Oklahoma City- America’s #1 Recession-Proof City

Some people say it’s impossible to make predictions about the economy.

I disagree.

I moved to Oklahoma City in September 2006 expecting its housing market to remain stable through the coming recession. The market is beginning to confirm that expectation.

Forbes recently made a list of America’s top ten recession-proof cities (out of the fifty largest cities).

Oklahoma City is #1 on that list.

Nationally, home prices are falling, unemployment is on the rise and the economy is expected to grow slowly–or even contract–in the first half of the year.

But some cities are doing just fine.

Take Oklahoma City, Okla. With falling unemployment, one of the country’s strongest housing markets, and solid growth in agriculture, energy and manufacturing, it looks best positioned among the nation’s largest metropolitan areas to ride out the current crisis.

Forbes is good about providing evidence to support their rankings. Here’s their analysis of Oklahoma City:

Oklahoma City, Okla.
Median home price: +8.2%
Unemployment: 3.5% (from 4.7% in February 2007)
Key growth: Leisure and hospitality, +6%; construction +11.5% from 2007

Did someone say something about a recession? With falling unemployment, one of the strongest housing markets in the country, and strong growth in agriculture, energy and manufacturing, Oklahoma City might not have received the recession memo, and it looks best positioned of the nation’s metropolitan areas to ride out the current crisis. Booming valuations of Oklahoma City’s largest companies, like Devon Energy and Chesapeake Energy, suggest the energy sector is the right place to be.

The price of oil may fall in a recession as it has in the past. That would hurt Oklahoma City’s housing market. Despite this, our cost of living is so low that housing doesn’t have much room to fall before bottoming out.

We all make predictions about the economy, whether we realize it or not. Someone who chooses to live in San Jose, CA is inadvertently betting that housing prices won’t drop there - or he is willing to accept whatever decline occurs. His neighbor, who moves to Oklahoma City or Houston, is also making a bet. It’s simply a more conscious one.

What are you betting on this year?

What a Florida Real Estate Broker Is Waiting For

Can a Florida real estate brokerage still make money? Ed Bonkowski, a Fort Myers-based broker, says “yes”, but he’s waiting for certain market conditions.

His words appear at the end of an article about Lee County, FL foreclosure auctions (emphases mine):

One recent attendee [of foreclosure auctions] was Kim Hardin, a real estate agent with Century 21 Sunbelt Realty # 1.

She didn’t bid on any properties but was interested in buying foreclosed houses from the regulars.

Hardin said she’s looking to buy in bulk for clients interested in holding houses and leasing them out.

But that could be difficult, Carney said. “We can’t get the houses” in large numbers from the banks.

Ed Bonkowski, a Fort Myers-based real estate broker, did a lot of business in foreclosed properties in the early ’90s in the last major downturn but said he hasn’t lately because good deals are “few and far between.”

He expects that will change eventually, as foreclosure sales accelerate and bank-owned homes pile up.

“Our decision to buy’s going to be when the banks are ready to bulk sale a bunch of them, then it’d make some sense,” Bonkowski said.

But prices will have to drop steeply for that to happen, he said.

“At 15 cents on the dollar, all those properties will be gobbled up, investors will come out of the woodwork and buy them and everybody will go back to work,” Bonkowski said.

Rentals are worth buying, even in Florida, but only if the prices are right.

People who buy right are not scared of this market. They’re excited. That’s worth remembering.

Get Rich On Rentals

Last week, we went to a seminar hosted by the Oklahoma City Real Estate Investors’ Association. Justin Gentry, a local real estate investor, showed us a strategy that will allow him to eventually collect an income of a million dollars a year.

Here is the basic outline of his strategy:

1. Buy a house at a large discount that needs minimal repairs to be put in rentable condition. The gross rent per month should be at least 2% of the purchase price of the house.
2. Fix the house up and rent it out.
3. Borrow against the house at 50-65% LTV to pull all of the acquisition and repair expenses back out of the house. Small, local banks will lend based the overall cash flow of Justin’s housing portfolio.
4. Use the money to buy the next house. Do this once a week.
5. Use the rents to pay the loans down as quickly as possible.

If Justin continues buying one house per week, he’ll have two hundred houses after four years. Once they’re paid off, each house will throw off about $5000/year in net cash flow. For two hundred houses, that’s a total income of a million dollars a year.

That income will rise each year as rents increase. If Justin ever needs to, he can borrow against his free-and-clear homes and have quick access to several million dollars of cash.

