Which Way for Florida?

I am tempted to buy distressed property in Florida, but something keeps nagging away at me, telling me it isn’t the place to be just yet. Someone passed me some quotes from writers back in the twenties and thirties. They were a trifle alarming when put alongside what is happening at the moment.

The statistics for house prices and sales are still very bad across the US. The level of bank repossessions continues to rise. There is also a very large stock of pre-repos which have still to come to market.

Not only that, but the various state entities are in deeper and deeper trouble as state after state and municipality after municipality goes ever closer to bankruptcy.

Things are getting more ridiculous (and illegal) by the minute. The New York state pension fund is borrowing money….. from the pension fund….. to pay out pensions!!!!!!!

Yikes! Not only has that got to be illegal (Dont I remember that rascal Robert Maxwell borrowing from a pension fund he controlled? He was branded a criminal for doing that?) If you borrow from the fund that means the capital in the funds is reduced. That means the fund now gets a smaller payout on its investments as there are less of them, or the fund has a larger amount to pay out because it now has to pay interest on the loan. All I can say is that I am glad my pension doesn’t rely on the probity of New York State.

From where I’m sitting, the US looks like a country slowly committing suicide. I just dont see how they can get out of this mess while they are going further and further into it.

And house-prices can come back up and power ahead someday soon? Ha ha!

Okay, let’s have a look at some of those writings from during The Great Depression.

“There was nothing languorous about the atmosphere of tropical Miami during that memorable summer and autumn of 1925,” wrote Frederick Lewis Allen in 1931. “ The whole city had become one frenzied real-estate exchange. There were said to be 2,000 real-estate offices and 25,000 agents marketing house-lots or acreage…the city fathers had been forced to pass an ordinance forbidding the sale of property in the street, or even the showing of a map, to prevent inordinate traffic congestion.”

The boom of the 1920s came to an end in 1926. Henry S. Villard, reported what he saw two years later:

Dead subdivisions line the highway, their pompous names half-obliterated on crumbling stucco gates. Lonely white-way lights stand guard over miles of cement side-walks, where grass and palmetto take the place of homes that were to be… Whole sections of outlying subdivisions are composed of unoccupied houses, past which one speeds on broad thoroughfares as if traversing a city in the grip of death.
Florida’s property market did not recover until after WWII – 20 years later.

Hmmm. Maybe it will recover sooner this time around. Maybe not. I think the jury is out on that question. I think I’d rather wait to see what is likely to happen. After all, the rules of this property business lark are very simple. One rule says “Dont buy when prices are falling”. They are falling still.

You have checked out my rules, haven’t you? They have seen me right for over forty years, and NEVER let me down.
http://www.property.org.uk/unique/book/index2.html

john

Move to Portugal

I dont believe what I have just done.

I’m sitting here in my living room looking out over a lake on the western edges of London. I am within a London borough but cant see another house. I am surrounded by trees, and I can just see through a tangle of undergrowth a swan gliding across the water. But it is drizzling, and I have had to put on a pullover. For pity’s sake, this is mid june! Global warming indeed!

Back home it is at least twelve degrees warmer, and it is a relief to dip in the pool to cool down. In fact my neighbour’s pool is now so hot she leaves the cover off so the wretched thing will cool down. So what the heck am I doing here in London freezing to death in mid summer?

Look guys, you can all move down to Portugal. It has a much calmer, nicer climate than the UK, and prices in Northern Portugal are really cheap. We have a heap of really amazing ruins to develop, and larger houses that can be made into something quite spectacular.

This isn’t meant to be an advertisement for some of the site pages…… well, I suppose it is in a way, and why not? But I mean it. What are you doing stuck in the UK? It’s time to move out somewhere nice. Life doesn’t have to be like this. Yesterday I would have had breakfast down by the pool, and maybe jumped in for a freshener. I’d have had lunch on the top patio under a massive green umbrella. Supper would probably also have been on the patio, maybe using the barbeque, and I’d probably have gone for a midnight swim, lazing around doing a slow backstroke and watching the bright moon slide down the sky towards a brightly glittering Venus in the west.

