Everybody Loves Your Money

If you feel like braving the lines, you can get a free Grand Slam breakfast from Dennys today (Feb 9th) from 6am to 2pm.

Here is the information:
http://www.dennys.com/superbowl/splash2.html

I’ve read more than a couple articles predicting gloom and doom for the commercial real estate industry.  Many are concerned with an impending collapse of the commercial real estate market and what that is going to do to the many banks that have billions in loans supporting it.  Not being an expert on anything related to the subject, all I could do was ponder whether these people are right about what’s coming.

This weekend we had lots of errands to run.  Normally I do most of the driving but this weekend my wife wanted to drive so I sat back in the passenger seat and just admired the landscape.  (Okay, not exactly “admired” because it wasn’t much to look at, but you get the idea).

Anyway, since I had the time to really look around as we made our way around the city, I started noticing a lot of “For Lease” signs.  I decided to start looking for them as we drove along and was honestly surprised to find that EVERY commercial complex, whether it be retail, office or warehouse space, had “For Lease” signs up.  Literally, on one street that was about 10 blocks long, every single complex had vacancies.

I can only imagine the various scenarios that the building owners are facing from building to building.  Certainly there are some complexes that are doing just fine.  I’m sure that some of them have more equity in the buildings and less loans so that they could probably get by with 50% occupancy, while others are so leveraged that they need close to 100% occupancy in order to cover their expenses.  Regardless of the scenario, it’s doubtful that I’ll ever see any more signs of the commercial real estate struggle than just the “For Lease” signs out front, or a small blurb in the local paper when a building changes hands.

Maybe I should have looked in to buying stock in sign companies.  With all the “For Lease” signs and all the “For Sale” signs out there, the sign companies must be doing pretty well!

We have some friends that have been really scraping by because one of them lost their job almost a year ago. Well, they are both finally working again and you can sure tell the pressure is off. After being back at work for only 3 days, they’ve gone out and bought a big screen television. Apparently all their fears and worries about how they were going to get by have all fallen away.

If only I could shake them a bit and get them to think about building an emergency fund and paying down some of their massive debt before they embark on a new quest of materialistic hedonism. Oh well, I guess someone has to stimulate this economy. Apparently the stress of selling off some of their assets and just barely scraping by hasn’t changed their overall view of “stuff”.

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David over at My Two Dollars blogged about whether he thinks it’s okay to walk away from a mortgage. Originally, back in 2008, he said he didn’t think it was okay and was just wrong. Fast forward to today and he has changed his mind. He now believes, in light of all the government support the banks are receiving (and not really passing it on to their customers) that it’s okay to walk away. I completely agree.

I was just talking to my neighbor about this last week. I’ve mentioned him before. He bought the house across the street back in 2006 right at the peak of the market for a sales price of $440K. If he was to try and sell it today, he’d be lucky to get $315K. Fortunately, or unfortunately, he didn’t put much down on the house because he hadn’t sold his previous home. Instead he got two loans. One for 80% of the sales price and another for 20%. That put him at zero percent equity and it’s just gone down hill from there. To top it off, he lost his job about 9 months ago. He has stayed current on his mortgage but he’s taking a long hard look at how much longer he can do that. He also believes it’s okay to walk away, probably more out of necessity, than anything else.

From my viewpoint, the banks offered a loan against a piece of property. By holding the deed to the property they are, in effect, saying, “If you don’t pay this mortgage off, we are going to foreclose and take your house”. Now that it’s happening with increasing frequency (read: A LOT), there is all this talk about how it’s immoral to walk away. I don’t agree. The banks normally go to great lengths to loan to credit worthy individuals. That’s why they invented credit scores. It just so happens that they threw all those rules out the window during the real estate feeding frenzy of the mid 2000’s. It is due to their lack of prudence that they are now faced with taking back hundreds of thousands of homes (as their contracts state). Do I think they should be lowering loan amounts? Nope, not in most cases unless it’s to their benefit to do so. I think they should take the houses back and do their best to minimize their losses by selling the properties. Hopefully, if you are walking away from your home, you live in a state that doesn’t allow deficiency judgements. In these cases, you can’t just simply walk away. You could very well be billed the total loss that the bank takes on the property once they sell it. While there has been some press on this recently, apparently it doesn’t happen too often.

