits. Even this involves more work than I'm willing to put forth right now, but the tax benefits of such a venture are huge. I'll know more over the winter, as my health seems to be restored. I actually need to incorporate my little company and go from there.
All of this studying has had a positive effect. I've been winnowing down the options to both make more money and reduce my tax burden. Moreover, the class didn't cost me anything more than time and the promise I would submit the reviews of the class today. This does not imply a zero-sum game; all knowledge is useful and therefore an end unto itself.
In my further pursiut of investment knowledge, I've been studying the vagaries of real estate via books on CD. Right now I'm listening to Dolf De Roos discuss the benefits of real estate investments versus other forms of investment. He speaks in generalities, so I'll need to make a duplicate and run the tape past Scott and Steve and Betsy. I know that I'll need to invest in real estate on some level, if only in the form of buying my own place and possibly renting out a room. I have other possiblities as well when Karl and I pool our resources and brain power. (cue evil laugh and ominous rubbing together of hands...) BWAAA hahahahahahahahah... *giggle* So, if this is the right thing to do, why haven't I done it? The answer is timing and risk.
Much of the real estate in Westchester has exploded in price, but even that description doesn't quite cover the insane housing prices. For example, let's examine the town of Croton. A small village with a thriving downtown, it boasts excellent schools and is very livable. Back in the mid 90's you couls have purchased a starter home for around 160K. That same home peaked 1 year ago at around 500K, depending on size and location. Prices have dropped somewhat, (say, mid 400k) but most people made out like bandits. Those who purchased in the early 70's, when Croton was a blue-collar town, made a (tax free) fortune. The explosion was the combination of the aforementioned schools and business districtn, and the final icing on the cake: the train station. Everyday, communters zoom into Grand Central Station on the express train and reverse the trip at night. It also helps that the station has ample parking in a safe area. The train caused prices to explode, while small towns next door, such as Verplank and Yorktown went much more slowly. Yorktown caught up, though.
Both towns are out of my price range unless I purchased a co-op, which doen't help my overall plans. Let's use another example in my price range. Chelsea Cove is a subdivision of nice townhouses in a southern Dutchess County. This development has two floor plans: 1300 and 1900 square feet. The larger of the two is 3 stories with a walk-out basement. All units have access to a club house, tennis courts, and a private beach on a lake. The beach means no pool, BTW. Obviously, these homes are quite nice, although at 24 years old they might be showing their age a bit. The main drawback is the location. Chelsea Cove is 4o miles from work and 50 miles from White Plains, with the twisty and hilly Putman section of the Taconic in between. I'm also discounting the constrution on the Taconic in Northern Westchester, as it will eventually abate.
Back in '98, you could have purchased one of these homes for 90 - 120K. At the peak, these sold for 275K, and investors snapped them up as soon as they went on the market. These same investors are now fleeing the scene of the crime, as the asking price is now 225K. Scott mentioned I should low-ball sellers, and with nearly 25% of the units for sale, I would probably get a unit for 200K or so. Still, this very fact made me nervous, but I couldn't verbalize my fears. I questioned Scott further, and came up with this: prices will continue to drop for the next 5 years or so (the average cycle is 6 or 7 years up and then down for the same period, and downward cycle began about 1 year ago). If I succesfully low-ball a seller, then I won't lose the difference between my equity and my purchase price. After the downturn expires and prices move higher, I'll gain equity. However, the prices won't rise to the level they are today for 10 years. This pure conjecture, I know, but serves as a useful starting point.
Much of the increase in prices can be traced to the rock-bottom interest rates present during the past 6 years or so. These rates made housing more affordable, even as prices rose. When America was suffering under stagflation in '82, a house that cost 200K had the same monthly payment as a house in 2000 that cost 330K. Keep in mind while these are same figures, they are NOT adjusted for inflation. 1500 per month in '82 was a much larger chunk of change than in 2000. As such, houses were cheaper at 330,000 then they were at 200,000. I just love the new math.
Interest rates are rising now, although they are fairly low when compared to historic rates. From '79 to '82, the highest rates I found were nearly 18% (WOW) and add 3 or 4 points to the prime for your mortgage rate. 90-91 wasn't much better, with rates also in the double digits. Both periods resulted in a near collapse of the real estate market, with some people loosing their homes and others making a small fortune. Cash was king back then, and it will be again soon.
This leads to the undertow dragging the market to the depths: adjustable rate mortgages (ARM's). Recent lending terms have been flexible (to say the least) and even people whose credit is bruised like overripe fruit could get financing. The terms wouldn't be as favorable as someone with perfect credit, so to lower the interest rate, they would only hold a rate for 5 to 7 years. This would lower the payments to something the buyer(s) could afford. Such financing is also available to those with great credit but may not make enough money to afford a fixed rate. Believe me, some took the chance. As a result, people not only bought a home over their income level, they also found that payements are about to explode, and they can't sell the house for much more than the loan amount. One of the things I learned on my gonzo trip to Miami was that these loans are almost all interest and little principle compared to a fixed-rate loan. Egro, you payments aren't paying for much. When these loans adjust from '07 to '10, people MAY begin a selling panic. This may lead to chaos, but it is also a huge opportunity. Karl and I would need to dedicate ourselves to paying down principle to build equity to snatch up properties as they become available.
