Category Archives: Personal Real Estate Opinions

Today’s Kansas City Star has an article in the Business Section titled Subprime loans for mortgages have a defender.  Here are a few tidbits from the article followed by my own editorial comments;

“Let’s not overreact.  Let’s not do away with subprime lending, because that has helped a lot of people who up until now have not been able to purchase a home,” said Nancy Pierce, president of Tipton Research Group in Kansas City.   – Ah, no kidding.  I’ve helped several home buyers and investors who have properly used subprime loans and not one has gone in to default. 

“People were buying more house than they could afford.”  – Again, I’ve said it before.  Much of this is the fault of the lenders.  But make no mistake, there were buyers who knew better.

“It’s not the subprime loan by itself that’s the culprit here,” Pierce said.  “There’s been a lot of greed that has gone on in a lot of different areas that has contributed to the subprime problem.”  – Isn’t this what I’ve been saying?  First they give loans to people who shouldn’t have them.  You know, $65,000 annual income with zero down and a mortgage of $325,000.  Whatever happened to 28% – 35% of your income for debt? 

And don’t forget, it’s Nude Recreation Week. 

I ask you, which is worse for your Kansas City investment property?  Stagflation or inflation?

I’m 43 years old.  Old enough to remember the pain my parents went through during the latter years of Jimmy Carter and the early years of Ronald Reagan.  I remember homes sitting on the market for months/years because no one could afford the interest rates.  I remember my local McDonald’s installing menu boards with rolling numbers because my beloved Big Macs (two all beef patties, special sauce, lettuce, cheese, pickles, onions on a sesame seed bun) would go up seemingly every week. 

I also remember the 80’s when Japan was looked upon with awe.  Their economy dominated the world in terms of growth and reach.  Followed by a decade of stagflation.  (Does that possible scenario sound familiar?)

For the old timers that read BBQ Capital: Kansas City Real Estate Investing I’d like to ask you to comment.  (Twenty and thirty-somethings are also encouraged.  But it may be time to listen to experience here.)  Which scares you more?  Inflation or stagflation?

For me, I’d have to say stagflation.  With stagflation I’m afraid our tenant pool will be so economically stretched that they won’t be able to keep up with the necessary rent rises.  There are at least some benefits to inflation to the real estate investor that can recognize what it going on.

• With inflation you have a steady rise in rents which means when we leave an extended period of this your rent rates will support much higher sales prices than when you went in to inflation.
• Inflation usually brings wage increases that somewhat (I said somewhat) keeps up with the pace of inflation.  Anyone remember 10% raises?
• Newer income property owners will have to come to the table with significantly more money down and higher rents.  Which makes your rental properties all the more desirable to possible/future renters. 

Do you remember Lost In America by Albert Brooks from 1985?  We were just breaking out of the 5-6 year economic nightmare and this is simply one of the best movies of it’s time.  Anyways, when Brooks realizes what the “inflation train” had done to the price of his property he cashes out and drops out of Corporate America and decides to live life on his terms.  Of course, being Albert Brooks you know it ends in a nightmare for him.  But I digress, yet again.

I’m  not necessarily predicting either stagflation or inflation.  But the possibilities are there.  The mix is there.  Or we could pull out of these doldrums and move forward.  I wouldn’t be surprised by any of the three possibilities.  As much as Kansas City has been insulated from the property value losses of both coasts we would not be insulated against inflation or stagflation.  Nobody will be. 

It’s the end of the world as we know it.
It’s the end of the world as we know it.
It’s the end of the world as we know it.
And I feel fine.
                                   …REM

Bad tomatoes.
$130 a barrel oil.
$4.00 – $5.00 gasoline.
Soaring energy costs for the home.
Soaring bread prices.
Unemployment pushing up to 5.5%.
Illegal immigration.

Don’t lose hope.  I’m old enough to remember the economy in the late ’70’s and early ’80’s.  I remember my parents feeling a bit hopeless regarding the economy and America’s place in the world.  In comparison to the world our lives are still downright cushy.  (And the worst part of the ’70’s, in my opinion, wasn’t the high inflation or energy costs…it was disco!) 

This too shall pass.

Do plan for the future.  Do position yourself to capitalize on the rebound.  Do make sure you are putting away enough in savings for upcoming unexpected events and/or costs.  Do take your retirement into your hands and put more money into your retirement vehicle whether that be stocks, bonds, mutual funds or even real estate investing. 

If you want me to pull a rabbit out of my hat, then you have to have patience.  I’m not trying to be a smarty pants.  It’s just the truth.

What brings this up is that I have about 4 clients that I’m working with right now that insist on owning investment property in Johnson County, Kansas.  And that’s fine.  They are good people and with enough time and patience we will find them each something that is suitable to their goals and criteria.  But rental properties in Olathe or Overland Park or Lenexa are just nearly downright impossible to find using criteria that fits areas like Blue Springs or Indepenence.  But hey, that’s why I get paid. 

And every once in a while they do pop up.  And that’s when we have to pounce.  If you haven’t lost faith in my by then.  🙂