Lessons & Ramblings of a Veteran Real Estate Broker

In January of 2003, I co-founded Metro International Investments with Mark J. Moldoff, a 4-decade veteran of the real estate development & brokerage industries.  For the past 5 years, I have benefited from his experience and his mentorship and I finally got him to start writing his own column on our company website, http://mii.miami.  He was nice enough to publish this while I was just beginning my recovery from spinal surgery, and unfortunately, I was unable to do much of anything, so I had to publish it a bit late.

It is my hope that others can benefit from his perspective, and I am sure as time goes on that he will publish many more articles covering best practices, education, and the real estate industry at large.  Mark’s specialization is Off Market Commercial Real Estate.

Click the image below to go to the full article.

Mark J. Moldoff, Licensed Real Estate Broker & Instructor
Mark J. Moldoff, Licensed Real Estate Broker & Instructor
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Distressed Market Edition: The Miami Beaches Market Pulse: June 2016 – 1st Half of the Year Report, Part 2 of 2

Lis Pendens Filings are UP on the Miami Beaches!
Lis Pendens Filings are UP on the Miami Beaches!

 

The first half of the year has begun to demonstrate a substantial shift towards a spike, and potentially continued growth, in the Distressed Market.  Note that I am saying “spike”, as at least one to two more data points would really be needed to see a marked change in the inclination of the overall foreclosure trend (and by then, it will be too late though to do anything about it).  In this dataset I go back to as far as my Tax Record Application, provided by the Miami Association of Realtors, allows: 2008.  Prior to 2007/2008, either the computer’s database records do not go back that far, or Lis Pendens filings were not specifically tracked until then.  Regardless, with nearly 10 years of data, covering the very beginnings of the prior distressed market until present, there is a disturbing increase in filings throughout the Miami Beaches.

For the most part I am displaying data and encourage my readership to draw their own conclusions, but I have provided commentary in places so as to properly set the context (as best as I can for the purposes of this article) of the time period as a backdrop for the actual number of foreclosures occurring in, what are, 5 of the wealthiest and most desired zip codes in the United States.  Please note I have pulled data on many other areas in the Southeast Florida area; with few exceptions thus far in my experience, the results for those areas parallel those below.

To provide a better frame of reference, and perspective, to the data-by-zip code below, I am providing this Historical Key, chart of the US Dollar, and Commentary to historical & present events in the Macro Economy:

The US Dollar Index (DXY) 1974 to Present
The US Dollar Index (DXY) 1974 to Present – Source: MacroTrends.Net

Year    |  Event(s) & Commentary

2008 |  The single biggest set of financial beatings in history begin!  Unprecedented institutional actions are implemented in an effort to restore confidence in the financial system and prevent a global financial system collapse.  By comparison, the Savings & Loan Crisis of 1985-1995, + the Dot Com Bubble + the Enron / Worldcom disasters of the 2000-2002 era, combined, pale in comparison!  The largest bailouts and bankruptcies in US history begin with the  failure of two of the most storied US based investment banking firms, Bear Stearns & Lehman Brothers.

2009 |  Asset purchases by the Federal Reserve begin with extreme prejudice.  By the end of the year, 1.75 Trillion USD are on the Federal Reserve’s books, and more debt in the history of mankind is monetized than all previous civilizations combined….and they are just getting warmed up!

2010 |  Scandal (“robo-mortgages” / “robo signings”), unprecedented backlog of foreclosure filings, nationwide, in the courts, loan modifications, and tons of cheap money slow & dull the pain!  This drives the Dollar into the depths of Hell over the next couple of years, setting a new historic low exceeding the lows of the late 1970s, the mid-1990s and, of course, 2008; 2008 being a period of what nearly amounted to a complete loss of faith in the financial system and fiat currencies virtually everywhere.

2011 |  By the end of 2nd quarter 2011, nearly another 600 Billion Dollars worth of defaulted assets were purchased by the Federal Reserve  The Buying spree continued through the year while loan modifications (and related businesses) popped up everywhere.  Whole real estate brokerages became founded upon Short Sales & REOs.  Special access to Fannie Mae, HUD and Freddie Mac portfolios were granted to large institutional buyers leaving a multitude of smaller investors out in the cold and only able to select from what was getting listed by licensed brokerages.

