A Price War And A Beauty Contest In Florida
The Orlando Sentinel reports from Florida. “Developer Cameron Kuhn said Thursday that he is all but broke, in the process of swapping property and assets to clear his debt, and will soon be down to just one employee to keep his Orlando-based development business going. ‘There is a clarity in going broke. You find out who your friends are,’ Kuhn told about 70 business people attending a meeting in Orlando.”
“At the height of his expansion in early 2007, he said, he had 70 employees, $650,000 a month in overhead expenses and holdings in Orlando and Jacksonville. He said that when he saw access to secondary-market capital drying up in June, he began cutting costs but could not get ahead of the downturn.”
“The mixed-use office-condo and residential-condo towers were the largest redevelopment project in downtown history. Kuhn said that, once he auctions off items to repay bank debt, he no longer will have any control over what happens there.”
“‘Fixed overhead will eat your lunch. That’s what happened to me,’ he said.”
“From Monday through April 13, auction giant Hudson & Marshall will offer more than 500 foreclosed or bank-owned homes across Florida. About 200 homes will be auctioned in Miami alone. Nearly a hundred more are in the Orlando area, with about 80 others in Tampa.”
“‘Overbuilding and the disproportionate number of foreclosures in Florida compared to other states has severely weakened Florida’s real-estate market,’ principal Dave Webb said in a statement.”
“He said that buyers who were priced out of the market during the boom years can get a deal now because ‘banks don’t want to continue holding these bad mortgages on their balance sheets and are willing to sell them at discounts.’”
The Palm Beach Post. “After unsuccessfully trying to sell his spacious spread west of Boynton Beach for the past six months, Art Espanet decided he had little choice but to cut his price.”
“Discouraged by the lack of interest from buyers, Espanet dropped his listing price from $832,000 to $795,000. It’s not exactly a fire sale, Espanet acknowledges, but he considers $795,000 for a 1.8-acre property that includes a 3,800-square-foot home and a four-car garage a fair price.”
“And the retired carpenter considers a $37,000 discount to his first price a big chunk of change. ‘That’s a lot of money to me,’ Espanet said.”
“‘We’ve coached our owners that they can’t look back,’ said Henry Kaplan, a sales manager at Century 21 Tenace. ‘The only thing that sells a home is price.’”
“‘In today’s market, we are in a price war and a beauty contest,’ said Richard Bass, who owns Keller Williams Realty offices in Boca Raton and Boynton Beach. ‘The seller has to be the best-priced house out there, and they have to be the best-looking house out there.’”
“In hard-hit St. Lucie County, sellers are competing with a flood of foreclosures that lenders are selling at big discounts, said Scott Wingfield, president of the Realtors Association of St. Lucie County.”
“‘There’s still a lot of properties that are priced rather high,’ Wingfield said. ‘But due to the number of foreclosures in our area, sellers who have a need to sell really have no choice but to lower their prices.’”
The Daily Business Review. “It took condo converter Juan Puig little more than a decade to build his fortune. After a seven-hour auction, the developer’s expensive possessions were gone, gone, gone to the highest bidder.”
“The items ranged from a collection of Latin American art works to luxury autos to jewelry. Not everyone in attendance was impressed with Puig’s taste.”
“‘The quality sucks … no way he will get all the money he needs [to pay off creditors,]‘ said Marc Cooper of Miami.” “Ed Waterman recalled the confidence that Puig exuded the day he walked into Waterman’s Motorcar Gallery Vintage Exotics in Fort Lauderdale.”
“‘He had to tell me how successful he was and that if I treated him right, he would do more business with me because he had a lot of money,’ Waterman said. ‘But I guess his fortune turned on him soon after.’”
From TC Palm. “The Sunshine State led the nation in mortgage fraud in 2007. Florida’s ranking — the second consecutive year it topped the mortgage fraud list — comes from the Mortgage Asset Research Institute, in its report to the Mortgage Bankers Association.”
“‘It’s sloppy work by the title companies,’ said Steven Allender, a Cocoa Beach-based real estate attorney. ‘When the real estate market was buzzing, some of these title companies offered loans with no documents required.’”
“‘I hate to pick on our brethren in South Florida, but Miami is notorious for this,’ Allender said.”
The News Press. “Natalia Lage said she and her family have found the good life in Cape Coral. She described the neighborhood as a close-knit one struck by a trend that is scattering friends to the four winds.”
“‘A lot of people are moving now, a lot of people are doing short sales,’ she said. ‘I’m sad they’re moving.’”