Now I’m sitting indoors and wondering whether I need to put on a fire. I’m drinking some vodka to keep me warm while I make up my mind. I need to find wellingtons to go into the garden, and I shant stay long out there as the wind is whipping across the lake…….

I dont believe I’ve had to come back here. Arghghgh!!!!!

Anyway, while I’m here, you can go out there. Look at the amazing places we have for sale in Portugal. There are ruins, large tracts of wild countryside for sale, rambling buildings, mills:
http://www.property.org.uk/portugal/central-portugal/eco-homes.html

Or there are some more classy joints, one of which boasts a river flowing through the living room! I’m not sure whether that is a good thing or a real pain, but it’s certainly Unique!
www.property.org.uk/portugal/central-portugal/investment-homes.html

Okay, I’ll stop advertising. Now where’s my scarf and gloves; and surely I haven’t drunk all the vodka?
John

Fractional Ownership

There used to be people who hassled you on street corners in tourist towns around the world. They offered you a free video recorder, or something similar, if you would give up an afternoon to come to a presentation. These guys were touts for the time-share brigade.

Time-share has a seriously tarnished image. No-one uses the name any more. But the deals are still being pushed at the unsuspecting public. The name has changed but the idea is the same. Nowadays it’s called Fractional Ownership. Let’s see what the advantages are.

1    You get use of a property for four weeks/three months a year
2    You get to buy your holiday home for a lot less than if you bought the place outright
3    The costs are shared, so running costs are reduced
4    Someone else will be living there or looking after the place while you are away
5    Many of these deals come with swaps into other similar fractional ownership places

Excuse me for having a long memory but aren’t they exactly the same advantages that the time-share mob touted all those years ago?

How about the downsides of time-share?

1    You try selling it. No-one wants to buy.
2    It’s bloody expensive
3    You get a holiday free, but the running costs, plus the purchase costs  and opportunity cost of the money tied up make it a darned site more expensive than paying for the holiday every year.

Let’s have a look at the downsides of fractional ownership.

1    Buying part of a property is difficult. You wont get a mortgage on such a deal. That means there is no leverage. You need cash up front. That means you need to count the opportunity cost of using that cash.
2    Selling part of a property is even more difficult. Any prospective purchaser wont get a mortgage. You need a cash purchaser. There are a lot of those about these days aren’t there?
3    How well will you get on with three, or eleven, other owners? You think the bathroom needs completely renovating in three years time because the kids of one of your fellow purchasers trashed it. Six other owners dont want to spend the money. Fun isn’t it?
4    Have you worked out how expensive it is to buy? I’ve just been sent one which is touting a month share in a one bed apartment in Cyprus. The cost is just under €30,000.

Let’s do some maths. You need to cough up €30,000. If you had that money in some useful investment bringing in, say, 8% a year, you are now not getting that 8%. (Let’s leave aside the question of why you would be getting such a meager return on your money when the smart guys are getting at least twice that.) The opportunity cost therefore of selling the investment and buying the time-share (sorry….. fractional thingy) is £2,400 a year. On top of that you have a twelfth share of the running costs, and replacement costs of your new holiday share. That will no doubt cost you about £100 a week, or £400 a year. That means your rental costs for a four week holiday are the equivalent of £700 a week. (£2,400 + £400 / 4) What would a room in a hotel cost you? It would currently be about a third of that. Excuse me, but that doesn’t make for a cheap deal by my calculations.

Let’s do some more maths. I love maths, dont you?

Go to your favourite search engine and look for 1 bed apartments for sale in the same area. They start at about €50,000, and go up to about €150,000. They are currently over-priced, and sales are seriously down. We also have a Greek crisis on our hands, and a drastically dropping euro. You would be buying into a falling market and a falling currency, something which no sane person should ever do.

Never mind all that bad news let’s keep on with the maths.