2012 | The economic stimulus (economic heroin), and massive backlog in the courts as a result of both volume and scandal, continued to slow the number of foreclosures.  Globally however, money pours into the United States in the form of foreign direct investment.  With the resulting “cheap Dollar” coming off of a historic low, real estate in the USA, especially Florida, looks “cheap” and the wealthy of other nations, many of whom were seeking to escape Socialism, Communism, and Austerity Measures of all kinds in their own home countries, flee to US Assets and begin driving the Dollar up, along with asset prices across all industries.

2013 |  Continued talk of “improving economy”, and of a forthcoming “tapering” of the Quantitative Easing from the Federal Reserve,  build confidence in the Dollar driving it higher well into 2014, simultaneously beginning a driving up of actual carrying costs, via currency risk,of US Assets by foreign investors who borrowed.

2014 | The 3rd round of Quantitative Easing ends in October…the money printing subsides…(for now).

2015 | After nearly 24 months of talk by the Federal Reserve, in order to maintain confidence in the US Dollar, the Federal Reserve raises interest rates in December 2015 by 25 basis points (0.25%) despite worsening, lackluster economic data.

2016 | Talks of additional rate hikes continue, however, by mid-2016 this appears to be a non-starter rate-hiking cycle.  Economic data continues to worsen, with record lows in the Workforce Participation Rate & the manufacturing indexes, an obvious spike in foreclosures, and what appears to be a looming sovereign debt crisis which, if a recent Federal Reserve Paper in favor of a 4th Round of Quantitative Easing comes to fruition, is a likely scenario.  As of right now, we as a nation are painted into a corner it seems.  There is a high probability, if the Federal Reserve chooses to do another round of Quantitative Easing (printing more money), a currency crisis will ensue (the value of the Dollar i.e. the Dollar’s purchasing power), will diminish in potentially spectacular fashion.  At the same time, if the Federal Reserve chooses to raise interest rates, this will crash the stock market and absolutely obliterate the bond market; it may also push the United States into a Sovereign Debt Crisis.

In the first scenario, more Quantitative Easing, Dollar Prices of real estate will increase substantially, but the purchasing power of those Dollars will simultaneously be diminished (i.e: while prices may rise, the cost of living will increase at a dramatically faster rate); this is bad for both prospective Buyers as well as Sellers.  In the second scenario, and this has happened throughout history, if interest rates are raised, real estate values will decline commensurate with the interest rate, and with respect to both Sellers and prospective Buyer-Investors, higher capitalization rates will be required in order for any particular asset to clear the market (this is very bad for Sellers who may end up under water as a result of declining prices).

 

33139 – South Beach & The Venetian Islands

Year    |  Number of Foreclosure Filings

2008  | 10

2009  |  21 – 200% increase over the prior year.

2010  |  63 – 300% increase over the prior year.

2011 |  21 

2012 | 12

2013 |  33

2014 | 27

2015 | 28

2016 | 55UP 196% YTD versus the same time period in 2015! Uh oh…the drugs are wearing off…More “stimulus”?

 

33140 – Mid-Beach

Year    |  Number of Foreclosure Filings

2008 | 4

2009 | 18 – 450% increase year over year.

2010 | 26

2011 | 6

2012 | 8

2013 | 8

2014 | 16

2015 | 23

2016 | 21  Slightly down – but this could be considered within a certain standard deviation models as normal or, at best, “a slight downtick”.

 

33141 – North Beach & North Bay Village

Year    |  Number of Foreclosure Filings

2008 | 5

2009 | 31

2010 | 44

2011 | 12

2012 | 26

2013 | 27

2014 | 21

2015 | 20

2016 | 31 – Up 150% from 2015!

 

33154 – Bal Harbour, Bay Harbor Islands & Surfside

Year    |  Number of Foreclosure Filings

2008 | 4

2009 | 5

2010 | 21

2011 | 3

2012 | 5

2013 | 13

2014 | 7

2015 | 9

2016 | 11 – Up, but this could be considered within a certain standard deviation models as normal or, at worst, “a slight uptick”.

 

331460 – Sunny Isles Beach, Golden Beach & Eastern Shores

Year    |  Number of Foreclosure Filings

2008 | 14

2009 | 37

2010 | 79

2011 | 12

2012 | 28

2013 | 27

2014 | 18

2015 | 21

2016 | 46 – Up over 200%!

