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Inland Empire Real Estate and Marginalia

News, Information, statistics and other marginalia about the Inland Empire and Real Estate
"Tree House" For Sale
If a picture is worth a 1000 words, then what does this one say?

Tree HouseClick image for larger view

We all know that a listing without any photos is less likely to be looked at by Buyers. You should always have at least 1 photo on your listings. The more photos you have on the listing the more likely it is that the Buyer will consider it. Your photos should also not hide the ugliness.

I know, you want to show the property in it's best light. I agree. However, you should also not intentionally hide issues. I have no idea what the status of the property in the photo is. I am not sure the listing agent does either. The above photo is the ONLY photo on the listing. I am not sure I would have chosen this as my primary and ONLY photo. What does the inside look like? If it looks like this on the outside perhaps the inside is so bad that it wasn't worth taking interior photos.

Here are the public comments in entirety!

SHORT SALE

What more could you possibly want to know about this property right? How about, WHY IS THE TREE RESTING ON THE HOUSE! I can just imagine the conversation that took place at that listing appointment.

And the agent remarks don't provide much more information. In fact, they just say to be sure and call before you visit. Why, so you can reserve me a hard hat or so that you can take down the caution tape in hopes I won't notice the white elephant. What Buyer would even consider visiting? Give me more information on the home. It doesn't mention that the roof has a tree resting on it. A fairly LARGE tree from the looks of it. I am sure it hasn't occurred to this listing agent or the owner why the property has been on the market longer than 200 days.

My advice to the lender reviewing offers for this home, if any have come forth. Take the first offer over $1 and call it a successful sale! You do not want to own this property!


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The Recession Is Over

From the WSJ:

The latest to weigh in on the debate is Christopher Rupkey, the New York-based chief financial economist at Bank of Tokyo-Mitsubishi UFJ. In a note this morning, he says a V-shaped recovery — in which the economy not only recovers but rebounds strongly — is “maybe not as far-fetched as you think”.

...

As for claiming the recession may have already ended, he points to a series that in the past has proven a remarkably good indicator of business cycle troughs: weekly claims for unemployment benefits. That series peaked in the week of March 28 when a seasonally adjusted 674,000 new claims were filed; it has since retreated though it remains historically high. If that peak holds, it means the recession likely ended in April or May, he said.

 

I agree that using the numbers for unemployment are a good leading indicator, but it is only one of the measures. The only thing that I would caution those using it as an indicator would be how the numbers are playing out. Why are the numbers going down? The same reason they shot up so quickly. Unemployment benefits were extended, so many of the unemployed that were not "on the books" because they had exhausted their benefits were suddenly back on the books. Now benefits are starting to expire and those long unemployed are beginning to drop "off the books" again, not because they found work.  So while the numbers show unemployment improving, it may be a bit of a false hope and some noise in the data.

What I am watching is job growth, not unemployment shrinking. When the employed can go to work and not fear a pink slip then the recession will be over.  I think many are at the point where they have cut the fat so much that they can't cut much more. Those with benefits that have been less than motivated to find a job are going to start looking aggressively.  Once the State and Federal Governments figure out how to cut some fat we will be ready to begin building again.

I am in the camp that thinks the recession may be over or soon will be. The thing about recessions is that they aren't officially recognized to begin or end until it has already occurred. They are like the housing market in this respect. If you are waiting for housing prices to "turn around" before you buy, then you have already missed the "sweet spot" that you have been waiting for.

As for a "V" recovery, I just don't see that happening. I think this December will see better numbers than 2008, but only slightly. However, I think that will be the stimulus that consumer confidence needs to begin the upswing. So look for slow to no growth from here to October. In November and December it will begin to pickup as the other side of the "U" recovery begins. By summer 2010 we will definitely be on the upswing, but hopefully with a more moderate angle than the mid 2000's.


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Inferred Housing Cycles

I was sifting through the data that I have on the local real estate market here in the Inland Empire and I started to wonder when the homes that were on the market were built. So I put together some graphs. It turns out that the homes that are on the market were most commonly (the mode for you statisticians) built in 2005.

This first graph shows the number of listings on 7/30/2008 by the year built. I kept the vertical axis set to 120 so that it was easier to compare the graphs.