How much does this apartment really cost? Twelve times €30,000. That comes to the insane sum of €360,000. Excuse me, but I have a three bed apartment in West London. I cant get anywhere near that money if I sell it. What is there in Cyprus to support that kind of price for a one bed apartment? The only people in Cyprus with that kind of money are the time share salesmen and I dont think they’ll be buying.

I cant think of a single good reason why anyone would want to buy into something priced at €360,000 when something similar can be bought for a third of that price, or even considerably less than that. Good grief, for only twice the money you are paying for one month’s usage you could buy something less fancy, but you’d own it outright, and could buy on a mortgage, thus giving you a year round holiday home for the cost of the mortgage interest. (You can work out that bit of math on your own.)

Your final piece of the puzzle is to look at the annual average wage in Cyprus, multiply that by four at the most, add 10%, and then multiply the final figure by 50% and that should give you the highest price you should expect to pay for a two bed apartment in the locality. If you want to know why that’s the way to value a property in a tourist area then you need to buy my booklet on how to value a house. It’s only £9.97. It could well save you over €100,000.
(http://www.property.org.uk/unique/book/index2.html)

It’s odd, but no-one I’ve met has the slightest idea how to value a house, yet when you know how, it’s dead easy.

Just for the record, the average annual wage in Cyprus is supposed to be about €13,000. I would therefore expect an average local 2 bed apartment to cost no more than €60,000. Anything above that figure is unaffordable at local rates, and will therefore have to eventually drop in price. For a tourist equivalent I would expect to pay no more than €90,000. That means €360,000 is an astronomical price for a one bed apartment. You could buy four normally priced places for that money.

Despite all the above, there are several people I know and respect who claim fractional ownership is a wonderful idea. Okay, I dont agree, but there may well be some good deals out there. I suspect, however, that the deals that are touted by agencies are going to be the ones that are no good. As with all these deals, do the maths. Who knows, one of them may surprise you. If it does, then go for it, but only after some rigorous mathematical questioning.

The same source sent me a deal in Florida. It was considerably better than the Cyprus deal. If I was into that kind of thing I might well have given that a second look.

Remember to look at the Unique Property site which will keep you up to date with these things, and give you access to newsletters like this one.
(http://www.property.org.uk/unique/)

Internet Scams

A couple of years ago I wrote a newsletter about internet scams involving property purchases. Let me repeat here what I said back then.

“A small warning. I daresay I am more vulnerable to property scams than most people as I run the busiest privately owned property website in Europe (http://www.property.org.uk). But if any of you have homes for sale on websites, and your own email is listed as a contact, you might like to know that there is a version of the Nigerian money transfer scams going the rounds on the internet.

“It works like this: someone contacts you saying they like your house and want to buy it. They go through the usual rigmarole, and ask for more pictures, and enthuse about it. They then pass you over to their lawyer. The guys who contacted me operate from the Cameroons.

“The lawyer then asks for a full description of the house, and copies of registration documents. He also asks for the owner’s passport details so legal documents can be drawn up for the transfer.

“At that stage you should write back telling him to take a jump. He may persist a little longer, but obviously you do not send registration details and your passport details to some crook in darkest Africa, or you may find you suddenly dont own your house any more. Be warned!”

Several people have recently contacted me concerning a variant of this scam. Someone in Italy apparently has a shopping bag full of money which he wants to exchange for a nice house. Obviously I dont know precisely what is going on here, but there are several possibilities, all of which are bad news.

1    Our Italian friend may well not have a bag of money at all. Maybe, like the Cameroon mob, he merely wants your details and the details of the house so that some dodgy business can be transacted at the Land Registry.

2    Maybe he does have a bag of money, and that money is counterfeit, in which case he can keep it.

3    Maybe the bag of money is genuine. Maybe he is the fence for a group of crooks who have just pulled off some heist somewhere and he needs to launder the money. In that case, selling him your house and collecting the shopping bag at Milan station will on the surface be a perfectly good deal for you. You get a sale, and the money. Unfortunately, more than £5,000 in your shopping bag is considered suspicious. You now have to launder it. You cant suddenly appear at your bank and try to deposit it. The clerk will call the manager, and the manager may well call the police. They certainly wont accept the money. You could pay off the mortgage with it, but eyebrows would be raised if you walked in with cash. Everyone would immediately want to know how the sale was conducted, and you would be implicated in a serious offence.

