A penny for my thoughts, oh no I’ll sell them for a dollar

They’re worth so much more after I’m a goner
And maybe then you’ll hear the words I been singin’
Funny when you’re dead how people start listenin’

~The Band Perry

Last week the real estate community lost an icon.  Carole Rodoni was an economist, a real estate guru and the toughest sub five foot woman you will have ever met.  I know real estate and I’m smart, I bowed to her insight.  She was the President of Fox and Carskadon, COO of Cornish and Carey and the President of Alain Pinel Realtors.  Most Realtors were not qualified to have a conversation with this little fireball.  Whenever I asked her a question I was always mindful to not sound like this guy.

Isn’t it true….and I would be the worm.

She gave out some of the best real estate advice I’ve ever received.  She understood how the bay area worked and how the world worked.  She would start with a view of the world’s economic situation and chunk it down to the United States and then chunk it down to California and ultimately to the bay area and Contra Costa County.

I would have liked to have heard her thoughts on the tariffs.  I am deeply concerned that they are the canary in our collective coal mines.  Most go into effect starting October 1, 2018.  I’ve had business owners tell me that their cost of goods will be going up.  Spun Bicycles in Cincinnati has received notice from several providers that various bicycles are parts will be going up in cost by 25%.  I spoke to the owner of Chase Customs who told me that a roll bar that used to cost around $350 was now costing him $700.  Steel parts were already doubled in price in some situations.

Our economy is not strong enough to withstand this kind of rise in COG and I am doubtful that it can continue to grow under that pressure.

We are used to Presidents who negotiate in a certain manner.  I believe this President is a brash, bare knuckles type of negotiator and that’s what is happening right now.  He is blustering to get the Chinese to the table and the tariffs will not ultimately be in effect long, if at all.  If I am wrong, we could be in for a long cold winter.  I wish I could give Carole a penny for her thoughts on tariffs.  She will be missed.

 

Waiting on the world to change

It’s hard to beat the system
When we’re standing at a distance
So we keep waiting
Waiting on the world to change

~John Mayer

I hear it all of the time.  We’re going to wait.  Wait to buy, wait to sell, wait for the real estate world to change.  I get it.  No one wants to make a mistake with the largest financial transaction of your life.  And adulting is scary, right?

The thing is, in this world there is a cost for everything.

Just last week I took one of my cars into the shop.  The air condition wasn’t working.  It’s not my daily driver, but my daily driver has proven to be a little unreliable.  It’s brand new and has spent 11 days of it’s first year in the shop.  It needs to go in again because the seat belt chime won’t quit bleating at me.  So I took my steady Eddie into the shop to get the air conditioner looked at.  That car has an oil leak that is going to take a day’s worth of work to correct.  That’s an expensive job and I’ve been putting it off for two years now.  Well, there’s a cost for procrastination.  In my case it was a hose in the air conditioning system that rotted out because oil was dripping on it…from the oil leak I put off fixing.  The cost of procrastination for me was $400.  I might as well have dropped that $400 in the street and set it on fire, because had I fixed the oil leak when it was discovered, the air conditioning would have never failed.  The cost of waiting.

Ten years ago when I moved into my home I installed an air conditioner at my house.  I rescue dogs and always have at least one male dog here.  Apparently air conditioners are a big deal with male dogs.  Once they lift their leg on it, the unit warms up when it’s being run and their scent goes all over the neighborhood.  It’s a four legged win/win.  And it will rot out an air conditioning unit in about 8 years.  I could have built a fence around it, or hosed it off weekly and that would have saved it.  I never got around to it so I got to spend another $11,000 replacing the entire system because the old kind of freon systems have to be completely replaced.  The cost of waiting.

Now I get waiting.  I’m have it down to expert level.  It’s not always the best course of action.

Bay Area homes are expensive.  Ridiculously expensive.  Buyers want to wait to buy because they think prices are going to come down.  Sellers want to wait because they think they’re going to keep going up.  I’m going to suggest that the cost of waiting can be insurmountable.

I could tell stories about buyers who wanted to wait for the market to cool in 2013 and are now completely priced out of the market and will probably never own unless they have some windfall in their lives.  Or sellers that wanted to wait in 2006 and ended up loosing their home to foreclosure in 2009.

Hi, I’m a Procrastinator and I like buying air conditioning equipment.

I don’t.  I hate buying air conditioning equipment.  And I hate watching people make decisions that I know are not going to benefit them in the long term.  After all, with very few exceptions, people who own real estate have 36 times the average net wealth that renters have.  Thirty six times!

Part of that is that homeowners are creating equity with every house payment as opposed to making their landlord wealthy with every rent check.  I don’t know how the new tax law is going to affect the mortgage interest deduction (which you can thank me and every other dues paying Realtor member of the National Association of Realtors who fought to keep that deduction in place) and property taxes going forward, but there are still deductions available to homeowners that renters don’t get to benefit from.

OK, so what is the real cost of waiting.

Factors:

  1. Interest rate
  2. Cost of purchase
  3. Tax benefits

Current interest rates are hovering around the high 4’s.  We’re going to use 5% for this example.  And we’re going to use Bay Area prices.

