patrick.net

astrid Says:

> FAB, I hope this is not too nosey, but would you be
> willing to describe how your parents built their RE
> portfolio? (Did they scour RE listings? Did they bid
> on foreclosures? Did they work with a commercial
> listing agent?) And how did they finance their deals?

When my Dad was a kid growing up in the Mission District his emigrant parents worked hard but didn’t make much money so he worked a lot of part time jobs including fixing stuff and painting for an old guy that had a few rental flats in the neighborhood. When he was in High School he started collecting the rents and doing the taxes for the old guy.

He bought his first couple houses for very little cash taking over the current loans and getting seller carry second TDs. When my grandfather (my Mom’s Dad) came to live with us my Dad had the rent from his house in the city coming in and later re-financed it to pull out cash to buy an apartment.

After I started working for a successful real estate guy (that I met as a caddy) in High School I dug in to my Dad’s old real estate files and saw that the listing and selling agents lied to them on every deal (and that my Dad the college dropout and self taught tax guy was no CPA).

My parents have never sold a single piece of real estate (so they have never actually hired a listing agent) and never really went out to look for a single piece of real estate since they always found them in some strange way like a plumber who was working with my Dad telling him that he should bid on a building for sale with bad plumbing since he would know how to fix it…

I like the 2/3 idea. My wife I discussed making lowballs next spring and I think that 2/3 is good ballpark to work with.

Thanks.

FAB,

Thanks for sharing your parents' experience! That's a very interesting insight indeed. It sounds like a buyer/seller agent may not be necessary if one is very plugged into the community. It'll be hard for amateur landlords to compete with professional landlords like your parents.

justme,

Sorry I didn't see your comment in enough time to fix the double paste.

Also thanks to everyone here for keeping this thread on topic. I am finding this particular discussion very enlightening. Many of you who've contributed in this thread could write very interesting thread articles yourself. Email me (or HARM, SQT, or Peter P) if you're ever interested in doing so.

It sounds like:

1) If I work with a buyer's agent, I may be screwed because the listing agent would rather have all 6% and look for his own buyer.

2) If I work with the listing agent, I may be screwed because the listing agent wouldn't adequately represent/advise the house to me (point out flaws, etc.)

So... as a buyer, I lose either way?

:(

I have a question for high end realtors.

There's been some talk here about smart successful people using the bubble burst to upgrade into more prime neighborhoods/housing stock. I wonder how much of this will actually happen. We know that some folks here (like Randy H, OO, SP and SFWoman) have enough financial resource to make this move, but I wonder if market psychology would actually push some of these financially well off people into resist buying for psychological reasons.

Would the truly well-to-do continue to buy in a down turn or would they feel uncomfortable using their hard earned dollars to buy into a place that could continue to depreciate for many more years? (I know folks here are sufficiently savvy to make the utility v. dollar calculation, but what about the great masses of well-to-do folks who are less obsessed with the housing market?)

astrid: I've been researching my local market for well over a year. One thing that has become blindingly clear is that real estate is an incredibly localized phenomenon--it's a single transaction on a non-fungible asset.

In other words, real estate isn't like stocks, where the price fluctuates due to mass market forces, and all shares reflect the same forces equally. It seems to me like the truly useful bargain hunt leads you to the single pressured seller (possibly a former FB) that is going to give you the property you want at a thick discount.

If the bubble pops, wealthy investors would probably invest in a hot sector until geniune real estate bargains started to appear. Effectively that's what people did with stocks into real estate when interest rates came down so far after 2001.

That said, I bet that wealthy investors are the ones with the inside track to locate the best real estate bargains, because they have good financial connections in their community and can form more somewhat efficiently.

Brand,

Interesting! I wonder how one becomes best buddies with someone with the RE inside track...maybe blackmail is more effective...

Kidding, I'm kidding!

astrid,

the truly well-heeled people are so for a reason, they are financially shrewd. Except for some compelling personal circumstances (e.g. expecting the birth of a child, getting married or divorced, job relocation etc.), I don't see a lot of financially well-off people jumping onto the realty bandwagon. If they were so careless with their money, they wouldn't have been so well off to begin with.