“Realtors said northwest Cape Coral has been especially hard-hit by short sales and foreclosures, particularly inside the confines of U.S. Census tract 102.01. Cindy Roper, a real estate agent with Sellstate Achievers in Fort Myers, said she has been encountering a lot of short sales in the tract.”
“‘There was a lot of vacant land there and a lot of people built on speculation, hoping to make some money off of it,’ she said. ‘But instead, the market turned. You had a lot of construction workers out there and they were able to purchase a newer home, 2000 and up, and of course, a lot of them lost their jobs. It’s been a spiral-down effect for everyone.’”
“Roper is the listing agent for a home just a few doors away from Lage. The bank holding the mortgage is reviewing a short-sale purchase offer for the three-bedroom, two-bathroom home with a pool and a two-car garage, she said.”
“The asking price was $239,000 when the house, built in 2001, hit the market last October, but now stands at $138,000, she said.”
The St Petersburg Times. “In a cobalt blue Bentley that he bragged once belonged to boxer Mike Tyson, Marty Donovan looked the part of a superstar real estate agent. The Chicago native racked up dozens of home sales between 2004 and 2007, most in a single neighborhood, Clearwater’s Island Estates. His $40-million in annual sales placed him at the top of heap.”
“‘I was living in la-la land in Island Estates,’ Donovan says now. ‘I even did tours in a pimped-out golf cart. People loved it. It was island living.’”
“Island living isn’t so sweet anymore. And a lot of residents single out Donovan’s business dealings for ruining their neighborhood. Of the 36 houses in some stage of foreclosure in Island Estates, at least a quarter were owned, listed or handled by the 44-year-old Realtor.”
“Prices have dwindled more than 45 percent since 2006, nearly double the decline of the Tampa Bay area market in the same period. Sale prices on the island averaged $1.25-million two years ago. Among the homes under contract this month, the average price is $670,000.”
“Critics have distributed anti-Marty flyers. Others bray for his punishment, including suggestions he be tarred and feathered. When critics describe Donovan’s prominent role in inflating property values — and abetting their subsequent collapse — they point to the Realtor’s unusual shopping spree in the spring and summer of 2006.”
“A typical purchase was the house at 213 Leeward Island. Listed for $998,000 by an investor who’d bought it two years earlier for $530,000, Donovan bought the 50-year-old, 1,900-square-foot house for the recorded price of $1.3-million.”
“The owner got his $998,000. Almost all the rest of the loan money was kicked back to Donovan’s business partners, allegedly to make repairs on the house. But within less than a year, Donovan stopped making monthly payments. Promised renovations never materialized and no one can account for the money supposedly borrowed for that purpose.”
“M&T Bank foreclosed and marked down the house for quick sale this year. The sale price: $451,000.”
“‘Homes kept selling that I knew weren’t even worth the price of the ones I had. I just kept wondering what the hell had gone wrong,’ longtime Island Estates Realtor Bill King said of Donovan’s deals.”
“Donovan left town in December, after the banks initiated foreclosure against all six of his remaining properties, valued at more than $7-million. He’s living in Lynchburg, Va., to ‘clear my head a little bit.’”
“Donovan insists all he’s guilty of is greed, stupidity and blindness. He trusted colleagues whom he shouldn’t have trusted. He wanted to become a millionaire the easy way. He views himself as a whipping boy for a housing market few thought would collapse.”
“‘The market controls itself. No one controls it,’ Donovan said. ‘I do feel bad about prices going down. It does make me sick. I do not revel in it at all. I’m in the same boat as they are.’”
“Donovan said money borrowed in his name totalling more than $1-million went into an account for Shorefront Ventures LLC, controlled by his friend Chris Malcom. It vanished. ‘I swear on the Holy Bible I didn’t get any money. The only thing I’m guilty of is complete stupidity,’ Donovan said.”
“Though Donovan’s deals weren’t the only bloated transactions on Island Estates, they were more numerous and conspicuous. Benchmarks set by his sales and purchases inflated residents’ property tax bills and polluted real estate data. People confident they were sitting on $1.3-million houses have learned the homes are worth half as much.”
“Donovan, despite claims of poverty, hopes to re-establish himself in the realty business — if the island will have him. ‘I’m scared to go back since everyone hates me,’ he said from Virginia. ‘People love to see other people’s misery. You learn who your real friends are.’”
‘While Jacksonville’s population is growing, all three Beaches cities are losing residents, the most recent U.S. Census estimates show. Experts blame it on the housing slump and high housing costs. The housing sales slump is discouraging migration to Florida, bringing the state’s growth rate to levels not seen since the mid-1970s.’
