During the Presidential Campaign of 1988, our first President Bush, famously promised no new taxes. In fact, I believe his words were: "Read my lips! No, new taxes!" After the election, the Democratic congress convinced President Bush that there would be dire consequences without tax increases. He relented on his promise, which many believe led him to lose the election to Bill Clinton in 1992.
Like the tax increases being proposed today, the taxes were supposed to only fall on the rich so that the ordinary man (or woman) would not face undue hardship with additional taxes. So in 1990, one of the taxes proposed and passed was on yachts. Congress reasoned that only the rich would be buying yachts and therefore, only the rich would suffer the effects.
What happened instead was the that tax nearly killed the ship building business in New England. The wealthy who had previously bought yachts, simply starting buying them in places like the Bahamas where there was no tax. So not only was it ineffective in producing additional tax revenue, it created tremendous economic problems to an entire industry and put many hard working middle class people out of work.
Presently, in the national debate on taxes, President Obama is repeatly pushing to increase taxes on the rich. Those opposing the measure are being depicted as not caring about the poor and only standing up for the rights of the rich. History suggests otherwise. If you don't believe me, ask the men and women who lost their jobs in the ship building industry in the 1990s.
Friday, September 23, 2011
Wednesday, September 21, 2011
Commercial Property Analysis - Case Study
Well, after all this is suppose to be a real estate blog. So, for now, I thought I would step out of my arm chair economic advising / political role and throw some real estate at you.
I recently was asked by a prospective client to analyze and list their property. I thought I would present this as sort of a case study. My analysis and recommendations follow:
Property and Market Analysis
In reviewing sales data, I was unable to find a single property like theirs which had sold in their area in the last 2 years. Given the change in the financial climate, I do not trust any comps older than that. I did find two units like theirs which were on the market for sale.
Checking out the leasing market for the property, there were several possible options in the area with some 32 other similar options within a mile of the property.
With this amount of inventory and competition, it is critical to position property in the top 5% or 10% of the properties on the market in price and condition in order to move it.
I advised the prospective client to price the property below the offering price of the two similar properties in the area, which had not sold AND to be aggressive in pricing, terms and property condition in order to lease it.
Client Response
In spite of the analysis, the owners insisted on a listing price approximately $70,000 more than I recommended (and to put this in perspective - about 33% above the recommended price) And while they were happy enough with the suggested lease rate, they insisted on not less than a 3 year lease and property to be taken "as-is." Also, they insisted that any commission I earned in leasing the property should be refunded to them in the event someone decided to buy the property.
Result
When all was said and done, I passed on taking the listing. In my opinion, the property would not sell at that price. Accordingly from my perspective, the most I could reasonably expect to make would be a commission on a lease, which in this case would have been a small amount anyway. Then on top of that, the owner wanted me to rebate that commission if I managed to sell it after all.
There have been times earlier in my career when I would take a listing and list it at a higher than recommended price thinking that I would satisfy the client and we could adjust it later. My experience has been that this doesn't help anybody. If the property is priced too high, you often cannot even get anyone to look at it. And while I certainly want my clients to be happy, any project I take on has to make sense for me from a business perspective. The bottom line is that if there is no way for me to earn any money off of the deal, it isn't something that I can afford to waste time on.
Well, with that out of the way, I guess I want you to know that I am still taking listings. If you have property that you would like me to take a look at, let me know. I specialize in Commercial Real Estate and am a licensed real estate broker in Kentucky and Indiana. I would love to help!
Thanks, all. Have a great day!
David
David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY 40299
I recently was asked by a prospective client to analyze and list their property. I thought I would present this as sort of a case study. My analysis and recommendations follow:
Property and Market Analysis
In reviewing sales data, I was unable to find a single property like theirs which had sold in their area in the last 2 years. Given the change in the financial climate, I do not trust any comps older than that. I did find two units like theirs which were on the market for sale.
Checking out the leasing market for the property, there were several possible options in the area with some 32 other similar options within a mile of the property.
Looking at the market stats, our commercial real estate information exchange (KCREA) showed 29 Industrial Sales, 86 Industrial Leases, 30 Office Sales and 94 Office Leases for our entire area YTD. On the day of the analysis KCREA showed 219 Industrial Sales Listings, 337 Industrial Lease Listings, 254 Office Sales Listings and 771 Office Lease Listings. Looking at the amount of inventory and the rates of sales and leasing, it would take more than 64 months to sell all of the sales inventory and it would take more than 49 months lease all of the lease inventory.
Property Recommendation
With this amount of inventory and competition, it is critical to position property in the top 5% or 10% of the properties on the market in price and condition in order to move it.
I advised the prospective client to price the property below the offering price of the two similar properties in the area, which had not sold AND to be aggressive in pricing, terms and property condition in order to lease it.