However, the high-end market performs very differently from the low-end. I was dining with a friend in Saratoga last night, almost all the restaurants were full, or required at least 20 min wait. However, while I was in San Jose a bit earlier, I saw a few sign twirlers for the likes of Appleby's at several junctions. So the high-end market may be a bit shielded due to the increasingly uneven distribution of wealth, I don't know. In any case, I think the >$2m market certainly is a different world by itself, because obviously you can't buy such a home with a 20% dp, 30-yr mortgage. How that market performs will have little bearing on the $1m-1.5m market that many of the middle class double-income dwellers are looking at.

FAB,

Who is collecting my mortgage payment check every month? Does it mean that my mortgage loan company simply becomes a payment collection machine? Who will foreclose my property if one day I decide not to pay?

Currently only my name is on the loan, while my wife and I both hold the title. I am wondering if something happens to me, will my wife get to keep the house without repaying the loan?

FormerAptBroker Said:

> The most successful residential real estate agents have the ability
> to convince sellers that their home is a pile of crap and sure to soon drop
> in value while simultaneously convincing the buyers that they are getting
> a great deal on the best home in the city that will soon double in value…

Can they do it without knowingly lieing?

I said:

> The most successful residential real estate
> agents have the ability to convince sellers
> that their home is a pile of crap and sure
> to soon drop in value while simultaneously
> convincing the buyers that they are getting
> a great deal on the best home in the city
> that will soon double in value…

Then Lexington Says:

Can they do it without knowingly lying?

No

SP and OO and George,

Thanks! It sounds like huge drops are possible almost everywhere, though the super high-end will be affected differently from the rest of the housing market.

(Though I guess the super high-end in SF would be north of $5 million. It's sad/good news that there are so many spendthrifty big earners - if only their MBA/JD/Ph.D came with a personal finance class requirement!)

OO Says:

> FAB, Who is collecting my mortgage payment
> check every month?

Odds are it is a big (multi- billion) servicing shop that may not even be owned by the bank or mortgage company that originated the loan.

> Does it mean that my mortgage loan company
> simply becomes a payment collection machine?

Most mortgage companies sell the loan “and” the servicing to a third party (who may continue to service in the name of the loan originator).

> Who will foreclose my property if one day
> I decide not to pay?

This depends on the details of the master servicing agreement, but most loans are transferred from the primary servicer to a “special” servicer in the event of default who will foreclose. The guys and gals running the special servicing shops are some of the toughest battle scarred people in the business and you don’t want to mess with them…

> Currently only my name is on the loan, while
> my wife and I both hold the title.

Take a look at your loan documents since you may have had to get lender OK to change the ownership.

> I am wondering
> if something happens to me, will my wife get to
> keep the house without repaying the loan?

The people holding any loan you have at the time of your death will be able to go after the assets of your estate in court, but odds are that your home loan is secured by a note and deed of trust and the lender will just foreclose if your wife does not make the payments. Take a look at the loan docs since if there may be clauses that makes the loan due on the sale of the property or your death…

P.S. Don’t buy “mortgage death insurance” since on average the insurance that pays off home loans at death is some of the most expensive insurance out there (just buy more term life insurance)…

Term life insurance is the most cost effective method to insure against death of a spouse when it comes to mortgage. It's not that expensive to get a policy well in excess of the mortgage balance for young/mid-age people in reasonably good health.

The only thing I can add to mortgage/servicing/etc is that major lending banks do often take on prime direct mortgage debt. For example, many people may have found that every mortgage they take, or every refi they do, keeps ending up somewhere like Wells Fargo. This may be because you fall into prime status and the bank's primary risk is prepayment-risk, not default risk. I think most of these banks service the loans themselves, but I'm not certain about that.

"a little froth but nothing substantial"

George, even a 10% drop in median from peak would be a disaster given our methods of finance these days. It seems that the entire REIC is structured only for appreciation. With no contingent plans otherwise, everyone from the Fed on down to the newest (and most leveraged) homeowner can now only hope and pray it's not going to be as bad as they're starting to suspect.

I don't want to speak for others but I personally have never really put all that much weight on the "re-set" itself. Oh I know I mention it regularly b/c it seems to be something that data driven people seem to connect w/readily. Even if homeowners didn't feel stressed out and overstretched to make their payments, they know the jig is up!

Without the promise and potential (and implied guarantee) of never ceasing appreciation the wheels would/will come off with or without higher rates/payments. Just as it made nothing but sense for most Americans to leverage to the "9's" on the way up, it will just as quickly dawn on us that being overleveraged to the hilt doesn't make sense when home prices are flat (let alone in a freefall).