Recommendations:

New foreclosure filings are up substantially on the Miami Beaches, and while I do not publish reports for other zip codes, I have performed these same analysis across three counties for my customers & clients.  There is A LOT of this going on.  I have nearly 100 short sale listings on MLS; only last year I had none.  It is a growing business again.  33140 and 33154 have not seen much action, yet, but I will be keeping tabs on them as I expect the tide to start sinking all ships at some point.

If you are a property owner and had plans to sell within the next 3 years, I strongly urge you to SELL NOW and immediately trade out of Dollars for either real estate (real estate of the same class, but perhaps a different location), that can fetch a higher capitalization rate if you were to rent/lease it, or plan to do so (view all purchases, even if it is your own home, from an investor’s perspective) or physical currency in the form of Gold and/or Silver, or a combination of the two.  Every situation is different, and I am happy to advise you.

If you are a Buyer/Investor, the distressed market is expanding once again.  Buy/Rehab/Flip and Buy/Rehab/Rent/Flip continues to be a working model.  What you need to be careful of is the potential loss of purchasing power of the Dollar.  I believe that locking in low interest rates at 50-75% Loan-To-Value, and thereby strategically increasing your Cash-on-Cash Return, is the best path to follow to protect yourself from the potentially damaging effects of inflation.  Thus, If inflation begins to kick in substantially, the only real estate you want to be left holding is that which is in a fantastic location; as you will continue to be able to raise your rental rate commensurate with what is appropriate for the location of Demand.  Following the same strategy; if Deflation occurs, your financial leverage will work against you on paper, however, as long as you are able to continuing to leasing your real estate at or near current rents, your return on investment should continue to provide substantial returns despite the value of the property declining; and income should really be your primary goal as a long-term investor in real estate; not property appreciation.

I also like certain REIT (Real Estate Investment Trust) investments, Gold/Silver and other niche areas & industries where money can best be shielded from the consequences of the long-standing poor monetary & fiscal policies of our government. Call me to discuss!

Forthcoming – I will be publishing July’s & August’s data on the Miami Beaches over the next few days as I am winding up for a close of 3rd Quarter Edition of the Miami Beaches Market Pulse coming in October.

Cheers,

photo
Christopher J. Lazaro, MBA
Licensed Real Estate Broker at Metro International Investments
Direct  1-800-798-9192 Ext. 333  Phone  1-800-798-9192  Mobile  305-878-2288  Fax  305-521-8995  Email  chris@mii.miami  Website  http://www.mii.miami
“Quality is never an accident; it is always the result of high intention, sincere effort, intelligent direction and skillful execution; it represents the wise choice of many alternatives.”

On the Federal Reserve: Repeating the Insanity

One of the biggest problems the average working American Citizen has these days is Information Glut.  We are constantly bombarded with information be it on the TV, on our phones, on the side of a bus, and sometimes on a nice clear day at the beach, in the Sky!  Unfortunately, and in fact, few Americans; even prior to the Information Age, paid much attention to the happenings in Washington DC.  Even fewer have the education level needed to truly understand the Who/What/Why/How(s) of what (and whom) they are voting for and how a single person’s (or group’s) policies can ripple-effect through the very fabric of our existence living in this country.  We live in a litigious society that is slanted towards entitlement, and has very little understanding of the consequences it will face tomorrow for actions taken today; particularly when it comes to the insanity of our monetary & fiscal policies.  As the old saying goes, “Those who do not learn from history are doomed to repeat it”.

To better establish my case and point, I will establish the timeline of the irresponsible fiscal & monetary policy our current regime is moving ahead with at full steam:

In 2006, conveniently ahead of the implosion of our economy and near economic collapse of the nation (and the resulting money printing bonanza), the Federal Reserve ceased publishing M3 which includes the total of M1, M2 and Long Term Time Deposits.  Tim McMahon wrote an excellent article on this back in 2006 that strongly questions why the Federal Reserve would do this as well as portrays a logical, cogent theory (in short, they are cooking the books!) as to why they did this:

What is the Government Hiding? by Tim McMahon, March 16th 2006

Hindsight being 20/20, it is my view that they saw the inevitable, bursting of the real estate bubble and shifted further towards a policy of less transparency so they could continue the masquerade and postpone the pain, suffering and related consequences of irresponsible fiscal & monetary policy.