Two things here: First, you cant accept such a deal. If the money is hot, then you dont want to be left holding it unless you plan to stick it under the mattress and bring out the odd thousand every couple of months to spend.

Secondly, you dont want to part with information about you and your house. If one of these guys contacts you to do such a deal you give him the name and address of your solicitor and tell him to talk directly with him. If he persists, put his email address on your spam list and lose him from your life.

Good luck!
john

Welcome to the Surreal World

Yesterday I wrote a song I’d been meaning to write for years. Actually, it’s on a theme I use quite a lot in my songs. We live in a surreal world. This one went straight to the point tho instead of pussyfooting around it.

The song goes something like this. I go out in the morning and read the paper. It tells me we have just had our fourth best year for tourism here in the Algarve. I walk down an empty road, past empty restaurants, empty apartments, depressed shop keepers, and can see as I continue on my way that this is the worst year in the last decade. So what’s this fourth best all about?

I read about global warming. Last summer was cooler than usual. This year has got to be the coldest wettest year we have had. I am certain May was the coldest since records began. In  Iowa the harvest last year was stopped by heavy snow falls. But of course the world is getting warmer.

Governments that are stuffed to the gills with debt are solving their problems by getting even further into debt. People seriously think house prices will go up this year, and even more next year, despite the obvious fact that unemployment is up, wages are down, and the banks are locked into a death spiral.

It’s all surreal.

We live in a world where everyone and his dog has been to university. Our local rag last week did an article on someone who had received a PhD in Watercress from the University of Bath. Now if that isn’t a bit of surrealism….. well, hold on, maybe it isn’t surrealism, maybe it just proves what I was intending to say….. that everyone and his dog has a degree in something useless these days, and most of those degree-enabled people cant find or hold down a job.

Never mind about the rest of the song, which deals with the pure surrealism of quantum mechanics, religion, and other insanities. The real question is: how the hell can anyone think in an upsidedown world?

I remember travelling round Yugoslavia in the seventies. The Beach Boys did a great gig in a school yard in Belgrade. They then went round giving away the money they got for the gig because they couldn’t take it out of the country. Meanwhile the kids went home to the back bedroom. Those kids were 19, or maybe 23. Some of them were 29. Some of them had gotten married, and the married couple were still living in the husband’s bedroom back home. They couldn’t afford to move out. Mum and dad lived in the front bedroom, one kid shared with another in the second bedroom. The married couple were in the third, and another married couple were sleeping in a makeshift room added on the back. No-one could afford to leave home.

This was the picture of state socialism forty years ago.

After years of struggle Yugoslavia finally made the grade, and slipped its way out of the government-run mess, and became something…. briefly.

What seems odd to me is that the capitalist countries in the west are now taking to this “new” model. America has embraced state-socialism over the course of the last two years. France is already far down that road. Now Spain is heading that way as well.

Have you been to Spain recently? Have you noticed all the jovenes? Probably not. They aren’t that visible, but it’s Yugoslavia in the seventies all over again.

There is massive official unemployment (20%) in the country. The real figure is closer to 30% as the jovenes are either still at school or still at home, or simply running errands for their parents. They aren’t that young either (joven means young), maybe 29, or even 35. They cant get jobs, they’ve got no money, except their hand-outs, they cant afford a home, they cant afford to get married. And this is the generation of the future!

As far as I can see, before the end of the decade there will be one worker supporting one lame duck. Excuse me, but the finances simply wont hold up. The place is heading for a complete breakdown.

Does that mean it will end up being a great place to run to, because it will end up a disaster zone where nothing works, and things have to be cheap? Will it be a country with crime rampant, and bread queues, and nothing in the shops?