‘The slowdown is widespread throughout Florida,’ said Stanley Smith, program director at the University of Florida’s Bureau of Economic and Business Research. ‘It’s related primarily to the housing market, as well as the general economic conditions in the country.’
‘Florida saw a similar growth decline in the mid-1970s, when the country experienced an oil crisis and a stagnant economy, Smith said. The University of Florida’s 2008 estimate is expected to be released in August. But preliminary data based on building permits and utility customer bills show that net migration numbers will be substantially less than previous years. ‘It’s looking pretty grim right now,’ Smith said.’
BTW, I challenge those who said we were ‘dreaming’ to suggest big price declines to read the St Petersburg article. Then tell us who was dreaming.
The funniest part is that people are still in absolute denial over this. I have had the same message for the past 3-4 years to my friends, and still, even with the evidence all around them, they cannot see what is happening.
I guess it’s kind of like that story I tell of going to look at a downtown WPB condo and being told that there “Is no more land downtown” by a REwhore while she was standing in an EMPTY CITY LOT (and I mean empty, as in grass growing in it, and a full block) telling me this. The power of denial is not to be underestimated.
I agree. Most of the big price cuts are banks themselves. Most of the knife catchers are buying REO’s. The sellers who can’t or won’t lower prices are going to be priced in “forever” or walk away.
still so much denial in south florida. it is in between “please dont tell me this is happening and walking zombies. prices are falling all over the place and now the new buzz words is “foreign investors will save the day.” too bad that the housing and credit crisis is global now. by 2009, people should start facing the facts. by then everyone will be underwater.
south florida “aka” the new atlantis
I love Jacksonville (relatives live there) and see coworkers fleeing the worst bubble markets to live there. But I find it ironic how the old wisdom that incomes must support housing prices is playing out in the beach cities.
A bearish realtor, ‘Jim the Realtor’ has called this downturn the “Great Squish down” due to the mal-investment in high priced properties (location, size, and furnishings). In dinner table conversation, I’ve stolen that phrase to drive home how the “Its different here” markets will tank.
I’ve had to quiet down at work (for fear of being perceived as “wishing this upon people”, but I get a bunch of the NAR “it will turn around later this year.”
I just point out the obvious corporate reorganization to get employees out of bubble markets… or which young engineer quit this year to year to go back to live ‘closer to family.’ I get funny expressions when I ask “why didn’t we see that in 2003?”
Or my favorite: “The 100 engineers we have retiring a month was expected, but why do we have 150 young engineers leave the region when we can only hire 100 per month? What are we going to do in 2011 when the projected retirement rate is 250 to 300 per month?” (We will watch 60% of our employees retire between now and 2020.)
Mobility is key for the next few years.
Got Popcorn?
Neil
Neil,
How is your company’s moving out of CA exercise going? Any issue getting engineers at the new locations?
Just to be clear, we are not moving out of any regions. We are moving departments and even small divisions to non-bubble areas. Its not just CA. Its also DC.
Now that I’ve answered that, for every slot we open in CO, AL, or TX, we have three internal applicants. Very few forced moves have been required. Even then, its been done on the “your promotion is moving to XX, if you follow it, you get it early.” So far I’ve always talked people that moved; but keep in mind 60% of the job transfers are ‘empty slots’ that we simply cannot fill in CA or DC! e.g., this summer I know of 1,300 jobs going to Texas. Those jobs have a project goal but also a side goal of mentoring a few thousand new engineers we plan to hire! For the next decade, never forget retirements are accelerating!
Our #1 problem is we’re not building offices/labs/machine shops in low cost areas fast enough. For example, like every other aerospace company, we hire quite a few from Penn State. There are enough engineering jobs opening up ‘close enough’ to college town that we’ve had a few of the junior engineers ‘give notice’ to get back there now. Our new mini-campus doesn’t open for a bit…
I can only give anecdotal evidence. But I can see engineers leaving faster than they hire in at all four big aerospace companies in both DC and LA. (My staff is from three cities in CA, DC, FL, NM, NV, and now TX and soon AL.)
Where I’ll buy is a little up in the air due to the reorganization going on. This is why I try to keep a national perspective on the bubble. But when we’re done, the majority of the staff from any region will still live in that region. However… I see how many hundreds of homes sell here and there and then look at how many thousands I’ve read in our press releases that we’ll move… (How can all the newspapers be ignoring *that many* press releases? This is public information folks!) Remember, ‘birds of a feather flock together’ and many of my friends are now at competitors going through the same issues we are. I’ve been reading their press releases too; thank Google for their desktop! I’m too lazy to actually work on searching for this information.