Also in 2006, Peter Schiff predicted the forthcoming 2008/2009 economic collapse in extreme detail, but he had also published a book predicting what the Federal Reserve would do as a result of this collapse.  Unfortunately, the Federal Reserve has done EXACTLY what Peter was afraid they would do (read his book! Crash Proof: How to Profit From the Coming Economic Collapse).

See his TV debate: 

from 2006 versus Art Laffer.

How many of you called him, or people like him “crazy” or “conspiracy theorist” at the time?  How many of you saw the implosion of 2007-2009 coming?  I know I did; and I can prove it (I was trading my 401K at the time, shifting money between funds, and as a result, I was flat the first half of 2008, by the end of 2008 had lost 16% because I was actively buying the decline, shifting money from bonds – which had gone up a bit as “people ran towards the blast” – Peter Schiff, but then I saw 40+% and 30+% gains in 2009 and 2010 as a result of my trading/re-weighting of the portfolio.  I continue to retain these records).

However, it was not just the fundamentals & technicals in the market that tipped me off the most (I use a method of market evaluation called Rational Analysis, ie: where Fundamental & Technical Analysis overlap, which I learned from studying the work of John Bollinger); it was the fact that, for years, I had been attending several monthly social affairs, and came to the realization (in 2006) that when I first began going to these functions (2001/2002), one person was a Doctor, another a Lawyer, another a Dentist, still another a Police Officer etc…now, in 2006, I was the only person at the affair who was NOT a mortgage broker or a real estate agent.  Historically speaking, scenarios like this favor the Contrarian.

In 2008, Peter Schiff was featured on Fast Money and told the Fast Money Team to fade (sell) the Dollar:  

For those chartists out there, you will note that Peter correctly predicted the fall of the Dollar index (Symbol: DXY) which fell from 90 to 75 over the next 12 months.  Since then, there was another rally into the high 80s, a revisiting of the lows, the setting of a new low, and in the last 2 years a feeble climb back into the 80s, which is showing a lot of technical weakness with a recent “double top” this past year.  However, his prediction was not for a short term trade; he still holds the position that the dollar will eventually take a, possibly permanent, dive well below the most recent support of circa 73.  From a technical perspective,  a move below that support level could see the DXY plummet to circa 68, which for the average American, would be very damaging in terms of their purchasing power.  Still worse, a move below the 68 level would be catastrophic to the nation’s, and possibly the global, economy.

For those who are not savvy traders or chartists, consider this: The US Currency is NOT backed by anything.  The value of the USD (and any fiat currency) is completely based on trust & faith.  Like any other asset (like a stock or commodity), the more of it that is available, the less value it will have.  For example, if we had the ability to make every grain of sand on the beach turn into gold, what would gold be worth?  If gold were as easy to produce as the asphalt you drive your car on, or as common as the beach sand you walk on, it would be worth nothing.  Therein lies much of the danger in the US’s “Printing Press Mentality”; and it is the continuous printing of money that pressures the Dollar Index (DXY) lower.  As it moves lower, the American Dollar has less purchasing power.

One of the best analogies to the most recent bubble was also given by Peter Schiff in 2009 where he goes into significant (and hilarious) detail about the Internet Bubble.  The very same reasons/causes of the Internet Bubble were re-implemented by the Federal Reserve to create the Real Estate Bubble.  Furthermore, the very same reasons/causes for the recent Real Estate Bubble and Economic Collapse are still continuing, unabated, via all the Quantitative Easing the Federal Reserve has been doing.  The United States Dollar continues to enjoy Reserve Currency status, however, there are limits.  The Liberals (Democrats/Socialists/Idiots…all synonyms in my opinion) argue that it is “Different this time”.  These are the most dangerous words that can ever be uttered in the financial world, and if you are a person working as a trader, broker or other person who works in a financial institution and is responsible for handling money, these words could get you fired instantly.  Here is our Vice President arguing that we need to print more money (ie borrow more) to get out of debt:

