Will Low Interest Rates Last?

Many people are buying a home or refinancing theirs at today's record (can anyone say ridiculously) low interest rates. These rates have been a nice boost to the real estate market at a time when other factors could have done significant damage.

The Law of Unexpected Consequences

Low interest rates have been a stimulus of their own to many industries where financing is the general rule. They have increased the number of buyers or, in the case of real estate, permitted buyers to purchase larger, more expensive, properties – for a while. However, this increased demand had the not unexpected effect of putting upward pressure on prices.

This increase in prices – also called inflation – is the very thing the Federal Reserve Board is in business to prevent, or so we are told. At this writing this rate is an “acceptable” 1.4%. However, if one knows much about economics and the calculation, we know the number is bogus since these figures do not include food or energy because, as we are told, they are far to volatile to be meaningful. Anyone who uses energy and buys food has seen where these prices are going.

While this bit of economic slight of hand would lead one to expect the Fed to begin bumping up the interest, even they understand that our economy weakened by the Chinese flu inspired shutdowns would not respond well.

Two Sides to the Low Interest Equation

While low interest makes large purchases more attractive, it is not without a negative impact as well. Many items require a down payment. Even the security deposit on a rental is a larger chunk of money than many people living paycheck to paycheck can easily lay their hands on.

The traditional way to get the down payment for a home is to save the money. The same low interest that makes the purchase attractive makes saving for it most difficult. The FHA has artificially solved this problem with low down payment options. Yet, with the sub one percent savings rate and sub two percent certificate rates even 3 per cent down payment is a reach for many.

A while back, when I was assuming control of inherited accounts, I was sitting across the desk from a bank branch manager. She was a nice lady who meant well as she recommended one of their “high yield” CDs. I looked at the numbers she showed me and told her, in a nice way that she should describe them as the best interest they have, but please, don't call them high yield.

Looking Ahead

Can the banksters function at 2 percent for long? It is not the way to their prosperity and their magnificent edifices. Many have compensated by chipping away at their customers with more and higher fees, while cutting operating expenses and services – encouraging automated banking rather than face to face interactions. In some ways this is a convenience for the customer, but it is a big cost savings for the financial institution.

In my younger days it was not unusual to make the weekly trip to the bank to deposit my paycheck and get to know the people who were handling my money. Not so today with ATMs and smart phone deposits. But is it enough to survive? Will the Fed be able to maintain the current interest?

We have to remember that the Federal Reserve, despite it's name, is not a government agency. It is a central bank, owned and operated by the banking community. The question is: when will the prime rate begin to rise and what impact will it have on real estate and on the economy as a whole?

Thin profits on loans, business loan failures, forbearances, foreclosures, will put more pressures on the beloved underwriters to make fewer and fewer errors in judgement – loans will be harder to get until interest rises and gives them more of a cushion. Even today, a majority of people cannot get a home loan while government types clammer for more “affordable” housing.

Is this all bad? Individually it may be, but loose lending practices are one of the factors that led to the 2008 debacle. The impact will be moderated as savings accounts once again pay reasonable amounts to savers.

Back to Dave Ramsey

While investors have to deal with lenders, the economic world we live in has been created to encourage us to mortgage our future by creating debt – for houses, for cars, for massive TVs and any other shiny trinket our heart desires. We are assigning future income to pay for today's enjoyment. Perhaps that enjoyment would be greater if it were accompanied by more equity and less debt that makes the prospect of an economic downturn to difficult to consider and more difficult to experience.

The rich rules over the poor, and the borrower is the slave of the lender. Proverbs 22:7

We seem to have forgotten this wisdom as we take the bait of low interest and and rush to enslave ourselves to the banksters.

Show Your House – Sell Your House

If you are trying to sell your house, whether it is your residence or one you rehabbed or inherited, sooner or later it comes time to show the property. After you have the place all polished and shined it's time to start advertising.

Getting the word out

The best advertising techniques is a topic for a whole other time, but we will hit the high points. There are various online options, including Craigslist and various For Sale By Owner sites.

Take some pictures and make up some flyers. You may want to have the pictures made into a short promotional video for your online ads. The flyers you can pass out around to the neighbors – perhaps they will supply your buyer as they help decide who moves in the neighborhood. You can purchase signs at most big box building supply stores. When you do, get the tube or box to hold more flyers and keep them stocked.

Invite them in

When people begin responding to your ads you will need to start showing your house. Here is where videos can be a real time and life saver as it could weed out the buyers not really interested in your property. Whether you are living in the property or not, it is usually best have an open house scheduled for them to come by. Some will not be able to make your time and it's OK to deal with that, however it's best to get them all together at once for them to see others interested in the property. Have a sign in sheet when they come in. Realtors do and so should you. Get their phone number and/or email so you can follow up with them, even if they are not interested in buying. You may learn something to do better next time.

