March 1979
Vol 1 No 7
In most areas of the country the reports are the same regarding the house market: SALES ARE FAIR TO STRONG, PRICES ARE STILL INCREASING, AND FINANCING IS CONTINUING TO BECOME MORE DIFFICULT TO OBTAIN. People seem to have no objections to paying the high interest rates when money is available, but as practical matter people can only afford to pay so much of their disposable income for housing unless they change their traditional buying priorities. I think that AROUND THE MIDDLE OF THIS YEAR THAT THE HIGHER AND HIGHER COST OF EVERYTHING, ESPECIALLY HOUSING IS GOING TO HAVE A DAMPENING EFFECT ON NOT ONLY THE HOUSE MARKET, BUT THE WHOLE ECONOMY.
Several northern areas are reporting a softening of the rental market, which is possibly seasonal, but may be a sign of a coming general trend. Bob Trimple from Wichita, reports that he is trying to “help” several builders in his area who are in trouble, and our incoming calls to “Condor Properties” asking for monetary assistance are on the rise. BE SURE THAT THE OFFERS YOU ARE MAKING ARE “WHOLESALE” so you do not become last in the food chain someday soon.
Interest rates may hit 14% on the prime, the stock market will tumble, and OPPORTUNITIES IN REAL ESTATE WILL ABOUND. Remember “THE GOOD NEWS IS THAT THERE IS BAD NEWS”. Midsummer should be an excellent time to be liquid enough to take advantage of the many opportunities that will abound. Specifically, THE SMALL BUILDER AND THE PEOPLE WHO DEPEND ON HIM FOR A LIVING, I.E., SUBCONTRACTORS, ETC., WILL BE IN FINANCIAL STRAITS AND LOOKING FOR WORK.
Use these people to deferred maintenance on houses where tenants are not capable or when you have these people as tenants. It has been our experience that even in times of tight money home improvement loans are available. These loans are made for the types of repairs that these tenants could make. Have the nonpaying tenant/unemployed subcontractor make an addition on your property to perform maintenance which will have an obvious effect of improving the property, and fund this by giving him prepaid rent credits. Now go to the bank and get A CHECK for the improvements from the proceeds from the home improvement loans. In effect the tenant has loaned you the money to make the improvements at NO INTEREST. In addition, in the event the tenant moves out early you keep the balance of the unused credit.
INFLATION IS GAINING MOMENTUM AS PREDICTED AND FARM PRODUCTS ARE UP 25% OVER A YEAR AGO. The Government is admitting 16% based on January’s performance, reputable private economists are guessing a high 40% for 1979. A sure bet is that it will continue to jump until it reaches that pinnacle from which we will have a major reaction.
Although we are “at peace” according to Jimmy, keep a wary eye on the Mideast and Africa. Both of these areas are crucial because of their gems, gold, and oil. Conflict in either could trigger a real military emergency overnight. Russia has higher reserves of both oil and gold than we and is rapidly gaining favor with the Saudis.
A new IRS ruling to get personal property traders to pay income taxes on their gains, especially trades for services, i.e., a doctor trading his medical treatment for a two week stay in a condo somewhere. The IRS would like both to pay taxes as if they receive cash for their time or services. This same problem in the Real Estate business many years ago prompted the enactment of section 1031 which allows you to exchange Real estate for other Real estate without reporting the gain because the Feds figure they will really get to you when you sell (Who’s Selling?). For information on tax free exchanging, Warren Harding instructs an excellent seminar, “trading Secrets of Exchanging,” and has authored a book on the subject with the same title. For information write The Academy of Real Estate, 46 N. Washington Blvd., Sarasota, FL 33577.
A recent tax court case ruled in favor of the homeowner who declared a loss on the sale of her personal residence, BECAUSE SHE HAD RENTED IT PRIOR TO THE SALE. You can take a loss on a property held for income, but not a personal residence. The rental had been rented at WAY BELOW MARKET RENT AND TO HER DAUGHTER. When you are buying a house at a price that will give the seller a loss, it would be to his advantage to LEASE it to you first, converting it to rental property, and then sell it (to you again) so he can take the loss.
Both Senator Russell Long, Chairman of the Finance Committee, and Representative Al Ullman, have spoken in favor of replacing Social Security Taxes with a Value Added tax (VAT). All nine European Common Market members are using this cousin to a sales tax which can be pretty effectively hidden in the pricing of finished goods. It will be inflationary (What else is new!) and could generate more revenues than the current social security taxes. Look for it to pass in the 1980 Session. Michigan adopted a 2.35% VAT, January 1, 1976, and seems to be pleased with the results. The elimination of social security tax would give the consumer and home buyer more apparent disposable income and should strengthen the demand for houses, causing even more dramatic increases in prices of well located units.
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