The receiving states are giving out *amazing* relocation packages to lure these high paying jobs. Typically, they build the building and the company leases (quite reasonably). They also pay my company back for the moving trucks and relocation bonuses we pay out (via tax breaks), etc.
As long as employees are willing to move, relocating them is a no-brainer. Note: I expect 2008 and 2009 to be like 1993/1994 with large moves. But also like 1995… I expect the flow of people to suddenly reverse when home prices get below the threshold J6P deems fair. Due to retirements, I expect that threshold to be LOWER than 1995.
Got Popcorn?
Neil
now I have an image of Neil as the prototypical NASA engineer wearing a short-sleeved button shirt, pocket protector with pens/pencils, skinny black tie, horned rimmed glasses, (higher IQ points for band-aid buffer fix in the middle) and a young trophy wife running through his high salary @ Nordies.
Neil - now I know you can afford the good stuff; Orville Redenbaker’s gourmet while the rest of us hoi poloi make do w/Jiffy Pop.
ROTFLMAO
No glasses. I had lasic.
Thanks for the info Neil. I do remember you saying it was not a total relocation.
Let’s hope Neil’s not in that boat. Not looking too good for the NASA contractors in FL anyway.
http://news.nationalgeographic.com/news/2008/04/080402-AP-nasa.html
http://www.foxnews.com/wires/2008Apr02/
0,4670,ShuttleJobCuts,00.html
I think that Jiffy Pop is more expensive than a bottle of Orville. I buy the cheap store brand bags which is about a fifth of the price of Orville. There are a bunch of kernels that don’t pop but I still come out way ahead. Add a little oregano, garlic powder, onion powder, dried red peppers and freshly ground pepper and it makes for a nice snack.
Thanks for the detailed information on your industry. It makes for some fascinating reading.
“‘In today’s market, we are in a price war and a beauty contest,’ said Richard Bass, who owns Keller Williams Realty offices in Boca Raton and Boynton Beach. ‘The seller has to be the best-priced house out there, and they have to be the best-looking house out there.’”
When only the pick of the litter is selling, means the others will have to be houseuthanized…
Sorry to go off topic, especially on this particular topic, but your post reminded me of something. Cramer (that should get my post blockedd for a few hours) was on the other night crying about the builder bailouts, and sounding very much like a HBBer on national TV. The best part, imho, was his suggestion that the govt should pay the home builders to torch their homes, even going so far as to point out the precident that exists (burning the crops during the depression, IIRC) for this type of measure.
The thing that just burns my a** that never gets discussed is that there are WINNERS in this collapse. Just like when Bear dropped to 2/share, there were winners there as well; just ask my buddy who was holding 35 puts on Bear, he made ~25K in one day on that trade.
The point is that not EVERYONE loses, the 30-40% of the population that does not own a home already are winning huge right now. To characterize this as a loss for everyone is just wrong, and to suggest that the govt should pay builders to burn homes to inflate prices totally neglects the fact that there are people who are helped by this situation, not hurt.
Now, the falling dollar.. That’s a different story, that hurts every single person who is an American citizen. I don’t hear anyone suggesting that we pay people to burn dollars though, which, imho, would be a much more rational thing to do.
Burning down homes is really stupid. If prices stay inflated, those buyers will just rent or relocate to a cheaper state. Many have done that already.
Thanks M Fink,
I concur wholeheartedly. It cannot be said enough, that there are winners in this downturn … unless the govt keeps changing the rules…
“A typical purchase was the house at 213 Leeward Island. Listed for $998,000 by an investor who’d bought it two years earlier for $530,000, Donovan bought the 50-year-old, 1,900-square-foot house for the recorded price of $1.3-million.”
“The owner got his $998,000.”
Looks like this guy may of been a winner too.
“unless the govt keeps changing the rules”
ah! but that’s what they DO! Practically all legislation is about ‘changing the rules,’ it keeps that lobby-money gravy train rolling.
What a tragic waste of natural and human resources. But don’t forget these guys are asset owners. They will do anything they can to protect the value of their assets, including destroying them when over supply occurs.
This situation is really getting twisted. When did this country warp into the Soviet Union?
“…burning down new houses” = the drapes of wrath.
dd
“Developer Cameron Kuhn said Thursday that he is all but broke, in the process of swapping property and assets to clear his debt…”
Depends on how you define “broke.” Most developers I know have a small army of attorneys who seem able to squirrel a lot of that money away and out of sight (and touch). I knew one who had umpty-millions and had trouble buying a car because he couldn’t show enough income in his own name to qualify. I’ll believe “broke” when I see these people in a soup line, on the receiving side. Now as to investors in the plan, that could be as different story.