Preparation

Now is the time to get the place super clean. Hire a cleaning person to make the place shine if you have neither the time nor inclination to scrub down everything – especially the kitchen and bathrooms. If you have a cat, you don't notice the litter odor, but visitors probably will. There are sprays available to eliminate that aroma. This is definitely the time to have that extremely honest friend come and walk through your house with you. They will notice things you live with every day. Speaking of aromas, baking cookies, even the ones with dough that comes in a tube make the home feel more homey and can be served to make the visitors feel more like guests. Yes, serve the cookies and let the visitors enjoy them. Try to keep an eye on the offspring that they don't grab them by the handful.

If you have a lot of family pictures, it is good to put them away while you are showing the place – especially if you have children. You want people to start thinking of the house as their place, not that they are buying your home. Beyond that, the less visiting stranger know about your family the better.

Make sure the lawn is cut and trimmed, and the leaves raked if it is that time of year. Pets caged or visiting relatives - and the back yard cleared of “land mines” if you have a dog.

Staying Safe

There are some safety tips if you are showing the place alone. I need to add at this point that many come straight from realtor training as supplied by our local police department. This is not to frighten you but to help make sure you enjoy the sale. It is best that you have your car parked in the street if it is possible so you cannot be blocked in. This is most important when you are alone on the property. When taking people on a tour of the house, direct them into bed and bath rooms along with any enclosed area rather than going in first, then stay by the door. Most people are great, but just be careful and stay safe 

Relax

People usually enjoy looking for a house. Occasionally you will find some that try to be intimidating. Ignore it and enjoy the process yourself. I've met some pretty good people showing houses. When it comes to negotiating the deal – that also is the subject for another day.

For now, know what you believe the place is worth and don't let someone low ball you. The whole process from start to finish is covered in our eBook Sell Your House Like a Pro!!!

Cash For Keys – A Better Option

Any time you own rental property you are dealing with people and the ups and downs in their lives as well as your own. Sometimes the evaluation process does not catch problem tenants and sometimes good people with good histories run into financial or health problems no one could foresee.

Many years ago we rented a house to a nice family with a special needs child. They were good tenants for well over a year and they took good care of the property. However, eventually their problems became our problems and rents started coming in later and later. We were fortunate that they were reasonable people. After we discussed the situation with them, we decided to tear up the lease and part company as friends... yes, we kept the deposit.

Other Options

We could have tried to hold them to the letter of the agreement. We could have gone to court to try to get money they didn't have. We could have had the Sheriff dump all their belongings on the front yard. We could have developed such a toxic relationship that they would have trashed the house and cost us thousand to repair it. Fortunately, none of this was not necessary or even considered.

An Expanding Problem

Missing rent checks are always a problem, even in the best of times. However, during this period of enforced economic shutdown, more people who have regularly been making timely rent payments are finding themselves in the awkward situation they did not plan on. Their problems are becoming the property owners problems.

Adding to the property owners problems is the moratorium on evictions. While this is not universal and doesn't cover every situation, it is a way of shifting some of the pain to the property owners. Tenants must qualify for this protection it does not cover every situation. Even for those covered, it will not go on forever, nor should it be necessary, unless we, as a society, makes some grave errors this November.

A Necessary Accounting

Sooner or later, there must come a day of reckoning. Either the bills for the property cannot be paid or a paying tenant must be put in place. No fancy economic theory from an ivory tower academic can come to any other conclusion.

This is not saying the landlord should not work with the delinquent tenant, nor that they should be treated as an enemy. But what do you do?

The Normal Procedure

I know of some property owners who begin initial procedures when the rent in a few days late. It may be necessary, depending on the nature of the property and renters, but for regular, hard working people who just had a big car repair bill it may be overkill and begin an adversarial relationship.

It could also be an expensive one. Depending on the state, it could cost you hundreds to thousands of dollars and take from a few weeks to many weeks. It may create such animosity that results in a lot of destruction in your empty house. I've seen holes in walls, appliances taken, cement dumped in toilets, and cabinets destroyed or stolen by angry people forced from their homes,

Another Approach

Many landlords have found a Cash for Keys approach works well in some cases where they give the tenant three to five hundred dollars when have vacated the home – if they place is not damaged and littered with trash. It gives them and incentive not to take their frustration out on your property.

Some will say “Wait a minute, these people have lived rent free for several months and now you want me to give them money when they leave?” It seems like you are rewarding bad behavior. But who is the real winner here? If you go through the eviction process, it will cost you money. If they trash your place, that could cost you lots of money. And you can bypass this for five hundred dollars? That makes you the winner. Forget that they come out OK. We are not in business to punish anyone. As a straight business decision it is the best outcome to a bad situation.

The practice is not really something new. Banksters have been doing it for years with short sales and foreclosures. If the house is left in good condition, the borrower is given something like three thousand dollars moving money to make the process go smoothly and not damage the property.

