Finding a Message of Hope

This is a traditional time of year to talk about a message of hope. Some of us in the real estate business may have to look a little harder this year. It is there. I found a message of hope in a most unlikely place. My wife likes to go to these investment “seminars” where the speaker feeds you in order to get you to come.

The one we went to last week was especially bad. The woman used very bad English, she was long winded. The food did not come until after the speech. The message was one of gloom and doom. She talked about low yield, extremely high inflation, real estate in the toilet, stocks unpredictable, and herself as the savior. I was depressed just by having to go. It got worse as the night went on. That negative message spoiled my appetite and my attitude.

It wasn’t until yesterday morning that the good news hit me. The real estate industry is in pain right now because of too much inventory and too little money. People still like to sleep inside; so our market will not totally go away. The real estate assets, if we can just hang on, will have to increase in value some day. Hyper-inflation will help this some. Hyper-inflation will also reduce the relative value of debt. Hallelujah.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com/ His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Distressed Properties

My old friend Allan Thompson used to say, “There is no such thing as a bad property, just untimely ownership.” I have been thinking lately that maybe these times have proven him wrong. Maybe not. The old adage about real estate, “Time heals all wounds” Seems to no longer apply. Maybe it does. We just don’t know yet.

In most cases, what are called “troubled assets”, really refers to troubled ownership. When foreclosure proceedings are filed they are not filed on a piece of dirt or a building. They are filed on an owner who did not make payments on that dirt. A property will always sell for what it is worth. Some properties are not worth much. Will they ever be worth what the owner paid for them? What if the owner had what they are worth now? Could that owner buy something better with that money and make more money in the long run?

The situation is similar to the stock market. Wachovia stock dropped in value until it became almost worthless. People who held it got about 1 share of Wells Fargo for every 5 shares of Wachovia. How long will it take for that stock to be worth what the Wachovia stock would have sold for even a week before the merger was declared? What will the yield be over that period of time? Sometimes it is good to look at our untimely ownerships. Sometimes we may be better off letting other people keep their untimely ownerships.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Where Would You Like to Go

It seems to be slow coming this year; but the northern hemisphere will soon be in the grips of what is predicted to be a brutal winter. The hurricane season is lasting a little longer than usual this year. Some places are experiencing social unrest. It is time to start thinking about escape, even if it is temporary. Where would you rather be?

As nice as it is to escape the cold, Paris is fantastic at Christmas time. Saint Nicolas day in Brussels at the “Manikin Piss” square is unbelievable. Many of the places in Southern Europe are not too bad. Florida is at the height of “the season”. Central America and Mexico will be wonderful when hurricane season ends. Forget about the “swine flu”. Watch out for the “wine flu” (or tequila flu as the case may be).

The northerners will head south for the beaches. The southerners will head north for the ski slopes. There should be bargains aplenty this year if one has the money to enjoy them. Summer is coming in the far south. This might be a great time to visit Patagonia. Dig out that dusty old passport and put it to work.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Farewell to Lou Dobbs

Criticism of the system is not just ok, it is good. Criticism should be a positive thing and should offer a solution or an alternative to the problem. Lou Dobbs offers plenty of criticism; but he never offers solutions. His program was cut from the same mold as Rush Limbaugh’s. He got fired last night. It seems that CNN had a solution. Good for them.

Watching TV is not my favorite thing to do. The internet is much better and usually offers a broader range of views. CNN is an exception in that it offers a quick panorama of the current stories. One can see what is going on and then research the story in depth on the internet. The weather channel and CNN are the only stations I watch until Lou Dobbs comes on. Then the channel changes or I just leave the room. I don’t know who his replacement will be. I would suggest Kitty Pilgrim.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

1st Time Tax Credit not Just for 1st Timers

The 1st time home buyers tax credit has done a fantastic job of putting at least a little bit of floor in the housing market. It has now been extended and expanded. Under the new legislation, which President Obama is expected to sign, the 1st timers part of the program is extended through April 1. A new section is added that will give a $6500 tax credit to buyers who have owned their current home for at least 5 years.

The 1st time credit is $8000. The buyer must have the home under contract by April 30th. The closing must take place by the end of June. The minimum qualifying income levels have been increased as well. The single persons income level has been increased from $75000 to $125,000. The couples level has been increased from $150,000 to $225,000. This should make the tax credit available to almost everyone.

Persons who have owned their home for over 2 years still qualify for $250,000 tax exemption on the gain from their home or $500,000 exemption for couples. This could be an opportunity to get a lot of tax free cash for many people. This should be a better boost to the economy than almost any other provision of the stimulus package.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com/ His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Tony Rickard

My friend and a friend of the Real Estate Industry died last Monday morning of pancreatic cancer. Tony was a tireless crusader for his clients and for the REALTORS Land Institute and the NC CCIM Chapter. He was only 58 years old; but he accomplished more in his 58 years than most of us do in a much longer lifetime. Even weeks before his demise he was full of ambitions.

Tony described his business as “search and destroy”. He should have called it search and build. Tony’s m.o. was to find a retail user or developer who had a need and find the property to meet that need. Frequently he would build or develop the property himself. His methodical approach to find the perfect property was amazing. Even before the days of GIS and GPS software, Tony would use a light table to make maps and plot all of the locations in a particular business on the map. He would then look for a “hole”. He would contact the owners of the “hole” and then find a user who fit.

Tony was unselfish with his knowledge and techniques. He wrote and taught Land Institute courses to help others be successful. He planned events and classes for the NC CCIM Chapter. He has left a “hole” in all of the hearts of those who knew him. If we see Walmart and CVS stores in heaven, we will know Tony is still busy.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Brazil is Better

Not only is Brazil better than it was it is better than most of the alternatives. My mama used to tell me, “If you can’t say something good, don’t say anything.” I haven’t written much lately. Finally, looking through the economic data on the internet, a bright spot appears. For the real estate business, two important indicators are the “Production of Construction Inputs” and “Real Wages in the Manufacturing Sector”. Almost every sector shows improvement over the last several months.

“Production of Construction Inputs” has increased, as has steel production, to almost mid-2008 levels. ( The Brazilian economy was much slower going into recession than the rest of the world.) This means people are building again. Jose Augusto Pereira Nunes of Algebra Realty in Miami tells me that in northern Brazil, foreigners are buying. In Sao Paulo, the commercial business is largely foreign; but the residential sector is mostly domestic.

“Real Wages in the Manufacturing Sector” is important because it indicates that people will have the money to buy. This is probably why residential purchases are improving in Sao Paulo. It is nice to say something nice.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com/ His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

USA House Prices on Rise

I heard this morning on NPR that according to the NAR house prices in most major USA cities are on the rise. What does that mean? Does it mean that your house is worth more now? How would anyone know unless you try to sell it? Maybe it means that the average price of the homes sold has increased. That seems to be more measurable.

The only way to know if home prices are going up would be to compare similar houses sold and look at the price per square foot. Appraisers do this on an individual basis. If they did report the results in aggregate form, it would still not be very accurate or scientific.

Charlotte has been one of the cities hardest hit in this mess. Average sale prices here are still down 9%. That is probably due to our heavy dependence on the financial industry. The job losses, foreclosures and price drops here have appeared on every list of national “worsts”. What has been our strength in the past has become our weakness in the present. It should become our strength again in the future. This is a resilient city. I hope that our house prices go up and our vacancies go down.

The things I have been reading lately lead me to believe the bottom-fishers are starting to get into the market and the banks are holding onto troubled assets. This could be a really good sign that things are beginning to turn.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Roads For Progress

REALTORS® like roads. New roads mean new businesses. New businesses attract new housing demand and raise the price of existing homes. New roads also mean other things. Somehow new roads cause sprawl and congestion. I thought they were opposites. New roads spoil someone’s property and quality of life, while making opportunities for others.

NPR has been talking about a new road into the Peruvian Amazon Basin. Yesterday they talked about the road attracting illegal gold miners that are ruining the environment and polluting the rivers. They talked about the corruption in the mining areas and the gang style mentality that is pervasive there. Today they talked about Brazil nut farmers. (Yes they have Brazil nuts in Peru.) The damage and development from the road is driving the Farmer’s out of business.