Anyway, in the end, I think that the banks made calculated risks with each of the loans they doled out. They are going to yield a positive return on some of the loans and they are going to lose on others. Don’t get me wrong, there is certainly some personal responsibility that is called for here. Personally, I think where morality comes in to play in all of this is where the people took out loans they knew they could not afford. It was at that point, that they made an immoral dishonest choice. At the same time, had the banks used their very old and very reliable guidelines for lending, these loans probably wouldn’t even have been approved in the first place. The folks that took out loans that they could afford but have since found themselves unemployed or underemployed and now can’t afford to pay their mortgages are really the ones that I completely sympathize with. They made a good faith effort to honor the loan, but now can’t. I don’t think they have a lot of choice other than to walk away, unless they have enough equity to actually sell the house and break even.

Let the flaming begin!

I was browsing around on Craigslist and came upon this ad:

BEAUTIFUL M3
White exterior / Black leather interior
Dual clutch system
Technology Pkg.
Fully Loaded
Carbon Fiber Roof
Premium Sound System
Navigation
You can either buy it outright for $56,000 or
assume my lease of $1309.10 per month for
the remaining 20 months of the lease term.
Residual is approx. $36,000.00

Seriously? A monthly LEASE payment of $1309? Or you can buy it outright for $56K which is $4000 over invoice on a brand new one. I wonder if this guy is good with his money. I’ve never heard of a lease payment on a vehicle being that high.

I finally blocked out a bit of time to take an early look at our taxes now that all of our W2’s and 1099’s have arrived. I haven’t bought the 2009 Turbotax software yet so I decided to just quickly punch all the numbers in to the Turbotax website with bogus personal information. With both my wife and I working and online income, it has pushed us up in to a higher tax bracket. As I entered just my income information, Turbotax was showing we’d be getting over $5K back with std deductions. Once I added my wife’s income and online income in, we went in to the negative territory. Luckily we both increased our withholding through the year to cover the online income that we have to report. We could have made the estimated tax payments every quarter but, frankly, I hate doing that so I opted to just crank up our withholding. In the end it appears to have worked out. After throwing in all of our mortgage interest deductions, property taxes, sales taxes etc, we are now looking at an estimated $400-600 refund. That’s the first year in a few that we’ll actually be getting money back. Of course it’s best to try to zero out on your taxes so that the government isn’t getting an interest free loan, but based on the amount of taxes we paid this year, I’d say a $600 margin of error was pretty good!

Of course, I won’t know for sure what the real number is until I shell out the cash for the latest Turbotax version. I won’t do that until I see a screaming deal on it!

I have started using a new Wordpress tool so that ELYM is optimized for viewing on Iphones and Ipod Touch’s. It actually looks pretty cool. It’s clean and gives you just the information you really want. (No ads, links etc) It does a great job of showing you how many comments an article has and loads very fast.

Just one more way to view ELYM. Thanks for visiting!

I was absolutely shocked to see that low end house prices in my area have come way down. It’s possible to buy a house for $125,000 that is in relatively good condition. The cheapest house that was available during the peak of the real estate market was over $200,000. Prices are getting to the point that, with $25,000 down, we could acquire a rental property and be cash flow positive right out of the gate.

So, needless to say, I currently have the rental house “bug”. I’m seriously considering jumping in to the landlord business, although I certainly have some reservations. Here are a few of the things I’m considering:

-Stability of my employment
-Stability of the rental market in the area
-Hidden problems with potential properties
-Monthly costs to own a rental (which I need to be sure is covered in the rental rate)
-Types of renters at the bottom of the market

While I’ve recently learned that there will be what I’d call “massive” layoffs in the IT division of my company, I’ve also been told I shouldn’t be at risk at this point. That makes me feel a little better, but it’s hard to feel too good about my employment while people around me are experiencing the shock and stress of getting laid off. In theory, once I buy a place and get it rented out, I shouldn’t be quite as worried about my employment. The problem with this is that there are plenty of scenarios that could really be an issue if I lost my job. What if I end up with a renter that just stops paying the rent? It could be months before I could get them evicted. What if the house needs major repairs at some point and I can’t rent it out for an extended period of time? As long as I am employed, none of these scenarios would hurt us. I wouldn’t enjoy having to pay the mortgage on another house that wasn’t rented out, but I could swing it. If I ever lost my job and didn’t have a renter, it would hurt much more.