The median price in the Bay Area is hovering around $900,000.  I know, that’s nuts.  There are plenty of homes in other price points in the Bay Area.  Buyer has 5% down so it’s going to be a jumbo loan with PMI.  The total amount to close this is going to be around $72,000.  The payment is going to be around $4,589.82.  Taxes are going to be around $10,000 a year and there is going to be PMI (private mortgage insurance) on the loan at around $335.00.  The house payment is going to be around $5760.  Over a period of two years, this loan will pay down to $827,990.74 adding around $22,000 to your equity.  Now you have around 7.5% equity, plus you’ve been receiving the tax benefit for two years.  What if the market goes up?  Yay!  More equity.  What if the market goes down?  Boo, your equity disappeared, but you’re still living in your own place and no one (except the City) can tell you what to do with it.  You keep paying your mortgage and the market recovers after a long arduous five year wait and the market starts running again.  Yay!  You’ve paid it down to $783,817.23 in your first five years and can probably dump the PMI.  Yay! Again!  And for those five years you’ve been writing off all of your deductions on the home.

Now let’s say you’re the seller.  You want to wait to next year because you want to squeeze every penny you can out of it.  After all this is the Bay Area and it will keep running….right?  Well maybe not.  The same guy who bought the home above could qualify for the large loan today, but interest rates returned to the historic norm which is 6%.  Now that payment is $5126.16 plus $335 PMI and $833 in taxes and that buyer just can’t afford your home any more.  Now you aren’t average and there is pressure on the market and what was $900,000 this year is barely $800,000 because they can only qualify for a $755,000 loan.  That buyer isn’t going to buy that home any more, they’re looking at a smaller home and as a seller, that seller is feeling the downward pressure on the market.

There is a cost of waiting.  Sometimes, it is appropriate.  Sometimes it’s misguided and will ultimately doom someone’s hopes and aspirations.  Don’t let that happen to you.  Find out what you can, can’t, should and should’t do right now.  Call or text 925-381-2998

No one gets out of here alive

Christopher Bullock first uttered these words in the Cobler of Preston in 1716.

“Tis impossible to be sure of anything but Death and Taxes.”

Ben Franklin usually gets credit, but he was not the first, and certainly not the last.  Jim Morrison famously wrote “No one gets out of here alive”.  And no one does.  Death is the great equalizer.  We all leave this life toes up.

In our society, we spend a tremendous amount of time avoiding the subject.  We don’t look forward to answering the question “what might happen when I die”.   Personally, I had a near miss last year.  Doctors misdiagnosed me with the flu.  I had pneumonia.  They treated me with a cough suppressant which is the worst thing you can do for a pneumonia patient.  By the time they properly diagnosed me I was starting to go septic.  While I was laying in that hospital bed I thought “I have to come back from this, my house is a disaster!”  I did and today my house is less of a disaster.  Because when you die, someone has to deal with your living space, whatever that is.  It can be a miserable task.  In my mind the less hellish I can make that for my family the better.  Since I got out of the hospital, bags of clothes I haven’t worn in over a year have been taken to Goodwill.  Truckloads have gone to the dump.  While this isn’t an article about organizing, it could be.  And I still have a long way to go, but I am living a much less cluttered life.

Most of us don’t get to choose when our ticket gets punched.  I was minding my own business when a guy sat down next to me on a plane.  He was sweating and coughing and three days later I had pneumonia.  Over the years I have known people in their 40’s who went to bed and never woke up.  People in their early 50’s who have suffered massive, fatal heart attacks.  People who have died driving to work, riding their bike, watching the stars.  I’ve seen random acts of God, earthquakes, fires, hurricanes, tornados all end the lives of otherwise happy and healthy people.  And I almost got my ticket punched just for taking a flight from Vegas to Phoenix.  We.  Just.  Don’t.  Know.

So the question is, knowing that information, why do we not at least make some cursory plans for the one thing we all know we will do?  It’s really not that hard to do some estate planning.  Take a couple of hours and set things up so that while your family is grieving your passing they also don’t have to deal with attorneys and courts and appraisers and the government standing there with their hand out.  They are going to probably have to deal with your stuff.  I’ll write about that in the next installment of this series.  Your real estate is going to be a major source of aggravation.  Billy Bob wants to live there rent free but his other brother Billy Ray and their sister from another mister Billie Jo want their money so they can go out and buy the dualie they always wanted and aren’t you spinning in your grave yet?  In truth, you knew your sisters kids were a bunch of knuckleheads and you really wanted your home to be donated to Habitat for Humanity and without specific instructions, that’s just not going to happen.  The thing is, it’s your life.  Your legacy, your way.

The State will divvy your stuff up according to a predetermined formula without regard for your wishes.  If you do some estate planning in advance, your possessions and your wealth can be distributed to the people and organizations you want.  Your wishes are fulfilled.

The first step is to determine what the best way to set up your estate.  Are you a key employee?  Are you self employed?  Your death could mean the end of income for your family.  Is that part covered?  Do you need life insurance?  Should you have a trust?  Only an Estate Attorney can answer these questions for sure.  Don’t rely on a google search to properly provide for your loved ones once you’re gone.

Every individual’s situation is different, yet at the end of the day, no one gets out of here alive.  I have extraordinary estate attorneys that I work with.  I would be pleased to refer you or someone you care about to one of them.  Don’t let the government determine what happens to your life’s work once you’re gone.