Even if home values were to drop and I did lose equity (the accounting law of conservancy would state I haven't lost or made any money until I sold the house at a loss or profit. Ergo, the correct term either way is equity and not money), it is unlikely to go below the savings among the three principles. I pay $800 per month; my mom pays $550 after Section 8, and Karl pays $625 for his studio. This mean we pay $23700 per year. Note that housing prices could fall by that much per year, and actually are right now. However, since Karl and I will be renting out to my mother's Section 8 voucher, prices would need to drop $26700 per year, with the understanding that Section 8 will pay 800; it could be more. However, we are not including the tax benefit between Karl and myself. The annual federal max, which I assure you will be taken, is 25,000K. Ergo, prices must now drop $51700 per year. I'm not even including the mortgage interest rate deductions or the state tax benefits, since I don't know the rules in either case. The news is not all rosy, of course, since much of the write-offs deal with the upkeep of the house such as repairs or heating oil. I'm also not including propery taxes, although you can write off SOME of the taxes. Property taxes are a huge factor in choosing a location. Luckily, White Plains, with it's corporate base, has a low tax rate for Westchester. "For Westchester" is the operative term.
The post that began October 23rd and ended on Novemeber 8th is summed up as follows: it is time to buy a home for the 3 of us. All the research I do is repeating itself, and that is an excellent sign. It means I'm getting a handle on the subject and can start the planning process to move forward. The tax benefits and my mom's Section 8 voucher make the choice an easy one. This does not mean Karl and I are suddenly ready to become the new Trumps. This home is only for the 3 of us. More homes and/or tenants will need to come later. My mom and Karl will not be out of their leases for another 8 months or so. We'll need to use this time to house hunt with my contacts in the industry and get a mortgage with the best terms. We'll aslo need to pay down our debts and get rid of our credit cards and eliminate those blemishes on our credit records such as an unpaid hospital bill, etc. We also need to learn the ins and outs of home repair, and Home Depot will prove invaluble in this endeavor. If we manage this properly, more homes, responsiblity, and money will be our aims. Watch out world, Karl and Brian are coming to kick some ass.
The class I took last night was an import/export class. I've broached the topic before, and every time I investigate the matter, it gets more an more complicated. For my purposes, my business plan (such as it is...) would be as follows: investigate via Yahoo! and Google and Ebay what people are searching for. When I find a product with the right price that involves a place where I would go anyway, I fly over and buy X amount of the product and bring it home. I would then sell it on any of the above sites and pocket the profits. Even this involves more work than I'm willing to put forth right now, but the tax benefits of such a venture are huge. I'll know more over the winter, as my health seems to be restored. I actually need to incorporate my little company and go from there.
All of this studying has had a positive effect. I've been winnowing down the options to both make more money and reduce my tax burden. Moreover, the class didn't cost me anything more than time and the promise I would submit the reviews of the class today. This does not imply a zero-sum game; all knowledge is useful and therefore an end unto itself.
In my further pursiut of investment knowledge, I've been studying the vagaries of real estate via books on CD. Right now I'm listening to Dolf De Roos discuss the benefits of real estate investments versus other forms of investment. He speaks in generalities, so I'll need to make a duplicate and run the tape past Scott and Steve and Betsy. I know that I'll need to invest in real estate on some level, if only in the form of buying my own place and possibly renting out a room. I have other possiblities as well when Karl and I pool our resources and brain power. (cue evil laugh and ominous rubbing together of hands...) BWAAA hahahahahahahahah... *giggle* So, if this is the right thing to do, why haven't I done it? The answer is timing and risk.
Much of the real estate in Westchester has exploded in price, but even that description doesn't quite cover the insane housing prices. For example, let's examine the town of Croton. A small village with a thriving downtown, it boasts excellent schools and is very livable. Back in the mid 90's you couls have purchased a starter home for around 160K. That same home peaked 1 year ago at around 500K, depending on size and location. Prices have dropped somewhat, (say, mid 400k) but most people made out like bandits. Those who purchased in the early 70's, when Croton was a blue-collar town, made a (tax free) fortune. The explosion was the combination of the aforementioned schools and business districtn, and the final icing on the cake: the train station. Everyday, communters zoom into Grand Central Station on the express train and reverse the trip at night. It also helps that the station has ample parking in a safe area. The train caused prices to explode, while small towns next door, such as Verplank and Yorktown went much more slowly. Yorktown caught up, though.
Both towns are out of my price range unless I purchased a co-op, which doen't help my overall plans. Let's use another example in my price range. Chelsea Cove is a subdivision of nice townhouses in a southern Dutchess County. This development has two floor plans: 1300 and 1900 square feet. The larger of the two is 3 stories with a walk-out basement. All units have access to a club house, tennis courts, and a private beach on a lake. The beach means no pool, BTW. Obviously, these homes are quite nice, although at 24 years old they might be showing their age a bit. The main drawback is the location. Chelsea Cove is 4o miles from work and 50 miles from White Plains, with the twisty and hilly Putman section of the Taconic in between. I'm also discounting the constrution on the Taconic in Northern Westchester, as it will eventually abate.