Click image for larger view


My data does not indicate anything in particular.  However, it does appear that the year that the homes that are on the market were built tend to have peaks and valleys. For example, a sample of data taken on March 30, 2009 with a 30 day window indicates that there is a peak of homes built in 1979, then a relative steady pace from 1985-1989 with a drop in 1987, then a rise again until we peak at 2005.

Keep in mind that all of the years shown are for homes that were on the market during the sample period. So this data does not represent any correlation with the number of homes built during a given year. It represents a sample of listings with a change in status within 30 days of the sample period.

This second graph show the number of listings by year built on 6/29/2009.Click image for larger view

Why would there be such a pattern of peaks and valleys. I sampled the data set for several different months. I went as far back as July 30, 2008. The actual data is a little different, but the peaks and valleys are roughly the same.

So the data begs the question. Why are homes built in 1987 less likely to be listed than homes built in 1988? Why are so many homes that are built in 2005 on the market?

I suspect, but can't seem to find anything to correlate the data, that it may be related to historical housing booms and busts. It is my theory that during the peak of the housing boom that the quality of construction may decline because builders are under pressure to complete projects at an ever increasing pace to keep up with demand. As the boom turns to bust, they are free to spend "quality time" building a structure.

One theory that I also considered was related to financing of the homes. Homes that were purchased in 2005 may be financed with Adjustable Rate Mortgages that are beginning to reset. However, this does not explain the peaks and valleys for the older homes.  All of the data represents current listings, not the number of homes listed in that year.

Another theory may be purely related to the number homes built during a particular year.  If lots of homes were built during 1986, but not so many in 1987, then it stands to reason that an equal percentage of each year will result in a higher count during boom years and a smaller number during less that active years.  Lots of homes were built in 2005.  During the period of 2006-2009 less homes were built.  So perhaps the data is just a reflection of the building cycle?

Take a look at the two graphs. What is your theory on what the data means?

Note:  The data for these graphs were all in the 92336 area code.  If a larger geographical area is sampled, then the data may be more uniform.

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Inland Empire Sales 1 in 5

The Inland Empire continues to have strong sales numbers, relatively speaking. According to report from MDA DataQuick, and estimated 39,051 homes and condos were sold in California during the month of May. During the same period, MDA DataQuick reports that 7,548 homes were sold in the Riverside and San Bernardino Counties. Also known as the Inland Empire.

That is about 19% of all homes, or 1 in 5, sold statewide were sold in the Inland Empire. So homes in the Inland Empire are definitely moving. With a median price of $137,000 in San Bernardino County its no wonder homes are selling. First time buyers and investors see that real estate in the Inland Empire is the place to buy. Prices are down and you can find great deals.

For those investors that didn't buy during the boom, this is the time when they are buying some of the best deals. in 3-5 years these homes will have provided decent cash flow from a renter and can be resold for a reasonable profit. If held onto for 10 years, you can expect to make more than $100,000 in profit between monthly rents and an eventual resale without trying very hard. Multiply that by 10 homes and you are averaging $100,000/year income. Most people would consider that a good income.


A quick glance at active listing in San Bernardino County that have been listed in just the last 7 days with 3 or more bedrooms and 2 or more baths gives us 354 listings. Here is just a sample of some of the low price leaders.

Click image for a larger version


 



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Underwater Home

This give a whole new meaning to the term "underwater."

http://www.zillowblog.com/under-lake-jocassee-is-attakulla-lodge-still-intact/2009/02/

Embedded video from CNN Video

 


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Open Letter To California State Legislature

I encourage everyone to contact their representative to express your own opinion, whatever those may be.  Find out who your representative is here: http://www.legislature.ca.gov/port-zipsearch.html

The following is copy of an open letter that I sent to my representatives.

Dear State Representative:

I am writing to express my deep disappointment that the State Legislature has not yet come to an agreement on the State budget. 

I do understand that the State budget is a large and complex issue that should not be taken lightly.  I feel that I have been abandoned by the California State Government.   The State Legislature should be required to be locked in session until the State budget has been resolved.  

I am watching intently and waiting for a resolution.  My expectation is that the entire Legislature, yourself included, will take the necessary steps and come to an agreement on the State budget and not play the blame game.  Instead, you will work with your colleges to come to a decision and a State budget resolution that moves the State and the lives of the 33.8 million Californians forward. 