It seems that new roads are similar to new laws. There are winners and losers. I have had the highway department take a very valuable piece of property from me and pay me very little. They built a road past another piece of ordinary property and made it very valuable.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

What's Riding on Chinese Tires

According to NPR there are 4,400 people in the tire manufacturing industry in the USA. Many of those jobs actually depend on Chinese imports of tires. There are over a million people in the tire industry in China. Not all of those Jobs would be lost if the new 35% tariffs are imposed. What do you think would be best for the world economy? Some people say, “screw the world economy, what about American jobs?”

The steel tariffs of the Bush administration are a good example of what happens when the local picture takes precedence over the world view. To protect 200,000 jobs in the steel industry, millions of jobs in the steel using industries were driven overseas. This resulted in a drastic reduction in the size of the USA steel industry. Even the people in the tire industry are opposed to the new tariff.

Anything that slows the recovery in the rest of the world will slow the recovery here. Politicians need to spend more time doing their job and less time trying to keep their job. Narrow measures that benefit very small areas can be beneficial or harmful. Let us examine the results of each action carefully to see how much harm or good each action will produce.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Report on Charlotte CIPS Classes

The Charlotte “International Real Estate for Local Markets” came off quite well last week. There were only 5 students; but they were all from international backgrounds and the interaction and shared knowledge was awesome. There were 2 students from the UK, 1 from the British Virgin Islands, 1 from Shanghai and 1 whose wife is from the Dominican Republic.

It is regrettable that more people did not take advantage of this offering in a city that has so many international residents and businesses and so few international REALTORS®. In times like these it is a little hard to justify an expense like this. Even agents playing the “one more house” game may be afraid that there will not be enough “one more houses”. The CIPS program does not just give an opportunity for more houses. It broadens ones whole outlook on life, the world and the real estate business.

The finance class will be offered in Raleigh in October. I hope many of you will be there to share in the camaraderie and mind expansion that will take place.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Lost Chance/Last Chance

Monday Aug 31st, the CIPS Local Markets class is offered at the Mingle Institute in Charlotte, NC. Sign up has been so slow that the class may be cancelled. How many people have said, “When will this be offered here?” Where are you? This class is the pre-requisite for all of the CIPS classes.

For those people wanting to continue with the program, the Finance and Investment class is being offered in Raleigh in October. The registration on that class is small as well. Next time I am asked, “When will this be offered here?” I can just say, “Why do you care?” To sign up for the classes contact Mingle Institute in Charlotte. 704.372.0911 or Raleigh Regional Association of Realtors in Raleigh 919.654.5400. Please don’t let this last chance be a lost chance.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

The World is your Oyster

Think about where you would go, what you would do if you could go and do anything you wish. You can you know. Sometimes we feel limited by money, time, relationships etc. These things may be a problem. They can be planned around. I remember asking my wife. Why don’t we live is South America (she is from Colombia). She said, “if I wanted to be there, I wouldn’t be here.” As much as I would like to be in South America, I would rather be with her. That is the choice I make.

The international real estate profession is the key to the world. I know that I can do this anywhere. I just have to be more willing to be away from the familiar. In the case of most things, I could leave tomorrow. In the case of my wife, I’ll stay here. The best thing about real estate is that in addition to being able to do it anywhere, it can also be done nowhere. No location is required. A homeless person could do it with a laptop and a cellphone. They might could go to Starbucks and use Skype.

What are the choices you will make?

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Financial Tools for the Valuation of Real Estate

This book is published by Bienes Raices Ediciones and is available on their website at http://www.brediciones.com . The Author’s name is Mario Gomez. The book has many of the classic tools used by brokers and appraiser to put a value on property. The standard market, cost, and income approach methods are discussed. The fact that the book is written from an Argentine perspective gives a lot of extra insight.

Argentina has frequent ups and downs in the economy and in real estate prices. For that reason the approaches taken in this book are especially valuable for those of us who are currently experiencing a serious decline in values for the 1st time. The book also deals with risk analysis that few appraisal books in the USA include. There are multiple formulas for adjusting risk and yield concerns.

There is a section on special use properties such as post offices, dormitories and buildings that may be difficult to price. The book concludes with some really great case studies using the tools. I also recommend this book for anyone who has to teach or translate in Latin countries as it has terms commonly used to describe things that we find hard to translate.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Turning Your Real Estate into a Retirement Plan

Many people have real estate in their self directed retirement plans. This has benefits as well as disadvantages. The benefit is that one can use retirement savings to purchase properties. The downside is that the tax advantage do not go onto your personal tax return. Regardless of how the title to the property is held, owning residential real estate for rental purposes is a job. That is not retirement.

There are two great ways to turn this property into a reasonably trouble free retirement income. The first is to sell the property with seller financing and have the mortgage income. A mortgage doesn’t require painting or repairs. If the tenants in the property are really good they are the best prospects. The second way is to sell the property with a 1031 exchange and buy net leased properties with credit tenants. This is the best approach in many ways because there is little chance that a lease, unlike a mortgage, will be paid off early.

Either one of the methods allows for the payment of taxes as the funds are received. The net leased property actually shelters some of the income. If the property is in a retirement account, a certain amount will need to be drawn down every year anyway after the beneficiary reaches a certain age.


David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

I Believe

Finally the government says the economy is improving. I believe them. My economy is improving. Faith is what counts. If we all believe it is getting better, it will. The “cash for clunkers” program, dumped a billion dollars into a primary sector of the economy in one week. It will dump another 2 billion. I bet that will hit fast as well. This program was an act of sheer genius.

The $8000 tax credit for 1st time home buyers was helpful as well. It is really limited though. We should have a “cash for shacks” program to get rid of some of the junky houses that were built and sold in the recent building frenzy. Many of these homes are built so poorly that they will never be worth what they originally sold for. If they could be taken out of the current inventory some of the strain on the market would be relieved. There are also a lot of homes on the market that are really inefficient. Many of them are rentals.

With property taxes high and rents low, landlords cannot afford to make the needed improvements. If we made the homes more efficient, the tenants could afford to pay more rent. A tax credit or better still a property tax holiday for landlords who improved the energy efficiency of their homes would stimulate the construction business as well as the real estate business.


David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Time to Grow

For many of us, this may be some of the most difficult times we have ever seen in the Real Estate Business. Many of our colleagues have given up and taken a job in some other industry. According to a recent article by Dr. Lawrence Yun in REALTOR magazine over 50 % of the home sales are foreclosures. I have always been a positive person; but lately I have entertained dark thoughts. This morning I woke up with a new perspective.

My mission statement has been revisited. For a while it seemed maybe it needed revision or something. It is still relevant. It may even be more relevant than before. “I specialize in the acquisition, disposition and management of income producing properties.” The management side of this is more critical than ever before. Cash flow conditions are making profitable residential investment almost impossible. The situation is further exacerbated by the difficulty of finding suitable tenants. A lot of people have lost their homes; but will these people make good tenants.

The first reaction to this is NO WAY! These people have bad credit. On second thought, many of them are used to living in and taking care of a home that they considered their own. They are used to dealing with minor issues and landscaping. They are used to taking pride in their dwelling. How many of them were put into their position by circumstances beyond their own control?

If some of the investors who are buying the foreclosed homes at reduced prices are willing to take the chance on well screened people who have had temporary difficulties they may find good tenants. Many of these people will be homeowners again in the future. Lease purchase is probably not the best way to go; but a combination tenancy and credit repair program, could make homeowners of many of these people within a few years. This could easily be the fastest way to rebuild damaged neighborhoods.


David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Oh! Oh! Mexico!

If there is opportunity anywhere, it has to be in Mexico. The Mexican economy is reeling from the triple punch of the world economic crisis, the swine flu and the drug wars. None of these things are permanent issues. The world economic crisis is either starting to end or it is having a “dead cat bounce”. The drug wars are not over; but the rest of the world and especially the USA cannot allow the Mexican government to lose.

The rest of the world is just starting to cough from the swine flu. Mexico has borne the brunt of it already. Tourism is starting a very slow rebound. Most of this is from bargain hunting vacationers. The oil market is still pretty weak and Mexican GDP is actually predicted to be a negative 7.1% this year according to the economist. http://www.economist.com/COUNTRIES/Mexico/profile.cfm?folder=Profile-Economic%20Data . This has got to be the time to watch if not the time to buy.