He said that when he saw access to secondary-market capital drying up in June 07 ???????, he began cutting costs but could not get ahead of the downturn.”
dude you should have come here
I was screaming at my mom to sell in FL since late 04
I’m no profet
I also told my parents to sell in early 2006. They could have rented or bought a small house, waited a few years then buy back an equivalent house for 30-50 cents on the dollar.
Parenthetically you are doing the same thing, longing to buy a house in American Siberia, that will be worth 30-50 Cents on the $, in a few years from now.
But don’t worry, you won’t come through… either
test
Every house will be worth that little when this thing is over. Better to lose a few thousand on a cheap house than tens of thousands on a more expensive house. I am buying a house to live in, not invest and it’s way cheaper than the 1:125 rent rule.
Long time, no post…but frequent lurker.
Speaking of Florida, here are a few tidbits from my area, the panhandle…
- I went to the mall last night (a rare thing for me) to pick up some birthday presents…the mall was dead. I pulled right into a parking place up front. There were about 5 people in the foodcourt. On a Friday night. I noticed several stores have closed since I was last there and another was having a going out of business sale.
- Lately I’ve noticed two of the banks I use have messages on their homepages letting customers know they don’t carry subprime mortgages. They must have a lot of worried customers.
- A couple of bankrupt concrete monster condo developments in the local news.
So, definitely seeing the recession signs here!
What about Alt-A or Option-ARM contracts?
More importantly, what about loans to developers?
This is everywhere you know, not just subprime.
Welcome, Beachbubble! Thanks for your info on the Panhandle.
Speaking of malls, a lady who works in the service industry locally was mugged (and injured) a few days ago in broad daylight in the parking lot of the local WalMart. They got her purse and her jewelry. Apparently, there is a local gang that stakes out mall, WalMarts and supermarket parking lots in this part of West Central Florida. This sort of stuff didn’t used to happen around here. It used to be a relatively quiet, safe area.
Happened here in Ohio a couple weeks ago. I’m in the return line at Wal Mart in customer service and this lady comes in all hysterical. Someone grabbed her purse in the parking lot. They called the police. I go home that day and read the newspaper, and apparently the day before some lady had her purse stolen in the same store. People are getting desperate.
You can also thank section 8 for that. They ruined many a good neighborhood
FL experts
what taxes will they try to raise ?
they just got rid of the funky asset tax in 07
““A typical purchase was the house at 213 Leeward Island. Listed for $998,000 by an investor who’d bought it two years earlier for $530,000, Donovan bought the 50-year-old, 1,900-square-foot house for the recorded price of $1.3-million.
“The owner got his $998,000. Almost all the rest of the loan money was kicked back to Donovan’s business partners, allegedly to make repairs on the house. But within less than a year, Donovan stopped making monthly payments. Promised renovations never materialized and no one can account for the money supposedly borrowed for that purpose.”
I sure hope the FBI mortgage fraud investigators and local tax collectors are eyeballing this. Any bets on whether the lender knew specifically about the kickbacks? Much less the screwed investors who bought the paper.
I guess they just let the fraud slide.
““Discouraged by the lack of interest from buyers, Espanet dropped his listing price from $832,000 to $795,000. It’s not exactly a fire sale, Espanet acknowledges, but he considers $795,000 for a 1.8-acre property that includes a 3,800-square-foot home and a four-car garage a fair price.””
And the denial keeps flowing…
““Roper is the listing agent for a home just a few doors away from Lage. The bank holding the mortgage is reviewing a short-sale purchase offer for the three-bedroom, two-bathroom home with a pool and a two-car garage, she said.”
“The asking price was $239,000 when the house, built in 2001, hit the market last October, but now stands at $138,000, she said.””
Ah the sweet smell of progress. Now if only we saw similar price drops in other bubbly locations!
“He said that buyers who were priced out of the market during the boom years can get a deal now because ‘banks don’t want to continue holding these bad mortgages on their balance sheets and are willing to sell them at discounts.’”