Unless decisive and final action is taken soon, I will have to conclude that the you and the other members of the California Legislature do not have the ability to govern the Great State of California efficiently and effectively and are not worthy of re-election.

I hope and pray that you and other members of the California State Legislature will be able to prove to me that this is still the Golden State and not just a painted brick of lead.

 



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NBER Announces Recession

The National Bureau of Economic Research (NBER) has announced that December of 2007 has the peak of economic activity. This confirms what many already felt. I recall talking with my Brother-in-law in just prior to New Years Eve in December of 2007 about this. I told him that despite the fact that it had not been announced that we were in a recession, we were in a recession.

Calculated Risk has been using December 2007 as the beginning of the recession for some time now in his research.

From NBER: Determination of the December 2007 Peak in Economic Activity

The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28. The committee maintains a chronology of the beginning and ending dates (months and quarters) of U.S. recessions. The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.
...

The committee determined that the decline in economic activity in 2008 met the standard for a recession, as set forth in the second paragraph of this document. All evidence other than the ambiguous movements of the quarterly product-side measure of domestic production confirmed that conclusion. Many of these indicators, including monthly data on the largest component of GDP, consumption, have declined sharply in recent months.

So there it is.  We have been in recession for one year now.  The only question remaining now is how long will it take for the contraction to end.



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Sad News: Tanta Vive

It is with great sadness that I learn that Tanta, and influential voice on the mortgage crisis, died early morning on November 30, in Columbus, Ohio.

I never had the opportunity to meet her, but read much of her postings.  She taught many with her words and wisdom.  She will be missed. 

Calculated Risk will be announcing a charity of Doris' soon if you would like to contribute.  Please visit Calculated Risk for more information.

From Calculated Risk:

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My dear friend and co-blogger Doris “Tanta” Dungey passed away early this morning. I would like to express my deepest condolences to her family and friends.
From The New York Times:

Thanks in large part to Tanta’s contributions, Calculated Risk became a crucial source of prescient analysis as the housing market at first faltered, then collapsed and finally spawned a full-blown credit crisis.

Tanta used her extensive knowledge of the loan industry to comment, castigate and above all instruct. Her fans ranged from the Nobel laureate Paul Krugman, an Op-Ed columnist for The New York Times who cited her in his blog, to analysts at the Federal Reserve, who cited her in a paper on “Understanding the Securitization of Subprime Mortgage Credit.”

She wrote under a pseudonym because she hoped some day to go back to work in the mortgage industry, and the increasing renown of Tanta in that world might have precluded that. Tanta was Ms. Dungey’s longtime family nickname, Ms. Stickelmaier said.






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Patience + Persistence = Perseverance

Most homes sold in Southern California today are foreclosures. According to recent report from DataQuick, Southland home sales up, prices down; foreclosures now half the market, 50% of home sales in Southern California are foreclosures. 

Prices are down and sales activity is up.  That doesn't mean finding a home is a walk in the park.  Finding a decent home among the chaff is a challenge.

Purchasing a foreclosure can be a great way to purchase a home.  However, it can be very daunting as witnessed by Peter Y. Hong in his report in the Times.

Peter witnessed first hand what many Buyers and Agents are experiencing in the market today.  Among what Peter experienced, here is what else you can expect to find when searching for that perfect home.

Listing agents that won't allow any showings. Listing agents that won't submit an offer. Loans that fall out despite pre-approval status.  Sellers (aka banks) that take weeks or even months to accept an offer. Listing agents that flatly refuse to review an offer unless the Buyer agrees to "cross-qualify with the sellers lender" and provide the most intimate of financial details prior to submitting an offer. Buyer's Agents that steal the keys from properties to prevent other agents from showing the property. 

Here is probably the best of them.  Listing agents that are selling homes as owner occupied "Short Sales" that are no longer owned by the seller.  The bank foreclosed on the property and took it from the owner.  Within days of the foreclosure, the seller hires an agent to sell the property.  The agent took the listing from the seller despite the fact that they don't own it.  They just want to expose listings in hopes of getting clients.  In most other areas of business they call this deceptive advertising. 