There is the possibility of a little more downside in Mexico. It depends on whether you believe the world economy has begun to recover or is just doing a “dead cat bounce”. Is this the beginning of the end or the end of the beginning? I want to believe the end of the beginning is near.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Properties that Should not be Sold

How far back should a chain of title go? Who really owns the property. There is an issue in Patagonia with a tribe of indigenous people who say the land was stolen from them. The argument against this is that they stole it from another indigenous group. The entire region was an encomienda to the Sotomayor family from the Spanish Crown. Much of this property has been sold 3 or 4 times since then. Who owns it now?

This is the kind of battle that makes title insurance a good idea. What about some more modern examples where title insurance is probably not available? Who will own the property abandoned by fleeing Cubans, when Castro came to power? The Turkish government is giving deeds to abandoned property in the Turkish part of Cyprus. The European Union is already hearing cases on this.

Will the real estate brokers participating in these transactions be held liable? That is not one of the things we normally think about. It may be possible that commissions will have to be refunded as a part of the settlement, especially in cases where the agent represents the buyer. A recent property show refused to allow participation of properties in the Turkish part of Cyprus; because they were afraid of these issues. Will the buyers of these properties find themselves standing when the music stops in the game of musical chairs? Has the music already stopped?

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

How to Apply New Rules (Pt. 2)

How to Apply New Rules (Pt. 2)

In part one group investment (not fractionals) was discussed. The broker as an arranger of these groups was also discussed. The fee model for the broker may be difficult when doing these “arrangements”. When is a broker a real estate agent; and when is s/he a securities salesperson? The federal guidelines on this are pretty generous. If one works with investors who meet a special criterion no registration of the investment or the broker is required. If the investment is of a certain size or less, or if there are less than a certain number of investors, on registration is required.

The real question comes from the individual states “blue sky laws”. Each state has different requirements about this type of investing and syndicating these investments. Most of these laws have more to do with the way the investments are promoted than the way they are structured. Many states only regulate investments that are located in other states. My recommendation would be that the agent research the requirements of both state and federal government carefully.

The first projects should fall within the guidelines that do not require regulation. The investment should be small enough that the broker can keep it within a circle of friends. A broker involved in this should very carefully examine their own expertise. S/he should only do those things where there competence is unquestionable. The decision of whether or not to participate in the investment and in what capacity should be determined in the beginning. An agent who has not made successful investments or developments should find someone who has and partner with them.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Broker as Arranger

Broker as Arranger

An Arranger may be what a broker is anyway. Arrange for the introduction of a buyer and seller. What about arranging to introduce investors? Can we do that with a real estate license? I don’t really know and I am sure it is different in every state and nation. I know that some brokers are putting together investments and selling parts of them to investors. In the cases I know of, the broker is keeping part of the property and acting as an asset manager and as a property manager.

This could be an attractive situation for an investor who wants to make sure the “partner” has something to lose. It could also be an excellent opportunity for a conflict of interest. There will be many really good investment opportunities in areas or fields where the broker may not have the necessary expertise to manage the assets or the property. A broker would be severely limited that only worked with as many projects as s/he could manage on their own. Perhaps a better model would be for the broker to identify some really competent investor/asset manager types and help them find compatible investors to obtain the necessary capital.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

How to Apply New Rules for Investing (Pt. 1)

How to Apply New Rules for Investing (Pt. 1)

So, how do the new rules work? Maybe we need to mix them with some old rules. I took some investment classes about 100 years ago from a guy named Jimmy Napier. One of his rules was, “Never put more than 20% of you net worth in one investment.” Considering the way assets fluctuate in value today, maybe a better rule would be, “never put more than 20% of your cash in one investment.”

This means if one has $1,000,000 in cash, they should only put $200,000 in one investment. If we go with the high equity position rule, this could be pretty limiting. I have a friend who has a friend that keeps putting together groups to buy hotels and apartment houses. Each person puts in $100,000. They buy the property for cash, which gives a very high degree of flexibility. They have been achieving yields of around 30% over the life of the investment. They have a limited life of each investment.

I don’t know that someone else would achieve such a high yield. The real key to this program is the idea of friends and family. All of these guys know and trust one another. The lead investor puts his own money in the deal and has a proven track record. Group investments may be the wave of the future. The Asians have done it well forever. Why cannot others do it as well? This is shared ownership. It is not a fractional however. This may be a way that a good broker can build a new niche. The next article will talk about how.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

You Will Never Lose Money on a Property You Don’t Buy

You will never lose money on a property you don’t buy

This is the last article of a series that is being posted to my website because blogs read backwards and this item needs to read forward. You may read everything published to-date at http://www.segrestrealty.com Hit the “Investment Guidelines” link.


This may sound overly simplistic. Think about it. How many times have you said “I could have bought that property for $*****? The fact is you didn’t buy it. You did not make the huge profit that would have come in your mind. You did not have to make the payments for 30 years and deal with the tenants and the maintenance and the upfit.

Up until a year ago almost every property we see would look good in retrospect. You could have bought a property 15 years ago for $90,000. Today it is worth $210,000. Wow, what a missed opportunity. With compounding the profit was only 5.8% per year. The opportunity missed was even less spectacular if part of the original price was financed. It is quite rare to have a significant positive cash flow on a residential property that is purchased with OPM (other people’s money). A significant negative cash flow is more common. If the owner’s effort is factored in the negative cash flow is even greater. Positive cash flows are more common in commercial properties; but the significant appreciation is not.

The new investor still has plenty of opportunities. They need to be scrutinized more closely. Frequently a buyer is heard to say. I bought a property worth $300,000 for $100,000. The truth is property is worth $100,000; because that is all it would bring on the market. A real business approach must be applied to investment real estate. This will be the source of future wealth building.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Look For the Path of Progress

Look for the path of progress

This is part of a series that is being posted to my website because blogs read backwards and this item needs to read forward. You may read everything published to-date at http://www.segrestrealty.com Hit the “Investment Guidelines” link.

We talked about the path of progress in the last article. It can be identified using the standard methods that everyone uses of neighborhood or urban plans or DOT projections. The problem here is that everyone knows these tricks. We need something new. How do we predict the path of progress?

There used to be an old management system called MBWA (Management by walking around). I cannot help but think this would be the way to evaluate a neighborhood that in the path of progress. Walk around a neighborhood talk to the people who live there. See what they think. See what the neighbors are doing. Look for neighborhoods where the neighbors are calling about people who don’t keep their yards well. Look for neighborhoods where neighbors call the police about suspicious activity.

Don’t move too fast. The neighborhoods generally continue to go down for awhile before they come up. Remember, you have to own the property and deal with the problems until the turn around is well under way. As with technology it is better to be on the cutting edge rather than the bleeding edge. Identifying neighborhoods and properties on the rise will be the best way to be ahead of the crowd.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Speculation Has to Take a New Form

Speculation has to take a new form

This is part of a series that is being posted to my website because blogs read backwards and this item needs to read forward. You may read everything published to-date at http://www.segrestrealty.com Hit the “Investment Guidelines” link.

There used to be a saying among real estate investors, “time will heal your mistakes”. No more. Speculators need to have a good knowledge of the path of progress. This is where profits will come from in the future. A good source of this knowledge is the comprehensive plans that most cities have. These plans normally have a year number such as 2010 or something like that.

It is a good idea to see how past plans were implemented. Some municipalities take these plans seriously and some don’t. The next place to look is the department of transportation. Progress follows roads. Once again it is necessary to see how high the priority is for the roads. The hardest thing about this strategy is timing. Usually the property owners know about the coming roads and think the property will be worth more than the reality of the project will bear.

Look for improving neighborhoods. Gentrification is a great source of profits in property. There are always property owners in blighted neighborhoods who are ready to sell and escape. These projects usually require renovation as well as speculation; but the investor makes an entrepreneurial profit as well. Contractors often use these projects to keep crews busy during slow times.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Appreciation is a bonus, not a given

Appreciation is a bonus, not a given

This is part of a series that is being posted to my website because blogs read backwards and this item needs to read forward. You may read everything published to-date at http://www.segrestrealty.com Hit the “Investment Guidelines” link.