When ANYONE currently associated with the REIC says discounts or ” get a GOOD DEAL NOW”, either hire your very OWN trusted RE Lawyer or take your hard earned money and RUN and HIDE for for a couple of YEARS
From the article about Donovan: “…housing market few thought would collapse.” I am really really getting tired of hearing everyone repeating the same garbage of “no one could have predicted this” or “no one saw this coming.” Really? I thought the market would go down in 05 when I was looking in DC and was outbidded on a clap trap condo. Housing prices were going up and my salary was stagnant (and I make more than the median for NOVA/DC area). But that always happen to those who ask questions or dissent from popular opinion. And darn if you ever point out that you were right. Not only were you the naysayer, but you’re now a bitter renter (sore loser) and the outcast. *sigh*
All bubbles by their nature eventrually burst. I still remember that beanie baby bubble. I didn’t lose much but some lost thousands and still have a bunch of nearly worthless bean bags now.
Was there a beanie baby bubble in NW PA, or is that place immune to such carnage?
LOL! Good one!
“I didn’t lose much…”
You actually admit to taking part in that nonsense?
My most expensive beanie baby cost me $20, most of them I spent $6 to $10 each. I won a few in the skill crane claw machine($1 per play) So my losses are maybe $100 total for my small beanie collection. I am keeping them for sentimental value. I feel sorry for those who spent hundreds on one or more beanie babies that lost 90% of their value.
Bye Fl
re; beanie baby: TMI. dude, trust me on this . . .
LMAO!!! Beanie babies…ah, Bye, no wonder you’re so adamant about never getting married…
I liked the part about forming the collection, vis a vis the skill crane claw machine…
priceless…
Hey I could never operate one of those crane claws,you must have mad skills …
One particularly disagreeable episode during that craze took place at a Tampa Bay Devil Rays game. The team had a beanie baby giveaway promotion, and according to our papers, the outside of the stadium became a zoo, with adults sending squads of children to the retrieve the dolls, which then were put up on eBay within hours.
For the reason you describe exactly, I sincerely hope that at some point Ben publishes a book, along with some of the more accurate predictions, from this blog.
Nobody means nobody.. And 100s/1000s (who knows, Ben care to comment) of us were on here LONG before the bust telling others exactly what was going to happen. The .COM thing was exactly the same way, my father was telling everyone for 2 years that were were in a massive bubble and to divest immediately. Then, I watched him sit with the same people he had told, and heard them say “Nobody could have seen this coming”.
Denial is not just a river in Egypt, you know!
But that always happen to those who ask questions or dissent from popular opinion. And darn if you ever point out that you were right. Not only were you the naysayer, but you’re now a bitter [fill-in-the-blank] (sore loser) and the outcast. *sigh*
This phenomenon is not limited to housing and renting, believe me.
Maybe I’m naive, but with regard to the Hudson & Marshall auction, why don’t the banks just list these properties as short sales on the MLS? H&S acknowledges that these all have reserve prices. If it’s not an absolute auction, I’m not using $3.40 gas to go see them. I’d think that in the MLS, the properties would get vastly more exposure and that the commission paid would be less, too.
Banks are doing that. You usually won’t know if it’s a short sale or REO as it’s listed normally but with a price undercutting the FB’s prices.
So the Learning Annex/Trump college nitwits have some place to overbid for foreclosed homes.
“‘Fixed overhead will eat your lunch. That’s what happened to me,’ he said.”
I’m not a business owner, so forgive my naivete, but isn’t it actually preferable to have fixed overhead (as opposed to variable overhead)? Seems it would make planning and budgeting much easier.
sleepless, I was wondering about that one, too. For example, I’d rather have a fixed rate mortgage than an ARM. Because what I’ve learned is, in recent times, variable rates or costs only vary in one direction, UP!
As a small business owner i can attest that a fixed overhead will kill you so quick. In good times one forgets to prepare for bad times.I am in the wireless retail business and have numerous stores. Just a tip for you all. Never sign a lease in your main corporation and open a new dummy corporation for every location. This way you do not have to be in a predicament if a few stores do nt work out. just leave and shut down the dummy corporatin. Never ever sign a personal guarantee. Always have your lawyer read the lease. It is worth the $600. Trust me I learned the hard way. I am not as knowledgable as some other posters but just wanted to contribute something to this great blog.
As a business owner, I try to minimize my fixed overhead, because if sales drop I cannot easily reduce this expense. It’s fixed. Actually variable costs that increase or decrease as business increases or decreases is what I look for.
My planning and budgeting is driven by the amount of sales I have and anticipate having. In most cases, businesses have both fixed and variable. In this guy’s case, he had too many fixed costs, and as his sales dropped though the floor he couldn’t reduce his costs fast enough, and these costs ate him alive.
In reality, the guy had no idea what he was doing.
It’s like having too many fixed payments. Cable you can cancel, but it ruins your credit to give back the car.