Want to destroy your credit score?  Try "pre-qualifying" with a dozen lenders over the period of a couple of months.  This is what listing agents of REO properties expect you to do.  They "require" you to "cross-qualify" with their special loan officer or your offer will not be submitted.

What to do if you are in the market for a foreclosed home?  Be patient and persistent.  If you continue to present offers you will find the right home with the right seller.  Eventually you will persevere and have that home you have been looking for.  In the mean time, do everything possible to increase the strength of your buying position by saving as much cash as you can.




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Trick or Treat?

There are not that many Buyers out there these days. With all the news about the economy and lack of funding, buyers are waiting this market out as they have been for several years now. My personal opinion is that if you are looking for a home now you might lose a little value in the next year. However, it will not be as significant as the loss was for those that purchased in 2005.

Timing the real estate market is notoriously difficult. Generally the peaks and valleys are known 3-6 months after they have occurred. If you want to buy a home and you have the cash, now is the time to look. However, don't just settle for anything, find the good deal.

I was poking around on the MLS and decided to look for the best deal I could find. To make it easy and a bit less subjective, I am using the Price per Square foot as the yard stick. Certainly this does not a deal make, but serves as a good benchmark.

So using the using the bang for the buck theory, what can you find in North Fontana? I did a search for homes in the 92336 area code that were within the Etiwanda School District boundaries. I found only 2 homes that are under the $100/sq. ft. price range. One of them was an REO and the other was a short-sale. Since the majority of short-sales never happen, I am going to have to give the title to the REO.

At just $95/sq. ft. this 3683 sqft home is the best value. It has been on the market for over 408 days as of this writing. The previous owner paid $405,500 for this home and then took more than $450,000 out of the home. The bank took it over for $448,510.

While the price per sqft is a good deal, the sticker price can be difficult for some buyers to look at. The bank has owned this home since April of 2007. The home was first listed at $504,900. Amazingly it did not sell. (That is sarcasm).




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Child Safety Fair 2008

Note that this information is outdated.

The 17th Annual Fontana Police Department Child Safety Fair is on Saturday September 20 in the Fontana Police Department parking lot.

At the fair there will be:

  • Free Health Screenings
  • Free Educational Info
  • Free Activities
  • Free Give-A-Ways
  • Live Entertainment
  • Free Food 
  • Car Seat Inspections

Special guest appearances by:

  • The Animal Guys (shows at 11:00am and 1:00pm)
  • Zumba Kids
  • McGruff the Crime Dog
  • Officer Byrd
  • Incredibear from John's Incredible Pizza
  • Bugs Bunny
  • and more

For more information, call (909) 350-7758

When/Where: 17005 UPLAND AVE SEPTEMBER 20, 2008 10:00am-3:00pm

Ode To Chase

After the beginning of the real estate meltdown in 2005, banks began to tighten their lending standards. They realized that the housing market wasn't not everything it was cracked up to be. There was no way anyone could convince a bank to lend money on a home that was worth less than the loan. Or could they?

golfer_x at Housing Kaboom is constantly monitoring the housing market in the Inland Empire. He clearly wants to be ready to act when the time is right to buy. The only way to know if the time is right is to watch the market.
* Photo courtesy of Housing Kaboom
golfer_X is known for finding what he calls the Realtard of the month. It is awarded to real estate agents that just don't seem to be playing with all of their faculties. In May of 2008, he wrote about a home at 17362 Woodentree Ln, Riverside that was owned and listed by a real estate agent that was way overpriced for the neighborhood.

Fast forward a few months and guess what golfer_X found. The same listing is amazingly still on the market. Only now the property is listed at $1 million.

It gets richer. The current owner bought it as an REO. The county records show a sale in November of 2007 for the price of $535,000. The lender, Chase Bank, gave a loan amount of $603,250. That is $68,250 more than the purchase price in 2007 when the housing market was in free fall and the credit crisis was in full swing! That is more than 112% of the purchase price. I wonder what all that extra money was used for. My guess is that it was used to install fake grass and pay for a commission. Guess the banks just didn't learn. Here's to the wise underwriters of Chase. Nobody can pull a fast one over on you!

If that wasn't bad enough, there was apparently a double closing. On the same day that the agent purchased the home for $535,000, the new agent/owner sold the home for $635,000 to someone else. That is a profit of $100,000. Not bad for a days work. I wonder if the agent disclosed his financial gain to his client? I wouldn't pay $100,000 more for a home that just sold on the same day.