Client Response
In spite of the analysis, the owners insisted on a listing price approximately $70,000 more than I recommended (and to put this in perspective - about 33% above the recommended price) And while they were happy enough with the suggested lease rate, they insisted on not less than a 3 year lease and property to be taken "as-is." Also, they insisted that any commission I earned in leasing the property should be refunded to them in the event someone decided to buy the property.
Result
When all was said and done, I passed on taking the listing. In my opinion, the property would not sell at that price. Accordingly from my perspective, the most I could reasonably expect to make would be a commission on a lease, which in this case would have been a small amount anyway. Then on top of that, the owner wanted me to rebate that commission if I managed to sell it after all.
There have been times earlier in my career when I would take a listing and list it at a higher than recommended price thinking that I would satisfy the client and we could adjust it later. My experience has been that this doesn't help anybody. If the property is priced too high, you often cannot even get anyone to look at it. And while I certainly want my clients to be happy, any project I take on has to make sense for me from a business perspective. The bottom line is that if there is no way for me to earn any money off of the deal, it isn't something that I can afford to waste time on.
Well, with that out of the way, I guess I want you to know that I am still taking listings. If you have property that you would like me to take a look at, let me know. I specialize in Commercial Real Estate and am a licensed real estate broker in Kentucky and Indiana. I would love to help!
Thanks, all. Have a great day!
David
David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY 40299
Tuesday, September 20, 2011
Social Security - A ponzi Scheme?
Governor Rick Perry has been taking some heat for claiming that Social Security is basically a Ponzi Scheme and following the financial crisis of 2008, many politicians that had been advocating for privatization of Social Security have been vilified. Are these criticisms fair?
As a school administrator, my wife is essentially a Kentucky state employee and as such she is not part of the Social Security program. She has a retirement account managed by the Kentucky State Teachers Retirement Fund. She actually has to contribute a somewhat higher percentage of her pay toward this fund than those of us paying into Social Security. The big difference however is that there is an actual retirement account that has her money in it. And while the amount in that account fluctuates according to the way it is invested, it is hers and will always be there for her.
Contrast this with Social Security, where there are no accounts and no actual money being saved. Payouts come from current taxes. If the tax were to stop today, there would be no money to pay retirement. The current payouts come entirely from the taxes collected from the currently employed.
So, how is this any different from having Bernie Madoff manage your retirement accounts? Bernie who perpetrated the largest Ponzi scheme in history was doing just this - getting new investors to put money into the funds and paying those funds out to the original investors. But ultimately, it was unsustainable. Bottom line is this, if a private firm were managing your retirement money this way, somebody would be going to jail.
Looking back, I would say that those advocating the privization of Social Security win. The accounts may have decreases in value with the decline in the stock market BUT in almost every case, there is still money there which will be available to those retirees. Perhaps not as much as they had hoped but it is there.
The truth of the matter is, that the government does a terrible job of managing money. And there is no reason to think that will ever change no matter who is in charge.
Just my opinion.
Speaking of which, if you would like an opinion on real estate, I would love to help. I specialize in Commercial Real Estate and am licensed in Kentucky and Indiana. I would love to help.
BTW - Keeping my broker happy, you should know that this does not necessarily reflect the opinion of my company, my broker, or any of employees of Commonwealth Commercial Real Estate, other than me, of course. AND if you have a different point of view, I am happy for you to present it in the comments.
Thanks, so much all. Have a great day!
David
David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY 40299
As a school administrator, my wife is essentially a Kentucky state employee and as such she is not part of the Social Security program. She has a retirement account managed by the Kentucky State Teachers Retirement Fund. She actually has to contribute a somewhat higher percentage of her pay toward this fund than those of us paying into Social Security. The big difference however is that there is an actual retirement account that has her money in it. And while the amount in that account fluctuates according to the way it is invested, it is hers and will always be there for her.
Contrast this with Social Security, where there are no accounts and no actual money being saved. Payouts come from current taxes. If the tax were to stop today, there would be no money to pay retirement. The current payouts come entirely from the taxes collected from the currently employed.
So, how is this any different from having Bernie Madoff manage your retirement accounts? Bernie who perpetrated the largest Ponzi scheme in history was doing just this - getting new investors to put money into the funds and paying those funds out to the original investors. But ultimately, it was unsustainable. Bottom line is this, if a private firm were managing your retirement money this way, somebody would be going to jail.
Looking back, I would say that those advocating the privization of Social Security win. The accounts may have decreases in value with the decline in the stock market BUT in almost every case, there is still money there which will be available to those retirees. Perhaps not as much as they had hoped but it is there.
The truth of the matter is, that the government does a terrible job of managing money. And there is no reason to think that will ever change no matter who is in charge.
