Ray Garrett, Jr.

As most of us have come to learn after paying our dues to the copius national, state and local associations, fees increased this year. Robert Friedman of NAR assured us in the October Issue of Realtor Magazine that these fee increases are to fund the new political action committee arm of NAR called My Realtor Party. This measure was needed to insure that we have people lobbying government on our behalf.

I call Shenanigans!

As we shell out money to each association level and pay all the "Start up" and "One Time" fees that each seems to require now-a-days, I think we should ask ourselves why?

In most states, membership is required to join the MLS. If my broker is a member, I have to be a member unless the broker gets charged outrageous fees. For What? The "Realtor Party" has supported government spending measures that I am adamantly opposed to, but I have to fund their political efforts if I want to do business in my state.

I call Shenanigans!

I'd like to pose the question to my good friends here on Active Rain. If your arm wasn't twisted to do so, would you join the National Association of Realtors and all its affiliates?

In the era of big bands, Lucky Strike cigarettes, and fighting Nazis, port cities around the world could rely on Yankee sailors to generously spend their wages in the many taprooms and rathskellers that prosper there.  The old adage, “Spending money like a drunken sailor” found its well deserved origin as the boys of the Greatest Generation pulled their customary tours in the US armed forces.

In this era, we have our own form of the drunken sailor; namely the United States congressman who is merely a reflection of the United States citizen.  Congress has finally spent itself into disaster, and few have the fortitude to do what has to be done to save ourselves.

That’s the bad news.  The good news is that those of us who invest in Real Estate for the purpose of making rental income can make a killing.

Interest rates are going to skyrocket.  Don’t take my word for it.  Just ask the Chairman of the Federal Reserve, Ben Bernanke.  The basic reason is that we’ve been printing funny money to pay the interest on our massive debt.  As more and more cash hits the market, inflation happens.  As anyone alive in the late seventies and early eighties will tell you, those conditions mean interest rates in the double digits.

Interest rates are at historic lows right now.  The conditions have never been better to own rentals.

By acquiring rental properties at low interest rates, the investor is shielded somewhat from falling prices.  The days of break even rentals will be over as rate increases make payment levels increase by hundreds of dollars on the same amount borrowed.  The $200,000 home will require a $2000 monthly payment from the borrower as opposed to the $1400 monthly cost now.

Rents typically increase proportionately with the borrowing cost of purchasing.  Those who purchase rentals now will enjoy a rapidly increasing cash flow as rental rates increase.  Also, folks with stellar credit ratings will pounce on an owner financing opportunity at 10% rather that the 15% banks will offer.  Those who finance now at 5% will be setting pretty.

If you want more information on how this will work, call me today.

 

Bailout after bailout has been paid to our financial institutions, and it’s just coming out that we are heading for an even deeper recession than originally projected. As a matter of fact, we are much worse off right now than the worse projections designed to scare us if we didn’t vote for the trillions in bailouts. Printing money hand over fist causes strange and dire problems with the economy. If you believe this to be true, keep reading.

The National Association of Realtors published a report outlining the commercial recovery; specifically in the multifamily sector. In the article NAR predicts, “Multifamily vacancies should drop from 5.8% nationally to 4.7% by Q2 2012 and rents should rise 3.4% in 2011 then 4.3% in 2012.”

Why is this happening? Well even the amateur observer of the market would say that homeownership rates soared well beyond where they should have been based on median income and people’s ability to pay the huge mortgages they were getting. Now that these folks have defaulted, they still need a roof over their heads.

Also, many people are waiting out the market to buy. This happens because folks are afraid, and sometimes because people are more transient due to poor job outlooks. The last thing a young family wants to do is tie themselves down with a home they can’t sell knowing that they may need to move in a year or two to find better job prospects.

There are many more reasons behind the rental boom, but one thing is for sure – It’s possible to make money in the rental market again! All of the factors listed above, plus much tighter loan restrictions makes renting more appealing than ever.

The great thing is that the same factors creating a great market in which to own rentals are the same factors driving down prices in single family homes. With rates at historic lows and prices bottoming out, investors have a huge opportunity to create great positive cash flow through rental properties.

We printed trillions in new money and went into great debt to bailout Wall Street. Printing money leads to inflation every time. As we saw in the late 1970s and early 1980s, our government fights inflation by raising interest rates. This is going to make purchasing a home even harder to do. If you want to bet against the current recovery steps initiated by our government, get your money out of the stock market before it crashes, and buy rental properties while it’s still cheap to leverage other people’s money.

Active Rain CEO and co-founder, Jonathan Washburn, announced today on his blog that he is stepping down as CEO of ActiveRain. Online software Giant Market Leader will be taking over the helm according to Inman News. The question remains, what does this mean for the ActiveRain community.

My dad once asked me, "Have you ever known change to be good." While I admit most of the time it isn't, I think sometimes it can be. The question still remains whether it will be now. To determine this, It may be useful to look at the major corperate buyouts of social media sites.

Case #1 Time Warner Merges AOL

There is no question that this relationship ended as disaster. The only person that came out on top was Ted Turner who still, to this day, says it was the best deal he ever made. Aside from old Citizen Cane himself laughing all the way to the bank, everyone else bit the dust

Case #2 News Corp Purchases MySpace.com

This is another disaster. Myspace was once the prime social media website plain and simple. With Millions of users, including Rock Stars, and Entertainment studios, and users signing up daily, News Corp thought it would be a slam dunk. With only one tiny, insignificant competitor called Facebook, News Corp Purchased the social media giant in July 2005. News corp is definitely tryin to get out of the social media site they ran into the ground.

Case #3 Google Purchases YouTube

While this hasn't blown up yet. Google has still yet to turn a profit with the video networking site. They have had to settle several multimillion dollar lawsuites. One with Viacom.

Case #4 Microsoft Purchases Skype

This one is worth mentioning even though it just happened this week. Certianly there hasn;t been enough time to analize the success or failure of this purchase. I mention it simply to illustrate that huge corporations are still willing to pay ungoldly sums of money for social media site that have never turned a profit. They do so knowing the failures of others who have tried to turn around other popular, but unprofitable social media sites.

So what now for ActiveRain?

Well if history indicates anything it is that large corporate giants do not yet know how to maintain the personal and welcoming feel of a popular social media site. I expect some changes for sure that will be unpopular.

1. Mainly, everything that's been free in the past will have to be monetized somehow. We will not know how until it happens, but users aren't fond of moving from free to anything else.

2. The site will also have to dramatically increase the number of users. Whether or not it will become open is yet to be seen, but we can surely expect it to get a little more crowded in here.

3. Users who pay to play will get far more features and use out of the website. We chumps who want to stay free will be relogated to a back room somewhere.

These are just a few of my thoughts. Please feel free to add your own.

Check out the video below to hear ZipRealty agents talk about how they have been successful in this market using the ZipRealty business Model

If you live in Charlottesville, Williamsburg, Richmond, or the Tri-Cities, VA, call me today for a private meeting.

Ray Garrett

District Staffing Manager -- Central Virginia

804-615-4378

rgarrett@ziprealty.com