Besides, as Americans we've grown tired of real estate. It's consumed our every waking moment for at least the last 8 to 10 years! We'll downsize, re-trench and move on to what ever it is that comes next.

Bagholders are furiously trying to re-ignite our passion with incentives and the promise of continued access to free/cheap money but to no avail. In the end the HB will will fall victim to it's own excess. (I mean success).

Can you refi if your, whoops I meant the note holders, house has dropped in price? Can you are Mr. McBoomer and you bought your 996 with a cash out refi, and now your appraised value of the house is less than what you owe, can you refi?

Well yes you can with the magic of the -% loan.

George,

In that hypothetical case -- the perfect soft landing -- the "system", as it were, will absorb the foreclosures and recycle those assets back into the market efficiently. The losses from defaults will fall within the spreads charged by the subprime lenders, and the buyers of MBS' will be happy with continued high returns they're earning on their "junk bonds".

Supply and demand won't really affect much of anything overall, because real-estate is not liquid. You can't move houses (well, most houses). Some micro markets will have gluts where overbuilding occurred. Maybe even some larger areas like Las Vegas suburbs. Some prime areas would have shortages in a soft landing, as fence-sitting prime buyers come back into the market only to find not enough houses for sale at an affordable price.

But overall, supply & demand will be as it always has been. I am not a believer in any of the arguments that the fundamentals of either supply or demand have changed. In fact, the only thing that has changed substantially is short-term demand, caused by the bubble.

George,

I'm convinced that a soft landing is impossible to execute unless there is high (but not too high) inflation and a boost of productivity due to technology innovation/heretofore hidden capital investments.

Without continual appreciation observed in the last couple years, buying right now is just too expensive compared to renting. There will be very few buyers compared to an average market because the bull market sucked most of those buyers into buying already, tighter lending standards, no more bank of mom and dad for young buyers and an awareness that buying home is not a sure thing.

And those same forces that keep out new buyers also push in many sellers. (Investors who counted on rapid appreciation, people who overbought housing, people who were pressured into buying subpar property by the frantic 2002-2005 market).

I think the lower/entry end will be hit very very hard. This portion got the greatest inflation relative to their underlying value (by yuppies who wanted to buy cheap, young people getting in on the ladder, flippers who wanted to "spread" their risks into multiple cheap properties, poor people whose desire to own gets them over their heads).

astrid,

I remember watching David Letterman just before the US hosted our first World Cup. "You know, now matter where I go, now matter who I talk to, virtually NO ONE is talking about the World Cup!

Top 10 ways to spark interest in World Cup!

and #1 is: "Have Madonna inflate the ball!"

Well, no matter where I go virtually NO ONE is talking about RE! Not even realtors are talking about real estate! They seem to be more focused on what their "next" career is going to be!

Seriously, other than this blog I don't know ANYONE that's talking (let alone seriously talking) about real estate? If I didn't check this blog most days I wouldn't even know real estate existed. It's fallen off the radar completely and I imagine by Thanksgiving the only time it will come up is when friends and relatives ask you what you're doing about torching your POS?

*Not a professional opinion.

HidingintheBronx Says:

i want a big boomer t-shirt. someone should start a cafe-press (or whatever) line.

Hiding (and other interested parties),

Patrick and I are actively working on doing just that (creating a Cafe Press store for Patrick.net). Unfortunately, I am in the middle of moving (to another sad, pathetic rental), so I do not have internet access at home for a few days, nor will I have much time until we're settled. I expect to have some t-shirts up within a couple of weeks, though.

Stay tuned...

HARM,

Please create bumper stickers too, for the extra brave and/or well insured.

@astrid,

:lol: Will do!

I was just curious. How many words can you come up with from "Price Reduced"

Here's just a few I came up with.

screwed
bent
done
pepperoni

oh, and toast

See what fun words you can come up with!

Steve, wow, to call that chick an idiot really does a disservice to idiots.

I guess winning Trump's little show didn't do much for her career after all.

Isn't Trump a billionaire? Oh wait. Perhaps that was a bubble too.

Hey Kendra! How does one win that show and not know the difference between a STOCK MARKET and the REAL ESTATE MARKET???? It drives me to distraction! Maybe that's why they call it "The Apprentice". Keep at it kiddo, and you'll become a Journeyman before you know it.