For my lifetime (I’m 62), there has been an increase in the price of real estate almost every year. In the years where there was a tiny slide backwards the steady progress resumed to give an overall upward trend. In the long term, even though it will start from a lower level this trend will probably continue. The increases may just track inflation though. Supply is still higher than demand and construction still continues. Households are being consolidated, reducing demand.

When calculating IRR a “reversion” (sales proceeds) is always added to the last years projected cash flow. It is quite rare to see a reversion number used that is lower than the purchase price. That could become the new reality. Think about an empty freestanding retail store. Many of these building are expensive types of construction. The additional costs is factored into the rent. When the original lease is up, a new tenant may not need a building that is designed to another company’s model. The building may even have functional or style obsolescence. The value of the property at that time is land value minus the cost of tearing down the building.

We know that the retail, office and industrial uses are changing rapidly because of the internet and outsourcing. How can we be sure that the buildings we have will still be useful? I really don’t think we can. Cost recovery allowed by the IRS is 39 years. Perhaps we should consider that a building will actually be worthless at the end of that time and plan accordingly. If the building is still useful, we get a bonus. If not, we are prepared.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Don't Believe Everything You Think

Don’t Believe Everything You Think

This is part of a series that is being posted to my website because blogs read backwards and this item needs to read forward. You may read everything published to-date at http://www.segrestrealty.com Hit the “Investment Guidelines” link.

Just because we have studied markets and real estate and finance and investing doesn’t mean we know anything; because we are in a brave new world. The lawyers talk about “the prudent man”. Economists assume that markets (and the people who comprise them) will always act in their own self interest. All of this is junk. Markets are subject to mass hysteria. The prudent man does not know any more than you or I. The new rule, at least in the near future is chaos.

Fractal geometrists tell us even chaos is predictable. I am not a fractal geometrist. Are you? What those of us who lack either that skill or crystal balls, we need to be prepared for anything. The old models show predictable rental income over years and a “reversion” that is usually higher than the purchase price. Now we need to be more conservative. We need to factor vacancy and credit losses into single tenant net leased properties. The reversion should, even best case, be the same as the purchase price. Perhaps we should be willing to accept lower yields, at least in the short term.

Real estate is still the most permanent asset there is. But the old adage, “they ain’t making any more of it” has been negated with condominiums, fractionals and Dubai.

This is too late now; but a professor from NY University once said Real Estate operates on a 14 year cycle. Real estate investors have a 9 year memory. We can learn from our friends in South America. They have dealt with rising and falling prices over the years. They know how to prosper in any environment.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

High Equity Positions

High Equity Positions

This is part of a series that is being posted to my website because blogs read backwards and this item needs to read forward. You may read everything published to-date at http://www.segrestrealty.com Hit the “Investment Guidelines” link.

The conventional wisdom in real estate has always been to use leverage and buy as much property as possible with as little money as possible. In the past USA property has always increased in value and time can heal our mistakes. No more. Inflation and increasing property values (in relation to other things) may be a thing of the past.

It seems that,as much money as the governments need to print to cover the deficits and the stimulus packages, there should be inflation. Unfortunately this is only part of the equation. Inflation happens when too much money chases too few goods (assets). It is possible that the surplus of assets on the market will be temporary. One would think the too much money would be permanent. Not so. The too much money thing may not even exist.

The amount of money in circulation is measured by M1, M2 and M3. An economics class is not necessary to understand these classes. The main thing to understand is that money supply includes money owed. This money counts for more because it is counted twice. The bank considers the note as an asset. The borrower has the money. When banks don’t make loans or when people default on loans, money supply shrinks. Money supply also shrinks as stocks and bonds lose value.

The slower and smaller the economy, the less chance there is of obtaining a suitable rent for a property. The high equity owner remains flexible enough to reduce rent or sit on a vacant property when there is a high equity position.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/


M1, M2 and M3 are explained at : http://www.theshortrun.com/data/Financial/aggregates/msexplain.html

Credit is Still Important

1. Credit is Still Important;but Should Carry Less Weight in Making Decisions

This is part of a series that is being posted to my website because blogs read backwards and this item needs to read forward. You may read everything published to-date at http://www.segrestrealty.com Hit the “Investment Guidelines” link.

It is still extremely important to check out tenants and developers and contractors well before doing business with them Investors often select properties based on the rating of the tenant. This is a big factor in determining the cap rate at which the property sells. The weight given to this factor needs to be reduced. We have seen that even banks and automobile companies can go broke.

Often leases to franchises are guaranteed by the franchisor. Retail companies frequently have excellent credit and reputations; but if Santa Claus doesn’t come or if he doesn’t bring enough revenue even the best retailers may go into receivership. Receivership (Bankruptcy) gives a tenant the right to continue paying rent (not rent in arrears) and stay in the property or just walk away from the lease.

Lease terms are as critical as the tenant’s credit. A big company can go dark and continue paying the rent. They may or may not continue maintaining the building and the parking lot and landscaping. Often the tenant chooses the new tenant on a sub-lease and may put someone in the property that does not complement the current tenant-mix. The loss of a really good anchor can affect the income of all of the other tenants. In free standing build to suit facilities, always use “market rent” to determine the value rather than contract rent. Most of these leases contain “weasel clauses”, that allow the tenant to move out with no repercussion. If the contract rent is higher than market rent, the landlord can be upside down.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Location, Location, Location

New Rules for Successful Investing

1. Location, Location, Location

This is part of a series that is being posted to my website because blogs read backwards and this item needs to read forward. You may read everything published to-date at http://www.segrestrealty.com Hit the “Investment Guidelines” link.

This sounds like an old rule; but it has a whole new meaning. For retail properties is means a high traffic, good visibility, easy access location. Industrial Properties need linkages to rail and other transportation and affordable utilities and access to suitable employees. Residential, especially 2nd homes, need really easy international access. Some type of attraction must be available, such as beaches, mountains, golf courses, etc.

The location must also be considered from an environmental aspect. Beach properties need to take in consideration the possible rise of sea level and the availability of insurance. Agricultural properties need to factor possible changes in temperature and moisture. Any property that requires irrigation, should anticipate huge spikes in the cost of water. A 1 degree increase in the average annual temperature can change the suitabilility of land for a type of crop.

Political risk is also becoming more and more a consideration. How likely is a huge political swing to occur? What will be the implications of such a swing? How satisfied is the general population with the status quo? What are the rules for ownership and how likely are they to change? These are all important questions for the new investor. No one is immune to the consequences of fanatical forces.

There will, for quite a while, be a lot of properties chasing not too many currency units. Only the “necessary” properties will have good markets.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

New Rules for Successful Real Estate Investing

New Rules for Successful Investing

This is the outline for a series of articles. Because a blog posts backwards and this article should be read forwards. I will be posting all other entries in proper order to my webpage at http://www.segrestrealty.com under investment guidelines.

1. Location, Location, Location
2. Credit is still important; but should carry less weight in making decisions
3. High equity positions
4. Don’t believe everything you think
5. Appreciation is a bonus, not a given
6. Speculation has to take a new form
7. Look for the path of progress
8. You will never lose money on a property you don’t buy

The Pain from the Gain in Spain is Mostly to Spain

The Pain from the Gain in Spain is Mostly to Spain

In reference to a blog article posted on March 4, 2009 About the higher capital gains tax paid by foreigners in Spain, it turns out the EU does not think this is fair. A British couple was the 1st to challenge the rule and get a refund from the EU court. Now there are probably about 10,000 more British taxpayers that will be looking for refunds. There are of course many other foreigners who have been hustled. Look for a massive refund. OPP magazine predicts 350,000,000 pounds.

Many of the articles in this blog have focused on a new business model for the real estate industry in the future. The idea that when the recession is over, business will return to normal is ridiculous. For almost a year, my poor weak mind has focused on this problem. The 1st part of the problem may be solved. In an industry that serves investors it is necessary to predict what will make an investor successful, before determining how to serve that investor. I have developed a new set of rules, and will be sticking out my skinny little neck to describe the things that will make the investor of the coming years successful. These rules will be discussed in coming blogs.