You can do this too. One of the challenges will be finding one house a week to buy that will give you enough cash flow to follow Justin’s plan.

There are ways to do this in many areas of the country. Stay tuned as we continue to post profit-generating strategies that take advantage of a buyer’s market.

Foreclosure Summit 2008

We just got back from Vena Jones-Cox’s Foreclosure Summit. The Summit provided us with a unique opportunity to network with real estate investors in the Indianapolis area. Here are highlights of a select few among many of the seminars from the four-day conference:

• Donna Bauer, otherwise known as The NoteBuyer (Inc.), taught a full-day seminar on buying and profiting from real estate backed notes. By special request from last year’s Foreclosure Summit registrants, she taught a special full-day seminar.
• Steve Dillon, a former experienced loss mitigation trainer at EMC Mortgage, spoke for two sessions on negotiating successful short sales.
• Kathy Kennebrook presented a seminar on raising private money.
• Don DeRosa, a real estate investor and nationally known teacher who presented in Oklahoma City last year, presented a seminar on negotiation techniques and a seminar on buying houses subject to the existing financing.
• Vena Jones-Cox and Missy McCall-Hammonds taught a seminar on building real estate business systems.

We noticed that investors are beginning to focus more and more of their energy on three strategies:

• Short Sales
• Bankruptcies
• Discount Note Buying

There was a feel of excitement in the air throughout the entire conference.

Vena Jones-Cox and Lucy Brenton gave us some interesting insights about the mortgage market. They explained why the opportunities for distressed property investments are only going to get better and better.

More about this in the next post!

Real Estate Investors’ Clubs

I just got back from a Mastermind Group meeting sponsored by Millionaire Possibilities, a real estate investors’ club in Oklahoma City.

If you’re considering investing in real estate, it’s a good idea to attend the investor club meetings in your area. The more experienced members of these groups are in touch with the market. They can help you develop a business strategy, even a slower market like this one.

The clubs are also a good way to get leads on properties, find contractors, and network with other investors.

Here’s a quick summary of how the clubs in the Oklahoma City area have helped us in the last month:

• We received leads on two newly built, overleveraged houses in Oklahoma City through members of the club. Since the homeowners have missed payments and owe more than their houses are worth, we’re doing short sales on both.
• One of our short sales was approved in Edmond, OK. We’re listing it on the MLS through a club member.
• We bought a house in Edmond by taking over the existing loan and did three weeks of rehab work using contractors from the clubs. The first person who walked through the finished house put the house under contract and has agreed to close by May 1.
• Three members of the club called me to ask for advice about whether to buy houses they had put under contract. After hearing how much work the houses needed, I advised them to consider whether they’d be able to make any money on those houses after paying for rehab work, interest on their loans, Realtor commissions, and closing costs. They decided to use the inspection contingencies in their contracts and will not be buying those houses.

Use the links below to find real estate clubs in your own area. After you visit, post a comment here and let us know what the meetings in your area are like.

List of clubs at the REIclub Web site

List of clubs at the CREonline Web site

Robert and Angel Elder are the founders of Millionaire Possibilities.

Will the Fed Bail Us Out? (Make Money Anyway.)

Will the Federal Reserve bail us out of this mortgage mess? Jim Bradley doesn’t think so. He says they cannot do this without destroying the dollar. The only alternative to hyperinflation is to allow a recession to occur.

Fallacy 5 - The Fed can (or will or must) “bail us out”.

Not true. The Fed has diminished their ability to “inflate” because they operate on a base of roughly 900 billion in base money - and that’s after nearly 100 years in operation (and 95% drop in the value of the dollar despite major growth). There is no practical way to monetize a trillion-dollar mortgage-banking accident into cash without completely destroying the currency, ruining the market for U.S. treasuries, and effectively shutting down the Federal Reserve. The only option is to “borrow” our way out. Under current circumstances, to do so without price inflation will require extinguishing a multiple of that purchasing power in the private market to offset the public debt.

If investors sense hyperinflation, they will front-run the Fed even if the Fed isn’t yet inflating - which appears to be happening to some degree now. The Fed might need to go far into deflationary territory before a scared market is satisfied with the soundness of the dollar. Rather than analysts arguing for a persistent policy of excess monetary expansion, it is far more likely the Fed will oscillate policy from fast to slow, as then they have a more sustainable market for treasuries by pushing participants to extremes on in the market, effectively forcing a “bust” and creating demand for currency.