Speaking of Trump. What do you RE professionals think of Trump?

I love Trump's buildings.

Ooh... good question! He seems to be most effective when put in charge of a project, as opposed to doing actual investing. In my mind, the name "Trump" is synonymous with "bankruptcy", but he seems to have enough tenacity to not let little things like that slow him down. Perhaps that episode was an illustration of the "owe a bank 1K$ and you have a problem, owe them 500M$ and they have a problem"?

(Err.. that wasn't meant as an answer, since I'm not a REP.)

/DinOR: "cried puce red"

CB,

I'll take "offers pending lender approval" this is a short sale?

CB,

Again as Glen* shared, would I be able to go down to the bank and a 75k loan to trade cattle futures? HELL NO! (But when it's "secured" by RE then speculation is totally cool) right?

Inventory is growing so slowly that I am falling asleep.

http://bubbletracking.blogspot.com/2006/09/tracking-san-josesanta-clara-county.html

Zzzzzzzzzzzzzz

Again as Glen* shared, would I be able to go down to the bank and a 75k loan to trade cattle futures? HELL NO! (But when it’s “secured” by RE then speculation is totally cool) right?

But you can "buy" $100000 worth of TY for $810. :)

http://www.futuresview.com/margins1.htm

astrid Says:

> Speaking of Trump. What do you RE
> professionals think of Trump?

That he is a pompous ass with bad hair…

It’s hard to fail in life when your Grandfather and Father were both hard working honest guys who create a huge real estate empire and want you to do even better.

Donald learned a lot about real estate and politics from his Dad and Grandfather, and he used their money, connections and reputation to get ahead.

Donald was so focused on real estate that he didn’t pay attention to his Dad and Grandfather when the talked about modesty, family values and how bald guys don’t look that bad…

Inventory is growing so slowly that I am falling asleep.

Zzzzzzzzzzzzzz

Congrats on the soft landing San Jose. :(

FAB,

thanks for the answer.

For those with experience in RESPA/Loan Origination:

My wife's co-worker and our long time friends just met their "new neighbors". Three families living under one roof. It's not immediately clear as to their relationship w/one another but after years of living next door to a couple, they now live next to a parking lot!

We've discussed mortgage fraud (quite a bit of late) and it's possible consequences but what if anything can a 15 year resident do about an obvious infraction like this?

Now I'm quite sure there is only ONE couple listed on the loan documents but THEY MOVED IN as an "instant barrio" from day one! (Btw if you were on the fence about selling this will definitely make the decision for you).

While this may be a daily occurrence in CA, AZ, TX it certainly is a new wrinkle for Oregonians. We see this with regularity when it comes to rentals but who if anyone could this individual go to to seek relief? I've no doubt that these "loan originators" will hide behind Equal Opportunity Lending Laws but come on, this is ridiculous!

I invite any and all advice, lay and professional alike. At this point, anything helps.

SFWoman,

Thanks for the input. I guess I hadn't even considered the "health aspect". One of the greatest experiences my family ever had was renting a houseboat up in Idaho. We had younger teenagers with us moored at one of the several islands on Priest Lake and just before sundown some rowdies showed up so we weighed anchor and found another island!

That incident really stayed with me. I've mentioned "neighbors" on a number of occassions and I guess I feel that I make enough compromises in my professional life to have to "work" with people in what little off time I do have.

It would be a shame to have to go to the hassle and expense of setting up some kind of HOA or CC&R to address what should be common decency and as you suggest, common sense! If you need to have 3 families in a 3/2 house maybe coming to Amerika wasn't such a good idea?

I like how at the end of a thread, it's a free-for-all from the topic at hand, ha, ha!

Sh-t's gonna get a lot worse before it gets better.

Just scored a new defense-related job. The co. got a five-year contract to work on a special project. Should be able to weather the downturn in the market, since I'll be out of the supply/demand economy for a while.

I think I may jump into the Phoenix market in a year or two. Should be bottoming by then. Maybe it will be a longer trend downward...

I did take a trip out to San Jose last week. My old neighborhood is looking shabby. The roads are looking ragged-out. The Bay Area was looking dumpy/third-worldish, overall. Arizona in general, and Phoenix in particular--except for a few--areas looks clean and windswept in comparison.

I guess I'll stay in AZ. The future of the BA looks pretty bleak for the middle class.

:o~~ The Mouse