The next phase of the model will answer the question, “how does a broker serve this investor?” Hopefully that question will be easier and require less time to develop a successful strategy.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

If Real Estate Were Like the Stock Market

If Real Estate Were Like the Stock Market…

I would be rich. I saw the pre-sale/off plan debacle in Miami coming in 2005. I warned people about it. If there were a way to do it, I would have sold those contracts short. I see the new off plan replacement scam coming. It is called Fractionals. I wish I could sell them short. One tell-tale sign is the people involved. The same brokers and developers who were selling off plan properties are now selling fractionals. Where is the after market for the off plan properties? Where is the after market for the fractionals.

These are two great things about the stock market. 1) The short sale means something very different there. 2) There is always a market. The investor can cut their losses at any time and move on. I think if real estate investors could see that other investors were selling their investments short they might think harder before making a speculative move. It would also add a new revenue stream for brokers.

In the USA we have always believed that real estate would never go down. Maybe the market would slow; but the value would always remain. The exception of course was the great depression. Read Thomas Wolfe’s “Look Homeward Angel”. Read about the wild speculation in real estate that led up to the depression.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Inflation and the Consequences

Inflation and the Consequences

Typically in an inflating economy the price of real estate increases along with everything else. Today we have a situation where the cost of housing is actually the factor that is holding down inflation. Rents, both commercial and residential, are going down. The prices of everything else except maybe durable goods are going up. No-one is buying durable goods anyway. Landlord’s expenses are rising. Rents are falling.

My old friend Freddy Stephens always said real estate prices were like a ski rope. The boat goes around a curve and the line gets slack. When the boat straightens up the rope tightens up and progress continues. For the years 2003-2006 we were skiing on the outside of the curve, going much faster than the boat. Now we are on the inside and sinking fast. I just hope the boat is not out of gas.

Real estate investors are generally befriended by inflation. The value of the properties goes up. The relative value of the debt goes down. If someone will get the boat started and tighten up this ski rope before we drown this may still happen.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Dr. Nathan Booth

Dr. Nathan Booth

I met Dr. Booth in 1989 as we took our CIPS courses together. He made a huge impression on me then for his intelligence and his kind spirit and his willingness to share his vast knowledge. We finished the courses together. He became an instructor in the program immediately. It took me a little longer. As I learned to teach the courses he became one of my mentors. I was and am extremely grateful to him.

I acquired a great deal of wisdom and many ideas from Nathan; but one thought that I always teach in my classes is something that he taught me outside the class. I was having a horrible transaction, representing a client who was extremely greedy and dishonest. I mentioned this to Nathan and made the comment that I would never do business with anyone from that ethnic group again. Nathan’s response was, “When you have a problem with an individual of any ethnic group give the individual full credit, not the ethnic group. When something goes well give the whole ethnic group credit.” I have done a lot of business with people of the ethnic group that I was ready to reject since then, thanks to Nathan.

Nathan died on June 26. He will leave a hole in my heart; but my heart is larger thanks to him.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Adam Smith, Edward Teach, Barak Obama

Adam Smith, Edward Teach, Barak Obama

Last week on NPR there was talk about Adam Smith and “free market philosophy”. Adam Smith and Milton Friedman developed philosophies that are very popular in the western world today. They basically said that the market should be left alone to control itself because it would always reach the perfect level if left alone. The broadcast went on to talk about the current interventions in the economy and the takeover and bail out of large firms.

Even in the days of Adam Smith there were characters like Edward Teach, otherwise known as “Blackbeard”. The governments of the world tried to hunt him down. He was pardoned; but continued his activities and was eventually caught and killed. This was government intervention in the market. No one lamented that. Today’s problems are largely caused by pirates as well. They wear blue suits instead of feathered tricorns; and they wield computers instead of swords. They are still pirates. The government hunted them down and bailed them out. Perhaps they should still be executed.

The point being attempted is that a government’s protection of its trade from pirates is still an important obligation. Taking over companies that have been looted and preventing the financial fallout that would result from their failure is a necessary interference in the economy.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Finding Brokers and Properties

Finding Brokers and Properties

The real problem is not finding brokers or properties. The real challenge is sorting through the offerings. There are a lot of good ways to “check out” a broker. There are so many brokers that it may be hard to select which one(s) to check out. Folks who like to play on the internet can search an area and choose whoever comes up 1st in Google. Is this really the best approach.

Brokers on the internet may be like golfers. An old acquaintance told me one time. “ If you shoot more than 100, you have no business on the golf course. “If you shoot less than 70, you have no business.” The REALTOR®, and if you are in a country where there are REALTORS® you should always use one, who hits the top of google probably spends too much time on the computer and not enough in the real estate business.

The best way to choose a broker is to ask a broker that you trust for a recommendation. Ask the recommended broker to provide a list of properties in their market. If you have done an internet search and found a property that looks attractive. Let the broker earn their bread by researching the property and giving you more information. Of course you could always ask me.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

The Carter Center and International Real Estate

Carter Center and International Real Estate

Maybe that combination sounds like a stretch; but I see a very strong connection. Most of the places where the Carter Center http://www.cartercenter.org works are places that should be paradise; but instead are more like little hells. The potential for tourism and retirement and 2nd homes would be enormous in places like sub-Saharan Africa if it were not for the disease, violence and lack of infrastructure and education.

The Carter center works to combat Guinea Worm in Africa and River blindness in Central America. They fight Malaria wherever it exists. They train police in human rights. They monitor elections around the world. Their work has to be many years ahead of developers and vacationers. Before a locale becomes a great place to visit, it should become a decent place to live.

Think about the climate and natural beauty that exist in so many undeveloped countries around the world. There is tourism and people do have 2nd homes in these places. How much greater would the potential be without the fear of crime and disease? How many more people would go if they could be assured of good utilities, transportation and health care facilities?

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Environment, Economy, Employment

Environment, Economy, Employment

President Obama has been tying these three things together. How will this tie affect International Real Estate? Looking at employment 1st , the creation of new, cleaner energy sources would create jobs by itself. These people will mostly be working in construction and manufacturing and driving to work every day making more pollution. Lets face it, this is part of the old model. Work more to consume more; so other people can work more to produce the things we consume and use more energy and more raw materials and other resources. Is this model sustainable?

What if we consumed less of the things that use up our resources and clutter up our space. Economy of scale might be lost in some industries. Maybe we could manufacture and farm closer to the final user and save some energy and pollution. Every job that could be done remotely could be done from home. Leaving the net to the employee and the employer higher. People could live in exotic locations and still have their regular job. If people didn’t have to consume so much they could work less. Maybe 3 people could hold 2 positions. One of them could take off 4 months each year and enjoy a vacation home. Long vacations would save on travel over multiple small vacations.

People would have more time to enjoy recreation and creative pursuits. More people could be employed in the arts, scientific research and entertainment.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Possible New Model

Possible New Model

What are we selling anyway? I sold one house when I first got into the business. I vowed to never do it again. The furnace gave problems, the plumbing leaked, everything went wrong. I had to fight like crazy to hold the deal together. No more selling houses. After that I helped people buy and sell homes. Gradually that expanded to commercial properties, management and international. Those markets are still there; but they have slowed down.

Some international brokers are selling fractionals and off plan properties. Some are working on foreclosures and short sales. These markets don’t appeal to me. Helping people is better than taking advantage of them. 23 years in this business and a lot of really great classes and experiences have packed my head with all kinds of useful stuff. So have my life experiences. What can I do with this to help people and make a living? This has been my dominating question for months now. Maybe the answer is close.

Is there hope for the people who find themselves owning off-plan contracts and fractionals? It is doubtful that there will be a large enough profit to make a commission very attractive to the sellers. How long will it be before an after-market develops in fractionals? What kind of license will be required to deal with this market? Perhaps a brain storm service to help people unload white elephants would work. It could be done on a fee basis instead of commission. That way the broker can help make the deal instead of prevent it.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Fractionals

Fractionals

Are they really something new or just time shares on steroids? Can we learn from old mistakes even when they are renamed. On he welcome page of OPP magazine, one of my favorite publications, the editor suggest that after the recession, “Off plan” purchases will come back. That would be like a toast to celebrate sobriety. The speculation in “Off plan” purchases are as much a part of the current economic situation as the sub-prime mortgages. Off Plan is the word used in international markets for pre-construction.