Some Cautions

Do not give them the money until everything is out and you have confirmed it. Unfortunately, not everyone is as honest and reputable as you are. Once this is confirmed, change the locks immediately! You don't know how many keys are floating around. Then take whatever other steps are necessary to secure the property. You may want to only leave one operating access point to the building. Neighborhood kids like to explore vacant houses if they can get in. The recently removed tenant may try to come back and do damage or take something. I've had an unsecured lawn mower taken. Lesson learned.

You never know how much hostility there is in the mind of the exiting tenant. You may not want to be alone when you confirm this exit. Or go through after they are gone and meet them at a public place to give them the money. Just keep your personal safety in mind as these days too many people see violence as a way to settle their issues. You are not the bad guy, but the person leaving their home may see things differently.

Listen to the tenant. Do what you can to help with a smooth transition. Be safe, some people can be very emotional, but this can often be diffused if you are a good listener.

 

Next Step in Home Automation

We have been adding items to our homes for many years that have made our lives easier. Garage door openers, motion sensing porch lights and programable thermostats were just beginning. For those of us rehabbing houses for resale adding such devices sweeten and help close deals. Why is this? The techies find the gadgets fascinating, but everyone likes the idea of an easier life.

Tying the Gadgets Together

In recent years, using WiFi or hardwiring, many of these useful devices have been connected, sometimes into really useful networks and other times, it seems, just for the novelty. I find internet enabled refrigerators interesting, but have not brought myself to feel the need to get one. Granted, the price tag alone puts them beyond the reach of many consumers and leaves them in the domain of the die hard gadgeteer or the practitioner of conspicuous consumption.

Other things have actual practical uses, like video door bells and internet capable dead bolts. Working mothers get a sense of security when they see their children arrive home after school. The more affluent can unlock the door when the cleaning people come to their home. This approach is much more secure than leaving the key under the door mat.

These networks can pretty much run the whole house. My neighbor can sit in his living room and turn on lights in different parts of his house. He can adjust the temperature. He can lock and unlock his front door. And he does this by just talking to the system. And there is so much more. You can connect security lights and cameras, security systems, robotic vacuums... and the list goes on and on.

For myself, I'm happy controlling some lights and talking to my Google Mini. When I am traveling, I can let the family know I am thinking about them by flipping some lights on and off from my cell phone app.

A word of caution accompanies this capability, just like with your computer and phone. It is fairly easy to tie all these gadgets together. So easy, that the recommended security protocols may just be skipped over in haste to see the new creation working. This is something that is often overlooked because who wants to mess with your lights and AC unit? Your network is visible to your neighbors or that van parked across the street. You have teenagers living nearby? It may be innocent fun – or it may not be.

Ready For Prime Time?

These things have been around for several years now. Time for most of the bugs to have been found and squashed. This is more than just nice to see. It is essential. I have never wanted to be the first to try any new technology – with good reason.

Many years ago, during the early years of personal computing, I was at the largest MicroAge computer store in the country. The place had such a large volume that it sold AT&T computers to AT&T offices cheaper than they could get them from internal channels. Yes, AT&T made computers at one time and they were pretty decent units. However, the pervasive utility company thinking kept them from being responsive to changes in the market and they are no longer in that business.

This was about the time IBM was promoting the PS2, and Lotus 123 was the dominant spreadsheet program – prior to Micro$oft gaining control of the office workspace. The first version of DOS was being replaced by DOS 2.0 and all the techies jumped on this new and improved operating system.

It was not long before it was discovered Lotus 123 would not work on the new operating system. Of course DOS 2.1 came out shortly thereafter, followed by other revisions that would run the required Lotus program.

Lesson learned, and confirmed many times since. I am happy to let others work in the bleeding edge of technology. I recommend this for any technology. New stuff is cool but it is not possible for everything to be tested completely in every situation before releasing to the eagerly awaiting public. Self driving Tesla's are a current example.

This is why I am perfectly content to let others be the final testers of the product. Beyond that, prices usually drop after the initial introduction. That way I save time, aggravation and money.

Mature Technology

While are always new additions to the automated home, many things have been around for a while – long enough to have discovered most of the holes in the systems. Nothing is completely secure or foolproof, but in the years these things have been on the market, vendors have learned much.

It's a never ending game. Security holes are discovered and patched. Intruders don't just quit an look for other activities. They find new holes, and when discovered, those holes are patched. Ad infinitum!

Will you be perfectly secure with your whole house system? Total security is not possible, but you can reduce the possibility of intrusion by taking recommended precautions. Just consider the small chance of issues as the price for the convenience of the automated and connected home. It's really no worse than your internet connection.

Too Big a Price Tag?

If you like the idea of the automated home but find the checkbook a little thin for the entire system. You can put up motion sensing lights economically. If you like the idea of video monitoring but find the cost a little steep. You can give intruders the sobering impression they are being watched with dummy cameras for about twenty dollars each. Often that is enough, along with some kind of security system sign to keep them moving down the block. Your neighbors may not be happy if their home gets robbed, but it won't be yours.

So the automated home may be the ideal, but if you don't want to deal with the connection or security issues or you don't want to spend the money, sometimes the appearance will just about as good.