I’m guessing he means large fixed overhead.
Well, duh, that’ll eat your lunch for sure.
Pure unadulterated negative cash flow, mmmmmmmmmmm, negative cash flow.
“Seems it would make planning and budgeting much easier. ”
I am a business owner (23 years, SubChapter S Corp).
success is defined easily:
Revenue-Expense=Net
When Expense has a large fixed component, then as Revenue decreases the Net decreases directly and can easily go to negative in a bad year. I am being simplistic here since in a SubS Corp there can be no carryover to future years or plow back tp previous years, i.e. each year stands alone taxwise. Rules are different for C Corp.
When Expense has a relatively small fixed component and the rest varies with work load, the Net will remain positive for a wider band of Revenue streams as the variable Expense goes down when Revenue decreases.
This variable relationship is a prime driver for the inclination of businesses to use contract people instead of direct employees. When business is down, contract people get dumped unceremoniously while expanding or trimming directs is a bit more trouble.
BTW, planning and budgeting is only applicable to real income. When the SHTF, all your plans and all your budgets can’t put Humpty-Dumpty back together again.
A good business plan and model along with great employees trumps all!
Good post Jim. The problem this guy had was he didn’t know how to run his business, but when sales were high all his mistakes were covered up. Then the tide went out.
I see a lot of upside to this recession outside of housing.
With gas at almost $4 a gallon, I have a feeling the roads in So Cal are going to thin out a bit. And people might start to walk or ride bikes more, making them LOSE WEIGHT. Nice!
With food prices soaring the lines at the checkout stand are going to get smaller. And as a bonus, Americans might eat less and LOSE SOME WEIGHT! Damn there are a lot of fat people.
As people cut back, I might be able to go to a live event now without having the pay scalper prices. Sweet!
Prices on all the crap I want but don’t need seem to be plunging. Still early, but eventually I will have all the toys I want at fire sale prices. Sweet!
People might actually start to figure out the gangsters we have in DC are not their friends - and should be in jail. I’m not holding my breath on that one! Also, I view this entire debacle and the pain and suffering it causes people as KARMA for Iraq. This country has no moral authority. Not the same country I grew up in. Not even close. We murdered hundreds of thousands of men, women and children, yet most people just said “OH WELL”.
And as the shit hits the fan in this country and people lose everything, all I have to say is….
OH WELL!
I drive from from Westwood to Playa Del Rey via the 405 for work (about 8 miles) it usually takes me 45 mins to get home at night, the freeways have been so thin this week on the way home it’s only taken me 15 mins.
I’ve started praying for $6/gal gas so I can get home in 10.
“Prices on all the crap I want but don’t need seem to be plunging. Still early, but eventually I will have all the toys I want at fire sale prices. Sweet!”
And what will you do with all that useless toys? I have no need for a boat, car, giant plasma TV, newfrangled computer, cellphone or whatever gadget is “in” now.
I need food and cloth. I like candles and scales as well and I have enough of both. If I had extra money, I would go on vacation and experience life and see new, wonderful places. You can have your toys, ill have real world experience.
“I’ll have real world experience”… and beanie babies
“People might actually start to figure out the gangsters we have in DC are not their friends - and should be in jail”
You have no idea how many folks want to see them do the perp walk…. no idea.
Well, this is anecdotal but this Spring I have been able to obtain the best seats I’ve ever gotten at two different annual concerts. Can’t wait to go!
Suprisingly strong language from Yahoo.com.
http://finance.yahoo.com/taxes/article/104716/10-Reasons-Your-Taxes-Are-Going-Up
Well, folks, the party’s over. Campaign rhetoric won’t hide America’s excesses, denial, incompetence and arrogance much longer. No matter who’s elected, taxes will increase to cover massive debts. Greed has driven America’s great economic engine into a “debt contagion” ditch with a recession, bear market, price inflation, and weak job and housing markets … you bet your taxes will increase.
As taxes increase, house prices will drop further and this will start a depression as people will have even less money after taxes.
“We were sold a war-on-the-cheap, to cost a mere $50 billion to $60 billion, to be self-financed out of oil revenues. Today we’re spending $50 billion every month! This war is already an economic disaster for America and the bill’s still coming due.”
Such a shame that attacking another country wasn’t the windfall (’Oil will go back down to $20 a barrel as soon as we invade’ Larry Kudlow) so many thought.
Considering the majority of American Nazis were for the war - this is GOOD NEWS! It’s about time Americans paid BIG TIME for their mistakes, particularly when torture, theft and murder are involved.
Another loon. Sigh. Did you forget to earmark KOS?