Just my opinion.
Speaking of which, if you would like an opinion on real estate, I would love to help. I specialize in Commercial Real Estate and am licensed in Kentucky and Indiana. I would love to help.
BTW - Keeping my broker happy, you should know that this does not necessarily reflect the opinion of my company, my broker, or any of employees of Commonwealth Commercial Real Estate, other than me, of course. AND if you have a different point of view, I am happy for you to present it in the comments.
Thanks, so much all. Have a great day!
David
David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY 40299
Thursday, September 1, 2011
Spending our way to Prosperity - Aliens?
Paul Krugman, previous winner of the Nobel Prize for Economics, is no doubt a brilliant economist. So knowing that he knows more about Economics than I could ever hope to, it is with some trepidation that I comment on his recent comments that all we need to get our economy running is a good Alien Invasion.
Now lest you think that Paul Krugman is crazy, he reportedly made these comments when discussing what to do about the current economy. Krugman's point was intended to call attention to the widely held belief that it was the spending of the World War II effort that pulled the US and the world out of the Great Depression. As I understand it, his point was that if we had a threat serious enough that we would consider spending without limits that we could expect the same type of response in about 18 months.
Yet, when we think about that does that make sense? After all, if that were the case, wouldn't Greece have a booming economy right now instead of riots in the streets? Something about that just doesn't ring true.
I think that what is missing here is a little more perspective. During World War II, Germany was also spending without limits in order to win the war, but no one would claim that their economy was in terrific shape after the war. What is different about the US is that the US won the war. Obvious as that may seem, it is a crucial difference that I think explains why the US economy boomed while Germany's economy busted. World War II was not only fought by armies, it was also fought by economies. At the end of World War II, the economies of Europe as well as their infrastructure were destroyed. That left the US as the only major economy left in the world, which then provided the money, and the goods and services necessary to rebuild the rest of the world.
The world's experience with Communist economies would seem to support this idea. After all in a true communist economy, 100% of the economy is basically government spending. But the communist economies were notorious for not functioning well on several levels and I am not aware of anyone who would argue that they were successful. None of them could have been considered prosperous.
Don't get me wrong, I think that there are areas where government spending is appropriate and helpful to an economy but I do not believe that government spending in and of itself can bring prosperity.
Just my opinion.
AND using that segue way - if you want an opinion on your real estate matters, give me a call. I am a licensed broker in Kentucky and Indiana and specialize in commercial real estate.
By the way, I am sure that my managing broker would appreciate it if I mentioned that the views in this article are my opinions only and do not necessarily reflect the opinions of Commonwealth Commercial Real Estate or any of those who work here (other than me, of course). AND if you disagree or have an opinion you would like to share, please feel free to make a comment.
Thanks, all. Have a terrific day!
David
David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY 40299
Now lest you think that Paul Krugman is crazy, he reportedly made these comments when discussing what to do about the current economy. Krugman's point was intended to call attention to the widely held belief that it was the spending of the World War II effort that pulled the US and the world out of the Great Depression. As I understand it, his point was that if we had a threat serious enough that we would consider spending without limits that we could expect the same type of response in about 18 months.
Yet, when we think about that does that make sense? After all, if that were the case, wouldn't Greece have a booming economy right now instead of riots in the streets? Something about that just doesn't ring true.
I think that what is missing here is a little more perspective. During World War II, Germany was also spending without limits in order to win the war, but no one would claim that their economy was in terrific shape after the war. What is different about the US is that the US won the war. Obvious as that may seem, it is a crucial difference that I think explains why the US economy boomed while Germany's economy busted. World War II was not only fought by armies, it was also fought by economies. At the end of World War II, the economies of Europe as well as their infrastructure were destroyed. That left the US as the only major economy left in the world, which then provided the money, and the goods and services necessary to rebuild the rest of the world.
The world's experience with Communist economies would seem to support this idea. After all in a true communist economy, 100% of the economy is basically government spending. But the communist economies were notorious for not functioning well on several levels and I am not aware of anyone who would argue that they were successful. None of them could have been considered prosperous.
Don't get me wrong, I think that there are areas where government spending is appropriate and helpful to an economy but I do not believe that government spending in and of itself can bring prosperity.
Just my opinion.
AND using that segue way - if you want an opinion on your real estate matters, give me a call. I am a licensed broker in Kentucky and Indiana and specialize in commercial real estate.
By the way, I am sure that my managing broker would appreciate it if I mentioned that the views in this article are my opinions only and do not necessarily reflect the opinions of Commonwealth Commercial Real Estate or any of those who work here (other than me, of course). AND if you disagree or have an opinion you would like to share, please feel free to make a comment.
Thanks, all. Have a terrific day!
David
David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY 40299
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