As I wrote before, I agree with Jim that the Fed is not inflating. Jim goes so far as to say that this stable-money policy is effectively deflationary: it was cause prices to go down. We’re already seeing price deflation in the housing market, which is most immediately tied to the credit crunch.

Is the Fed deflating now?

Most likely. Total credit is and will continue (without intervention) to fall strongly while the Fed holds base money expansion nearly flat. If those circumstances hold, policy is deflationary no matter what certain classes of prices do.

Ironically, if the Fed reverses soon enough, price deflation may not be evident across broad groups of goods that are now rising and the inflationists would appear right even though they are currently incorrect.

For now, the current credit contraction may be the worst since the great depression. The near collapse of U.S. housing is an effect that far outweighs the rise in oil prices (the banking system will probably register between 1 and 2 trillion in final losses, and probably 2-3 trillion in credit contraction over the next 3-5 years as old loans fail, cannot be refinanced, and only a fraction succeed). Already, defaulted loans are near 650 billion. Price deflation - should it occur - will be baked in when average goods (those that are not busted like housing or going up fast like oil) register price declines.

Only in the case where the losses are not taken (a bailout leaving a large part of the spending power in existence) AND the Fed complies by running looser money will that solidify the past monetary expansion and lead to future (very high) price inflation.

Jim’s post is detailed and worth reading in its entirety.

How to Make Money from the Mortgage Mess

Because our investment group’s background is in real estate and real estate backed loans, we’re not planning to buy put options on stocks or short commodities. Those markets are incredibly efficient, and predicting the future makes or breaks that kind of business.

We’ll make our profit when we buy, not when we sell. Bad loans have already begun to flood the market, and the price of the notes is declining more quickly than the price of the real estate securing the notes. This provides an opportunity for us to catch a spread by buying the notes, obtaining the properties, and selling the properties.

The keys for us will be to buy the loans at the right prices and to add value by selling the notes and properties at higher prices than banks normally can.

It’s the same reason that short sales are profitable. Investors pay banks more than the banks could recover by foreclosing themselves, and the investors utilize efficient systems to prepare and market the properties for quick sale.

Stay tuned as we continue to post updates on our investment strategies.

The Fed is NOT Inflating. Let’s Make Some Money!

The rumor going around today is that the Federal Reserve is inflating the money supply and that this is causing the dollar to fall rapidly in value. The common advice has been to be in commodities, since commodities rise against the dollar. A lot of people are running to gold and oil in anticipation of future inflation.

The other rumor being circulated is that we’re looking at a severe credit crunch, which is bringing us into a recession. The International Monetary Fund has recently said that this is the worst financial crisis to hit the United States since the 1930s.

There’s a problem here. The rumors contradict each other. The expectation of future inflation is inconsistent with the claim that we’re in the middle of a credit crunch.

Forecasting the Future

This is not just a theoretical problem. Your investments succeed or fail based on how successful you are at planning for the future.

If there’s going to be future inflation, gold and oil will rise. If we’re in a credit crunch, gold and oil will fall. Gold mining shares and oil companies will follow suit.

In order to anticipate the direction of future price inflation, it’s important to look at the Fed’s present policy of monetary inflation. That is, if the Fed is producing new money today, we should expect prices to rise in the future. If the Fed is holding to a policy of stable money in the middle of a credit crunch, we can expect prices to fall later.

The best indicator of Fed policy today is the adjusted monetary base, a measure of the total amount of physical currency (dollar bills, etc.) in circulation plus commercial bank deposits held by the Fed as reserves. The Fed controls this directly by creating and destroying currency.

The St. Louis Fed publishes a chart of the adjusted monetary base:

Notice how the chart has been almost flat for the past two years. (This has also happened to M1.) The Fed has been creating hardly any money relative to its activity in the past. This is one of the sources of the credit crunch we’re facing today.

Rising Prices Today Do Not Point to Inflation Tomorrow

Yes, certain prices are going up - but remember that price inflation is a result of monetary inflation. Price changes lag behind the Fed’s activity. The cost of housing went up because the previous Fed Chairman, Alan Greenspan, expanded the money supply several years ago. The new mortgage credit created as a result of Greenspan’s policies artificially increased the demand for housing, driving up its price. The price of oil, copper, and other commodities rose because of the demand for materials created by the housing bubble.