A few months later in March of 2008, a private lender provided a $50,000 loan to somebody. It isn't clear if it was the agent or the lucky new owner. Regardless, the county shows that the home was sold back to the agent on the same day. My guess is that the agent provided a parting gift to the guy he sold it to back in November of 2007 for a huge profit. There is no sales price listed for the March sale, just a record of a deed giving the property back to the agent/owner.

Fast forward to June of 2008 and the agent/owner managed to get another loan for $132,500 from a private lender. Bad mistake Mr. Lender. Within one month the new loan was in default. The entire amount is in default! Not one payment was made on the new loan. In fact, the county records show that the loan is in default for the amount of $134,200.

My guess is that the total owed on this property far exceeds the $700,000 mark and that the loan that is in default is a second or third lien. If the agent/owner only owed the $134,200, they could list the property for $300,000 and have it sold yesterday. Instead he is trying to list it at a completely unreasonable price.

Here is the best part. Since the most recent lender is not in first position, they must foreclose on the property to protect their asset. If the first lien holder were to foreclose on the property, then all junior liens (2nd and 3rd mortgages) would be wiped out. That means the junior lien holder must pay all other loans while they are in foreclosure proceedings to protect their asset. Unless of course the agent/owner is paying the mortgage on the first. Somehow I doubt that is occurring.

Wonder why the FDIC is announcing bank failures? This is one example of the many reasons.



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FDIC Friday Failure

Friday is the most common day for your friendly neighborhood regulator to lock the doors of your the local bank and take it over. The FDIC is keeping busy these days with yet another bank failure. On August 22, 2008 The Columbian Bank and Trust, Topeka, KS was taken over by the FDIC. That brings us to a total of 9 this year. The real question is if the failures of 2008 are the beginning of a 1980-1993 period or more like the period of 1994-2007? The answer to that will be in the numbers for 2008-2009.

Click image for large view of graph

The FDIC has been getting prepared for the coming bank failures for some time now. The FDIC announced on Tuesday, August 22, 2008, that in the second quarter 117 banks and thrifts were considered to be trouble. That is the highest level in 5 years.

From MSNBC.com: Mortgage mess puts more banks at risk

The mortgage mess that has upended millions of homeowners’ finances is now taking a bigger bite out of the nation’s banking system.

And while depositors with insured accounts face little risk of losing their money, the insurance fund’s top regulator said it may have to borrow money from the Treasury to make good on that promise to consumers.

...

So far, only nine lenders have failed this year, the largest of which was Pasadena, Calif.-based IndyMac, which was taken over by the FDIC in July with about $32 billion in assets and $19 billion in deposits. It was the second-largest financial institution to close in U.S. history, after Continental Illinois National Bank in 1984.

Those failures have depleted the insurance fund, which now stands at $45 billion — less than the FDIC is supposed to have on hand, according to Daniel Alpert, an investment banker at Westwood Capital.

...

Bair also told the Wall Street Journal the FDIC couldn’t rule out the possibility that it may have ask the Treasury for capital to tide it over through the coming round of bank failures. The money would be used to pay depositors insurance claims, and then paid back after the assets of the failed bank are sold.


I suspect that 2008 will round out with a total bank failure of 14-17 failures. If you have any uninsured deposits, now may be a good time to shuffle some funds to make sure you are covered. Nothing like finding out your not covered after it is too late. You can visit the FDIC and read about how FDIC insurance works to make sure you are covered. If you have about 20 minutes, you can view this informative video provided by the FDIC which explains what Deposit Insurance is all about. You can skip to the "Common Ownership Categories" section or other relevant sections to hear just the part about how you are covered as an individual.



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Need a Vacation?

I was browsing the articles on MarketWatch and this one jumped out at me.  It made me chuckle.

From MarketWatch: So Cal's Bail-Bonds.com Is Offering a $500 Gas Card With Bail

...  Bail-Bonds.com, which has 24 locations throughout the So Cal area including the Inland Empire, Riverside County and San Bernardino County, wants to help its clients get back on their feet. Through September 30th, 2008 Bail-Bonds.com will be offering a $500 gas card to customers in So Cal, Riverside, San Bernardino and Inland Empire who retain Bail-Bonds.com for bail bond services.