Fractional ownership is really great for developers. They sell anywhere from 1/15 to ½ of a unit and still retain control of the property. There are many versions of the fractional ownership plan. Most jurisdictions regulate them the same as time-shares. I guess they think, “if it walks like a duck, and quacks like a duck, etc.” Many of the projects have marinas (boat slips) and other facilities that can also be purchased on a fractional basis. OPP magazine has a big article on fractionals that describes the different types of fractionals and examines the pros and cons. http://www.opp.org.uk/index.asp You must register to read articles; but registration is free.

Whatever the future holds if it is just more of the past, the present will be our new future. Is that what we really want? Any success gained from renaming old mistakes will be short lived. New business models are needed. We are technologically very creative. Can we also be creative in business models rather than just in semantics?



David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Friends

Friends

In an attempt to join the 21st century with a minimum of kicking and screaming and obsolescence, I have finally gotten onto Facebook, Linkedin and Plaxo. I still don’t know what I am doing; but I am realizing how many friends I have. It seemed that nothing would change the life of a real estate agent like the cell phone and the fax machine. Then came computerized MLS and email. Wow. Web pages replaced newspapers and now we have “social networking” to replace parties and conventions. I don’t think so.

Somehow a toast over the computer is just kind of dry. One cannot dance with a computer, at least not very satisfactorily. Walking the streets of a foreign city with a computer will never be the same as walking with Maire Rosol and Ed Wolfe. Struggling to communicate in a foreign language is no fun with “translate this page”. Perhaps these “social networking” facilities will let us stay closer to our friends; but I really hope they will not replace the face to face touching contact.

One big advantage of the “social networking” is that we can meet a lot of people quickly and get to know about them. I am already learning a lot about my friends and this opens a lot of new dimensions. For any REALTORS® in Charlotte, Friday June 19th there is a Tech day at the board. There will be sessions on “social networking” among other things all day long. A great opportunity for old dogs who are not too old to learn new tricks and young pups who want to keep up with the old dogs.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Political Action Committees

Political Action Committees
REALTORS® believe in political action. Our 1.3 million member organization has a strong legislative agenda. We lobby to prevent transfer tax and promote home ownership and protect our industry through RPAC (REALTORS Political Action Committee). We have a legislative meeting in Washington every year and visit our congressmen. Is this bad? Do we wield unfair influence over the government? Is this an example of corruption?
As a REALTOR, I benefit from these activities. Homeowners definitely benefit from these activities. So this isn’t bad… What about the tobacco lobby, trying to protect a killing industry? What about the pharmaceutical lobby, keeping drug prices high and protecting their ability to market dangerous drugs? Does the gun lobby, protect citizens rights or cause a proliferation of materials to be used in violence and crime? Maybe our political action committee is good and some of the others are bad. Who would make that decision.
Where do we draw the line between exercising free speech and buying legislative votes? What is democracy anyway? Majority rules; but minority has rights as well. These are probably issues and questions that will never be answered to everyone’s (or anyone’s) satisfaction. They are issues and questions that are really critical as we enter a new political era. If the Democrats simply replace the Republicans as the power brokers, they might as well have lost the election.
David Segrest is a REALTOR in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Notes

Notes

In an earlier article about the 1st time home buyers tax credit, one important provision of this plan was omitted. This is what is called a “refundable tax credit”. If the tax liability of the 1st time home buyer is less that the amount of the credit, the tax payer will receive a check for the amount of the difference. For example, if a qualified person buys a house costing $80,000 or more and only has a $6000 tax liability, that person will receive a $2000 tax rebate check.

The city of Buenos Aires is featured in the June issue of Smithsonian Magazine. http://www.smithsonianmag.com/travel/Hola-Buenos-Aires.html This is an absolutely excellent article about the new immigrants who are making Buenos Aires home because of the excellent standard of living and because of the great exchange rate between the dollar/euro and the peso. Buenos Aires has always been a European City plunked down in the heart of South America. Now, it is becoming even more international.

This is one of the best times ever to take a CIPS class. http://www.realtor.org/cipshome.nsf/pages/education Not only have the prices of the classes been reduced by most of the providers, under the “Right tools, right now program http://feeds2.feedburner.com/RightToolsRightNowHeadlinesFromRealtororg , the network dues will only be half of the regular price for next year. Also the airlines are offering a lot of special deals on airfare. Take the classes as far away from home as you can manage. You will build a network this way.

David Segrest is a REALTOR in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/

Obama Reaches out to Muslims

Obama Reaches Out to Muslims

Today in Cairo, President Obama is speaking to the Muslim world. He is trying to make up for the horrible things that have happened between Islam and the west for hundreds of years. Everything he says will be for naught if the attitude of the American people does not change. Most of the bad attitude here stems from ignorance.

The fundamentalist version of Islam that is practiced mostly in the Arab lands is not true Islam any more than the fundamentalist Christians represent the Christian faith or the Hasidic Jews represent Judaism. All faiths have the same principles at their center. Unscrupulous individuals exploit ignorance to fan fanaticism and gain power. When we allow our own ignorance to generalize and attribute the errors of a few to an entire group we cooperate with these unscrupulous individuals.

Most of the worlds Muslims are Sufis. This is a spiritual branch of Islam that believes in a joyful loving communion with God. Try reading Rumi and Kahlil Gibran. These people were not inciting terrorism and hate.
David Segrest is a REALTOR in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com

1st Time Home Buyers Tax Credit

1st Time Home Buyers Tax Credit
Do you know how to use the 1st time home buyers tax credit for yourself or your clients? Originally (2008) the tax credit had a snake in it. It had to be repaid over time. That has been fixed. It does not have to be repaid now if the people do not sell the home for 3 years. The credit amount was $7500 Not everyone is eligible; but for those who are the tax credit can be quite helpful.
A single person who makes less than $75,000 or a married couple who makes up to $150,000 and who have not owned a home during the last 3 years will qualify. The deduction is 10% of the purchase price of the home up to $8000. This will not work as down payment assistance because the money comes when the 2009 tax refund is received. The credit is only good for homes purchased during 2009. It is possible that it will be extended.
Not many buyers are using the credit. That is probably because of the old restriction of having to pay the money back. The need to have a down payment could also be a problem. For people who plan ahead this could be a nice bonus. For REALTORS it could be a minor stimulus. For more information go to: http://www.federalhousingtaxcredit.com/2009/glance.php
David Segrest is a REALTOR in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com

Memorial Day

Memorial Day
This is a hard holiday to understand. I think it means it celebrates all the people who have died in wars. We celebrate the ones who survived on Veteran’s Day. We celebrate the one’s who authorized the wars on President’s day. We celebrate our “war of independence” on “Independence day”. Columbus Day celebrates the invasion of America by Europeans. Easter and Christmas are now respectively Spring and Winter holidays because we can’t have religious holidays. Martin Luther King Day and Thanksgiving are the only holidays where we celebrate peace. If we have 6 holidays for war and only 2 for peace, what does this say about our priorities?
Maybe we should formalize (ie: have a day off) some of our “Hallmark holidays”. How about Valentines, St. Patties and Halloween? There is controversy about what day to celebrate Sadie Hawkin’s Day; but that could balance things. Adding Arbor Day would tip the scales in favor of peace. Would this change hearts and minds? Who knows?
All of the extra holidays would give people extra opportunities to enjoy their second homes and resorts. I say make real estate not war.
David Segrest is a REALTOR in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com

Downshift

Downshift
Is the economy seeking a new low or its true level? A tenant came in late with his rent yesterday. He has been laid off from his white collar job. He is “reinventing” himself. He is cutting grass. A Mexican tenant came late with his rent for the 1st time ever. He cuts grass for a living. I know a few people who are doing better than before. Most of the people I see are doing worse.
It is inconceivable that closing auto dealerships that cost the manufacturer nothing will help the automobile industry. It will probably help the remaining dealers. Too many cars are made and sold anyway. Think of the squandering of raw materials and labor involved in making a car that winds up at the crusher’s lot in 6 or 7 years. Think of the environmental impact of the wasteful consumption demanded for the survival of our current economic system.
Suppose everyone who wanted a job had one; but only worked 4 or 5 hours 4 days per week. I would guess they could produce more of everything than the world really needs. The real problem is our economy is like a drug addiction problem. Everyone needs more and more just to maintain the current level. Is our current situation an opportunity to correct this situation? Will we just try to fix things and go back to what we were doing until there are no resources left?
David Segrest is a REALTOR in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com

