When Market Chaos Strikes, Get Back to Basics

Today another chaotic day on the world’s various “Wall Streets” coincided with mop-up operations for me on a six unit apartment building. By the end of the day I was reminded that the basics work in any market.

As Solomon put it 3,000 years ago, “Be sure to know the condition of your flocks, give careful attention to your herds; for riches do not endure forever. . . .” (Proverbs 27.23-24).

Or, in my case, to the condition of your fire extinguishers. Today I figured out that my procrastinating on some fire prevention upgrades on this building may have contributed to the loss of four of the units and to making five families temporarily homeless. Fortunately, there were no serious injuries.

As I walked through the rubble with the insurance adjuster this morning, what saddened me most was the ruined possessions of the families that lived there. Ash covered family photos and drawings taped to the charred walls. A heart with a child’s printed “I love you” tossed in the rented dumpster. Clothing & furniture tossed, by residents I knew had no renters’ insurance to reimburse them.

Then came the conversation with the the resident who attempted to put out the grease fire on his neighbor’s stove. “If only we could have found a fire extinguisher, we might have been able to limit it to the stove,” he told me.

Ironically, three hours before the fire started, I was in a fire prevention store ordering fifteen fire extinguishers. Delivery is scheduled for next week. I’d intended to get around to it months ago. I thought we had some extinguishers in the office, but also thought we should try some wall mounts outside, in cases, to see if we could make them more accessible while minimizing vandalism.

I had been thinking about mounting one just outside the door of the unit where the fire started. A $60 expense that might have prevented a $100,000 loss. Solomon got it right–pay attention to the basics. Know what’s going on. Don’t get so caught up in what the market’s doing or in what’s new to neglect the basics.

We still need to keep up with current trends. We’re getting more resident leads from Craig’s List today than from newspaper ads, for example. But the basic, unglamorous things like fire safety, grounds keeping, resident selection and screening, cost containment, client satisfaction are still what will make or break any business. That goes for rental property and for home ownership.

Part of the problem is that the Urgent is rarely Important, and the Important is rarely Urgent. But that “stitch in time” still can save nine stiches later.

The city Fire Chief recommended 5 pound (net) rechargeable fire extinguishers with metal heads & spouts, rated ABC (trash/wood, grease, & electrical fires). Actually at least 2A10BC. Around $40 at Lowes, slightly less in quantity at Maintenance USA. Roughly another $35 for the safety case. You might want to pick up one to keep near your kitchen or garage at home. And at least one more for any rental properties you own.

The same principal applies to what’s much more important than possessions: Family, relationships, health, friendships, our walk with God. Pay attention! Don’t neglect the important for the urgent. Keep your priorities straight. Do some preventative maintenance. It’s easier to install fire extinguishers than to gut & rebuild apartments, but apartments can often be rebuilt much easier than relationships. It’s far easier to fix ruined buildings than ruined lives.

That’s not to say there isn’t hope for even the most hopeless situation. That’s just one of the many wonderful messages of Easter. Just today I passed a church with a sign, “Nothing is Too Hard for God.” Guess someone knew I needed that today. Just like eleven discouraged disciples 2,000 years ago, after their Messiah was arrested, unjustly convicted, and crucified. But, as one of my favorite sermons says, “It’s Friday, but Sunday’s coming!” God can redeem any situation if we let him.

But the first step could be to prevent the situation from getting any worse. Take it from someone who learned that lesson the hard way!

More on DataQuick’s Latest SoCal Median Price Stats

Earlier today we discussed the stats that showed median prices in Southern California as a whole were down 19% last month from their peak in July of 2007, also touching on our projections for the rest of this year (“So Cal Price Update”).

Frankly, in our primary market areas of West Orange County and Greater Long Beach, we believe prices actually peaked in the summer of 2006, based on comparable homes. DataQuick’s 7 county numbers were skewed by the huge foreclosure problems in the Inland Empire, as well as inherent flaws in their median pricing system. The Orange County Register’s Real Estate Blog has a good summary and explanation of 8 different indexes & their most recent reports for Orange County. DataQuick showed the greatest year-over-year decline (16% in O.C.), while the other indexes ranged from 15% to 6% drops.

Basically, we still believe we’re in uncharted territory & nobody knows what’s next, as we wrote back in November (”How Low Will Prices Go?”).

Our recommendation for Los Angeles and Orange County buyers and sellers is still to focus primarily on where you are in life, not where the market is. Since nobody really knows what’s next, don’t get too obsessed with what the future holds.

If selling makes sense, why roll the dice & wait up to six years (or more?) for prices possibly to just get back where they are now?

As for buying, if you can buy a home that works for you with a 30 year fixed loan, why gamble on rates or prices going up, or waste several years of your life gambling things will get worse before they get better. (see “What to Do When Nobody Knows What’s Next.”)

We’re not saying it’s time to buy for speculative reasons, and we certainly wouldn’t be trying to “flip” right now unless I got an extraordinarily good buy (and that does happen in market’s like this). I’m certainly not saying we’ve hit bottom.

We’re saying nobody really knows, because we’ve never seen anything like this. For example–we think the Fed caught just about everybody by surprise this week with their creative moves to enhance liquidity.

Who know what might come next? If some lenders were smart, they’d just shave $100,000 off the loan if needed to avoid foreclosure. They’d certainly drop interest rates or eliminate the obscene resets they have coming. (Of course, if they were smart, they wouldn’t have made 100% loans to subprime borrowers without income verifications when the market was obviously peaking, but maybe they can learn. . . .)

We’re saying nobody knows what the future holds, especially this time. So if you’ve always dreamed of a home on a lake in Lake Forest & find one that works for you with 30 year fixed financing, & if you’ve got a stable job & aren’t moving, why not make an offer & start living your dream? If it works, maybe you should let your life determine decisions, not speculation. Here’s a novel thought: think of it as a home, not a piggy bank!

Ditto to sellers. Forget what your neighbor got 2 years ago. Prices on your next home are down too, and so are interest rates. Maybe you can’t get the triple garage, but maybe you never would. If everything else works, give it a shot. You’re not getting any younger!

We’ve watched the market and buyers and sellers for 30 years, and we see some unique opportunities right now that may not last. And we see too many people making decisions based on ego or gambling in stead of getting on with their lives.

Feel free to call 562 822 7653 or simply comment if you want specific input on your situation.