...

... some of the more notable clients for Bail-Bonds.com including Michael Jackson, Lindsay Lohan and Shelly Malil. In fact, Bail-Bonds.com even received an endorsement from the infamous Danny Bonaduce.

 

So they next time you are arrested and need to get out of town fast, call Bail-Bonds.com.  They will even pay for the gas.

 



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Will Retirement Ever Come?

One of the key factors of the presidential campaign this election year is the state of the Economy. Talk about tax cuts, tax increases, the rich, the poor, the middle class are abundant. The Republicans are going to save us and the Democrats are going to ruin us. The Republicans are for the rich and the Democrats are for the poor. I have heard it all before and I am quite frankly not impressed. I guess I am one of those moderates that believes there are good and bad points of each and they spend too much time pointing figures and playing the blame game instead of actually doing any good. Neither of the parties is perfect nor have all the answers. I am tired of having to choose which bad points I am willing to live with. One of the more annoying pieces of rhetoric is taxes and the state of the budget deficit. They all quote their own numbers and declare they have made things better for the American people by doing completely opposite things. The truth of the matter is that the Average Joe has no chance of ever knowing the truth. They never use the same method of determining their answers and they never tell you how they come to their conclusion. If they do give an explanation it is always with graphs and language that most of us just don't speak.

Let me give you my simplified view on life. You can be on one of two. It doesn't matter if you are "rich", "poor" or in the "middle class". Throw out whatever definition you have formed for what qualifies you as one of those three tiers. Everyone is in one of two tiers and here they are. You are either a consumer or an investor.

A consumer spends their money and usually has debt. How much debt a consumer has will determine how far to the left they are on the scale of poverty. A consumer can have assets like a home, stocks, bonds, cars and boats, however, what is owed on these items are often more than what they are worth. A consumer generally has a negative net worth or has very little positive net worth in comparison to an investor. The more negative a consumer's net worth the harder the struggle will be to ever get to the investor side of the scale. Once a consumer reaches a certain point on the consumer scale, they will forever struggle to not be a consumer in debt. Go too far to the left and the best case for a consumer is to stop the slide to the left. Standing still on the slide is the best you may ever do.

An investor owns assets. They generally have a positive net worth. An investor will forever struggle to keep their positive net worth and their assets. The more assets an investor owns the further to the right of the investor scale they are. An investor has assets like homes, stocks, bonds, cars and boats; however, the value of these assets is often higher than what is owed on them. Over time, the equity they have in these assets grows as the debt on the assets is amortized and the values of the assets rise. The further to the right of the scale an investor is the easier it is to stay on the right side of the investor scale. Once you reach a certain point on the scale, you will forever be an investor unless you choose to throw it all away. Stop investing before you reach that point and you can quickly slide to the left and into the consumer in debt scale.

This is an important point. It is fiscally easier to be a consumer and difficult to be an investor. Being a consumer can mean a life of constant struggle. Being an investor can make life easier in the long run. A consumer must constantly struggle to make money so they can pay their debt or purchase the next big toy. While an investor will struggle to stay an investor, the struggle will result in greater rewards. A consumer can do give up and slide further to the left of the scale with little or no effort. An investor must actively labor to stay an investor. If an investor stops working at being an investor, they have the ability to slide quickly into the in debt consumer side. A consumer will never accidently ascend into the investor scale.

So where are you? Where do you want to be? You can be a consumer living with debt and be "happy." If you are close to the center of the scale then you can maintain your position as a consumer by just doing the bare minimum to make it. You will always have debt or little to no net worth, but you can live with it. Or you could be the poor sole that is deeper in debt every day that you wake up. The further from the center you are, the more rapid the movement and steeper the path to the investor side. As your debt grows, the speed at which you move to the left of the economic scale will increase. Move too far to the left of the scale and you will never be able to recover on your own. You can struggle toward the right of the scale, but it is kind of like the 900 pound person losing 200 pounds. They lost a lot of weight and should be congratulated, but they still weigh 700 pounds! You are much better served to go on the diet at 200 pounds.