Ben Bernanke, who is Greenspan’s successor as Fed chairman, slowed down the rate of monetary expansion. That’s why the adjusted monetary base is almost flat. The credit which had been created under Greenspan’s bubble then disappeared. Many people were no longer able to refinance out of their high-interest and adjustable-rate loans. This led to a higher rate of foreclosures, which lowered the value of mortgage paper, which made it even harder for banks to make new loans.

The credit crunch we’re seeing today is a result of Fed policy just as much as the housing bubble was.

Money is still moving into gold, oil, and other commodities, partly because people don’t want to put their money into the stock market or into real estate. However, we can expect the prices of those commodities to fall if the Fed continues its policy of stable money and allows the credit crunch to play out naturally. Inflation will return, but only after the Fed has started to expand the money supply again.

What We’re Investing In

Our investment group is not moving our money into commodities. I expect commodities’ prices to fall due to the Fed’s policy of stable money. We expect the credit crunch to be as exciting for investors as the housing bubble was; we just have to make sure we’re on the right side of the fence.

The credit crunch will force business to sell their assets in order to pay off their debts and try to avoid bankruptcy. When everyone starts to sell at the same time, prices will fall to the floor.

Get ready to pick up defaulted mortgage paper, foreclosed property, and business equipment at fire-sale prices. We’re already doing a lot of short sales. We recently got one approved in Edmond, Oklahoma. We’re also getting ready to buy mortgage notes at large discounts. Stay tuned for more updates on our investment strategies.

If you’d like to share your own investment plans or publish a success story on our site, let us know by posting a comment here.

IMF Cuts Global Forecast on Worst Crisis Since 1930s

Bloomberg posted an article on Wednesday about a statement by the International Monetary Fund:

April 2 (Bloomberg) — The International Monetary Fund cut its forecast for global growth this year and said there’s a 25 percent chance of a world recession, citing the worst financial crisis in the U.S. since the Great Depression….

“The financial shock that originated in the U.S. subprime mortgage market in August 2007 has spread quickly, and in unanticipated ways, to inflict extensive damage on markets and institutions at the core of the financial system,” the statement said. “The global expansion is losing momentum in the face of what has become the largest financial crisis in the United States since the Great Depression….”

Notice the IMF statement’s wording: “in the face of what has become the largest financial crisis in the United States since the Great Depression.”

They’re not speaking in hypotheticals. They’re saying that there is a crisis, here and now. This crisis is the worst we’ve seen since the 1930s. What’s happening in the U.S. could cause a worldwide recession.

“The greatest risk comes from the still-unfolding events in financial markets, particularly the potential that deep losses on structured credits related to the U.S. subprime mortgage market and other sectors would seriously impair financial-system capital and initiate a global de-leveraging that would turn the current credit squeeze into a full-blown credit crunch,” the IMF statement said….

This will force banks to sell some of their assets fast, at fire-sale prices. Think about bank-repossessed houses. Banks are not in the business of property rehabilitation, management, or re-sale. That’s why investors who are in that business can make a profit by buying these houses. Their costs and resale strategies are more favorable than the banks’.

Troubled banks won’t just be selling repossessed houses. They’ll be selling off their mortgage notes, credit card debt, furniture, and anything else that gets them cash at a time when cash is sorely needed.

If you’re already a debt collector by trade, could you take advantage of this opportunity to buy bad debt at fire-sale prices and collect the debt balance yourself? If you owned a used furniture re-sale business, could you buy furniture in bulk, fix it up, and re-sell it?

Roger Nightingale, global strategist at Pointon York Ltd. in London, said the IMF had been slow in spotting the slowdown.

“The IMF only really forecasts these things after they’ve begun,” he told Bloomberg Television. “You’ve got America, Italy and several other European countries and one or two Asian countries, actually in or very close to recession, and yet the IMF just now begins to talk about this phenomenon.”

Think about ways to make your business not only survive, but also thrive in the recession that’s coming. Keep your one eye on your business and the other on the news. The opportunities are out there!

Source: http://www.bloomberg.com/apps/news?pid=20601087&sid=aWNW6ABxw9.Y&refer=home

Everybody’s Down Market is Someone’s Good Market

A great article from Realty Times puts the entire “housing meltdown” and potential coming recession into perspective: bargain prices + low interest rates = good buying opportunities.
http://bronchick.wordpress.com/2008/01/24/everybodys-down-market-is-someones-good-market/

Getting ready to buy rentals?

William Bronchick interviewed on CNBC: “Flipping Properties” in Today’s Market