Who knows? I live in a surreal world where folk see the government screwing up big time, and still they think the government will solve their problems. I’m old enough to remember nationalised companies in Britain; companies that were run by the government; and what a mess they were too.

Spanish socialism however has already managed to run out of money. Government debt is unsustainable. They are already a quarter of a trillion euros short just for the rest of this year. A quarter of the population either out of work, or being supported by their family. No job regeneration in sight as the taxes on labour are extortionately high. Half a million empty homes that no-one wants. A banking system in tatters.

Maybe a country on the rocks will be a great place to go to. How should I know. I am like Alice in Wonderland. Every way I turn someone smiles in pain and says something incredibly silly. I live in a Surreal world. The signposts have all been repainted by the government. They all claim to lead to somewhere nice. I am beginning to wonder if it is a mistake to be sane in a mad world.

Investing in France

Hello Shirley, and everyone else…… but Shirley asked for this one. But several of you have an interest in France, so here goes.

“What do you think about France?” she asks. Hey, that’s a difficult one. France is a bit of an enigma. In a sense the French run an unsupportable economic model. Socialism works when there is spare cash about. It goes down the pan rather fast when the money runs out. As the dreadful Mrs T used to say: “socialism is fine until you run out of other people’s money”. France has run out of other people’s money, so what’s next?

French banks are on the hook for rather a lot of Greek debt ($75 billion). They are on the hook for even more Italian debt ($511 billion). And how much is owed by Spain? $220 billion. And Portugal, that other disaster zone, owes $45 billion. In short, you have a French banking crisis.

The French were particularly keen on a Greek bailout. If they hadn’t been so insistent I dont think there would have been a bailout. Why were they so keen? I suspect they are looking at a possible hitch further down the line with Italy. Contain Greece, and maybe Italy will survive. I, like most commentators, dont see any possibility of containment. This is going to spread. Pull down one pin, and it knocks over the rest.

It’s all a terrible mess, and very complicated. Things will be better with a lower euro. Europe was getting very expensive. France is a tourist country. It needs a lower currency. That will be good. It unfortunately means that in international terms any assets you have in France will be worth less, but then you’d be hard put to have assets anywhere that aren’t losing value at the moment.

You need to be quick on your feet to make money these days. Houses are slow moving objects.

One thing now has to be considered. Is the euro going to survive in its present form? A lot of commentators take the view that the currency is deeply flawed. As I mentioned in another blog, the notes are just pieces of paper. There is not even the pretense that they are issued by any competent authority or backed by anything. The currency is held up by political will. In today’s kill or be killed markets that is not worth much.

I cant see the euro going out of existence. Too many people use it and need to use it. But it is heading for very hard times. I would not invest in anything euro based until we can see a bottom.

So, what’s the question?

I am already invested in France, should I do a runner?

No, stay put. France will survive. Anyway, where would you run to?

I’m thinking of investing in France instead of some other euro-zone country.

I wouldn’t invest in any euro-zone country while things are this shaky. I dont know what I’d invest in. I still like Brazil, but I certainly dont like what happened last week, when two Brazilian bond auctions failed. You could do worse than invest in solid Indian companies. India always seems to survive disasters. I dont have the knowledge to suggest what to buy, but I suspect it could be the safest place to put your money.

I’m currently invested in the UK, would France be a better option?

I can think of a dozen reasons to say ‘yes’, and a dozen reasons to say ‘no’. Ha ha. That’s a lot of help! One thing does keep nagging at the back of my mind. The French have had three different currencies in my lifetime. They default rather a lot, even if one of the most spectacular defaults was partly due to someone from north of the Channel. (If you are interested in these things, look up John Law when you have a moment to spare and fancy a good read.)

I am not aware that the British government has defaulted since reliable historical records have existed. That has to count for something. There have been a couple of close calls. But sterling as an adjective still applies to the currency. I suspect the British economy is too large and too well organised for a government to completely destroy. It’s the British government that is broke, not the British economy.

I hope that helps. If it doesn’t, and you have a specific question, try me.

john