(Un)Calculated Risk

(Un)Calculated Risk
Yesterday’s blog mentioned risk and suggested putting line items in for several types of risk. In speaking to Mitch Creekmore, The Latin American supervisor for Stewart Title, yesterday the thought of “catastrophe risk” came to mind. Mexico of course is bearing the brunt of the swine flu disaster so far. Many companies have eliminated all international travel. How many other markets will suffer from the swine flu?
Will this flue pandemic be a short lived and limited economic problem; or will it linger and poison an already slow recovery? How far from the tree will the fruits of this situation fall? Mexico is already suffering from low oil prices and reduced remittances. The 3rd leg of the 3 legged stool, tourism, seems to be cut off as well. What kind of factor would one put in investment projections to anticipate an event like this?
As the world becomes smaller and more integrated the possibilities for this type of event are increasing. Not just developing countries are affected. SARS hit several highly developed Asian Countries. Think what mad-cow disease did to the beef industry in Britain and the USA. Should we start another line-item in the risk portion of our cash flow models?
David Segrest is a REALTOR in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com

Investing in Emerging Economies

Investing in Emerging Economies
There has been a lot of talk about BRIC. For awhile it was said that they were not suffering from the economic downturn in the rest of the world. It is fairly obvious now that that is not the case. I have little experience in the Russia and India portion of the BRIC. I do not trust the government in Russia; so would find it hard to invest there. The only thing that scares me about China is it’s very size and the fact that is so manufacturing oriented. The rest of the world will have to recover before China can. There is also the tie to the US dollar. If the dollar goes in the tank, that will hurt the Chinese.
The countries I understand are the Latin American countries. Their economies are suffering some; but because of the use of cash and the underground economies there, they are in better shape, for the most part, than the rest of the world. The real benefit in Latin America is that the economies are small. The USA economy is like an aircraft carrier. It takes a long time to change direction or turn around. The Latin economies are like speed boats, they can spin on a dime.
I believe it is time to invest in Latin America. It is necessary to use a different model than most investors use in developed countries. The relationship between risk and yield are very important. When operating projections are made in the developed world, vacancy and credit losses are factored in. In the developing world one must also add line items for country risk and currency risk. In some cases one must consider political risk and environmental risk as well.

Let the Presses Roll

Let the Presses Roll
If excessive debt is the problem with the economy, inflation can be the cure. I don’t see how the government can avoid printing money with the huge bills they are incurring. The inflation we are (not) having now is very strange. The price of automobiles and refrigerators are not going up because no one is buying them. The cost of rent and real estate is actually going down. The price of milk is going up. The price of all the groceries and things of that nature seems to be increasing.
Interest rates are supposedly dropping; but if one cannot borrow it doesn’t matter. Credit card interest is not going down. Bank fees are not going down. I say, “Print that money, print lots of it and print it fast.” Maybe the mint can hire some extra employees. That will help the job market as well. There is of course, the question of what will happen to the people who have already taken a pay cut.
When people have had their hours cut and their pay cut. They will be able to spend even less, further slowing the economy. It just goes to show, there are no easy answers.
David Segrest is a REALTOR in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com

Opportunities between Chile and the USA

This is a presentation that was made to ACOP, which is a real estate association in Santiago, Chile. It is much longer than my normal entries; but is more effective if not broken up into segments.
Opportunities Between Chile and the USA