Here Peter demonstrates that It is NOT different this time, and it won’t be any different next time, especially if the current economic crisis becomes a currency crisis (as serious as the subject is, I like Peter because he is able to take what is typically dry material and make it quite humorous…this is a long video, but worth the watch and the laugh):

In 2010, Representative Alan Grayson questioned the Inspector General of the Federal Reserve  (Elizabeth Coleman) regarding 9 TRILLION Dollars in Off Balance Sheet Accounting (isn’t this the sort of shananigans that bankrupted/imploded Enron and MCI Worldcom nearly a decade prior??) and several other subjects related to the Federal Reserve’s balance sheet growth etc.  More than 2 years after TARP was passed, this lady still had not even began a single investigation (and admittedly only just started a “high level review” of Fed Board activities) and could not answer one question.  In fact, she denied certain functions were her/their responsibility, only to be corrected by Rep. Grayson, that such investigation(s) are indeed her responsibility.

To boot, here are Ron Paul‘s comments regarding the printing of more dollars to not only bail out our own banks, but foreign banks as well!  Pay very close attention to what Ron says, as you will hear several common themes that will continue to play out throughout this article.

In 2011, Ron Paul summarizes the conception of the Federal Reserve, and the real and present dangers of the abuses of the Federal Reserve and the current fiat currency system:

It amazes me how complacent we as a nation have become.  The entitlement mentality in this nation has clouded our reasoning and sensibilities to the point where the average person will argue that “oh, that can’t happen here.”, but not be able to make an educated, rational, sensible, cogent argument as to why not.  Currency crises have happened many times over the past century; and have typically been caused by moves towards Liberal/Socialist agendas.  It happened with the Pound Sterling, Argentina, and is arguably happening right now with the Euro.  To think it cannot happen here is absurd, especially considering that our monthly trade deficit exceeds the GDP of most nations!

Finally, a full 7 years since the beginning of this article, I conclude with three additional videos.  The first, is another Peter Schiff video.  It is a 20 minute video recording of his presentation at the 2013 Las Vegas Money Show.  The second, is an interview with Jim Rogers, famous investor and billionaire; who is singing the same song/truth Peter Schiff has been professing.  The third video is a dramatized, What If? / Worst Case scenario of the US Dollar was to lose it’s Reserve Currency Status.  Keep in mind, most people will tell you “That cannot happen here”; what they do not know is that it has happened many times, in other countries, over the past century; and in fact it has happened to previous “Reserve Currencies”.

I found this very funny, and if you understand economics, I think you will too; he begins  “It is 2013, but if feels like 2006…”

Interview with Jim Rogers:  

Dramatized What If the US Dollar Collapses?

In a nutshell the problem can be summarized as this:  In the 90s the Federal Reserve lowered rates and created vast sums of cheap money which fueled the Internet Bubble. Then, we had a big bust; but instead of actually have a real recession and allowing Capitalism take over and cleanse the system; there were multiple bailouts, an expansion of government and interest rates were lowered even further.  This fueled another bubble; the Real Estate Bubble.  Once again, government grew massively, there were even more bailouts than before (and bigger than ever before) and interest rates were lowered to zero/near-zero; once again, circumventing the process of Capitalism.  So here we are in 2013, with a Federal Reserve printing tremendous amounts of cash and a government that has decided to try and grow its way out of debt through deficit spending.  We are not only repeating the insanity, we are doing it BIGGER than ever before!  How is more of the same supposed to help our economy grow and thrive?  That is like getting yourself into credit card debt and thinking that by borrowing and spending more you will get your family out of debt.  Millions of Americans tried this already over  the past 10 years, and I do not know of anyone who that strategy has worked out for.  So how will the US Government able to do it on such a massive and complex scale?  Simply put, they cannot.  We ran up debts in the early half of the 20th century, but that money was put into building factories, infrastructure etc.  Today, we are borrowing massive amounts of currency but we are spending it on consumption.  So the government is using its “credit card” to fund consumption, and not investments.  One produces nothing (Buy a meal, it feeds you for a day), the other produces a going concern that services & employs people (Buy/build the restaurant, it feeds you, and others, for a lifetime).

So how does this all relate to real estate?  What if the currency doesn’t collapse?  What if it does?  These are all questions I will touch on in my next article where I will discuss what I perceive to be the state of the real estate market.  Stay tuned!

Cheers,

Christopher Lazaro