Back in '98, you could have purchased one of these homes for 90 - 120K. At the peak, these sold for 275K, and investors snapped them up as soon as they went on the market. These same investors are now fleeing the scene of the crime, as the asking price is now 225K. Scott mentioned I should low-ball sellers, and with nearly 25% of the units for sale, I would probably get a unit for 200K or so. Still, this very fact made me nervous, but I couldn't verbalize my fears. I questioned Scott further, and came up with this: prices will continue to drop for the next 5 years or so (the average cycle is 6 or 7 years up and then down for the same period, and downward cycle began about 1 year ago). If I succesfully low-ball a seller, then I won't lose the difference between my equity and my purchase price. After the downturn expires and prices move higher, I'll gain equity. However, the prices won't rise to the level they are today for 10 years. This pure conjecture, I know, but serves as a useful starting point.
Much of the increase in prices can be traced to the rock-bottom interest rates present during the past 6 years or so. These rates made housing more affordable, even as prices rose. When America was suffering under stagflation in '82, a house that cost 200K had the same monthly payment as a house in 2000 that cost 330K. Keep in mind while these are same figures, they are NOT adjusted for inflation. 1500 per month in '82 was a much larger chunk of change than in 2000. As such, houses were cheaper at 330,000 then they were at 200,000. I just love the new math.
Interest rates are rising now, although they are fairly low when compared to historic rates. From '79 to '82, the highest rates I found were nearly 18% (WOW) and add 3 or 4 points to the prime for your mortgage rate. 90-91 wasn't much better, with rates also in the double digits. Both periods resulted in a near collapse of the real estate market, with some people loosing their homes and others making a small fortune. Cash was king back then, and it will be again soon.
This leads to the undertow dragging the market to the depths: adjustable rate mortgages (ARM's). Recent lending terms have been flexible (to say the least) and even people whose credit is bruised like overripe fruit could get financing. The terms wouldn't be as favorable as someone with perfect credit, so to lower the interest rate, they would only hold a rate for 5 to 7 years. This would lower the payments to something the buyer(s) could afford. Such financing is also available to those with great credit but may not make enough money to afford a fixed rate. Believe me, some took the chance. As a result, people not only bought a home over their income level, they also found that payements are about to explode, and they can't sell the house for much more than the loan amount. One of the things I learned on my gonzo trip to Miami was that these loans are almost all interest and little principle compared to a fixed-rate loan. Egro, you payments aren't paying for much. When these loans adjust from '07 to '10, people MAY begin a selling panic. This may lead to chaos, but it is also a huge opportunity. Karl and I would need to dedicate ourselves to paying down principle to build equity to snatch up properties as they become available.
Even if home values were to drop and I did lose equity (the accounting law of conservancy would state I haven't lost or made any money until I sold the house at a loss or profit. Ergo, the correct term either way is equity and not money), it is unlikely to go below the savings among the three principles. I pay $800 per month; my mom pays $550 after Section 8, and Karl pays $625 for his studio. This mean we pay $23700 per year. Note that housing prices could fall by that much per year, and actually are right now. However, since Karl and I will be renting out to my mother's Section 8 voucher, prices would need to drop $26700 per year, with the understanding that Section 8 will pay 800; it could be more. However, we are not including the tax benefit between Karl and myself. The annual federal max, which I assure you will be taken, is 25,000K. Ergo, prices must now drop $51700 per year. I'm not even including the mortgage interest rate deductions or the state tax benefits, since I don't know the rules in either case. The news is not all rosy, of course, since much of the write-offs deal with the upkeep of the house such as repairs or heating oil. I'm also not including propery taxes, although you can write off SOME of the taxes. Property taxes are a huge factor in choosing a location. Luckily, White Plains, with it's corporate base, has a low tax rate for Westchester. "For Westchester" is the operative term.
The post that began October 23rd and ended on Novemeber 8th is summed up as follows: it is time to buy a home for the 3 of us. All the research I do is repeating itself, and that is an excellent sign. It means I'm getting a handle on the subject and can start the planning process to move forward. The tax benefits and my mom's Section 8 voucher make the choice an easy one. This does not mean Karl and I are suddenly ready to become the new Trumps. This home is only for the 3 of us. More homes and/or tenants will need to come later. My mom and Karl will not be out of their leases for another 8 months or so. We'll need to use this time to house hunt with my contacts in the industry and get a mortgage with the best terms. We'll aslo need to pay down our debts and get rid of our credit cards and eliminate those blemishes on our credit records such as an unpaid hospital bill, etc. We also need to learn the ins and outs of home repair, and Home Depot will prove invaluble in this endeavor. If we manage this properly, more homes, responsiblity, and money will be our aims. Watch out world, Karl and Brian are coming to kick some ass.