The purpose behind the relationship between our associations is to facilitate business for the members of our respective associations. The purpose of my talk today is to help accomplish this by exploring reasons for US citizens to buy in Chile and for Chileans to buy in the USA. We will begin by looking at the current markets and opportunities. Most of the information presented comes from reports generated by NAR and The Cámara Chilena de la Construcción and the internet. Not only are the reports limited in respect to the time periods and localities of the information; but the background dynamics are changing so rapidly that most “snapshot” numbers are obsolete by the time they are generated. There is always a danger in using aggregate numbers as they do not offer a true picture. If one is standing with one foot in a bucket of boiling water and one foot in a bucket of ice-water, that person is on average pretty comfortable. This presentation is best used as a template for your own research and applications.
In the world and in The Americas Chile is almost unique in that the impact of the current recession is less here than elsewhere. In South America and the Middle East the economies are still growing, albeit at slower pace. The market dynamics here are hopeful for a very quick recovery. The biggest negative in the Chilean economy is the strong dependence on commodities and agriculture. Prices in these sectors are depressed. Chile’s next two biggest sectors are manufacturing and finance. Neither of these sectors is doing well either; but the financial institutions here seem to have fewer “toxic assets” than the institutions elsewhere.
The housing market in Chile has declined somewhat as you can see by the chart. The good news is that the inventory is shrinking too. While lower production may be causing temporary problems for the construction industry, the decline in construction should help to stem the fall in prices. One interesting thing about the market in Santiago, is that through the end of 2008 the larger homes were selling well. It is the smaller homes (under 70 M2) that are not selling as well.
As you can see from the chart housing sales made a steep drop at the end of 2008. The latest information from the Cámara Chilena de la Construcción shows that in the 1st two months of 2009 the sales have dropped by 40% over the same period last year. The data contained in these reports gives a mixed view on commercial real estate. According to a study by NAR, the commercial property market in Chile has not declined. A study by your own Cámara Chilena de la Construcción shows that vacancy rates have increased. It further indicates that prices have increased while rents have decreased. This results in a lowering of yield and could deter investment. Usually the market will correct a situation like this. Investors will look for a certain cap rate and will not buy unless they can achieve that yield. If other investments are considered more risky or if they also are offering a lower yield, the real estate investors will stay in the market.
The office market is the only commercial market where I was able to get much information for Chile. One major difference between USA investors and Latin investors is the attitude toward investment real estate. USA investors see real estate as a source of wealth. Latin investors are more prone to see real estate as a repository of wealth. This is a broad generalization and generalizations are often limited or wrong. Attitudes are also subject to change.
The lessening of yield on the properties may be less of a problem with Latin investors than USA investors. In addition the Europeans have traditionally taken a position more similar to the Latin position. This point of view is changing rapidly.
The USA is not just a major cause of the current situation. It is one of the biggest victims. The USA is huge and varied. Each submarket is different and has different dynamics. Florida and parts of California are suffering from a pull back of investors after a strong speculative upsurge in prices and activity. Speculators were buying pre-construction properties with no idea who the end user would be. The general idea was that the prices were escalating by 30% per year. A speculator could put the property under contract and sell the contract before the property was completed. Like a game of musical chairs, sometimes the music stops.
Some sub-markets are not suffering quite as strongly. In my home of Charlotte, we never had the strong run-up in prices, so we did not have the crash. Our biggest problem now is that people coming to our area cannot sell their homes elsewhere so they cannot buy in Charlotte. Financing is also a major issue. Mortgages are still available to credit worthy buyers. The definition of “credit-worthy” has gotten much more restrictive.
The good news from NAR research on the macro picture is that housing sales were up strongly in February. The bad news is that the median price was down about 18%. That could be people buying cheaper houses or it could be prices dropping. The inventory is down to the lowest level since 2002.
The residential market in the USA is suffering from several factors. The first is the sub-prime foreclosure situation. Unfortunately many mortgages that were not sub-prime are also going into foreclosure because of the general contraction of the economy. Unemployment and underemployment are big factors. The foreclosed property is not only a loss to the bank and the homeowner. The vacant properties cause blight in otherwise nice neighborhoods.
Unemployment and fear of unemployment are major factors in the residential sector. Young adults are moving in with parents, siblings or friends, shrinking demand for housing and increasing demand for larger homes. Liquidity is also a big problem. Banks are still making loans; but the requirements for obtaining these loans are stricter than before. The government sponsored loans are still offered for people with excellent credit. The conventional loans are requiring a larger down payment.
As prices continue to fall, people are afraid that they will buy a property that is worth less than what they paid for it. Like Chile we also have a declining supply of housing stock and that should help cool the downward pressure on prices. Unfortunately our measures of inventory are seriously flawed because there are so many properties that are vacant and owned by banks that have not even been put on the market. Many of the banks are so overwhelmed by the foreclosure situation that they don’t even know what they have in inventory.
Different sectors and different regions are seeing varied results in the commercial property markets. Some sectors are still strong. Some sources have indicated that prices have not declined. What has declined is the yield as multitenant properties have higher vacancies and or lower rents. In the USA we think of prices in “capitalization rates” rather than price per square foot or square meter. When the income from a property decreases and the capitalization rate stays the same, the dollar value of the property falls.
For the last 15 years most commercial real estate has been financed with products that ultimately received their money from commercial mortgage backed securities. This source of funding has disappeared since the credit crisis. More interest has been shown in these products by investors in the last weeks.
Office properties historically lead the decline in a recession and lag the increase in a recovery. In some markets the class “A” and high “B” properties are doing ok because the leases are long and the tenants have not been able to give up the space cheaply. As more companies enter bankruptcy, the properties on the market will increase. Construction of office properties is also a long range prospect. Many properties are coming onto the market with no hope of finding a tenant. New York City is one market where this situation is especially evident. Vacancy rates around the country are expected to increase
As the larger retailers close their doors and let stores “go dark”, the smaller retailers who depend on the traffic from the larger stores begin to suffer as well. Restaurants are a little slow now; but value oriented stores are doing well. Bars are doing well because the unemployment provides both an opportunity and a reason to drink. Building has practically stopped in the retail sector. Investors are still looking at smaller properties. The large number of empty “big boxes” is causing downward pressure on rents and prices.
The industrial property market is probably the hardest hit sector, especially in the larger industries and properties. While much of the decline is blamed on imports and out sourcing. The real culprit is falling demand. If someone needs toothpaste or shampoo, they will still buy it. A refrigerator or a new piece of furniture can wait. Long term leases and the expense of decreasing the size of space where equipment is located put a floor under the decrease of demand.
The rust belt is the area with the most unused industrial buildings, many of which are single purpose buildings that will be very hard to convert to other uses. Smaller buildings (500 to 1000 M2) are still popular. The poor economy actually helps this market. Middle managers finding themselves unemployed frequently start new businesses. The small industrial properties are ideal for this use. Distribution companies eager to downsize, find that by doing more drop shipping they can use smaller spaces and reduce the capital tied up in inventory.
The price of agricultural properties is determined by the value of the crop grown. The increase in industrial and energy use of agricultural products has helped to stabilize this market. People have not found a substitute for food.
As mentioned earlier, housing demand in Chile has fallen so has supply. Certain size properties seem to be in less demand than others. The frequent use of cash to purchase properties lends some stability to the market.
Information is extremely difficult to obtain on the age distribution within the population of Chile. This a key number in predicting future demand. Chile’s entire population is less than 17,000,000. Of which 88 % is urban. Like many other developed countries, Chile’s population is stable. The birth rate, death rate, and emigration rate will maintain this number but with very little growth. The median age is 30 ½ years. Since we are dealing with averages, it is difficult to determine if there is a bubble within any particular age group.
Employment is another area where valid and recent numbers are hard to obtain. The most recent numbers I found place the unemployment at 8.9% by one outside source, 9.5% by another and 7% by government sources. While high for a developed nation, this number is low compared to other Latin countries.
Chile has increased spending more on education than most of the developed countries. Increases in the college-educated portion of the population are about 43% since 2001. This indicates a growing middle class and an increase in both the desire and the ability to obtain a higher standard of living.
The housing market in the USA has suffered from both excessive speculation and a high foreclosure rate. Fortunately the inventory of new homes is dropping. Lack of ability to obtain financing and lack of ability to sell existing homes is causing some stagnation in markets. The population of the USA is over 300 million. Most of the growth in population is coming from immigration. This has slowed somewhat due to economic conditions.
Unemployment is still relatively low in the USA. Fear of unemployment is as much of a factor in the market as the actual unemployment. Another huge factor is under-employment and reductions in wages. If a family lives to the extent of their income and then lose part of that income, they have to restrict consumption. This seems to cause more unemployment.
The USA has some of the best tertiary education in the world available. The primary and secondary education offerings have been declining in quality over the last 2 decades. While excellent advanced programs are available in math and science. It is the immigrants and children of immigrants that take advantage of these opportunities. This could lead to a loss of competitiveness in world trade.
The USA is not a single market; so giving a price per square meter for house is quite difficult. We have identified the following ranges. House prices are between $700 and $1400 per square meter with extremes at either end. The average price per square meter in a good neighborhood in Charlotte for the months of February and March was $1076.21.
In Chile, I was only able to get rates of changes in prices and not the average price or range of prices. Other costs of living have to be included in housing price to determine what the true comparison would be. If one has cheaper housing and increased taxes, security or living expenses the difference could be offset. Also one has to consider the quality of life.
Currency trends are very important in considering an international purchase. The Chilean peso is very weak against the dollar right now. Let’s examine the currency trends from a few different perspectives and see what would happen in different cases.
When one looks at the exchange rate between the dollar and the peso, it appears to be a good time for people from the USA to buy in Chile. It would be a good time as well for Chileans to sell properties in the USA or repatriate funds from the USA, unless of course you expect the peso to continue to weaken. Look at the other dynamics between the economies and make your own predictions.
If one looks at the exchange rate over a 1 year period the trend seems to favor dollar investments rather than peso investment. A five year perspective shows overall neutral exchange rate effects. A purchase made in dollars at the beginning of this period and closed at any time in the interim would actually have produced a currency loss. One has to consider whether the depressed price in the USA would make the purchase good enough to offset the currency trend.
What do you believe will happen in the future?
What is the plan of the buyer? For someone who wishes to retire in Chile, this is the best opportunity in 5 years. For a Chilean wishing to invest abroad, the time may not be good, depending on your predictions about the future of the peso and the Chilean economy. It is important to examine trade, balance of payments and other factors when buying property in another country. If one makes a high profit but is unable to repatriate this profit or is unable to get foreign exchange, this could be a problem.
The manufacturing base in the USA has eroded over the years. The service based economy that once provided a large portion of the national GDP has been outsourced in many cases. The US dollar remains a viable currency only because the world has more faith in it than in other currencies. The current economic situation has had the unexpected benefit of narrowing the balance of trade deficit to its lowest level in years.
The Chilean economy is still a strong exporter of many diverse products. Although the price of these products may be depressed now, the demand for the products remains high and Chile’s balance of trade is still strong. Chile’s balance of trade surplus has continued to increase on an annual basis since the late 90’s.
This is where we get the questions that were promised at the beginning. How do we find the areas of mutual benefit between our clients, ourselves and our real estate markets? What do you believe the future holds?
The economy of Chile is weak now compared to the past. Compared to the rest of the world Chile is doing well. The lifestyle is great. The climate is varied enough to have a perfect environment for everyone. What are the considerations we need to take for our clients or ourselves? How stable do you consider the political situation? What are the prospects for an immigrant who needs to work? Make comparisons between lifestyle choices, prices, and exchange rates. If a person from the USA on a fixed income retires in Chile, how will these things impact them? What type of issues will need to be dealt with on this person’s demise? What are the cultural considerations? Is language a problem? How well can someone live here without speaking Spanish?
The USA has just (hopefully) ended a period of political mean-spiritedness and hostility to immigrants (by the government). The economy is not doing well; but confidence is returning. Job prospects are pretty good for foreigners but getting a work visa is very difficult. We have to answer almost the same questions as we did for Chile. What are the considerations we need to take for our clients or ourselves? How stable do you consider the political situation? What are the prospects for an immigrant who needs to work? Make comparisons between lifestyle choices, prices, and exchange rates. If a person from Chile on a fixed income retires in the USA, how will these things impact them? What type of issues will need to be dealt with on this person’s demise? What are the cultural considerations? Is language a problem? How well can someone live here without speaking English? How will family relationships be affected? How will the currency situation affect preservation of wealth?
Thank you for listening to my presentation. You have heard my questions. Now I will hear yours and maybe even answer some of them.