WordNet
“earmark
“verb
“1. give or assign a resource to a particular person or cause; “I will earmark this money for your research . . . .”
More commonly used to indicate a cause marked for allocation of tax dollars. In any case, I’m sure you can, despite the cost of fuel, come up with something for the Komrads.:)
it was the windfall. you can still fill your tank for under $3.50 a gallon. try canada at $4.80 a gallon or europe at $6.00 a gallon and up.
Adge, try Calif at $3.75 and up, or try Long Island at $4.00 and up. Where the heck are you? New Jersey?
Aren’t the high Canadian and European gasoline prices entirely due to taxation?
“Discouraged by the lack of interest from buyers, Espanet dropped his listing price from $832,000 to $795,000. It’s not exactly a fire sale, Espanet acknowledges, but he considers $795,000 for a 1.8-acre property that includes a 3,800-square-foot home and a four-car garage a fair price.”
“And the retired carpenter considers a $37,000 discount to his first price a big chunk of change. ‘That’s a lot of money to me,’ Espanet said.”
________________
According to the Palm Beach County Property Appraiser, Espanet bought that house in May 1995 for $43,500. Art, the time to swing for the fences is over, and you missed it.
all i can say is GREED. i hope he dies in his house.
Snake, You are soooo wrong—–> He bought it in 1996 LOL
That`s what he payed for the lot. house was built in 1999, but still greedy.
“‘He had to tell me how successful he was and that if I treated him right, he would do more business with me because he had a lot of money,’ Waterman said. ‘But I guess his fortune turned on him soon after.’”
Over the years, I’ve found that people who need to tell you how successful they are tend to be posers. The last fifteen years have given us more pretend-wealthy people in this country than we have ever had. As for this guy’s apparent taste, I lived in Latin America for a number of years. I like simple understated Latin style very much, but the over-the-top stuff is hilariously bad.
““A typical purchase was the house at 213 Leeward Island. Listed for $998,000 by an investor who’d bought it two years earlier for $530,000, Donovan bought the 50-year-old, 1,900-square-foot house for the recorded price of $1.3-million.”
“The owner got his $998,000. Almost all the rest of the loan money was kicked back to Donovan’s business partners, allegedly to make repairs on the house. But within less than a year, Donovan stopped making monthly payments. Promised renovations never materialized and no one can account for the money supposedly borrowed for that purpose.”
“M&T Bank foreclosed and marked down the house for quick sale this year. The sale price: $451,000.””
…and M&T wonders why me and thousands like me shorted them.
Just today saw an ACE hardware closing the doors for good. Been around for 30 years or more.
Wow. Compare that to 2004, when not a single store closed anywhere in the U.S.
I have been following CONDO prices in the Clearwater Beach ZIP code (33767) which includes Island Estates. Reason: In early 2006 I
got the bright idea to buy a small condo as a weekend home. Well, I couldn’t believe the prices. They had gone up by about a factor of four from 1999 to 2005 ! (These are sales prices from the Tax Collector.)
The peak here accurred about August 2005. Then prices began a steady decline.
I have been plotting the median condo ASKING price in 33767 from the MLS. In the last 18 months, this has gone from $730K to $500K today. This is a drop of about 30% in 18 months. In the last 12 months the drop is from $625K to $500K, or 20%. For some reason,
the last 5 months of 2007 were almost flat, but asking prices have dropped 13% in just the last 3 months !
I have also followed sales prices in about four high-rise condo buildings that are on the “inexpensive” side. These are down about 24% in 18 months; less than the decline in asking prices. Why ?
From what I see, even lower asking prices are not leading to sales,
in many cases.
According to my data, selling prices are now back only to late 2004 prices. And early 2005 saw an increase of about 35%. The run to the top of the bubble.
I hope all these numbers aren’t too boring, and I’m sorry I can’t report that prices are down 50% or more like some have. But these are the real numbers.
I am someone who is really interested in buying and I think, at this rate, it will still be two more years before I would consider it.
In the meantime one can lease a condo for only about 10% more than the condo fee + property tax ! So what does that make the condo worth as an investment : almost nothing. They’d almost have to give them away.
We’re in a state with fairly severe underfunded pension liabilities so our legislature voted to increase local contributions by $1.1 million (for a population of 28K). So some towns are looking to sue the state over it. Part of the vote essentially reduced benefits for future municipal employees and the unions didn’t like this. My comments were to get used to it. We’ve been throwing expenses into the future and the future is upon us.
The legislature is aware of how paranoid the populace is about rising taxes.