I’ve been doing a lot of reading about the rental market being weaker than it’s been in a long time. This might mean I’d have trouble finding a good quality renter and may find myself “bottom feeding” for sketchy renters. If that’s the case, it would also increase my risk of getting a renter that decides to quit paying his rent or trashes the house. I also might find myself with a vacant house for extended periods of time. Like I said above, this wouldn’t kill us as long as I’m employed.

While I’d like to think I’m pretty savvy from a real estate perspective, I also recognize that I’m probably much more ignorant about rentals and real estate than I realize. There are plenty of things that could go wrong when trying to find the right rental. The only comfort that I have with this is that I’ve owned a few houses and have a pretty good eye for potential issues. I also have a “best friend” who is a contractor and would be happy to look at any potential place for me. I think having issues with a rental is a manageable risk.

I also need to realize that there are plenty of costs that I need to consider when deciding whether I should buy a potential rental. I need to identify the total taxes I’ll be facing, insurance costs, total mortgage costs including principal and interest, any neighborhood association costs, and I should also make sure that there are no outstanding assessments against the property for things like sewers or water systems. All these things will help me understand the total monthly costs of owning the place. If comparable rents in the area aren’t yielding that amount, I probably wouldn’t buy it. In the past I’ve thought maybe I’d buy a rental, even if it was slightly cash flow negative, but I’ve decided that if I can’t at least be cash flow even every month, I don’t want to go down the landlord path.

I mentioned above that I need to be concerned with the type and caliber of renter I might be able to get. If the rental market was red hot, I might be able to get some pretty good quality renters but with the rental market being weak now, I have to come to terms with the fact that I won’t be able to be as picky as I might like. When trying to rent out a lower end house, I have to prepare myself for dealing with more rental drama than if I was trying to rent a “middle of the market” type property.

Even with all these things to consider, the idea of someone else paying the mortgage on a property I own is still very tempting. I’m going to be watching the housing market in my area very aggressively for a potential property. At the same time, we are continuing to save as much as we can. If the stars align, I may just end up buying an investment property.

I was absolutely thrilled to discover that my credit union now offers online deposits. For the last few years, I’ve really dreaded getting physical checks from people because it meant that I’d have to plan a trip to an ATM or one of my credit union lobbies. Don’t get me wrong, the people at my credit union are top notch, but it’s just such a hassle to go there. I will admit it wasn’t horrible to stop by an ATM but inevitably a line of 10 people would show up behind me as I was licking envelopes and going through the lengthy deposit process.

Well, now I don’t need to worry about it any more. I can now deposit checks from the comfort of my own home. What does it take?

Basically, you just need a scanner and Internet access. That’s about it. You keep the check and your money is available (with some restrictions) immediately. All you do is scan the front and back of the check that you want to deposit, enter in the deposit amount and that’s it!

A company called “Fiserv” is behind many of the credit unions that are now rolling out this service. I’m not sure when the big commercial banks will be on board with this new feature, although I do know that USAA offers online deposits. Does your bank or credit union offer online deposits? If so, let us know who it is!

I think alanis morissette wrote a song called ironic. This probably should have been included. Deborah McDonald was hit and killed by a car in northern Ohio on the same day that she received a lottery check for $5520. While that isn’t a huge amount of money, apparently it was more than she’s used to. After going out for drinks and buying wedding rings for her and her husband, she was walking home from a bar when she was struck and killed. Apparently Deborah won the money in Ohio’s Cash Explosion Double Play.

Talk about good luck followed immediately by bad luck.