Then there is the investor or right side of the scale. If you have a positive net worth you have much more opportunity to raise it. The more assets you own the more you can invest and the more your assets can grow. The more the assets grow the larger your net worth will be. It compounds just like that savings account with the insulting interest rate from the bank. Every time you increase your net worth, those assets compound to create more net worth. As your assets grow you move further to the right. Move far enough to the right and you can ensure you stay on the right side of the scale with minimal effort.

So are you the one with all the newest fancy gadgets that has enough money to get you to the next paycheck, or are you like Mr. McCain and can't keep track of how many houses you own? If you don't know what your net worth is then you are on the left half of the scale. I suggest that you do everything in your power to start out on the right half of the scale. When you are on right half of the scale, you can waste a little of your net worth and still be on the right half. However, if you start on the left, you will forever struggle to reach the middle. You will most likely never pass into the right half for any significant length of time.

A mistake a lot of consumers make is to spend their pay raise before they get it. This can be dangerous. According to the Federal Reserve Board, Survey of Consumer Finances the mean of family incomes fell by 2.3% actually decreased during the periods of 2001-2004. It must be those tax cuts that saved us.


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So what does the top 0.5% wealthiest in the nation invest in that the others don't? According to a paper Estimation of Household Net Worth Using Model-Based and Design-Based Weights: Evidence from the 1989 Survey of Consumer Finances by Arthur B. Kennickell and R. Louise Woodburn the wealthy invest in businesses, bonds and real estate. The top 0.5% own 51.6% of the businesses, 66.1% of the bonds and 33.4% of all real estate (not including their principal residence). So if you want to be in the top 0.5% of the nations wealthy you will need to invest in businesses, bonds and real estate that you do not live in.

What do the lower 90% of consumers spend their money on? Automobiles (75.5%), their principal residence (65.1%) and life insurance (60.5%).

If you want to move toward the right, then I suggest you start spending less and investing more. Putting money into a savings account does not count as investing. Savings accounts with lots of cash in them are nothing but nest eggs. They can crack and rot at any time. You need to buy assets to be an investor and cash is not an asset. Assets will appreciate and create additional net worth. When you have enough assets to generate income to support you without working then you have moved far enough to the right to stay there. If you are depending on a pension, job, or Social Security then you are at the mercy of others. That is not a position you want to be in. Your pension, job or Social Security should be extra money that you use as play money.

So how does the Average Joe reach retirement? I would suggest you try one or a combination of what the wealthy are doing. Own a business, purchase some bonds, and/or purchase some investment real estate. Not everyone has what it takes to own and/or run a business. Building or purchasing a business can take a lot of capital that man do not have. Bonds can be purchase a little at a time, but most of us don't have enough capital or time to purchase the number of bonds required to generate a sustainable income if we retire. That leaves us with real estate. Real estate is one of the few investments where you can purchase with very little of your own money and use leverage to your advantage. Personally, I think that real estate is the best chance that the Average Joe has of becoming wealthy enough to retire. A home is something that an Average Joe can understand and actually purchase with relatively small amounts of capital and receive huge returns on that investment. The key is to purchase real estate that you do not live in. Get somebody else to pay the mortgage on it.

Yes, I am aware that the housing market is in the middle of a melt-down. Must I remind you that the stock market has gone through a few melt-downs in the past? That is part of the economic cycle. Housing will return. The problem is that nobody knows when. The cost of food is increasing but you haven't stopped eating. As housing goes boom or bust you don't stop investing in it. You simply make sure that when you purchase the house that you have made a good investment. If you make a good investment then where the housing market goes is irrelevant.

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Consider this. The median family net worth of homeowners in 2004 was $184,400. The median family net worth of a renter was $4,000. As you can see, the median net worth of homeowners increased from 1995-2004 while the network of renters decreased. Why is that? There are number of factors, but the primary factors is the ownership of real estate.

If you’re a renter, now might be the time to sit down and take a good look at your finances. Get in touch with a Realtor who can help you get prequalified for a home mortgage. Stop paying your landlords mortgage and start investing in yourself, and your future.

If you have considered buying real estate as an investment, be sure to contact a Realtor that understands your specific goals and understands how to evaluate an investment opportunity. Not all Realtors are investors.

One last item of note. What is the number one reason stated for saving money? Retirement. Here is to the pursuit of retirement, however it may come.



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© 2008 Robert Little

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